ECONOMY 360: Fashola, Dangote Refinery, and Nigeria’s ‘Pathetic’ Free Trade Zones

First off, a quick disclaimer: the use of the word “pathetic” in the context of the state of Nigeria’s free trade zones isn’t originally mine. A former general manager of the Calabar Free Trade Zone and Executive Secretary of the African Free Trade Zones Association, Chris Ndibe, gave that verdict in a December 2016 interview with PREMIUM TIMES. Still, in light of recent developments around Nigeria’s industrialisation prospect, unemployment woes, fiscal constraints, and the state of the nation’s free trade zones, I find the description quite interesting…..CONTINUE READING

Last month, the $19bn Dangote Refinery, owned by Africa’s richest man, Aliko Dangote, was launched in Lagos. The plant, which is not yet operational, has the capacity to produce about 650,000 barrels of petroleum products a day – in addition to other facilities such as a power station, deep seaport and fertiliser plant. With its huge economic potential, the refinery—situated in the Lekki free trade zone—has been touted to be a “game changer” with respect to the nation’s oil refining prospect, even as there have been environmental concerns from residents and experts.

But what I found quite fascinating was Mr Fashola’s intervention in the management of the host community and their concerns, and how that boosted investors’ confidence in the project. The backstory was that in February 2014, Mr Fashola, then governor of Lagos, met with Ibeju-Lekki residents and “handed over” Mr Dangote to them because there had been dissenting voices in the early stages of the project. Having highlighted the economic benefits of the projects and means of conflict resolution, Mr Fashola urged the community to support the project because of its long-term potential. He warned against the vandalisation of key equipment and other actions that may constitute security threats. It, therefore, was not surprising that during the official launch of the facility last month, Aliko Dangote, chair and CEO of the Dangote Group, thanked the Lagos State government for its support.

That 2014 intervention, among other expectations, speaks to the vision and political will needed for the development of our free trade zones, as part of efforts to promote industrialization, job opportunities, and overall economic growth.

According to the Nigeria Export Processing Zones Authority (NEPZA), there are 46 free trade zones in Nigeria harbouring a total of 625 registered enterprises providing 150,000 direct employment and an estimated 250,000 indirect employment. The total volume of foreign direct investment in the zones managed by NEPZA is estimated at about $26 billion, with N620bn in estimated local investment.

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But despite the inherent potential, the nation has struggled to maximise the benefits of the free zone scheme to drive industrialisation and development.

Last November, Adesoji Adesugba, managing director/CEO of NEPZA, said Nigeria ought to have nothing less than 5,000 companies operating in the zones, ostensibly because of her vast human and natural resources and huge markets. Given that at least 19 of the free trade zones across the country are inactive due to the inability of investors to develop and commence business activities there, that’s a valid argument. And for a nation with an over 33 per cent unemployment rate, 3.1 per cent annual GDP growth as of 2022, and an estimated 200 million population, the reality is disturbing as it appears puzzling—at least on the surface.

The knotty issues, however, are not in any way esoteric.

In 2012, a World Bank policy note that looked into six economic zones in Nigeria (Lekki Free Trade Zone, Lagos; Ogun-Guangdong Free Trade Zone; Abuja Technology Village; KoKo Free Zone, Delta State; Warri Industrial Business Park; and the ICT Park Asaba) identified lack of adequate coordination and cooperation between zones and Customs authorities as a major constraint militating against the development of the zones, in addition to infrastructural challenges, security issues, and resettlement concerns.

Over a decade after, this particular concern remains key, shutting out investors and other businesses from the licensed zones.

Last November, NEPZA decried how the persistent incursion of revenue-generating agencies into free trade zones across the country scares investors and other interested business owners away, thus crippling the development of the scheme. It is no surprise that after several years (and in the absence of adequate infrastructure), apart from a few zones, many of the free trade zones across Nigeria remain undeveloped, from Kwara through Oyo, Delta, Bayelsa, Kano, Rivers, Borno etc, What’s more, the few operational zones have had to struggle to contain the excesses of the revenue agencies, with little or no coordination from the centre.

There have been claims that the Nigerian Customs Service does not recognize the free trade zones, and that impacts negatively on their operations and prospect. The reported plan of the federal government to centralize its revenue-generating agency, if pushed through, could perhaps offer some clarity, instil sanity, and improve the growth of the economic zones.

Apart from the absence of inter-agency coordination, central to the development of the free trade zones is policy clarity and consistency, which appears absent in many entities at the sub-national level where the zones are located—from Oyo through Rivers to Ogun State.

For instance, the 2012 World Bank policy note claimed that the new (as of the time) state government in Ogun “(didn’t) fully recognize the potentials of the economic zones and (didn’t) fully acknowledge the commitments made by the previous government.” Perhaps the absence of policy consistency explains, even if partly, the failure of the Olokola free trade zone—in which Ogun owns a 14.5 per cent stake—to effectively secure the Dangote refinery project before it was eventually relocated to Lekki where there seems to be political will and less disruption in terms of policy continuity and roadmap.

Despite its own flaws and challenges, including environmental and infrastructural, Lagos, through the Lekki free trade zone, seems to offer some lessons with regards to the management and development of the free trade zones—-one which other zones and subnational governments can emulate. On the few occasions that I have been at the zone, the one lesson for me is that apart from sound legal and regulatory frameworks, strong political support from the government remains key in actualising the goals of the free trade zones. This must come with a deeper understanding of what the scheme represents in the overall economic roadmap and how it could be the game changer in our industrialisation drive.

And with political will, ultimately, the goals of the scheme can be integrated into the economy and executed as part of the national developmental strategy, and not as mere isolated (or even chaotic) business plans put together by private investors or/and governments at the subnational levels.

Interestingly, the reality isn’t different in many other parts of the world where the free trade zones scheme has recorded success and aided economic development.

Nigeria, Africa’s largest economy, was ranked 131 out of 190 economies in the World Bank annual ratings on ease of doing business in 2022. The state of the nation’s free trade zones paints a picture of the ranking, in some way, because economies ranking higher on the scale typically have simpler and more friendly regulations for businesses.

In all, one expects that the new government at the centre will show leadership and direction in this largely under-explored aspect of industrial development just so the nation can tap into the potential of its free trade zones to provide jobs, deepen industrialisation efforts, and promote inclusive growth…..CONTINUE READING

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