Free Trade Zones - The
Future Role of Financial
Players
A Presentation by the Group Managing Director.
First Bank Plc. to Nigeria Export Processing
Zones Authority
April 2012
CONFIDENTIAL
Nigeria: Profile & Operating Environment – A PEST/SWOT Analysis
• The Nigerian economy remains resilient, firmly entrenched as Sub-Saharan Africa’s leading economy (exEconomy
Strengths
• Stable politically since 1999
• Recently concluded general elections
(adjudged free and fair by past
standards)
• The dominant player in regional politics
• Oil producing economy
-Strong revenue performance
• Physical resource & human
endowment
• Young population
• Large (potential) consumers
• Large population (25% of
the continent’s pop.)
•Large human resource
• Multi-ethnic:
• Cultural & religiously
diverse
• Computerisation of govt &
private sector businesses
• Telecoms revolution
• Recent enhancement of
the domestic fibre-optic
base
Weaknesses
• Weak fiscal federalism
- Resource control
- Increasing ethnic & religious
tensions
• Some constitutional grey areas
• Inadequate national data base
• Soft business –friendly
environment
• Weak intellectual property rights
protection
• Low literacy rates
• Ethnic conflicts
• Inadequate physical & social
infrastructure
• Large capital outlay for
start-ups
• Slow ICT uptake
• Growing integration with the global
• Economic Reforms
-Rising oil price in the world
market
• A stronger financial services
industry/regulatory
environment
• Tourism & hospitality
industry potential
• Emerging PPP in
infrastructure
building/concessioning,
privatisation and
deregulation
• Telecom revolution
-E-commerce
-E-learning
-E-governance
-Copper cables to fibre
optics technology
Threats
Politics
Opportunities
South Africa) and one of the fastest growing in the region.
village
• Widening political participation
• Successful political transition processes
• Weak opposition, a near one party system
-Fiscal Indiscipline
-Ethnic frictions.
-Policy uncertainty
Source: FBN Research
• High cost of doing business
(decaying infrastructure)
• Crime & insecurity
Society
• Emerging threat s in the
Northern parts of the country
• Environmental degradation
• Lack of a social security
system
Technology
• IT security (hacking)
• Loss of markets
• Dominance of foreigners
in the IT industry
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Nigeria: Profile & Operating Environment – Moving to the Positives
• The relative shallowness/narrowness of the domestic financial
system remains a key downside to financing the economy’s
development needs, especially for specialised financing solutions
(including Free Trade Zones).
• Despite banks’ significant expansion of credit to the domestic
economy in recent years, most local economic entities still lack
access to formal financial services.
• However, given recent financial sector reforms, and
ongoing innovations in the private sector, there are
signs of growth in access to finance in Nigeria.
Source: FBN Research
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Nigeria: Profile & Operating Environment –Positive Outlook
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Alive to its responsibility for driving economic growth and development,
the federal government, in 2004, developed a poverty reduction
strategy paper – NEEDS
The Financial System Strategy 2020 ("FSS 2020"), a comprehensive
long-term strategic plan for its development was developed in 2007 to
build on the gains of successive banking sector reforms to promote
greater stability, depth and diversity of the entire financial system.
Compound annual growth rate of 6%, with a relatively steady increase
in the non-oil contribution to the nation’s GDP in recent times (due to
the reform effort) have re-invigorated private sector participation in the
economy
The Draft MSME Strategy projects that by “2020, the Nigerian credit-toGDP ratio will be among the top three emerging markets, including
access to credit for the productive SME sub-sector and 70% of the
Nigerian population”.
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Nigeria: Profile & Operating Environment – Improvements have been due
to:
•
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The “rebirth” of the country approximately ten years ago, marked by the
roll-out of a slew of economic reform programmes (including market
liberalisation and privatisation).
Annual population growth rate at 7% per annum. (Shares certain
development characteristics with the BRIC nations (Brazil, Russia, India
and China) in terms of large market, political stability and smooth
democratic government successions over the past decade.
• Government’s long-term economic development strategy is
•
premised on the Vision 20:2020.
The key element of the vision is to triple the present size of
GDP (currently below USD$300 billion) to over USD$900 billion,
and attain per capita income of about US$4,000 per annum,
with a view to placing Nigeria among the top 20 economies by
the year 2020
Source: FBN Research
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Free Trade Zones - Outposts of trade and havens for attracting Foreign
Direct Investment.
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Free Trade Zones are fenced-in
industrial estates specialising in
manufacturing for export and
offering their resident firms
free-trade conditions and a
liberal regulatory environment.
Free trade zones, also offer ware
housing, storage, and
distribution facilities for trade,
transshipment, and re-export
operations.
There are over 3000 Free Trade
Zones in the world with only 25
recognised by the Nigerian
Export Processing Zones
Authority.
Rationale for Free Trade Zone Development
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Attracting of Foreign Direct Investment. As
incentives such offshore companies take
advantage of exemptions, customs-free
opportunities to lower cost of production.
Facilitation of trade and export support for
host economy. On a larger scale, it could have a
positive impact on host country’s exchange
rate.
Provision of Jobs. Especially in developing
countries with high unemployment rates.
Enabling technological transfer, knowledge
spill-over. Opportunities abound here for local
companies engaging in production of nontraditional goods.
As experimental laboratories for the
application of new policies and laboratories for
wider economic reforms.
Globally, the main argument for the Free Trade Zones is the ease of ensuring relatively well-developed infrastructure in small special
areas as against establishing same throughout the whole country over a short period.
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Free Trade Zones - Core environmental elements that fast-track growth
within a host economy
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Infrastructure
Strengthening of access to
seaports, waterways roads and
railways
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Strategic location around Free
Trade Zones to access
international markets.
Legal and Regulatory
Framework
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Investment and Finance
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Simplification of business registration
laws and tax codes.
Clear immigration policy and easier
administrative procedures.
Repatriation of profits and dividends.
Free Trade
Zones
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Exemptions from levies and customs
duty
Trade finance opportunities for
businesses
Clear cut business exit legislations
Labor Practices
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Tax incentives for businesses
Strong laws that minimise business disruptions
Competitive incentives that optimise skills set
relatively to rewards.
Government Policy &
Ownership
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Clear ownership and growth strategies.
A suitable economic policy and sound
trade policy with entry and exit of
corporate entities.
A successful Free Trade Zone puts all financial, regulatory , labour, infrastructure and local challenges in realistic perspective and
optimises the right metrics that attract and keep investors.
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Access to Finance in Nigeria
 18 million adults with bank
account (21%)
 64 million adults never banked
(74%)

4 million adults previously
banked
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Access to Finance in Nigeria
• Sources of short-term finance for Nigerian formal sector businesses
Borrowed from
family, friends
Suppliers credit
and advances from
customers
• Less than 1% of Nigerian
businesses ever had access to
bank finance
•
Need for growth in real sector
lending
Main Challenges are
• Improving the reliability of market
information
Source: World Bank
• Strengthen cross-sector capacity
• Build financial services
infrastructure
•
Source: FBN Research
Promote regulatory coordination
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Ownership Analysis of Nigeria’s Free Trade Zones and clear opportunities
for financial players
Public Free Trade Zones
Calabar Free Trade Zone (CFTZ)
Kano Free Trade Zone (KFTZ)
Maigatari Border Free Zone
• A growing trend of ownership of
Free Trade Zones reflective of
global standards shows more
public-private partnership as the
drive to curb inefficiency and
increase investment intensifies.
Living Spring Free Zone
Kwara Free Zone
Oluyole Free Trade Zone
Koko Free Trade Zone
Banki Border Free Zone
Private Free Trade Zones
Snake Island Integrated
LADOL
ALSCON Export Processing Zone
Maigatari Border Free Zone
Airline Services Export Proc. Zone
Sebore Farms Export Processing Zones
OILSS Logistics Free Zone
• States are getting increasingly
interested in Free Trade Zones as
the competition to corner foreign
investments and reduce
unemployment intensifies.
Private/Public Free Trade Zones
Onne oil & Gas Free Zone
Tinapa Free Zone & Tourism Resort
Ogun Guangdong Free Trade Zone
Ibom Science & Tech. Park Free Zone
Lekki Free Zone
Brass LNG Free Zone
Abuja Technological Village Free Zone
• A huge Investment potential lies
for financial players as nine Free
Trade Zones are currently under
construction and five have been
given provisional declaration as
Free Trade Zones.
Specialized Railway Industrial FTZ - Kajola
Imo Guangdong FTZ
Olokola Free Trade Zone
• Brokering the Public Private
Partnership Deals in
Infrastructure development,
support for foreign players, local
players SMEs and also marketing
the entire value chain across Free
Trade Zones is clearly a robust
opportunity for financial players.
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Brokering the Public Private Partnership Deals for Custom Built Infrastructure in
Free Trade Zones
Infrastructure for FTZ
Transport
Access Roads
Seaports
Railways
Freight and Cargo Handling Structures
Energy
Financial Players in Free Trade Zones
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Project Finance Executives
Project Analysts
Bankers & Financial Advisors
Investment Analysts
Project Sponsors
Privatisation Specialists
Government Agencies /Negotiators
Policy Specialists
Corporate Finance Executives
Tax / Accounting Specialists
Insurance Specialists
Constant Power Supply
Gas Supply for Heavy Industries
Railways
Freight and Cargo Handling Structures
Others
Telecommunication Facilities
Waste Disposal Facilities
Medical & Educational Facilities
Water Distribution Infrastructure
Financial Players’ Role in Infrastructure Development in
FTZ
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Structuring Deals with Government Agencies
Sovereign Loans
Guarantees
Equity Financing
Loans & Syndicating Deals
Insurance Brokerage & Risk Management
Investment Advisors
Tax Management
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For potential and existing firms and small medium enterprises in the FTZ,
immense opportunities abound
Institutional and Corporate Clients
Asset Creation
Advisory Services & Products
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Term Loans & Overdrafts
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Insurance Products and Fleet Management
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Asset Financing
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Tax Advisory
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Syndication of Trading Facilities
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Project Management Advisory
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Bonds & Guarantees
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Investment Analysis
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Export Credit Lines
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Revenue Collections
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Letters of Credit
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Corporate IT Solutions
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Import/export finance
Emerging Corporates & Small and Medium Enterprises
Asset Creation
Advisory Services & Products
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Term Loans
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Revenue Collections
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Overdrafts
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Corporate IT Solution
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Payment Guarantees
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Micro-Insurance Products
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Letters of Credit
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Tax Advisory
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LPO Financing
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Project Management Advisory
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E-products (Point of Sales Terminals)
Approach to harness benefits that incentives in such specialized zones have to be realistically measured. Huge opportunities lies in
financial intermediation, tax, insurance, project advisory and investment management.
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Free Trade Zones - A strong incentive to generate employment, and a large
retail segment that can be met with new products/services
Financial Players Role is to Harness Benefits within the Retail Value Chain
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Opportunities for customer acquisition & for financial players to deepen retail wallet within
the Free Trade Zones.
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Expansion of e-business products such as ATM, Internet banking portals and POS across
the retail base.
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Opportunity to drive consumer credit and asset financing.
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Expansion of mobile payment service within the specialised zone.
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Micro-insurance products marketing & advisory services for retail customers
• Opportunities to market diaspora products to expatriates and highly skilled staff located in
institutional and corporate entities.
Financial players can trap opportunities within the retail network by ring fencing the opportunities
around the value chain
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The Free Trade Zone/Peculiarities Challenges and Outlook
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As demonstrated by China’s experience with the Shenzhen Free
Trade Zone (FTZ), and the Mexican maquiladoras on the border
with the United States of America, properly structured, FTZs are:
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A major vehicle for industrial and commercial development:
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Re-direct resources to areas where they have comparative strength and
advantage;
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Improve the nation’s industrialisation and development;
Generate foreign exchange and diversify the economy’s revenue base; and
Generate employment and encourage export through local production.
It is expected that the Free Trade Zone adds value to
economic activities within it and where no value is added,
duty must be paid before exporting to the custom territory.
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The Free Trade Zone - Peculiarities Challenges and Outlook
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The Jebel Ali
Free Trade Zone
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Shenzhen City
in China
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Singapore
Free Trade
Zone
Source: FBN Research
Is the foundation of the country’s diversification from oil to
non - oil sector development. It is located next to the Jebel
Ali Port (the largest port in the Middle-East) and is about 30
minutes drive to the Dubai International Airport;
Offers varieties of products and services like, business
centers, ready to use offices, warehouses, facilities and
infrastructure, ready plots;
One stop-shop service:
Shortens and simplifies administrative procedures for the
issuance of business approval, permits, licenses and
company incorporation;
Removes bottlenecks faced by industry in establishing and
running business;
Ultimately reduces the cost of doing business in the zone
Shenzhen is a fishing village declared a Free-Trade Zone in
1979 because of its nearness to Hong Kong
Using its location, cheap labour and favourable business
terms, Shenzhen grew into one of China’s most
economically vital cities
One of busiest container ports in the world
• One of the world’s major trading centres
• World’s busiest free port (in terms of shipping tonnage)
• Ranked third as world largest oil refining centre.
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The Free Trade Zone - Peculiarities Challenges and Outlook
• Nigeria Processing Zones Authority with Act No. 63 of 1992 was established to
amongst others:
— Regulate and assist in accelerating and developing the economy
— Rather than importation, create favorable environment by providing
necessary infrastructure and facilities that will encourage local
manufacture of products.
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Clearly, location is a major comparative advantage of setting up a Free Trade
Zone, as can be seen in the examples highlighted above.
Another comparative advantage is cheap labour, which allows manufacturers
to be more competitive.
Other comparative advantages are:
― Availability of raw material which turns a semi-processed product into
finished product for export.
― Proximity to existing seaports and availability greenfields further
development
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Expected Incentives for a Free Trade Zone
• Conducive economic climate characterised by:
‒Visible, fully developed and investment friendly
environment;
‒ Guaranteed security of lives and property;
‒Proximity to investment markets where fund
mobilised could be profitably invested;
‒ Availability of infrastructure facilities particularly
power, water, telecommunication, ICT;
‒Multi-modal: rail, road, inland waterways, air
transport; and
‒ Absence of legislative challenges.
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