How Free Trade Zone Is Enhancing Nigeria’s Economy

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    By Martins Odeh, News Agency of Nigeria (NAN)

    There appears to be deep-seated and conclusive negative opinions about the modus operandi of the Free Trade Zone Scheme among individuals in and out of government in Nigeria.

    This global economic system is primarily aimed at encouraging economies of scale through seamless production and manufacturing for export and local markets.

    It also aims to support backward linkages; industrialisation; infrastructure development; employment generation; foreign exchange earnings, and revenue generation among others.

    A Free Trade Zone remains a global economic matrix with a distinct framework which gives this business ecosystem the status of “country within a country.’’

    It, therefore, behooves any nation willing to adopt the concept to run it in line with the local law that regulates its operation.

    This law is enshrined in the NEPZA Act 63 of 1992 and it is within the purview of international best practice and framework.

    The Federal Government, seeing the benefits of the scheme to the national economy and development, adopted it some 30 years ago.

    The scheme might not be at the growth level that the government had envisaged yet, but some stakeholders say excellent milestones have been attained.

    For instance, 52 Free Trade Zones have been created, with over 600 enterprises operating within those business landscapes with a cumulative USD 30 billion investment lubricating the economy.

    Deborah Dada, a legal practitioner, said the primary laws regulating the FTZs in Nigeria are the Nigerian Export Processing Zone Act 1992 (NEPZ Act) and the Oil and Gas Free Zone Act (OGFZ Act).

    “NEPZA has also made specific regulations over the operation of specific FTZs like the Lekki Free Trade Regulations 2016.

    “NEPZA has passed a regulation over the operation of FTZs in Nigeria known as the Regulations and Operational Guidelines for Free Zones in Nigeria 2004.

    “Free zones in Nigeria provide rewarding opportunities that not only attract foreign investors but also provide employment opportunities to local citizens.

    Thus, businesses should take advantage of these incentives to maximise industrial growth and economic development by taking steps to set up their businesses in a free trade zone in Nigeria.”

    Some stakeholders say, in spite of challenges, investors and operators have found respite in the special interest of President Bola Ahmed Tinubu, to use the scheme to upscale industrialisation.

    They cited how Tinubu, then governor of Lagos State, used the free trade zone concept to reconfigure the economic landscape of the Lekki Area of the state.

    He also used it to abet the catastrophic submerge of the entire Victoria Island area of the state through the conversion of the then-ruptured Bar Beach into a world-class Eko Atlantic Free Trade Zone.

    Today, the Lekki area harbours the Lagos Free Zone, Dangote Refinery Free Zone Enterprise, Alaro City, Deep Sea Port, and Lekki Free Trade Zone.

    To the credit of the president, these accomplishments earned him the praise of stakeholders as the “brain behind modern free trade zone in Nigeria”.

    The president’s attention must again be called to the gains and prospects of the scheme through sustained promotion of the economies of scale over the temptation of listing it as a pure revenue generation hub.

    The concept of economies of scale promotes long-term and sustainable dividends for the country so long as the enterprises continue to reap low production cost advantages.

    This will encourage continuous inflow of Foreign Direct Investments (FDIs), Direct Diaspora Investments (DDIs) as well as Local Direct Investments (LDIs) while keeping a grip on investments already attracted.

    Regardless of the loud voices of anti-free trade zone campaigners, the scheme has made modest contributions to the economy.

    How is it possible for the 52 Free Trade Zones and the over 600 enterprises currently in operation have not impacted the economy significantly?

    The response to the above question was provided by the NEPZA Managing Director, Dr Olufemi Ogunyemi, while alluding recently that free trade zone was, however, not a ‘free meal ticket’ for the investors.

    The import of this statement is simply to help grow public knowledge on the contribution of the free trade zones to the Domestic Gross Product (GDP) and National Gross Product (NGP) respectively.

    The NEPZA Chief Executive Officer was emphatic when he said: “Free Trade Zones are business anchorages that have for decades been used to generate revenues for the Federal Government.”

    He explained that the widely held notions that the scheme was a ‘free meal ticket’ for the investors thereby denying government revenues were incorrect.

    “The NEPZA Act provides an exemption from all federal, state, and local governments taxes, rates, levies, and charges for FZE, of which duty and VAT are part.

    “However, goods and services exported into Nigeria attract duty, which includes VAT and other charges.

    “In addition, NEPZA collects over 20 types of revenues ranging from 500,000 USD-Declaration fees, 60,000 USD Annually as Operation License (OPL), and 3000 USD to 500 USD Registration fees in line with extant regulations on IGR remittances to the Federation Account.

    “There is also the 100 USD to 300 USD Examination and Documentation fees per transaction which occurs daily’’, he said.

    According to him, there are other periodic revenues derived from Vehicle Registration, Visa among others. The operations within the free trade zones are not free in the context of the word.

    For instance, the Authority’s First and Second Quarters of the 2023 Key Performance Indicator (KPI) showed that a combined total of 21.3 million dollars was generated as Foreign Direct Investment while N9.8 billion accrued as Local Direct Investment.

    Conversely, a total of 28.9 million dollars was generated as International Exports and N250.5 billion was accrued to the government as Domestic Exports while 338.9 million dollars and N36.3 billion were generated as International Imports and Domestic Imports.

    Furthermore, the figure that accrued to the government as Custom Duty stood at N20 billion while that of PAYEE amounted to N346.8 million, and a total of 3, 776 employment was generated within the two quarters reviewed.

    In total, the Authority’s 40 per cent contribution to the consolidated revenue in naira as of November 2023 stood at N1, 800,809,1773.38 with a similar 40 per cent margin of transfer to the account in dollars amounting to USD 1, 167,122.86.

    The total of the figures generated in 2023, which included figures from Tender Fee; Withholding Tax (WHT); Value Added Tax (VAT); Stamp Duty; PAYEE as well as Customs Duty stood at N38, 879, 485, 774 568.90.

    The KPI for 2022 also showed excellent flashes of gains made by the scheme which attracted a total of 28 new enterprises with a total of 90 million USD value of FDI and N80 billion value of Local Domestic Investment (LDI).

    The record also placed the value of both the International and Local Exports at 36.8 million USD and N450.8 billion respectively.

    The 2022 key performance indicator further highlighted the value of International and Domestic imports to be 999 million USD and N188 billion.

    The report stated that a total of N34.215 billion was generated as Custom Duty while the amount generated from the free trade zone in 2022 by the Immigration Service stood at N702.7 million with a total of 3,555 employment created.

    A session of stakeholders urges the authority to be aware of the need to ensure a transparent listing and deductions of mandatory duties and taxes.

    One of the ways to achieve that, they say, is by digitalising its process and agreeing on the best ways for a dependable free trade zone tax administration with the relevant authorities.

    The scheme remains an economic development tool the country is using to leapfrog our economy and its sustainability and success should be our utmost concern.

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