Free Trade Zones in Nigeria
A free trade zone (FTZ) is a special area within a country where foreign and local companies can import materials, manufacture goods, export products, and perform services without being subject to the usual customs, tax, labor, and other bureaucratic regulations. There are 42 licensed FTZs in Nigeria with over 500 foreign and local companies doing business in them. These companies are in diverse sectors ranging from oil and gas, to petrochemicals, manufacturing, banking, port operations, pharmaceutical, steel rolling mills, food processing, warehousing and logistics, ship building and maritime services. The FTZs are open to investments based on merit and sustainability, however, the Government of Nigeria's (GON) policy as contained in the Nigerian Industrial Revolution Plan (NIRP) seeks to encourage investments in areas where Nigeria has comparative regional and international advantage such as
- Agribusiness and Agro-Allied industries including sub-sectors like food processing, palm oil processing, cocoa processing, leather and leather products, rubber products, and textiles and garments
- Solid Minerals and Metals and sub-sectors like cement, basic steel, aluminium, chemicals and auto assembly
- Oil and Gas related industries with sub-sectors in focus like petrochemicals, fertilisers, methanol, plastics, refineries
- Construction, light manufacturing and services for the local market.
Nigeria's FTZs, since inception in 1992, are reported to have attracted investments of 20 billion dollars, in addition to the Oil and Gas Free Zone (OGFZ), which is reported to have attracted 16.6 billion dollars in Foreign Direct Investment (FDI) and 255 billion naira in local investments. The GON, last year April, announced the designation of 5 international airports in the country as FTZs. 3 other FTZs in the medical, textile and agro-allied sectors are projected to begin operations before the end of this year.
Some of the operational FTZs in Nigeria and their areas of focus includes –
- Ladol Free Trade Zone: This FTZ is focused on the provision of logistical, engineering and other support services for deep water offshore oil and gas exploration. The integration of the 3.8 billion US dollars Total's Egina FPSO was performed in this FTZ.
- Lekki Free Zone: This FTZ is supported by the Chinese government and is focused on manufacturing, oil and gas, commercial business, and infrastructural investment like seaports and power plants.
- Lagos Free Trade Zone: This FTZ is promoted by the Tolaram Group, a Singaporean company. The Group (22.5%) are also joint promoters with the Lagos State Government (20%), China Harbour Engineering Company (52.5%) and Nigerian Ports Authority (5%) of the 1.5 billion dollars Lekki Deep Sea Port projected to commence operations in Q4 of this year.
- Dangote Industries Free Zone: This comprises the Dangote refinery, petrochemical and fertiliser companies all expected to cost 19 billion dollars at completion. The Fertiliser arm was commissioned by the President of the GON in March, and the Refinery is expected to begin operation later this year.
- Onne Oil and Gas Free Trade Zone: This FTZ is focused on the oil and gas and related industries and is reported to have over 170 companies operating within its area.
- Ogun-Guangdong Free Trade Zone: This Free Trade Zone is focused on manufacturing, and raw material processing.
Other FTZs in Nigeria include the Calabar Free Trade Zone, Brass Oil and Gas City, ALSCON Economic Processing Zone, Kano Free Trade Zone, Snake Island Integrated Zone, Eko Atlantic Free Zone, Alaro City Lekki Free Zone, Warri Oil and Gas Free Zone, Tomaro Industrial Park, Abuja Tech Village Free Zone, and Centenary Economic City.
A number of the notable companies currently operating in Nigeria's FTZs include Samsung Heavy Industries, Kellogg's, Colgate-Palmolive, Dangote Refinery, Pinnacle Oil and Gas, Bollore Transport and Logistics, Jiangsu Yulong Steel Pipe Company, and Eko Support Services
The main laws regulating FTZs in Nigeria are the Nigeria Export Processing Zone Act 1992 (NEPZ Act) and the Oil and Gas Export Free Zone Act, 1996 (OGFZ Act). The NEPZ Act established the Nigerian Export Processing Authority (NEPZA) to licence, manage and supervise FTZs in Nigeria. NEPZA also has power to make regulations binding FTZs in Nigeria. The OGFZ established the Oil and Gas Free Zone Authority (OGFZA), with power to licence oil and gas free trade zones, and manage and supervise the Onne Oil and Gas Free Trade Zone.
NEPZA has passed regulations over the operations of FTZs in Nigeria as contained in the Investment Procedures, Regulations and Operational Guidelines for Free Zones in Nigeria, 2004. OGFZA also has guidelines as contained in the Oil and Gas Export Free Zones Regulations 2003. The Free Zones (Monitoring and Regulations) Order, 2014 grants additional powers to the OGFZA. NEPZA has equally made regulations over the operations of specific FTZs like the Lekki Free Trade Zone Regulations, 2010 and the Lagos Free Trade Zone Regulations 2016. The Central Bank of Nigeria also regulates the activities of Banks in FTZs through the Guidelines for Banking Operations in the Free Zones in Nigeria, 2016.
There are 3 types of licences generally granted under the Nigeria FTZ scheme –
- Free Zone Developers Licence: This is granted by NEPZA to either a public, private entity or a combination of the two for the establishment, operation and management of an FTZ in Nigeria under the supervision and regulation of NEPZA
- Free Zone Enterprise Licence: This licence is granted to a company to undertake business activities within an FTZ. It is granted by NEPZA but processed through the FTZ management.
- Export Processing Factory/Export Processing Farm Licence: This is granted by NEPZA to an export oriented manufacturing company or farm located outside a FTZ but with the capacity to export over 75% of its production.
Only NEPZA or OGFZA can grant a Licence to establish an FTZ. However companies wishing to establish their operations within an existing FTZ (i.e requiring an Enterprise Licence) have to apply through the FTZ management. Each FTZ in Nigeria has its own application steps and fees.
The application process for a Licence in the Lagos Free Zone is as follows:
- Fill out the application
- Submit application and documentation including –
- Business Plan
- Memorandum and Articles of Association
- Board Resolution of the Company authorizing the investment and nominating the directors
- Passport photographs of each of the directors
- Application appraisal and screening
- The process is completed within 2 weeks, beginning from date the documents are received in Abuja. Upon approval by NEPZA, the new company's operating/enterprise licence will be issued.
To set up an FTZ in Nigeria, the application is made to NEPZA or OGFZA as follows:
- Submission of Application letter, documents, and evidence of payment of $1000 to NEPZA for processing of the application. The documents include
- Acquisition and issuance of Certificate of Occupancy for the proposed site
- Survey plan and Master Plan of proposed site
- Environmental Impact Assessment report
- Detailed feasibility study
- Review of Application
- Site inspection of the proposed site by NEPZA
- A recommendation will be passed to the President of GON by the Minister for Industry, Trade and Investment for final approval.
- Issuance of Licence.
Upon review and approval of the project, the following fees shall apply, subject to review by NEPZA:
- Licensing fee of USD $400,000- Free Zone Status declaration Fee
- Licensing fee of USD $500,000- industrial City/Park status declaration Fee
- USD $100,000-Operating Licence (OPL) Fee to be paid along with declaration fee in the first instance, and thereafter as annual renewal fee.
Approved companies within the FTZs are entitled to the following incentives and concessions:
- Businesses are exempted from legislative provisions pertaining to taxes, levies, duties and foreign exchange regulations
- Repatriation of foreign capital investment in the zones at any time with capital appreciation of the investment
- Remittance of profits and dividends earned by foreign investors in the zones;
- No import or export licences shall be required.
- Rent free land at construction stage, thereafter the rent is determined by the Free Trade Zone management
- Up to 100% foreign ownership of business in the zones;
- No restriction on number of foreign personnel that may be employed by companies operating in the zones;
Goods produced in the FTZs can be sold in the custom territory (areas outside the FTZ within Nigeria) but are subject to normal custom import duties. Similarly, a company in the FTZ is liable to pay income tax on its income when it provides services in the customs area. Note that exports from the FTZs are subject to quality assurance regulations like SONCAP and NAFDAC regulations. Though companies in the FTZ are not subject to company income tax, they are required to pay personal income on employee's earnings. They are also required to file income tax returns in the prescribed form.
All other laws in Nigeria are applicable in the FTZ except as provided under the NEPZ Act, or regulations. Invariably, Nigerian law applies to all cases leading to litigation in the FTZs. However disputes between Licensees in the FTZs are settled by the FTZ management. The FTZ management represents Licensees in disputes against government agencies. In the event of arbitration, the Nigerian arbitration law applies.
Revocation of Licence
The Authority may revoke a Licence if a company fails to comply with the provisions of the Act, Regulations, Circulars or terms of the Licence issued by NEPZA or the FTZ management.
Nigeria's FTZs face a number of challenges particularly in the areas of infrastructure, government interference and need for more regulatory clarity. Some of the FTZs have attracted more investment than others. It is obvious that the laws establishing NEPZA and OGFZA are in conflict over which agency should regulate FTZs in the oil and gas industry, though in practice matters are yet to come to head. Despite the challenges, significant opportunities exist for companies looking to invest in the FTZs having regard to Nigeria's large consumer and labour population, business demands, and infrastructure needs. Nigeria also presents attractive opportunities for exports to European, US and African markets by virtue of its strategic coasts, and numerous bilateral and regional trade and investment treaties. For instance, Nigeria is eligible for preferential trade benefits from the US under the African Growth and Opportunity Act.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.