Endless hurdles for Free Trade Zone Act 32 years after

Hobbled by the lack of infrastructure, access to funds, and bureaucratic bottlenecks, among others, the Free Trade Zone Act 63 of 1992, is far from achieving its set goals of repositioning the nation’s economy, AMEH OCHOJILA reports.

The Free Trade Zone (FTZ) scheme was introduced in continuation of the economic liberalisation policy of the administration of the then head of state, Ibrahim Babangida, 32 years ago.

Having existed over three decades without meeting expectations regarding the country’s economic growth, stakeholders are now calling for the rejigging of the law to enhance its purpose.

One of the areas of concern to the stakeholders is the bureaucratic bottleneck associated with the operation of the scheme. They are calling for a review to be in tandem with global best practice.

According to the Executive Secretary, Nigerian Economic Zones Association, Toyin Elegbede, Nigeria should embrace the global economic matrix, which gives free zones an independent status regulated by laws.

“Nigeria cannot be an exemption to how free zones operate, or different from the practices worldwide. The truth is that some investors in the free zones are considering relocating to more policy-friendly countries in Africa, while some have already relocated. Example of such is Vallourec FZE, which relocated to Ghana in 2022.

“The idea of a one-stop-shop, which the enabling Act provided, is being jettisoned and this is becoming a hostile business practice that does not allow free zone companies to thrive,” he said.

Nigeria’s regulatory framework for its FTZs is through the Nigeria Export Processing Zone Act 1992 (NEPZ Act) and the Oil and Gas Export Free Zone Act 1996 (OGFZ Act). The NEPZ Act created the Nigerian Export Processing Zone Authority (NEPZA) to oversee and regulate FTZs in the country. NEPZA has the power to issue licenses, manage and supervise FTZs, and create regulations that govern their operations. Additionally, the Oil and Gas Free Zone Authority (OGFZA) was established by the OGFZ Act to license and regulate oil and gas free trade zones, specifically the Onne Oil and Gas Free Trade Zone.

In addition to its numerous drawbacks, there are concerns that FTZs may be accommodating illegal trade and smuggling activities. Without strong legal measures, there is a risk that the free trade zones could become hubs for illegal goods to enter or exit the country, thereby undermining Nigeria’s security and economy.

Additionally, experts are worried about exploitation and abuse of workers within the free trade zone. Without effective labour laws and regulations, workers may be subjected to poor working conditions such as low wages and limited employment rights.

There are also concerns about the environmental impact of the free trade zone. Without stringent environmental regulations, there is a risk of pollution and degradation of natural resources within and around the zone, which could have detrimental effects on local communities and ecosystems.

According to the chief executive officer of NEPZA, Dr Olufemi Ogunyemi to ensure the smooth operations of FTZs, NEPZA made regulations such as the Investment Procedures, Regulations, and Operational Guidelines for Free Zones in Nigeria, 2004. He added that it has also issued specific regulations for certain FTZs.

Ogunyemi said his organisation has equally made remarkable regulations over the operations of specific FTZs like the Lekki Free Trade Zone Regulations, 2010 and the Lagos Free Trade Zone Regulations 2016. The Central Bank of Nigeria, he said, also regulates the activities of Banks in FTZs through the Guidelines for Banking Operations in the Free Zones in Nigeria, 2016.

Head corporate communication of NEPZA, Dr Matin Odeh, noted that the FTZ is a global economic system that is primarily aimed at encouraging economies of scale through seamless production and manufacturing for export and for local markets.

Odeh explained that FTZ is a special area within a country where foreign and local companies can import materials, manufacture goods, export products, and perform services without being subject to the usual customs, tax, labour, and other bureaucratic regulations.

There are 42 licensed FTZs in Nigeria with over 500 foreign and local companies doing business in them. These companies are in diverse sectors ranging from oil and gas, to petrochemicals, manufacturing, banking, port operations, pharmaceutical, steel rolling mills, food processing, warehousing and logistics, ship building and maritime services.

The FTZs are open to investments based on merit and sustainability, however, government’s policy as contained in the Nigerian Industrial Revolution Plan (NIRP) seeks to encourage investments in areas where Nigeria has comparative regional and international advantage such as Agribusiness and Agro-Allied industries, including sub-sectors like food processing, palm oil processing, cocoa processing, leather and leather products, rubber products, and textiles and garments.

Solid Minerals and Metals and sub-sectors like cement, basic steel, aluminum, chemicals and auto assembly Oil and Gas related industries with sub-sectors in focus like petrochemicals, fertilisers, methanol, plastics, refineries construction, light manufacturing and services for the local market.

Nigeria’s FTZs, since inception in 1992, are reported to have attracted investments of 20 billion dollars, in addition to the Oil and Gas Free Zone (OGFZ), which is reported to have attracted 16.6 billion dollars in Foreign Direct Investment (FDI) and 255 billion naira in local investments. The Federal Government, last April, announced the designation of five international airports in the country as FTZs. Three other FTZs in the medical, textile and agro-allied sectors are projected to begin operations before the end of this year.

Some of the operational FTZs in Nigeria and their areas of focus includes –Ladol Free Trade Zone: This FTZ is focused on the provision of logistical, engineering and other support services for deep water offshore oil and gas exploration. The integration of the 3.8 billion US dollars Total’s Egina FPSO was performed in this FTZ.

Lekki Free Zone: This FTZ is supported by the Chinese government and is focused on manufacturing, oil and gas, commercial business, and infrastructural investment like seaports and power plants.

Lagos Free Trade Zone: This FTZ is promoted by the Tolaram Group, a Singaporean company. The Group’s (22.5 per cent) are also joint promoters with the Lagos State Government (20 per cent), China Harbour Engineering Company (52.5 per cent) and Nigerian Ports Authority (five per cent) of the 1.5 billion dollars Lekki Deep Sea Port projected to commence operations in Q4 of this year.

Dangote Industries Free Zone: This comprises the Dangote refinery, petrochemical and fertiliser companies all expected to cost 19 billion dollars at completion. The fertiliser arm was commissioned by the President in March, and the Refinery is expected to begin operation soon.

Onne Oil and Gas Free Trade Zone: This FTZ is focused on the oil and gas and related industries and is reported to have over 170 companies operating within its area.

Ogun-Guangdong Free Trade Zone: This Free Trade Zone is focused on manufacturing, and raw material processing. Other FTZs in Nigeria include the Calabar Free Trade Zone, Brass Oil and Gas City, ALSCON Economic Processing Zone, Kano Free Trade Zone, Snake Island Integrated Zone, Eko Atlantic Free Zone, Alaro City Lekki Free Zone, Warri Oil and Gas Free Zone, Tomaro Industrial Park, Abuja Tech Village Free Zone, and Centenary Economic City.

A number of the notable companies currently operating in Nigeria’s FTZs include Samsung Heavy Industries, Kellogg’s, Colgate-Palmolive, Dangote Refinery, Pinnacle Oil and Gas, Bollore Transport and Logistics, Jiangsu Yulong Steel Pipe Company, and Eko Support Services

In the areas of licensing, there are three types of licences generally granted under the Nigeria FTZ scheme. They are the
Free Zone Developers Licence: This is granted by NEPZA to either a public, private entity or a combination of the two for the establishment, operation and management of an FTZ in Nigeria under the supervision and regulation of NEPZA.

The other is the Free Zone Enterprise Licence: This licence is granted to a company to undertake business activities within a FTZ. It is granted by NEPZA but processed through the FTZ management.

Lastly, the Export Processing Factory/Export Processing Farm Licence: This is granted by NEPZA to an export-oriented manufacturing company or farm located outside a FTZ but with the capacity to export over 75 per cent of its production.

However, only NEPZA or OGFZA can grant a licence to establish a FTZ. Companies wishing to establish their operations within an existing FTZ (i.e requiring an Enterprise Licence) must apply through the FTZ management. Each FTZ in Nigeria has its own application steps and fees.

Consequently, industry observers believe that the laws establishing NEPZA and OGFZA are in conflict over which agency should regulate FTZs in the oil and gas industry, though in practice matters are yet to come to head.

Former Attorney-General of the Federation, Prince Adetokunbo Kayode (SAN) said the work templates of all relevant government agencies in the sector must align to boost the operation of the scheme.

The controller general of custom, Adewale Adeniyi last year suggested the setting up of a Joint Committee to remodel the processes and procedures to manage the various administrative engagements among key stakeholders, adding that all hands must be on deck to salvage the country’s ailing economy through the scheme.

“I must, however, state that we should also study and re-evaluate our various Acts to see those areas of conflicts and overlapping functions and to assiduously work toward amending them,” he emphasised.