Free Trade Zones Law Should be Reviewed – Ndibe

ndibe1Chris Okwudili Ndibe is the Executive Secretary of Africa Free Zones Association. He was General Manager in Nigeria Export Processing Zone Authority (NEPZA). Since his retirement, he has been a Free Zones consultant to many stakeholders in the sector. In this interview granted to the Economic Confidential, he speaks about the need to review the laws guiding the sector and the economic benefits FTZs hold for the country.
 
EC:What is AFZA?
ANS: Africa Free Zones Association (AFZA) is an international non-profit organization established in Cape Town, South Africa in October, 2004 with the secretariat of the Association Ain Nigeria. The Association is aimed at promoting African Competitiveness and foster rapid economic growth through Free Zones Schemes. AFZA takes on Board all the variants of the scheme such as Export processing Zones (EPZs), Free Trade Zones (FTZs), Special Economic Zones (SEZs), Industrial Development Zones (IDZs), Free Trade Areas (FTAs) and the supervising department and Ministries of host countries.The association offers programmes and services geared towards serving the business needs of its membership. It is committed to the success of the member zones by the various activities and programmes of the associations like: educating members of the best practices in management of free zones by organizing seminars, conventions, workshops and training programmes; guiding member countries on legislations on Free Zones Scheme; conducting research activities on economic and social issues affecting the development of Free Zones; maintaining a good media relationship for the scheme in Africa.
 
EC: Despite the successes recorded on the operation of the free trade zone concept in development countries, many entrepreneurs in Africa are not aware of FTZs and what benefits they provide to their businesses. Why is this?
ANS: It is true that many African entrepreneurs are still unaware of the enormous potential of Free Trade Zones for reasons bordering on our level of promoting our zones in this continent. Many African countries, including Nigeria, that have established free zones are not giving it the publicity it requires. In the feasibility report of zones development, promotion is always given priority but because of the cost involved, most countries always do not meet up with the promotion which is made up of advertising, public relations and personal selling; all expensive all over the world and normally classified under capital budget, if you must make impact. But most African countries classify promotion under overhead which waters down the consideration and allocation. At the end of it, money is spent but the effect is not achieved because of the low level of the promotion executed in a year. I have been assisting some African countries of late in their plan for promotion that will give the desired effect but the problem is always fund. A project of international complexion requires good funding to go to CNN, BBC, Al Jazeera and other media.
 
EC: To what extent is Nigeria taking advantage of NEPZ Law law to promote investments in the free zones?
ANS: It is still low, and the reasons are not far from what I said earlier on the budget for promotion which, at the end, cripples the FZ Authority that is supposed to plan and execute the investment promotion programmes; organize both local and international seminars, and solo exhibitions; go on CNN and other international media that will hit the privacy of the business moguls who will actually take that business decisions; initiate a weekly TV and Radio programme where experts are invited to talk, negotiate dedicated pages in our national papers and magazines for canned news features; pioneer the publication of niche magazines that will achieve wider reach and an online newsletter to the emails of target audiences. You will agree with me that a good promo plan supported with finances will take the scheme to a higher level of awareness which goes with its multiplying advantages to the country. What is happening in Nigeria is a case of giving birth to a healthy baby with no adequate care and expecting the baby to grow well. Apart from the infrastructural development in the zone to pronounce it a zone, the principal aspect of the case is good promo plan and financial support.  Free Zones promotion in Nigeria is still at the lowest ebb which is affecting the awareness level.
 
EC: Investors have over the years complained that with an estimated population of over 160 million people, goods manufactured within FTZs in Nigeria cannot directly enter into the Nigerian market without customs and other licensing, clearance requirements. This is in contrast with other similar goods which are much cheaper because they are allegedly illegally smuggled through the national borders without the payment of the same duties and taxes. Why is this so?
ANS: That is not true! Investors producing in Nigeria FZs are allowed to sell 100% in the customs territory provided they pay the requisite duty on the goods. This was long achieved when Engr. Mustapha Bello, of NIPC now, was the Minister of Commerce and Industry. The issue here is the porous nature of our borders and ports, which gives room to high smuggling of goods and, at the end, affect goods from the zone and those produced in the customs territory. Smuggling is an evil wind that blows no manufacturer no good. I just hope that the committee set up by the Minister of Trade and Investment to review the activities of Free Zones in Nigeria will address this aspect too.
 
EC: Frequent changes in the list of goods banned from importation into Nigeria is said to inhibit investment planning and restricts the number of goods that can be manufactured and imported into Nigeria from the FTZs; what can government do to change this?
ANS: Government is supposed to be resolute about banned list and duty payment. The kind of policy somersault on issues of this nature is actually affecting the development of Commerce and Industry generally in this country. The model of our governance in Nigeria and most African countries gives room for this. If proposals are subjected to the crucible of rigorous debate and perfect reasoning, the banned list will not be changing as often as it is being done here. Banned list and off listing is now likened to a footnote in a restaurant menu catalogue, which states that the prize of the meat could change while we are still eating.
 
EC: How can African countries take greater advantage of the free trade zone concept to better their economies?
ANS: African countries can take advantage of FZs scheme by modelling the scheme to the host country’s comparative advantages. No matter how developed your free zones are, there are areas you cannot compete with developed economies. There are areas of strength of every country, a country’s USP – Unique Selling Preposition. Since FTZ has become a proven policy tool which government can use in countries to ease the pains of delay, red tape bureaucracy inflicted on export manufacturing a lot of work is now on going on the best way to model and operate the scheme for efficiency. In AFZA, we are advocating that countries should tilt a lot towards their comparative advantage which suggest that countries should specialize in the goods they can produce most efficiently. Countries increase their economic prosperity by producing and exporting the   goods they are relatively more efficiently at producing and importing the goods that other countries are relatively more efficiently at producing. The effect of this includes relatively low cost of production which will come from negligible transport cost and low cost of backward linkages.
 
EC: What can we learn from the Asian Tigers and other successful economies that have made the best use of the FTZ concept?
ANS: When we talk about learning from Asia, I will first tell you that an economic environment is very complicated; therefore, there is no universal model/solution to a problem. So it is with FZ scheme, there are no unique rules for the management of FTZ and so I suggest that the regulations and basic law have to be revised according to the economic environment. No two zones are the same but you have to manage, according to its development, the economic and social environment. Going back to your question, we can observe the basic things that is common to the success of zones which work for the Asians.
 
ndibe2EC: How can the concept be nurtured?
ANS: The concept must be considered as part of the national economic strategy; otherwise, we may not achieve strong linkages with local industry. This is because zones initiative determines their destiny from the start with the policy framework, incentive packages and other provisions. That is why I said earlier that our basic laws have to be revisited to make incentive competitive and reduce the control on zones law.  NEPZA, the Free Zones Authority in the country, is underfunded and therefore poorly managed take us to the Promised Land where the Asian Tigers are. I doubt if the Authority can, on its own, bring in a consultant from anywhere to work with them for a period and pay the consulting firm or consultant – which points to a weak administrative body of government. NEPZA can work with SMEDAN under a special guideline to nurture SMEs into being an export processing zone or factory. Kenya is effectively practising this incubation strategy and other African countries. Nigeria should encourage private rather than public development of zones. This will shore up our chances of success. A state government can obtain a FZ licence and agree with a private developer to develop and manage under a well structured agreement. The law review should incorporate a PPP framework for zones development, outlining rights, responsibilities and obligations of all parties with respect to all aspects of zone development, financing, regulation and promotion. As a matter of fact, if we do what we are supposed to do, and the right attention give, our FZs will take us to where the Asian Tigers are, thereby contributing to the realization of Vision 20-20-20.
 
EC: How would you describe the Nigeria free trade zone law in its present state?
ANS: The present Nigeria FTZ law is archaic that requires visitation and review. The FZ law is delaying the business community, which is peopled by dynamic beings; we should be dynamic as well in the review of the FZ laws. What we are using was enacted in 1992, and 21 years later, you think it can still serve and attract the dynamic FDIs? We are shooting ourselves on the foot by leaving the law which still states that an investor can only sell 25% in the country, in this internet world. The individual would have read and made up his mind without us knowing so as to tell him that he can actually sell 100%; and a host of other trash that need to be expunged, and modern tenets infused into the law. If you check that there is no single policy of government that can mop up joblessness from the streets of the country like FZ policy, you will agree with me that we are joking by not giving attention to FZ law. A factory I visited in Mombasa, Kenya recently had 2,700 employees. Calabar Free Trade Zone has the capacity of hosting about 100 of such factories. You extrapolate and tell me if we will not go importing workers into Calaber. Today, we have 26 FZs approved by the federal government at different levels of development. While you are doing your extrapolation, remember the backward linkages.
 
EC: As the former general manager of NEPZA, what areas do you think need to urgent review?
ANS: Let me just pick key areas. If you look at the law, it is still stating that you can only sell 25% of your products in your area. Meanwhile, during Mustapha Bello’s regime as the Minister of Trade and Investment, that aspect of the law was changed to 100% in the customs territory, provided that the company pays the requisite duty on the goods, but it has not been captured in the law. So, if somebody goes there, what he sees is the 25%. There is also the issue of the composition of the Board of NEPZA. It is very important to have the body well constituted. You see, the issue of going to the secretariat of the chairman of the ruling party to pick the Board is out of place. Most countries that are moving today in FZ make the minister of Trade and Investment the chairman of the Board because of the seriousness that is required there. This will make it easier in taking decisions. Our level of investment needs to grow, too. Now, we are talking about the Public Private Partnership (PPP) being the in-thing all over the world. In our law, the framework in terms of level of responsibility is not well captured. These are some of the areas that need to be addressed in the law.
 
EC: But PPP does not seem to be working effectively in Nigeria now?   
ANS: That the BPP not working is down to the framework we have in Nigeria. The law has not captured how it should be working as it is in most countries. If the ways things are to be done in the FZs are well captured in the law, people will look into the law and see for themselves. I still believe that it can work well in Nigeria. For example, if a state government brings in an investor and provides the land and does everything on its part, then they would be able to enter an agreement with the investor and this will guide their way forward. As far as I am concerned, the in- thing is PPP; that is, where you cannot achieve a private investor purely, the state government can come in but you should be mindful of the level of the state government involvement to the functionality of the zone because that is what is killing FZ in Africa: the interference of government in this sector.
 
EC: What laws are required to promote the scheme in Africa?
ANS: You are asking of what laws that are required to promote the scheme in Africa. We need law of connectivity and accessibility within the continent which should be pioneered by the African Union. We need a law empowering an association or council that should be assisting in FZ policy framework and the concept of extra-territoriality. The concept of extra-territoriality states that FZ should be treated outside the domestic customs territory but should be eligible for national certificate of origin and participate in trade and market access agree.  We also need a law on labour regime which will consist of ILO standards and collective bargaining, and the transparency of foreign worker employment regime, which will discourage excessive dependence on foreign workers at the expense of local ones.
 
EC: What is your take on states like Borno which got their FZ license only for another government to come into power and start fighting for the license again?
ANS: I think Borno State got their license in 1996 or 1997 and Banki (in Bama Local Government Area on the Nigerian border) is a viable place to site a free zone. For whatever is their reason, they never gave attention to it. The governor does not need to start hiring a tractor but ally with a Free Zone Area to give him advice on what to do. Maybe because of our politicians have not really given FZ the attention it needs, this is why some of these things are not working. If Borno and developed this zone when they got the license, I am sure that what is happening there now may not be happening. This is because jobs would have been created for all these young boys engaging in fighting. Calabar FTZ has a capability of hosting 100 of factories. Assuming they are functional and employing about 2000 workers, don’t you believe that Cross River State would have been importing workers? Imo also got their license and could not develop the FTZ and the Chinese firm had to go to Ogun State where they have invested what would have been for Imo State. The point here is getting the license and using the opportunity well. Kenya is not bigger than Nigeria; yet, the country has about 50. USA has more than 600 while China has more than 400. Mauritius started with one and today it has decided to make the entire country FZs so that where ever you site, you will enjoy the benefits. We have not even started.
 
EC: How can we turn around some of these FZs into oil processing zones as we have in Singapore?
ANS:We can do that, and even better than Singapore. In Ikpokiri Island, we can turn it into Free Zones and I am sure it is as big as the whole of Singapore. I am sure we will get to that because when this issue of private refineries is concluded by the federal government, you see a lot of investors coming in. I know that only Ikpokiri Island can accommodate a lot of factories that are ready to produce things that are oil-related. LADOL is also there and Snake Island can also do that effectively. I tell you, from the countries that are moving well, you will have to learn what you can do from there.

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