Economy

Special Economic Zones: Trump Card for Economic Growth

The Federal Government is working toward enhancing special economic zones to boost FDI in Nigeria’s economy and creating a large number of employment opportunities. This initiative is part of the government’s promise and effort to revamp the economic sector thereby generating massive national income.

It was in this light that The Federal Government announced the approval of four international airports in Lagos, Kano, Abuja and Port Harcourt as Special Economic Zones.

 Aviation Minister, Hadi Sirika while announcing this said “I am very glad to announce that Mr President has approved our four International Airports as Special Economic Zones. These are Lagos, Kano, Abuja & Port Harcourt. Our roadmap working,”

A few weeks ago, The Managing Director, Nigerian Export Processing Zones Authority (NEPZA), Prof. Adesoji Adesugba,  equally revealed that new special economic zones coming in the pipeline  include Funtua FTZ for textile and cotton; Lagos FTZ for medical, as well as Kwara FTZ for agriculture.

Speaking while receiving top executives of the Nigerian Association of Chambers of Commerce, Industry, Mines, and Agriculture (NACCIMA) led by Hajiya Saratu Iya Aliyu in his office, Adesugba said the move is to boost the industrialisation agenda of the Buhari administration.

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Since In the late 1960s, the economy of Nigeria has been based primarily on the exploration of crude oil. In 1973, an increase in world oil price led to rapid economic growth. This oil boom led to migration from rural to the urban centre thereby stagnating agricultural production and exportation of cash crops. Also, in about 1975, Nigeria was involved in the massive importation of basic food crops for domestic consumption using revenues generated from petroleum. The agricultural sector has remained in crisis since that period, especially with Nigeria’s rapid population growth.

Various government administrations have tried to deal with this problem by restricting agricultural imports. They also initiated programmes such as agricultural and indigenization plans, privatization and so on.

Nigeria continued to experience an unsteady flow of income in the 21st century. Nigerian governments have attempted to solve this issue by instituting variuos austerity measures. Nigeria experienced economic recession in 2016, partly due to falling global oil prices. The country saw some progress until another recession came in 2020 plunged the nation into further economic instability. The last recession in Nigeria is primarily impacted by the COVID-19 pandemic. The COVID-19 containment measures affected all sectors of the economy as the rate of unemployment peaked at 27.1%. To mitigate the receding economic situation of Nigeria the government believes the best option that can bring prosperity is in  the Special Economic Zones.Special Economic Zones (SEZ) are areas where businesses receive special treatment such as different regulations, tax regimes and infrastructure.  Governments with limited resources often opt for SEZs to attract FDI to the country. This is done by addressing investment and infrastructure issues within a specific geographical area rather than across the whole country. Also, it is believed that import duty waiver, streamlined bureaucratic processes and tax concessions in the SEZs will promote the inflow of FDI which will, in turn, generate massive employment opportunities, knowledge transfer and revenue generation. Constant interactions with these SEZ investments will also expose and sensitize domestic manufacturers to invest in more sophisticated technologies and effective management practices.

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The Federal Government’s target is to double the country’s manufacturing output to 20 per cent of GDP within six years. Also, the government in partnership with regional aid banks will set up production hubs across the country. Nigeria lacks a strong manufacturing base, as the industry contributes less than 10 per cent to its total GDP. To ensure that importation of goods keep coming to Nigeria especially, with a large proportion coming in from China, Nigeria has maintained a relatively stable currency. To increase the manufacturing industry’s contribution to GDP by 20% and generate over 30 billion Dollars annually by 2025, the government has set up the SEZ investment Company. This company will finance industrial parks in Special Economic Zones. Also, to lower production costs, the government has worked on building roads and expanding the railway network. The government has also raised $250 million capital for Nigeria SEZ Investment Company with a plan to double its equity to $500 million by 2023.

Attracting FDI to the Special Economic Zones may be a crucial tool for economic development. This would be achieved based on so many factors. One way to achieve this is to treat both domestic and foreign businesses equally. There should be fair, reliable and transparent conditions for all kinds of businesses.Partnership is another effective tool that attracts FDIs to the SEZs. There is a need to form a synergy between foreign and local businesses with each contributing its knowledge and expertise to form a value chain. Nigeria is a country vast in natural resources, FDI analysts submit that Nigeria needs the right partnership is crucial to transform these raw materials into value-added products. This will earn the country more foreign exchange in the international markets. The government has actively engaged in partnerships. The last visit of the president to China was is to facilitate partnership and attract FDI into the Special Economic Zones in Nigeria. Also, about 300 Chinese firms and 100 Nigerian firms participated in the Nigeria-China Business Forum. This event took place a day after President Mohammadu Buhari began his visit to China. The government successfully signed various agreements including the 2.5 billion dollars deal to develop the Metro Rail Transit Project in Lagos. Other deals signed include the power sector, solid minerals, Greenfield expressway for Abuja-Ibadan-Lagos project, high tech industrial park, construction of gas facilities, television broadcast facilities, comprehensive farms among others.

Also to attract more FDI to the SEZs, the country needs to diversify its economy. It is believed that the Nigerian government agreement with China will bring positive impacts on the key sectors in the economy such as agriculture, power, solid minerals, housing and rail transport. At this point, it is important that the government create more room for foreign investors and local businesses efforts to diversify the nation’s economy. The Nigerian economy when diversified with all the renewable and non-renewable resources optimally utilized will not only improve the SEZs, it will also tackle the challenges of low commodity pricing, climate change, unemployment, poverty and corruption.

Patriotism is another effective tool to achieve the attraction of FDI to the Special Economic Zones. The economy thrives where there is peace and unity. The current security challenge in the nation might affect the influx of foreign investors into the country. The government has invested in many security projects such as the deep blue project recently launched in June to tackle the issues of insecurity ravaging the country. The government has also instilled counter-terrorism measures that have been effective in dislodging the insurgent groups from their strongholds in the North-Eastern part of Nigeria.

To rapidly translate the SEZs to greater economic success, there is need to actively support and promote clusters and linkages in the SEZs. Zone specialization will promote clustering, hence firms that operate in these special zones can benefit from networks and economies of scale. Investments operating in the same or adjacent industries have greater opportunities to collaborate, share facilities and pool resources than those operating in unrelated industries. Identifying opportunities proactively, matching efforts and organising training programmes with firms within and outside the zone will significantly boost the zones’ impact.

SEZ incentives should be deployed strategically to attract FDI that is more likely to utilise local inputs and invest in the development of the capabilities of local manufacturers. Also, the development of the value chains in the manufacturing sector requires more investments. This will promote linkages in areas where Nigeria has comparative advantages.

For the SEZs to thrive speedily there is need for a solid regulatory policy and frameworks. The legal infrastructure of SEZs should ensure that policies are consistent, transparent, and implementable. The governing bodies should also be given some autonomy to minimize conflict of interest. Also, the zone types and specialization should build on the existing competitive capabilities and advantages. The Nigerian Exports Processing Zones Authority (NEPZA) has put in place measures to encourage these SEZ firms to source inputs locally. This requires SEZ firms to commit to 35% local materials in their production else their applications to set up their firms in the SEZ would not be granted.

When these strategies are effectively deployed, SEZs will translate to the magic wand that will bring economic diversification, employment opportunities, and boost the country’s exports.  It will also improve the nation’s participation in the Global Value Chain (GVC). Furthermore, it increases the transfer of technical know-how and boosts domestic firms’ competitive advantage. Overall, the GDP of the country will be positively impacted.