EXPORT PROCESSING ZONES AND POVERTY ALLEVIATION: THE CASE OF NIGERIA

1. EXPORT PROCESSING ZONES AND POVERTY ALLEVIATION:THE CASE OF NIGERIA PRESENTED BY B. O. AKPANYUNG DIRECTOR INTERNATIONAL COOPERATION DEPARTMENT NATIONAL PLANNING COMMISSION ABUJA AT THE AFRICA-CHINA POVERTY REDUCTION AND DEVELOPMENT SEMINAR 7TH – 13TH JANUARY 2012

2. Nigeria at a Glance • Nigeria is Africa’s largest country on the West Coast of Africa and lies between latitudes 4 and 14 North of the Equator and longitudes 3 E and 15 E of the Greenwich Meridian • It is bordered in the North by the Republics of Niger and Chad; in the West by Benin Republic; in the East by the Republic of Cameroun and in the South by the Gulf of Guinea • It has a landmass of 924,000 square kilometres; its Administrative capital is Abuja while the commercial nerve-centre of the country is Lagos • It is divided into 36 States and a Federal Capital Territory; has an estimated population size of 140 – 150 million inhabitants • English is the official language of the country but Hausa, Ibo and Yoruba languages are widely spoken

3. Nigeria at a Glance contd. • The climatic situation ranges from tropical rain forest in the south to Sahel Savannah in the North and rainfall decreasing from 1,500 mm in the South to 500mm in the North • Naira is the national currency which currently exchanges for around N160 to the US$ • The country gained Independence in 1960 but has been under the military rule for a large part of the period until 1999 • It has a GDP of US$ of 184 billion with a per capita GDP of US$1,300 as at 2010 • The country is endowed with several human and material resources notable among which are, petroleum resources, natural gas, coal, iron-ore, tin, dolomite, limestone etc. Oil palm , cotton, groundnut, soya-bean, cocoa, rubber, etc • The country has 4 major international airports (Lagos, Abuja, Kano and Port-Harcourt) and a number of sea-ports (Lagos, Apapa, Tin-Can, Port-Harcourt, Onne and Warri)

4. Introduction • Export Processing Zones are known differently as, Free Trade Zones, Foreign Trade Zones, Free Port Areas or Special Economic Zones • In Nigeria, it was adopted as a policy option to move away from the Import-Substitution Development Strategy of the country ofthe 1970’s and ‘80’s which exerted a lot of pressure on the nation’s foreign exchange situation without attaining substantially the main objectives of its adoption • The major objectives for the establishment of the Zones were, diversification of the revenue base of the economy, employment generation and to encourage exports through local production

5. Introduction contd. • In 1992 the Nigerian Export Processing Zone Authority was established to licence, monitor and regulate activities in the EPZs • As at today, there are 25 Free Zones in the country; 11 of these are operational; 9 are under construction; and 5 are just declarations of intentions. 2 are owned by the Federal Government; 7 by State Governments; 9 joint public and private ownership; and 7 solely private. • 2 of these Export Processing Zones are a collaboration between the Guangdong SEZ and the 2 respective State Governments • These are, the Ogun State/Guangdong Free Trade Zone and the Imo State/Guangdong Free Trade Zone

6. Basic Assumptions for the EPZ There are certain basic assumptions that underlie the establishment and the functioning of an EPZ and the include:- • Inflow of foreign direct investment • Stock of skilled and semi-skilled labour within the economy for engagement by investors • Availability of necessary infrastructure to support the facility • Conducive social and economic environment for manufacturing • Favourable incentive regimes to attract and retain investments in the zones

7. General nature of the EPZ • Highly technical and technologically driven production processes which are in most cases alien to the domestic environment • Production meant for the external market (exports)

8. Priority Areas of investment for the EPZs • Metallurgical/Engineering Industries • Agriculture (forest-based and agro-based activities) • Chemical/Petro-chemical Industries • Construction Industries • Foundries and forges • Metal fabrication and Machine tools • Pharmaceuticals • Rubber/Plastic Products • Leather and leather Products • Textiles and Weaving Apparels • Cement • Non-metallic building materials • Sugar, confectionaries and beverages • Fruits, vegetables, vegetable oils, oil seeds, roots and tubers etc • Gem-stone cutting and polishing, gold processing, mini-sugar production plants, kaolin, marble/dolomite, barite, gypsum

9. Incentive Regimes in the Export Free Zones Locating in the Free Zone Area in Nigeria confers upon the investor certain advantages, benefits and incentives which have been strategically designed to create a business friendly environment for the investor. These are: • Complete tax holidays for all Federal, State and Local Government Taxes, rates, customs duties etc • Duty and tax free import of raw-materials and components for goods destined for re-export • Duty free introduction of capital goods, consumer goods, machinery, equipment and furniture • Permission to sell 100% of manufactured goods, assembled or imported goods in the domestic Nigerian market • 100% of ownership of investments • 100% repatriation of capital, profits and dividends • Waiver of all import and export licenses • Waiver of all expatriate quotas etc

10. Standard facilities provided in the export free zones • Large expanse of industrial land with good access to international airports and sea-ports • Fenced around facility with good security network • Trained free zone customs/immigration roles in accordance with international best practices • Police posts to provide all round security for the zone • Pre-built warehouses for ware-housing and storage of raw-materials and finished products • Efficient communication facilities • Uninterrupted electricity and water supply • Good internal/external road networks • Central transit warehousing facilities at major ports for efficient handling of free zone goods

11. Performance of the EPZs vis-a-vis Poverty Alleviation • It should be recalled that the EPZs in Nigeria were not designed primarily for poverty alleviation but as a strategy for industrialization and development and therefore poverty alleviation is only one of the additional fall outs of the strategy • Although there are no empirical studies to refer to, a casual observation of activities within the EPZs does not indicate any marked improved poverty situation as compared to the rest of the country • Why? Because the zones are yet to be fully developed and functional due to a lot of country-wide problems such as poor infrastructure, perceived social and political instability, dearth of skilled and stiff competition from other EPZs within and outside the country

12. Pre-conditions for the success of a Free Zone Area in Africa • The infrastructural facilities to support the Zone must meet international standards • Labour must be skilled and cheap to attract the transplanting of plants by investors • The incentive regime must be competitive • Investment funds must be guaranteed with possibilities of free repatriation of profits and dividends • There must be vocational centres attached to the Zones for effectiveness

13. What does theory say? • Conclusions as to the contributions of EPZs to growth and development hence poverty alleviation have been mixed as expressed by Warr in the World Bank Research Observer 1989 that “The benefits from EPZs are limited. They are definitely not “engines of growth”. For countries in the early stages of development, zones can be an efficient means of absorbing surplus labour. Even then, they will never be more than a modest part of the solution to the vast employment problems of these countries. EPZs also expose domestic businesses to example of internationally competitive enterprises; this demonstration effect is undoubtedly valuable, especially in the early stages of industrialization as is on-the-job training of local managers. Even so, such benefits should not be exaggerated (1989, page 85) • Since the results are mixed, the seminar should be able to discuss what specific approaches the African countries should adopt/adapt given its own peculiar circumstances. It seems to me that there is no fit-all solution to this issue each must be treated on its own merit. I THANK YOU ALL