A Presentation OF THE OIL & GAS FREE ZONE AUTHORITY@FREE TRADE ZONE NIGERIA 2012.4TH APRIL, 2012.‘’ FREE ZONES AS CATALYST TO NIGERIA ECONOMIC GROWTH & DEVELOPMENT ‘’byJohn abbey ( hod marketing ).
INTRODUCTION • The Free Zone Concept • Free Zone as a Catalyst for Economic Growth and Development. • Oil and Gas as Nigeria’s Area of Comparative Advantage. • Oil and Gas Free Zones as a Panacea for Some of Nigeria’s Immediate Problems. • The Role of The OGFZA • The Way Forward. • Conclusion.
Free Zone Concept DEFINITION OF A FREE ZONE By definition, a Free Zone is described as a designated enclave or a geographical territory within a country which is administratively deemed to be outside the customs area, within which national regulations related to trade, finance and other economic activity may not be applicable or partially applicable.
Free Zone Concept Ingredients of Free Zones • Incentives • Use of Area of Comparative Advantage. • Strong Infrastructural Base. • Consistency of Policy/Strong Legal Framework. • Clear and Unambiguous Government Intentions.
Free Zone Concept General Incentives • Tax Breaks • 100% repatriation of capital investment • 100% Remittance of profits and dividends • No import or export licenses required • 100% of FZ goods can be sold in Nigeria • 100 % foreign ownership of business allowed • Duty Free Stock * Equipment * Spare Parts * Pipes • Immigration Incentives • 75% Duty Rebate • Etc .
Targeted Incentives Based on national or other interests, certain incentives may be given to attract specific types of investments. – The infiniun example of malaysia.
Free Zone Concept Use of Area of Comparative Advantage • A Country’s assets best represents their area of comparative advantage • Most Countries globally have capitalised on using their areas of comparative advantage in setting up Zones • Examples include Nigeria focusing on oil and gas; South Africa, Mauritius and Kenya with Free Zones focusing on Textile – a primary agricultural produce; Kenya additionally has Free zones focused on Tourism etc • Several Countries including India, Ireland, Malaysia etc have applied the Free zone concept to initiatives that take advantage of an available, quality labour force • Setting up any successful Free Zone initiative is a well thought out and strategic process stating objectives and a plan on how to achieve these objectives
Free Zone Concept Strong Infrastructural Base • Power • Telecommunications • Transport Network (roads, rail,air) • Etc.
Free Zone Concept CONSISTENCY OF POLICY/STRONG LEGAL FRAMEWORK. • Investor confidence is paramount in the attraction of FDI, therefore consistency in policy is important. • Strong Legal Framework is a prerequisite for consistency in policy. • Therefore the role of Legislation can not be overemphasized.
Free Zone Concept Government Objectives • Attraction of Foreign Direct Investment (FDI) • Capital Growth • Employment Opportunities • Technology Transfer • Skills Acquisition • Revenue Generation • Increased exports • Trade facilitation and support • Industry diversification (primary industry attracts secondary industries which support it’s operations) • Promote Foreign Exchange Earnings • Provision of Efficient and Cost Effective Services • Act as a hub for Sub-Saharan African Region
Free Zone Concept FACTORS INFLUENCING SUCCESS OR FAILURE • Leveraging on the comparative advantage a Nation possesses within the global economy when setting up any Free Zone initiative • Policy and incentives framework • A strong, sound legal and regulatory framework is crucial • Consistency in policy required for Investor confidence as FZ projects are typically long term • Government Support for project
FREE ZONE AS A CATALYST FOR ECONOMIC GROWTH AND DEVELOPMENT THERE IS NO DEVELOPMENT WITHOUT INVESTMENT
IMPORTANCE OF INVESTMENT • Investments provide jobs and contribute significantly to economic growth and development • Provides a needed platform for industrialisation • Technology transfer, skills acquisition, capital growth, infrastructure, use of local raw materials, • Government meeting all demands for job opportunities is a myth without investment • Every Nation need investments to grow and prosper • The most developed Nations are always in competition to ensure inward investment flow
Nations that have employed Free Zone Concept for economic growth. • Republic of Ireland • Singapore • Turkey • UAE • Malaysia • China • India
Republic of Ireland • Population - 4,460,000 • GDP 2008 - $ 226 billion • GDP per capita: - $51,128 • Total Land Area - 27,133 sqkm
Singapore Economic Growth Population - 4.49 million (2009 statistics) GDP 2008 - S$ 239 billion 2009 - S$ 209 billion GDP per capita: - 2006 S$ 51,226 (Highest in the world) Annual growth - 7.9% Home to Shell’s largest oil refinery = 450,000 b/d. Home to numerous refineries and petrochemical industries (Jurong Island).
India: Economic Growth • Trillion dollar economy • Stable currency – Rupee becoming stronger • 9.4 % GDP growth • Per capita Income Rs. 29382 • Life expectancy - 65 years • Foreign exchange reserves – over $ 200 billion • Literacy rate - > 67% • 25% growth on IT Sector exports • Potential R & D hub • Fastest growing outsourcing Industry
Malaysia: Economic Growth Independence - 1957 Natural resources – oil, gas, tin, timber, rubber, palm oil. GDP growth – 5.8% Export of manufactured goods – 76.7% of total exports Adopted a New Economic Policy utilizing Free Zone concept in 1982. Aspiring to be First World Nation by 2020.
China Economic Growth • The growth of customs-supervised zones in China is the significant part of China’s economic development. • In 2006, the total import & export values accomplished by free zones, export processing zones and bonded logistics zones in China amounted to US$205.26 billion, with per area import & export volumes touched US$2.57 billion. There are 724,800 personnel being employed. They have grown to be the most active areas in terms of foreign trade. • One of the most successful SEZ – Shenzhen of China (1980s) has developed from a small village into a city with a population of over 10 million within 20 years. • GDP annual growth rate exceeding 10%. In 2006, China’s GDP ranked the fourth in the world, and the import & export values reaching US$1760 billion, ranking the third globally.
United Arab Emirates (Dubai): Economic Growth • According to the International Monetary Fund (IMF) and the Bank for International Settlements: • the UAE economy now ranks the second largest economy in the Arab region, larger than that of either Egypt or Algeria. • Only the gross domestic product (GDP) of Saudi Arabia outweighs that of the UAE. • Diversified economy to diminish reliance on oil revenue. • Has developed into region’s Premier International Business Centre. • Serves as the biggest re-exporting exporting centre in the Middle East. • Third largest export & re-export centre after Hong Kong & Singapore. • Three highly successful, specialized Free Zones of international distinction. • Success of Jabel Ali Free Zone (hosts largest man-made port) allowed the city to replicate its model to develop clusters of new Free Zones. • In more recent years, they have become a major venue for a number of growing, profitable industries & activities such as meetings, conferences, exhibitions, tourism, banking, finance, Industrial Consultation, information & communication technology, light & medium manufacturing. • GDP 2006: USD 46 billion • Economy built on the back of oil & gas but currently oil & gas accounts for less than 3% of the Emirates revenue. • Increasingly developing as a hub for service industries such as IT & Finance with the establishment of a new Dubai International Financial Centre (DIFC). • Government has set up industry specific free zones throughout the city including Electronic Commerce & Media Free Zone Authority which houses IT firms such as Oracle Corporation, Microsoft, IBM & Media firms such as CNN, Reuters, MBC.
OIL AND GAS AS NIGERIA’S AREA OF COMPARATIVE ADVANTAGE • Nigeria is the world’s seventh largest oil exporter. • With oil reserves of about 40 billion barrels. • Gas reserves estimated to be in excess of 180 trillion cubic feet. • What impact has producing oil and gas had on the living standards of the people in the region?
OIL AND GAS AS NIGERIA’S AREA OF COMPARATIVE ADVANTAGE (cont.) • Nigeria expends between $10-$15billion USD annually in the exploration and exploitation of oil and gas. • Even today with the Nigerian/local content policy of Government less than 25% of this is retained within the Nigeria economy (NNPC figures). • The oil and gas industry employs less than 3% of the Nigerian labour force. • Government target for Nigerian content are 45% by 2006 and 70% by 2010.
OIL AND GAS AS NIGERIA’S AREA OF COMPARATIVE ADVANTAGE (cont.) • Downstream: • Petroleum Marketers Association • USD10b expended annually importing PMS alone • Only oil producing nation in the world that imports refined products
Oil and Gas Free Zones as a Panacea for Some of Nigeria’s Immediate Problems • A visit to the Oil and Gas Free Zone in Onne will convince skeptics that the Free Zone can help resolve some of our immediate problems. • Over 140 companies currently do business in Free Zone. • Over 30,000 people are employed directly and indirectly by the activities of these companies.
Oil and Gas Free Zones as a Panacea for Some of Nigeria’s Immediate Problems (cont.) • It is a specialised Free Zone dedicated to the oil and gas industry. • Combines effectiveness of private sector with support from the Federal Government. • It is designed to maximize the comparative advantage of Nigeria to FDI in the oil and gas sector. • It is also a launching pad for growth in other sectors of the economy.
Oil and Gas Free Zones as a Panacea for Some of Nigeria’s Immediate Problems (cont.) • It is today recognised as a key incubator of the Nigerian content policy. • It is key to the following: • Job Creation • Transfer of Technology • Acquisition of Skills • Promotion of Export and Foreign Exchange Earnings • Etc.
Oil and Gas Free Zones as a Panacea for Some of Nigeria’s Immediate Problems (cont.) • It is therefore a solution to some of the most pressing problems of Nigeria today. • As a country of over 150,000,000 people with institutions graduating well over 200,000 youths annually who are thrown into the job market it is important that interventionist measures are taken to create jobs for these teaming youths. • The Free Zone Concept as applied to Oil and Gas is one of these measures.
Oil and Gas Free Zones as a Panacea for Some of Nigeria’s Immediate Problems (cont.) • The Niger-Delta problem which has taken centre stage today is primarily as a result of youth unemployment. • If the Free Zone Concept is properly applied to Oil and Gas it will retain a sizeable chunk of the $10-$15 billion USD that is taken out of our economy annually thereby increasing our local content and injecting desperately needed funds into our economy.
Oil and Gas Free Zones as a Panacea for Some of Nigeria’s Immediate Problems (cont.) • Nigeria’s biggest problem today is the huge percentage of our income that is spent importing refined petroleum products. • Unknown to many of us Oil and Gas is a very important raw material and its use is not limited to powering generators and driving cars.
Value Addition to Oil & Gas • Over 6,000 products can be identified as made from petroleum Oil and Gas Free Zones as a Panacea for Some of Nigeria’s Immediate Problems (cont.)
Oil and Gas Free Zones as a Panacea for Some of Nigeria’s Immediate Problems (cont.) • Exportation of mineral resources in it’s raw form • Undermines industry • Undermines job creation • Undermines the availability of raw materials for secondary industries • Undermines transfer of technology • Contributes to fuelling social ills
Oil and Gas Free Zones as a Panacea for Some of Nigeria’s Immediate Problems (cont.) • Our goal should therefore be to add value to our greatest resource which is one of the most important raw materials known to man. • The quantum effect of this will totally transform our economy in little or no time and help to resolve most of the problems we are experiencing as a nation .
Oil and Gas Free Zones as a Panacea for Some of Nigeria’s Immediate Problems (cont.) • We at the Oil and Gas Free Zone Authority have coined the phrase “small is good for Nigeria”. • That is reference to the establishment of modular refineries which we believe will help to reduce our dependence on imported refined products.
Role Of The Oil & Gas Free Zone Authority • In the Management of Free Zone growth • Providing strategic direction for investments into oil & gas free zones ( Onne and Warri ). • Propose incentives and advantages relative to the current business climate to facilitate the attraction of investments • Prescribe activities which may be carried on at the Zone • Ensure job creation • Promotions/Marketing (Investment Drive) • Promoting the Nigerian economy as a suitable destination for FDI • Promoting Nigerian Oil & Gas Free Zones as professionally serviced business/industrial sites with the right investment climate
Role Of The Oil & Gas Free Zone Authority • Administration • Ensure Free Zone advantages/privileges reach Clients in the Zone • Interface between Free Zone Clients and other Government Agencies • Provision of utilities, access roads, security • Resolution of disputes • Liaison between Investors & Community
The Way Forward The Vision • Ikpokiri Island as a Giant Industrial City • The State’s new industrial base. • A one-stop-shop location comprising industries and factories, offices, conference location/summit centres. • Providing linkages from oil & gas to other sectors of industry. • Support the thriving of small & medium sized enterprises. • Hotel Services • Residential Services • Recreational facilities • Sports Centre • Shopping Malls • Offshore Banking.
The Way Forward Ikpokiri Island
Ikpokiri Island Development • Land Acquisition to be completed to enable master planning and interested investors start off developmental plans • Access Bridge for Ikpokiri to be put on Federal Government budget
Conclusion • The Oil and Gas Free Zone Onne is recognised world over as one of the most successful in the application of Free Zone concept. • It has impacted positively on the Nigerian economy. • However, opportunities exist for even greater achievements/successes. • Opportunities exist to utilise the Free Zone Concept to further improve on the Nigerian Content in the Oil and Gas Industry thereby increasing employment of our teeming youths in this sector. • Value addition as discussed above is the key to Nigeria’s economic transformation.