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Nigeria’s Free Trade Zones: Luring Investors to Grow the Local Economy

Investment has to be courted, enticed and captured because others are fighting to get it if it slips away. The investor is king, and he waves his currency in the face of thirsty countries which try to outdo each other in competition by presenting more shiny incentives than their perceived rivals. It does appear at times that global investors are spoilt for choice in certain sectors; perhaps this is just a robust oversimplification of today’s global investor-government relationship. But at least, it paints a comprehensible picture of what is going on. One concept, in particular, may come to mind when we think about wooing investors: Free Trade Zones.

Free Trade Zones (or FTZ) are special economic zones located in a geographic space, where goods may be landed, handled, manufactured and reexported- all done without the intervention of custom authorities. Within these zones, trade barriers and custom duties which prevail in the rest of the country are not functional. Corporations which set up in FTZs may be given tax breaks as an incentive. The aim of this is to enhance foreign exchange earnings, develop export oriented industries, and create employment opportunities. The potential benefits make FTZ desirable, especially for developing countries which need foreign investment to boost growth.

Nigeria has a number of FTZs within its borders. The Nigeria Export Processing Zones Authority (NEPZA) lists 32 FTZ’s; however, only 14 are listed as being operational. About 9 are said to be under construction, and others are in various states of pre-construction and license suspension. Some of the well-known functional FTZ in Nigeria include the Calabar Free Trade Zone (CFTZ), Kano Free Trade Zone (KFTZ), Tinapa Free Zone and Resort, Lekki Free Zone, and the Lagos Free Trade Zone (LFTZ). The licensing, monitoring, regulating and facilitating of investment into the FTZ in Nigeria is vested in the Nigeria Exporting Processing Zone Act 63 of 1992.

Setting up free zones in Nigeria does make economic sense. Gbenga Kuye, Managing Director of NEPZA, has noted that Nigeria’s status as a major oil-producing country, as well as its large consumer market, are some of the enticing advantages that could persuade investors to take advantage of the FTZs. Available evidence suggests that they have. In 2014, Olusegun Aganga who was the minister of trade and industry said that the LFTZ (Lagos Free Trade Zone) had attracted 48 investors with investments close to 1.1 trillion naira. Other FTZ have witnessed considerable investment as well. This is despite the persistent problem of inadequate power supply, security challenges in some parts of the country, and a lack of clarity in government policies.

Free Trade Zones are certainly a competitive vehicle for driving economic growth. It has proved to be the case in a number of Asian countries, most notably China. The success of FTZ in these countries has encouraged other developing countries to join the FTZ bandwagon. But as with other economic strategies, the planning and execution of this project has to be in line with local needs, and should not merely benefit the foreign investors who wave their spare cash in the face of desperate authorities in desperate countries.

 

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Ikenna Nwachukwu

Ikenna Nwachukwu holds a bachelor's degree in Economics from the University of Nigeria, Nsukka. He loves to look at the world through multiple lenses- economic, political, religious and philosophical- and to write about what he observes in a witty, yet reflective style.

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