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Free trade zones in Nigeria

Bola Tinubu: brain behind modern Free Trade Zone in Nigeria

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By Dr Martins Odeh

Lagos State occupies a vital space in Nigeria; first as a mega city with over 20 million population and second, as a coastal city with endless maritime routes that linked to other international waters that have positioned it as the country’s most viable commercial hub.

Various governments have ultilised these somewhat nature-gifts to impact not only on the development of the state, but the entire nation.

Suffice, therefore, to say that the importance of the state in spiking the development process and industrialization of the country has remained highly pivotal.

It is, however, amazing how the state has completely leveraged on the Federal Government Free Trade Zone Scheme managed by the Nigeria Export Processing Zones Authority (NEPZA) to further drive the national economy.

It is common knowledge His Excellency Ashiwaju Ahmed Tinubu GCFR, now President-Elect laid the foundation the progress the state is currently making with the freezone scheme.

Currently, 18 out of the 52 Free Trade Zones in the country are located in Lagos state and these include: Lagos Free Zone (LFZ); Snake Island Integrated Free Zone (SIIFZ); Lekki Free Trade Zone (LFTZ); LADOL FTZ; Newsrest ASL Services & Logistics; Dangote Industries and Alaro City Development Free Zone.

Others are: Badagary Creek Integrated Plant; Nigeria Aviation Handling Company (NAHCO); Eko Atlantic; Ogororo Industrial Park; Tomaro Industrial Park; NASCO Town FZ and Quit Aviation Services.

The rest are: Maritime Services FTZ; Cocoa Beach & Walness Valued-Chain Resort; Flour Mills FZ, as well as the Oils Integrated Logistics Services FZ.

These free zones with estimated investments value at 25 billion US dollars are harbouring some of the most renowned international brands.

For instance, the Lagos Free Zone, started in 2002 with 215 hectares. Later in 2012, around 590 hectares was given by the state government with the construction handled by Lagos Free Trade Zone Company.

This zone prides itself with some world class enterprises like: Colgate; Lekki Port; BASF; Insignia; Power Oil; Arla; HEC; Westminster; Boskalis; CNC; SBS; Kellogg’s among others. The impact these enterprises are making in the economy cannot be overemphasized.

It is worthy of note that the Lekki Deep Sea-Port, owned by the Lagos Free Zone, remains a world class maritime infrastructure worth 1.2 billion US dollar with the capacity to mainstream the entire African trade and logistic businesses into the global economy for profitability.

It was on the heels of these unmatchable achievements that Prof. Adesoji Adesugba, the Managing Director of the Nigeria Export Processing Zones Authority (NEPZA) recently described the country’s modern free trade zone visioner, Tinubu, as the undisputed `brain behind modern Free Trade Zone in Nigeria’.

The NEPZA managing director alluded further that the president-elect had laid the foundation for the establishment of the leading free zones in the country that had attracted over 30 billion US dollars from the non-oil sector and generated over 170,000 direct and indirect employments.

“ Eko Atlantic and the four quadrants of Lekki Free Zone which harboured Lagos Free Zone, Alaro City, Lekki Free Zone, and over 100 other enterprises including the just concluded Deep-Sea Port and the Dangote Refinery operating in the enclaves as Tinubu’s exclusive initiatives.

“His Excellency, Ashiwaju Bola Ahmed Tinubu’s presidency will be a new dawn as we hope that the scheme will be used to speedily drive national growth. Let me again, congratulate the president-elect for a well-deserved victory at the election and  I pray for a successful inauguration slated for Monday, May 29.

“We are optimistic that the excellent progress made by His Excellency, President Muhammadu Buhari, GCFR, in the sector will be expanded and sustained,’’ Adesugba said.

You will recall that Tinubu’s intervention on the old Lagos Bar Beach saved the entire Victoria Island’s investments estimated at over 170 billion US dollars by the perennial ocean surges.

Today, Eko Atlantic, also a free trade zone, is an international hot-belt with well laid landscape and modern architectural masterpieces and portends great revenue spot for the nation. The tourism worthiness of Eko Atlantic is been further accentuated with the citing of the United States of America’s largest Embassy in the world there.

The receptiveness of the Lagos State Government under Tinubu toward sound economic growth created the right ambience for the Private Public Partnership that also birthed the multi-billion-dollar Dangote Refinery, a free trade zone located in the Lekki area of the state.

In 2006 the state conceived an idea to develop some part of the Lekki Peninsula into a blue-green, eco-friendly environment.

The proposed area covered an area of 60,000 hectares stretching from Victoria Island in the west to Refuge Island and some parts of Lekki town in the east.

The blue-green concept was primarily to create a comprehensive new town with important public facilities and infrastructure in the North and South peninsulas. The free trade zone scheme has rightly helped to propel this laudable vision to become a reality.

While the free trade zones and their enterprises are slithering in Lagos state, same cannot be said of those located in other enclaves for obvious reasons spanning from poor understanding of the concept by other state governments, infrastructure deficit, lethargic disposition of local investors and insecurity.

Adesugba, a thoroughbred Investment Promotion and Development expert, has in the last three years devoted time in addressing some of these systemic challenges that have limited the country from realising the full potentials of the scheme that included poor infrastructure in the country’s two public zones in Calabar and Kano,  inter-agency interference, obsolete NEPZA Act, analogue system of operation, and external interference.

At the moment, the new management of the Authority with the support of the Buhari-led administration has obliterated most of these challenges and given the Authority a new impetus to promote and manage the scheme in accordance with global standards. The adoption of E-NEPZA, has greatly fenced off some of the teething challenges of accountability, transparency and probity.

The incoming government will now be bequeathed with a solid freezone scheme to drive the growth of the economy more bullishly.

Furthermore, the earmarking of the country’s four major International Airports as Special Economic Zones, approvals for other specialised public zones in Lagos, Katsina, Benue, Gombe Ebonyi and Ilorin can be avenues for the new government to begin a widespread development across the six-geopolitical zones.

Also, the recent approvals for the establishment of seven privately-driven zones which are:   Bonny Kingdom Free Trade Zone Rivers; Hydropolis Niger; Premier Industrial Free Trade Zone, Rivers; Koko Walness Value Change Resort, Lagos; GC Exports, Kogi; Ekiti Knowledge Zone,  Ado Ekiti, as well as Flour Mills Free Zone, Lagos are great stimulants of the economy with palpable benefits in both employment and revenue generations.

The Authority in it’s wisdom also identified licensing of Federal Universities as Education Free Zones to break the circle of contention on funding leading to endless protests and strikes.

The University of Abuja in collaboration with the Abuja Chamber of Commerce and  Industry (ACCI) have applied to use the university as a pilot study.

As part of its strategic approach to ensure that citizens benefit more directly from the scheme, the Authority is on the verge of concluding the legal frameworks for the listing of zones and their enterprises on the Nigeria Stock Market for interested individuals to own equity shares in some of these international brands.

 Also, efforts are on to leverage on the global over 1trillion US dollar Virtual and Crypto investment portfolios as the Authority has concluded arrangement to partner with the Talent City to establish the first Africa’s Virtual Free Zone.

In conclusion, it is our expectation that the new government would place the free trade zone on a first line charge, being a veritable economic instrument to fast track the country’s industrialization process.

Dr Odeh is the Head, Corporate Communications, NEPZA.

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ASK THE EXPERT – 3: Public Private Partnership (PPP)

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By Chris Ndibe, MD/CEO Carlcon and Free zones expert

Having x-rayed the public and private ownership of zones, the third part we should understand is Public Private Partnership (PPP).

PUBLIC PRIVATE PARTNERSHIP (PPP)

A  zone is in a Public Private Partnership (PPP) when Federal or State government enters into partnership with a private company or individual(s) in developing and running a zone. There are many of such zones in Nigeria today. Out of over 40 licensed Free Zones in Nigeria, only Calabar and Kano Free Zones are Federal government owned and pioneering the Free Zone projects in the country. Maigateri, Abuja Technical village, Railway Oyo, Banki, etc. are state government owned, many are Public/Private owned, while the rest are privately owned such as Ladol.

Public Private Partnership (PPP)

Public Private Partnership (PPP) has precisely no definition that is universally accepted.

Diverse governments all over the world make use of different definitions of PPP. While some governments may define any relationship it has with private sector as PPP, some governments may use a more restrictive definition which may entail the use of specific contractual models or financing mechanisms. The essential aspect of PPP arrangement is a focus on the services to be provided and not on the assets to be employed.  Another aspect is a shift of risks and activities associated with the provision of services from the public entity to a private entity.

 The Institute of Public Private Partnership (IP3) defines PPP as “a form of legally enforceable contract between the private contractor (money, or technology, or expertise/time, or reputation.) in which payments are made in exchange for performance, for the purpose of delivering a service traditionally provided by the public sector.” This definition connotes that effective PPPs typically consist of three vital elements:

          ▪ A contractual agreement stating the obligations of the parties;

          ▪ Sharing of risk between the public and the private sector partners; and

          ▪ Output-based financial rewards.

Therefore, PPPs that result in improved services are affordable to governments and users and offer value for money.

The proponents of this aspect of ownership structure argue that although the public sector is accountable for service delivery, it is not, in many cases, the most appropriate service provider in terms of cost, quality, and ability to absorb commercial risk.

In addition, PPP attracts the necessary financing which is needed to augment the limited government fund and they have the potential to offer better value for money through:

  • Allocation of risk to the party that can manage it best;
  • Harnessing  of  private  sector  innovation,  commercial  and  directly  in  the provision of assets and services;
  • More efficient project delivery based on private sector management      principles;
  • Greater accountability for the delivery of service; and
  • Generally transferring of financing duties to the private sector, thus freeing up public funds.

The analogy often used here is that government’s role has changed from that of “rowing” to that of “steering.” While each PPP may be unique and the nitty-gritty varies from one PPP to another, there are certain core principles that every PPP has to adhere to in order to be effective. These core principles are:

  • The focus of the public sector is to attract the services and not the assets.
  • It is the public sector that specifies the required service outputs and not the Private sector.
  • In most cases it is the private sector that provides the design, build, operate and finance the PPP.
  • Risks are identified and placed with the party best able to manage them, not the party responsible for the risk.
  • It is an out-put-based policy because the payment is made to the private sector based on the provision of goods and services. The important objective is to achieve “Value for Money.”

Today, the trend of Public Private Partnership, where a state indicates interest to jointly own a zone with a Private company is encouraged to facilitate speedy development, management and promotion. Further approaches to this partnership could be seen as follows:

  • Public provision of off-site infrastructure and facilities(Utility connection, roads, rails etc.) as an incentive for private funding of on-site infrastructure and facilities.
  • Assembly of land parcels with secured Title and development right by the government for lease to Private Zone Developers.
  • Build-Operate -Transfer and Build-Operate-own  approaches of on-site and off-site zone infrastructure and facilities, with government guarantees and support.
  • Contracting private management for government-owned zones (management contracting), or lease of government zones assets by a private operator (beneficial ownership). It is perhaps more difficult for a government official to communicate with investors, than it is for a private sector. To communicate with private sector individual from another country.

In conclusion, entry  of  the  private  sector  into  zone  development  has  made  lots  of  difference. Most countries have either set up specialised public sector zone development and management agencies, or increasingly divested the physical project development function to the private sector. The private sector has also changed the range of facilities, services and amenities available within the zone. As a matter of fact, our company’s advice to governments in Africa, whether federal or state, is to limit their involvement to 15% of the total capital out lay. This will reduce government involvement and control of the zone’s operation. Generally, Public Private Partnership is seriously advocated for this part of the world.

The leadership of government is necessary to amend laws governing foreign investment and financial incentives. Funds borrowing is facilitated by government are large that few private investors would take.

As stated in earlier write up on Private Zone, both public and private interest will continue to be important in the development of Free Trade Zone. How much of the task that should be public or private depends on each country’s culture, objectives, current situation and market prospects.

The three critical dimensions to the issues of Zone ownership, as it applies to Public Private Partnership are:

  1. Who builds the zone and infrastructure?
  2. Who operates the Zone?
  3. Who exercises the social control to ensure that the zones meet social objectives?

When we create a Free Zone, or any business, we create a social contract. If it must work, we have to be careful that the social contract fits into framework of the country.

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ASK THE EXPERT – 2: What is Private zones

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ASK THE EXPERT – 2: What is Private zones
By
Chris Ndibe
MD/CEO Carlcon Group & Free Zone Expert
Last week, Sept. 8, 2021, we took on the explanation and the esprit of public Zone in the ownership structure of Free Zones. This time, I am taking up the explanation of private zones.
PRIVATE ZONES
A zone is Private when it is owned by a private company, obtaining an operational license from government to operate in a place of choice. All terms and conditions will be adhered to.
Those espousing for the private zones advance the following reasons and conviction for the Private Free Zones development.
In today’s world, we are heading towards a global economy where one must be competitive and efficient in order to survive. The Private sector which is profit oriented strive for competitiveness and efficiency in their business endeavor.
Therefore, Private Free Zone budgets and expenses are strictly monitored and controlled due to the competitive and the profit oriented nature of their structure.
Private Zones are developed according to long term plans. There is no need to worry about change in administration, or the political party in power in host country. They are innovative and flexible because of pressure exerted by the owner to obtain maximum benefit from the available resources. For instance, loans from banks must be repaid, therefore the best administrator is sort for.
In case of a dispute, a multinational company established in a Private Zone has a better chance to come up with a fair settlement because there’s a final arbiter (government), instead of having to sue the government of host country. We were all privy to Samsung vs. LADOL saga, where government became the final arbiter.
 A client company does not have to deal with any corruption or bureaucracy. There is no political conflict of interest while negotiating with any labour union.
 There is no conflict of interest with a Private Free Zone if the government wishes to negotiate Free Trade Agreement with other countries.
 There is no government direct competition with the Private sector. On the contrary, there will be collaborations with government and private sectors. The privatization of existing Public Free Zones around the world would generate extra income for the government. The income could be invested in public infrastructure and social development without losing jobs or foreign exchange income.
BUTTRESSING EFFECTIVENESS AND EFFICIENCY
Private Free Zones operators only accept business risk when government does its part. They need to acquire multi-disciplinary skills, combining real estate know-how, industrial estate management, marketing, market research, personnel and training. These will make for good management of a zone. To ensure a profitable Private Free Zone operation, the charges made to investors to cover factory rent and services rendered, have to be low enough to be acceptable cost input to the export price calculations to enable their product penetrate external market.
All over the world, main source of loans capital are inclining towards favouring the private development of Free Zones and the conversion of some existing Public Free Zones to private management. Four main factors operating here are:
i. Government no longer have to find and finance high caliber staff to manage Free Zones, as well as the expenses of repairs, maintenance and funding promotional campaigns as is being experienced with Kano, Calabar Free Trade and Tinapa.
ii. Free Zones are now perceived to be sound investments where the return on capital invested is reasonable, and backed by government incentives.
iii. The onus on government to raise and repay loans for Free Zones development is reduced or not at all.
iv. Any criticism of a Free Zones operations are reflected on to the private sector, who are the main recipients of benefits from the provision of infrastructure from the tax-payers’ money.
The Private sectors are taking the lead in developing and managing successful Free Zones in the world and in Nigeria. The key factor behind the rise of Private Zones in Nigeria and many countries in the world is the perception that Private Zones are more successful than most Public Zones. This is attributed to general lack of funding for the government zones and apparent bureaucracy that creeps in. Banks now feel that private development and management of Free Zones is to be encouraged on the basis that development costs are fully recoverable. This is not fully assured in the case of public zones.
Governments on their part have to find and attract Free Zones operators or developers, provide incentives and in some cases, arrange for guarantees. Government investment in infrastructure serves multiple purposes in development of trade, industry, tourism and wellbeing of the average citizen, which in the end benefits the operations of Free Zones.
What is often overlooked however is that before the private sector can be attracted to enter the Free Zone business as an operator or developer, the government has to have established confidence in the international business community. The trend now is using the private sector resources, expertise, management and risk taking for development and growth of Free Zone. This was the idea behind NSEZCO but failed because of it’s design and lack of sincerity on the part of the line ministry.
The optimum roles of the public and private sector in creating and operating successful Free Zones involve a balancing between public services infrastructure incentives and flexibility and marketing efficiency.
Both public and private sector interests will continue to be important in the development of Free Trade Zones. How much of the task should be public or private depends on the country’s culture, objectives, situation on ground and market prospects.

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ASK THE EXPERT: Public Free Zones    

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By Chris Ndibe, the MD/CEO of Carlcon and Free Zone expert
 

Questions have been flowing in from this window in thefreezonechannel website. We have resolved to been taking the answers one after the other and publish for stakeholders’ readership and critics.  

 The first in this series is the advantages of the various ownership structures of Free Zones: public zone, private zone, public private partnership.  

 In this article I shall take on the explanation of public zone with few references where it has worked well. I shall take on others in due course.  

 Public Zones  

 A zone is Public when it is financed, developed and owned by either the Federal government or a State government and controlled through a public authority.  

 Proponents of Public Free Zones enumerate the followings as reasons for encouragement of public zones:  

 First,  a Free zone is planned with the clear objective of creating jobs, attracting foreign investments, improving technology and technology transfer, increasing labour skills, and having positive effects on the economy of a region or country. These are tasks of government since the benefits are social, and have broad impact on the whole country, not just a part of it.  

 Second, a Public Free Zone owes equal opportunity to any company interested in investing in it as against Private Zones that can pick and choose clients. Thus, Public Zones increase possibilities for small firms desiring to grow or invest in situations where these social benefits would not be considered by the management of Private Free Zones.  

 Third, a Public Free Zone is the first project for a government seeking to increase the industrial power of a country or state for wider social benefits. This is a subject of little interest to a Private Free Zone with consequences affecting individual investment decisions.  

 Perhaps, some may think that public projects do not work because of lack of interest or laziness of the officers, too much red tape, indecision, or other more serious criticisms such as influence peddling, string pulling, or to state it more strongly, corruption.  

 Nevertheless, it is also true that many Free Zones under Public administration have generated wealth, transfer of technology, access to international markets, with positive effects on the local economy.  

 Public zones as seen in Taiwan Free Zone, South Korea Free Zone, Barcelona Free Zone, Vigo Free Zone and Cadiz Free Zone in Spain have been dynamic instruments for these countries. For instance, Kaohsiung- Taiwan was and still could be seen as the most successful Free Zones in the world and Masan, in South Korea too. Spain has three Free Zones established in 1929 by law. In North Vigo; South Cadiz; and in East Barcelona, their Free Zones are Public, have the same administration and are all successful.  

 In summary, the best argument in favour of Public Free Zones, is that they most closely match countries broad policy objectives and provide the expected benefits to both the economic and social sector of the country.  

 Multinational companies which give power to the Free Zones are best served by the regulations and incentives package supplied by the public Free Zones to meet these broad policy objectives.  

 The question directed to African Continent is; are governments in Africa well nurtured and disciplined to run business of Free Zone to its maturity and sustenance? Sincerely, the Answer is more on the negative side. What then is the traditional role of government in the scheme?  

  Normally, most social control issues, such as immigration, taxation, customs, environmental control, labour law, foreign exchange, etc. are exercised by government authority. These have to be well tailored to problem solving and not compounding the woes of managing a business.  

 Whether it is private or public, investors are looking for problem solving environment that will spur economic actions. This role that is expected from government in Free Zones most often in Africa comes with difficulty which affects the entire business. This has been the bane of African free zones.  

 There is more than one dimension to the issues and discussing ownership structure for effectiveness and efficiency; public, private and public/private partnership; there are at least three dimensions to it:  

 1.    Who operates the zone?  

 2.    Who builds the zone and infrastructure?  

 3.    Who exercises the social control to ensure that the zones meet social media objectives?  

 Discussing the above three dimensions will wait until we must have taken on the definition of the three concepts of three ownership structures.  

 In some Countries, government has a traditional role of detailed planning for all aspects of enterprises. It would be inconceivable in a country dedicated to national planning of that nature for the private sector to lead in zone development.    

 On the other hand, many countries have a tradition of private sector promoting and leading government into action. In those countries again, the private sector has often taken on task that government failed to pick up. In places like Sri Lanka, El Salvador, Egypt, there are many public sector projects that have been quite successful.  

 It has been proven, in more recent time, that Free Zones are not profitable in the hands of government. Planning and risk-taking in the hands of government have collapsed in many countries, especially in Africa and even in a liberal country like United Kingdom. Things are gradually changing and moving out of the hands of the Public to Private sector.