Harmful high charges in oil, gas free zones
The need to revive the Nigerian economy and sustain the growth momentum since the country’s exit from recession in the second quarter of 2017 appears more compelling now than ever before, state actors need to know this as they now struggle to put politics above governance issues.
The dictates of the government’s Economic Recovery and Growth Plan, (ERGP) imply that the country needs to enhance a good business environment to attract investors, particularly foreign direct investments and thus improve the state of job creation, poverty reduction and enhanced living standards for the general populace.
This would thus require government to pursue vigorously its on-going economic recovery programme to facilitate the improvement of the ease of doing business in the country. This improvement of the ease of doing business in Nigeria is very critical to various sectors of the economy particularly the export free zones, for both the specialised and the general-purpose free zones. This is so because these zones or facilities, through their various tax and other incentives, are one of the ways in which government attracts foreign direct investments, promote technology transfer, enhance foreign exchange earnings as well as develop export-oriented industries in the country.
For these laudable objectives to be attained the enhancement of a conducive business climate is very important for the much-desired growth in the economy. Recently, Nigeria “moved up” in the ease of doing business ranking worldwide: She improved by 24 places, from 169 to 145 in 2017. It is on record, however, that this much-celebrated improvement in the ease of doing business standing was merely the level the country had attained as far back as 2013, as recorded in the World Bank Doing Business Report. The country had moved from the 170th position in 2016 to 169th position in 2017. The sad part of the narrative is that the country, through the current administration, is only correcting the adverse business climate it created since it came into power in the past three years.
Currently, it is yet to attain the level it met on taking power in 2015. Instructively, and as would be desired, the present administration has set in motion a plan through the setting up of a 60-day national action plan to address priority areas in enhancing this ease of doing business through a Presidential Enabling Business Environment Council (PEBEC) – to leapfrog the country into the top 100 in the Doing Business survey by 2030. This, it is hoped, will allow the country to compete favourably with other countries in Sub Saharan Africa such as Mauritius, which is ranked 25th and highest in Sub Saharan Africa, as well as other good performers such as Rwanda (ranked 41), Kenya (80), Botswana (81) and South Africa (82).
Unfortunately, even with its improved ranking, Nigeria only ranked better than conflict-prone nations such as Somalia (190), Eritrea (189), South Sudan (187) and Central African Republic (184), among a few others.Hence the enhancement of the ease of doing business as well as functioning of the export free zones in Nigeria should not be compromised if the country desires to be a preferred destination for investments into Sub Saharan Africa.
Conceptually, export processing zones (EPZs) or free zones (FZs) are areas in which businesses are exempt from the normal regime applicable in Nigeria, particularly with regard to customs duty and tax, with the expectation that the benefitting companies which operate in the free zones boost national exports, create jobs and help in diversifying the Nigerian economy by bringing in new activities.
For oil and gas, there is the Oil and Gas Export Free Zone (OGEFZ), at Onne Port in Port Harcourt, Rivers State. There is also the Lagos Deep Offshore Logistics Base (LADOL), which is a custom-built, fully integrated, secure and independent engineering and logistics base in LADOL Free Zone, set up for the provision of logistical, engineering and other support services for deep-water offshore oil and gas exploration. These specialised free zones are very important for the Nigerian economy given that the country’s oil and gas sector is the major source of foreign exchange for its sustenance.
Recent developments in these specialised free zones appear worrisome to any keen observer of the trajectory of growth of the Nigerian economy and the need to attract foreign direct investments as well as technology transfer into the country. LADOL, for instance, is reported to have imposed a one per cent charge on the $3.3 billion Egina Floating Production Storage Offloading (FPSO) by Samsung Heavy Industries of Korea, being constructed for the 200,000 barrels per day Egina oil field for Total, the French oil major. Other reports also indicate that Shell is yet to utilise its warehouse at LADOL due to “the harsh operating environment” in the zone. If these assertions are true, then the management of these free zones should not lose sight of the underlying reasons for the establishment of the free zone in the first place.
Therefore, effort should be made to enhance transparency in the management of the zones with the promised incentives gleefully delivered to the operating companies and the expectations that the companies will fulfil their own side of the bargain. Where the companies engage in sharp practices, the management of the free zones should call their attention to them and demand appropriate remediation, as necessary.
The two bodies established by law to regulate the functioning of the free zones, the Nigerian EPZ Authority (NEPZA) for the general purpose export FZs and the OGEFZ Authority (OGEFZA) for the OGEFZ should ensure the ease at which these companies do business in the zone are not jeopardised and that the economy gains maximally from the activities of the free zones. That is why those who take responsibility for the management of the economy should not allow the two bodies to shirk their responsibility, in this connection. What is at stake, in this connection, is too important to be left to its devices at this juncture.
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