The Nigeria Economic Zones Association (NEZ Association) has again reiterated that the Free Trade Zone Scheme remains one of Nigeria’s best adopted economic development tool for wealth creation and national growth, urging the Federal Government to guard it jealously.
The remark was contained in a position paper made available to newsmen by the Executive-Secretary of the association, Chief Toyin Elegbede on Friday, in Abuja.
The paper, titled: “ Free Zone Scheme as an Economic Development tool for Nigeria,’’ commenced the Association’s 2024 maiden intellectual activity to bridge the existing knowledge gap of the concept and its demonstrable propensity to fast-track the country’s economic growth.
“In Nigeria, the free zone scheme was introduced 31 years ago with the enactment of the Nigeria Export Processing Zone (NEPZA) Act, 1992 as a continuation of the economic liberalization policy of the Babangida administration.
“Four years later, another Act, Oil and Gas Free Zone (OGFZA) Act, 1996 was enacted for the regulation of the Oil and Gas sector in the free zones.
“The Acts were promulgated with the following National Objectives: Industrialization in the country by encouraging manufacturing; Direct Foreign Investment; Hi-Tech Projects in Oil & Gas sector; Preventing Forex outflow by encouraging Import substitution projects; Employment opportunities for Nationals -Locals; as well as Eliminating Gas Flaring-by encouraging Gas Downstream Projects investments,’’ the association stated.
According to the group, the country has achieved several milestones like the $34 billion investments in High Tech Oil Sectors in FTZ, the Dangote Refinery and the Lekki Deepsea Port.
The NEZ Association further noted that the scheme had already provided the country with a solid economic foundation with the existing 52 Free Zones and the 541 enterprises under NEPZA’s control as well as the 6 Free Zones with 72 enterprises under OGFZA’s control respectively.
The body, therefore noted that the current cumulative value of investments from the country’s free zone stood at about $90 billion, adding that it was in the interest of the government at all levels to provide the right environment for the free zone investors to operate.
The body also said that it was time the public was abreast with the intricacies of the laws that established NEPZA and OGFZA for better appreciation of their duties within the context of the liberalized nature of regulating these special business ecosystems.
“For instance, the approved enterprises operating within a zone are exempted from all Federal, State and Government taxes, levies and rates.
“Other incentives include: repatriation of foreign capital investment in the zones at any time with capital appreciation of the investment and remittance of profits and dividends earned by foreign investors in the Zones.
“The rest are: import or export licenses are not required, up to 25% of production may be sold in the customs territory against a valid permit and on payment of appropriate duties. This was later reviewed to 75%, and up to 100% foreign ownership of business in the zones allowable,’’ the group submitted.
In its reaction to the current administration’s foreign investment drive, the body raised concerns on the government’s stance on giving outlandish concessions to foreign investors without putting them in perspectives.
“However, from past experience and records, this has not always worked. Indeed, according to the World Bank Report (2022), the more Nigerian Presidents travel to court FDI, the more it declines.
“From a high of $8.84 billion in 2011, FDI inflow crashed to $3.45 billion in 2016, $2.3 billion in 2020 and $3.31 billion in 2021.
“The National Bureau of Statistics reported a $4.27 billion FDI in 2022 which fell to $2.82 billion at the end of 3rd quarter of 2023.
“The bitter truth is that while its potential remains huge, Nigeria is currently not attractive to foreign investors. Our members are bearing unspeakable tax brunt within the confine of the free zone. Global capital goes where there are clear opportunities that are unencumbered,’’ NEZA posited.
The association noted that the free zone scheme in Nigeria offered a huge opportunity to attract foreign investment, adding that the question has always been how the already attracted ones currently operating and faring against government policies and regulations that are in conflict with the incentives initially offered?
“What about the shabby infrastructure, forex illiquidity, shallow electricity input, poor ease of doing business and hostile posture to investors?
“The idea of a one-stop-shop which the enabling Acts provided is being jettisoned and this is providing a hostile business environment for free zone companies to thrive, the body said.
According to the body, it is either the country embraces the global economic matrix which gives free zones an independent status regulated by laws or not.
“Nigeria cannot be an exemption to how free zones operate, different from the practices worldwide. The truth is that some investors in the free zones are considering relocating to a more policy-friendly countries in Africa while some have already relocated, e.g Valourec FZE which relocated to Ghana in 2022.
“Nigeria must address the perceived hypocrisy of our leaders. What we say to foreign investors during the investment trips differs from what we do at home.
“The policy environment could look stable, yet often out of sync with global best practices. In our quest to attract FDI, we are in competition with other emerging economic powerhouses willing to offer better conducive environment to entice them from Nigeria,’’ the association stated.
According to the association, the government must rejig the system to improve institutional efficiency, conduct reforms on ease of doing business and taxation to, first of all, improve the efficiency of the companies currently operating in Nigeria (free zones) which will in turn, attract more foreign investors.
“Government must not be seen as talking the talk and not working the work.
We must put our house in order, first, with the distasteful perception of the government ascribing part of its revenue losses to the incentives given to free zone enterprises.
“The free zone scheme serves as a leveller in balancing the country’s economies of scale and taxation. The free trade zone is indeed a global economic corridor with tolerable tax incentives offered as investors’ baits.
“So, it behoves on us to appreciate this scheme along with its rules and regulations in order to reap substantially from it.
“Recently, there have been comments attributed to revenue collecting agencies that the Nigerian government is losing revenue through the free zones. For the benefit of hindsight, the scheme, with all its incentives, still contributes impressively to both National Gross Product (NGP) and Domestic Gross Product (GDP).
“In 2022 alone, N36 billion accrued to Government as Customs duty from NEPZA and N25 billion under OGFZA while N408.3 million was remitted as PAYE taxes under NEPZA and N105 million under OGFZA. In the same vein, revenue from Immigration matters under NEPZA stood at N746.5 million and N220 million under OGFZA. We will continue to put out the data as we get them, the body said.
The body listed rest contentious issues to include but not limited to: Inter-agency rivalry, low investor-confidence, non-harmonization of various legislations on the incentives assigned to free trade enterprises, poor rate in ease of doing business and poor business environment, which includes lack of one-stop-shop procedure.
The body, however urged the government to review the economic advantages and disadvantages of the free zones to the Nigerian economy vis-a-vis modern global practices, rules and regulations of doing business in order to deliver a highly competitive and profitable free zone.
It also recommended government’s transparent posture to investors in terms of zero duty and taxes, free repatriation of investors profits and all other FTZ benefits.
The body further asked government to check overlap activities between the Regulatory Authorities and her agencies like NCS, FIRS, CBN, SON, and ITF to avoid the regular duplication of non-free trade zone activities.
The group also called for the long-delayed guidelines on off-shore banking to be revisited by the CBN while government check partnership deals with investors so that undue advantage will not be taken at the expense of the host community or country.
“The NEZ Association is ready and willing to partner with government to address these issues and ensure that its members abide strictly by the rules of the game.
“The association, in collaboration with NEPZA, OGFZA and other stakeholders will continue to monitor the conduct of its members and, while protecting their rights as provided in the Laws regulating the scheme in Nigeria, will not tolerate any act or conduct that will translate to economic sabotage,’’ the body said.