'Examine the impact of policy
and environmental elements
on Free Zone development in
Nigeria’
Paper Presented by Chris Ndibe, Executive secretary, AFZA, at the
Nigeria 2012, Free Zone Conference, Lagos, April 4th - 6th, 2012.
The Topic
“Getting it right” = providing high quality
zone services and government support
which is very important in attracting and
retaining global manufacturers.
In today’s competitive environment,
offering
comprehensive
and
unique
services to your investors will be supportive
in enhancing your zones competitive
advantage.
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It can catalyse economy- wide reforms in
the medium-long term
Can boost employment
Increase and diversify exports; attract FDI
and retain domestic investment
Transfer technology and skills
Stimulate local economy through linkages;
Pilot new economic policies
Determinant of attractive investment climate
Now let us come to the key determinants of an attractive
investment climate which improves a country’s “product
offer”.
 Regulatory certainty
 macroeconomic stability,
 low or no taxation ,
 corruption,
 infrastructure;
 anti-competitive practices;
 skills and education of workers
 low crime , theft and disorder.
Many of these top issues can be addressed through Zones in
a targeted way while reforms in the overall economy may
take longer due to resource constraints and political will.
Zones may increase the “product offer” of a country’s
investment climate through:
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Duty and Tax free treatment of imports (raw materials,
intermediate goods, machinery) and exports;
Improved infrastructure through provision of goods
quality infrastructure, uninterrupted utility services, and
access to transportation nodes;
Limiting opportunities for corruption through
transparency and clear criteria/procedures;
Reducing crime through improved security of assets
and persons;
Improved skills through investment in common training
centres & programs for skill building.
Access to markets both in terms of location and
polices within zones compatible with global buyers
demands.
Investors’ Reasons for selecting a FZ
 Experienced zones management
 Good labour pool
 Reliable infrastructure
 Strong state, local and FG support
 Zero level of corruption
 Provide investors with valuable assistance
in setting up and operating in a foreign
environment
 Shelter plan programme
Zones As Business Solution
At this point it is necessary to mention that zones are not a
panacea. In fact more zones have not met their objectives
than zones that have.
This can be for a variety of reasons such as:
 Being underutilized due to poor market access or that the
zones have been located for political rather than
economic rationale so they may not be close to either their
input or output markets.
 They may not have been provided with adequate
infrastructure, services or maintenance.
 There may also be very low net export due to low valueadded.
 Investors primarily locate in Zones in order to access
preferential trade agreements, liberal tax incentives, or
subsidized land.
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Zone should be a tool to catalyze reforms and not
become enclaves that divert energies from
nationwide reform.
The second design principle is to use Zones to
promote effective land use and planning.
The third design factor is to ensure that your zones
are open to industry; not overly restrictive.
The fourth design factor is leveraging public-private
partnerships.
The last design factor is the streamlined regulatory
environment since that is what developers and
investors keep saying is the most important.
Ingredients necessary for zones to be used as catalysts for
reforms include:
 Have a high-level Government “champion”
 Have an explicit commitment to use Zones to pilot reforms
from start of program for improving the investment
climate.
 Have a communication strategy with Public/Private
dialog.
 Develop a monitoring and evaluation system.
 All of these have to be well couched in an effective
institution that crates incentives for the Zone itself in having
their success measured by the introduction of reforms into
the domestic economy. This is best achieved when the
zone is used as a catalyst within an overall economic
reforms program.
As we aware, location is a key aspect of the value of a zone. But it is
not just location; the price asked for the land should be based on
commercial factors or market factors. There is forward planning
required to ensure that you have the administrative and infrastructure
capacity to deal with increased investments.
This brings us again to what is now being regarded as a higher valueadded proposition than the traditional Zones, and that is the hybrid
Economic Zone model. A hybrid model refers to the coexistence of
different export regimes one serving the domestic market and the
other serving the international market in a single Industrial Park. This
allows for the Zone to serve multi-markets and multi-activities that
become more accessible to tenants. Integrated hybrid Zones refer to
mixed land use and planning within the Zones. Zones offering support
services, residences, schools, shops, hotels, etc. can have greater
impact and opportunity for catalyzing broader reforms. This model
also promotes greater backward and forward linkages.
So instead of having a positive list approach which some countries have
adopted, adopt a negative list approach in terms of the industries and
services you allow within the zones.
For the hybrid-integrated approach to work, eligibility requirements can be
greatly relaxed.
There are lower export requirements and access to the local market on duty
paid basis.
This promotes forward linkages.
More flexible provisions for domestic suppliers in terms of indirect exporting
benefits. Equal footing policies are helpful. E.g, South Korea within 10 years
of their Zones founding, 35% of the components used in the Zones were
bought domestically because of liberal subcontracting arrangements and
equal footing policies provided to domestic suppliers.
Privately operated Zones tend to do better for the same reason that privately
operated businesses tend to do better than state owned business.
They provide for a different role between the government and the private
sector.
Government has more of a role in land identification, marketing and
transaction packaging.
The private partner has more of a role in providing the on-site infrastructure
and planning as well as the management and services of the Zone.
This reduces the public capital outlay and lowers the risk for government while
allowing them to access higher fees and tenants experience greater
efficiency.
Where both public and private Zones exist one must ensure that there is a level
playing field, and that the public Zones are not subsidized to the detriment of
the private Zones.
Here the key is to understand that the value of a Zone is tied to a
streamlined and transparent process within the Zone.
Providing on site approvals capabilities and not through tax
incentives.
Tax incentives cannot substitute for deficiencies in the Zone’s
regulatory environment. Even where they are allowed, in least
developed countries, is still not the best way to attract
investment. Where tax incentives are used it is better to have
them performance based and put into the tax code of the
country, and use the Zone as a way of rationalizing the tax codes
of the country. This is better than creating a special Zones
regime. Where they are used in zones they should be fixed, time
bound, transparent and able to be monitored so that the
government can actually demonstrate that the incentives have
a benefit, which is not always the case. We assume that
incentives are actually good but they may in fact be creating a
drain on the economy.
According to Robert Haywood, he said
“people think that tax incentives are not
effective, but the biggest advantage of
having a tax incentive is not having the tax
administration part of it; not having to deal
with the tax authorities”.
So again the incentive part is linked to
regulatory simplification. In this way I want to
bring back the point of the catalyst role of the
Zone
SUCCESS STORIES
Zones have successfully jump-started important investment
climate reforms around the world.
 South Korea established the EPZ program in 1970 to
spearhead a broad reform program.
 China used them broadly to test land reforms, tax reforms,
labour regulations and other reforms.
 Jordan Aquba used their Zones to introduce customs
automation, the automation of business registration,
deregulation the telecoms industry in the Zone first before
deregulating it throughout the nation.
 Taiwan used their Zones to liberalize their electronics sector
policies, and that led to a takeoff in the economy.
 Mexico used their Maquiladoras as a step towards trade
liberalization.
 Both Kuwait and the UAE have used their Zones to liberalize
corporate registration.
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Organization of FZ operation in Nigeria
 Reassess the status of all the 26 FZ approvals
 Quarterly monitoring of the performance of zones
 Review of operational manual of the Authority every
other year because FZ should work with national strategic
action plan/activities
 Review annual performance of the scheme
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Total re-organisation of FTZs Authority Board membership
 Minister of Trade and Investment to be the chairman
 Customs and Immigration Board members to be there for
a minimum of 10 years
 Customs and immigration agencies to have FZ
department
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Establish a FZ Academy because the economy of the whole world is
knowledge based.
 We cannot afford mediocrity in management of zones
 An all encompassing curriculum is imperative
 Workers periodic training with other agencies personnel in attendance
for wider knowledge.
 The scheme must develop research grants for researches on country’s
case studies. A tool kit for practitioners.
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System of internal credit for financing industrial operations especially to
local investors
 Work out credit line with World Bank and others
 Banks like NEXIM and BoI should be encouraged to help FZs
infrastructural development like is done in Mauritius especially in
industrial buildings and providing basic services.
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Well planned promotional strategies (locally and internationally)
 Local TV programme that will educate and inform
 Foreign prints and electronic media – CNN etc