Considering the dilapidated state of Nigeria’s infrastructure, the option of locating in a self-contained free trade zone (FTZ) is compelling. Tax concessions and other incentives form an added benefit, improving bottom line profitability and project returns. After a slow start, the Nigerian government is again talking up the benefits of FTZs and fresh opportunities are emerging for investors.

Nigeria’s Export Processing Zones Scheme was established by act in 1992, identifying five sites to be developed into export processing zones, with a further five sites named since then. So far, just two of these sites are fully operational and have since been redesignated FTZs, permitting manufactured output to be sold into the Nigerian domestic market.

The Onne Oil and Gas Free Zone, located near Port Harcourt, is the only zone in the world to focus exclusively on the oil and gas sector. With more than 30 international companies located there, plus modern infrastructure and services, the zone is emerging as a west African hub for the entire regional oil and gas industry.

The other zone is at Calabar to the east, on the border with Cameroon, which has attracted investment from mostly Nigerian manufacturers.

Motivation

New impetus behind the scheme has brought exciting developments. At the Calabar Free Trade Zone construction has begun on a N27bn ($200m) mixed-use business and leisure development that its backers hope will become a regional trading hub similar to Hong Kong and Dubai. Construction has also commenced at the Lekki Free Trade Zone, where Singapore-based Eurochem Technologies plans to build a $2.5bn methanol-to-olefins-polyolefins complex, for supply to the plastics industry.

“Until recently the industrial sector in Nigeria has not seen substantial investment, attracting less than 3% of the total inflow of FDI,” says Adesina Agboluaje, managing director of the Nigeria Export Processing Zones Authority.

He cites familiar factors causing this, including macroeconomic instability; risks arising from frequent and unpredictable political and policy changes; the high cost of doing business mainly due to poor infrastructure; administrative bottlenecks; and institutional rigidities and bureaucracy.

“Countries that faced similar economic conditions successfully overcame these problems by creating ‘centres of excellence’ for industrial and commercial activities,” explains Mr Agboluaje. “To achieve this, the federal government established the Nigeria Export Processing Zones Authority to provide the appropriate enabling environment necessary for export manufacturing and commercial activities as well as to facilitate investment and formulate policies for the management and promotion of the free zone scheme.”

Incentives

In Nigeria, incentives to locate inside a FTZ fall under four headings: customs, tax, immigration and other special concessions. Customs incentives include duty-free importation of raw materials, components, equipment and spare parts; on-site customs processing; and exemption from import and export licensing requirements.

Tax incentives include exemption from all federal, state and local government taxes and levies, including corporate taxes, capital gains tax and VAT. Immigration incentives include exemption from expatriate staff quotas plus on-site processing of immigration documents.

Special concessions available in FTZs include no restriction on the repatriation of investment capital, including any realised capital appreciation; no restriction on the remittance of profits; permission to sell up to 100% of production within the Nigeria Customs Territory; free land rental during construction of production facilities; and the prohibition of strikes for a minimum of 19 years from inception.

In addition, Nigeria’s free trade zones are designed to be ‘one-stop shops’ to simplify the cumbersome bureaucratic procedures for setting up and running a business. High quality infrastructural facilities such as airports, harbours, access roads, telecommunications, electricity and water are in place. And telecommunications and electricity are provided at preferential rates over extended periods.