Export Free Zones, Legislation and National Development  

“The institutions a society develops or fails to develop…provide an important indicator of that society’s capacity for development”- Pranab Bardhan (University of California, Berkeley)

Let me thank the organizers of this Seminar for deeming it fit to bring Stakeholders together to better understand the extant Legal Framework of Free Zone regulation in Nigeria and to contribute their views and inputs as part of the Stakeholders engagement to the law review process. This Seminar could not have come at a better time than now, when both houses of the National Assembly are in the process of reviewing and considering Legislative proposals for the regulation of Free Trade/Export Processing Zones in Nigeria.

Suffice to say, that a major challenge confronting the operationalization of the underlying philosophy of the Free Trade Zones is the dearth of knowledge and absence of understanding of the socio-economic imperatives of Free Trade zones as catalysts for national development. This state of affairs has been amply captured by the Managing Director of the Nigeria Export Processing Zone Authority (NEPZA) Hon-Emmanuel Jime, when he said that “majority of Nigerians, including sister government agencies do not understand the concept of Free Trade Zones (FTZs); It is only a massive public awareness programme that can remedy the situation.” I think this is one of such awareness programme.

It is important to state that the idea behind the establishment of Free Trade Zones (FTZs) has been one of the policy measures adopted by the Federal Government to address the ever-increasing rate of unemployment with its attendant negative effect on the Nigerian economy. The Free Trade Zone policy was meant to help generate employment, increase Foreign Exchange earnings, diversify the economy, boost Gross Domestic Product and enhance technology transfer.

The idea was to encourage both local and foreign manufacturers to take advantage of the huge market in Nigeria while working towards developing their exports markets. In a nut shell, the underlying purpose of creating Free Trade Zones was to engender industrialization by creating incentives for both local and foreign investors to put their Capital into production, assemblage, manufacturing of goods and rendering of services in various sectors of the economy. Such incentives will usually include but not limited to waivers of custom duties, taxes, repatriation of capital and profits, exclusion from immigration quotas etc. within the Free Trade Zone (FTZs).

This necessitated the establishment of the Nigerian Export Processing Zone Authority in 1992, to be responsible for the promotion of local and international investments in the Free Trade Zone and to strategically improve the investment climate by stimulating export oriented business by strengthening strategic national economic policies, streaming administrative approval processes and providing one-stop-shop service for businesses both within and outside Nigeria.

“Since 1991 when the Federal Government established the Export Processing Zone Act, and established the Calabar Site, the country has been seen to add a major policy package to make the economy more attractive to Foreign Investors. Exports Processing Zone (EPZ) is an economic legation for FDI to operate free from Nigeria tax laws, levies, duties and foreign exchange regulations.” (Dr. Jonathan Aremu, Attracting and negotiating FDI with transnational cooperation in Nigeria 2005)

Thus, the foremost legal instrument regulating FTZ in Nigeria was the NEPZA ACT No. 63 of 1992 now cap N107, LFN 2004. This was meant to be the omnibus statutory instrument regulating all permissible (both general and specialized activities) in the FTZS. However, by Decree No. 6 of 1996 now Cap 05, LFN 2004, the Oil and Gas Exports Free Zones Authority was established solely for the management of Onne/Ikpokiri Area of Rivers State as an Oil and Gas Export Free Zone.

Section 5(2) of the OGEFZA, however provides that “the Authority shall have power to take over and perform such other functions being hitherto performed by the Nigeria Export Processing Zones Authority as they relate to the export of OIL and GAS from any of the Nigeria Export Processing Zones established by Act.”

Thus, the OGEFZA Act created a regulatory agency that is to administer specialized free trade zones particularly Oil and Gas Exports. To date these are the two major regulatory authorities created by law in respect of Free Trade Zones in Nigeria, although other statutes like the Companies Income Tax Act cap 21-Amendment Act (No.11) of 2007, Value Added Tax Act (No.12 of 2007) and the Federal Inland Revenue Service Establishment Act 2007 etc, regulates the various tax incentives enjoyed by enterprises involved in activities within the FTZS.

Over the years, these statutes have been subject of evaluation vis – a – vis their efficacy in ensuring the attainment of the desired outcomes of the FTZS. Of particular interest are the NEPZA Act no. 63 of 1992 and OGEFZA Act no. 8 of 1996 both of which appear to be engendering conflict between the two authorities – NEPZA and OGEFZA.

It is in this connection, that the Legislature in a democratic setting is expected to do the needful in order to ensure that the laudable principles of the establishment of FTZS are achieved for maximum impact on the socio-economic health of the Nation.

 

The Legislature and the Regulation of the Free Trade Zones

Under the 1999 Constitution of the Federal Republic of Nigeria (as amended) “the National Assembly (the Legislature) shall have power to make laws for peace, order and good governance of the Federation or any part thereof with respect to any matter in the exclusive legislative list set out in Part 1 of the Second Schedule to this Constitution.”

This provision apart from been the source of the legislative powers of the National Assembly is also the basis upon which the Nigerian Legislature can legislate to bring about the socio – economic development of the country including making laws to regulate the operations of Free Trade Zones in the country (being part of the territory of the Nation).

The legislature is a very important arm of government when it comes to giving statutory flavor to any government policy or programme for the all-round development of the society. It’s law-making functions are so far reaching that it cannot be dispensed with. It has powers to make laws, amend laws, repeal laws and provide in the process guide on how a particular government agency shall be run. More importantly it has the power to appropriate funds for government and its numerous agencies to achieve their set goals.

It is in the light of the foregoing therefore that the current ongoing efforts of the Nigerian National Legislature (the National Assembly) at amending some extant Legislation (Oil and Gas Export Free Zone Authority Act, No.8 of 1996  ) and repealing the NEPZA Act to be replaced by the Nigerian Industrial Development and Zones Commission/Authority (NIDZC/NIDZA) ought to be properly interrogated with a view to ensuring that the regulation of the Free Trade Zones (FTZs) or what may now be called Special Economic Zones (SEZ) is not cluttered with conflicting legal frameworks. In doing this the various stakeholders need to engage the Legislature in an interactive manner that will enable the nation actualize the desired outcomes of the Free Trade Zones in Nigeria. Perhaps it is important to identify some steps that can be effective in engaging the Legislature in the process leading to the making of statutory framework for Free Zones.

The first step will be for the supervising Minister(s)/Ministry of Trade, Commerce and Industry to coordinate the approach to a seamless regulatory framework for the Free Trade Zones in Nigeria. One way of doing this is to ensure that all the existing regulatory agencies are not allowed to pursue independent amendment to their establishment statute to the detriment of the other. This will assist the Legislature in focusing on the merits of the amendment bills before it rather than on the sentiments expressed by individual agency.

The second point is for the relevant committees of the   National Assembly to be engaged by practitioners in the industry and professionals in Legal and Legislative matters, regulatory agencies through seminars, retreats, workshops and symposium with view to unearthing the nuances and issues bothering on Free Trade Zones with global best practices in focus. This no doubt will go a long way to eliminating some of the confusions and absence of proper understanding of the whole essence of Free Trade Zones.

Thirdly, the regulatory agencies should conduct the members of the relevant committees of the National Assembly on Oversight functions of all the various Free Trade Zones around the country. This can also assist in creating the needed awareness about the various Free Trade Zones and the activities going on within them. It may also influence their decision to enact a uniform land that will regulate FTZS rather than different pieces of Legislations to suit the whims and caprices of powerful monopolists in some of the sectors in the FTZs.

In all of these, it will be the duty of the relevant committees of the National Assembly to be guided by national interest and the need to ensure that the regulation of the free trade zones should not be cluttered otherwise, it can create loss of investment (both Local and Foreign) and thus defeat the purpose of the entire scheme of free Trade zone which is to industrialize the nation, create employment, increase GDP, improve exports and thus boost overall economic development.

The committees have a duty to examine the various legal frameworks for regulating the Free Trade Zones vis – a – vis prevailing global best practices so as to make Legislations that will strengthen the agency(ies) charged with the responsibility of regulating the scheme rather than weaken one in favour of the other. This is important because, thus far a lot of investors have put in so much in the 34 or so designated FTZS by private investors and if the atmosphere of uncertainty were to be created by certain Legislation, it can affect the confidence of investors. It is important to state that apart from Calabar and Kano Free Trade Zones, the others are mainly private investors driven zones with NEPZA only providing the conducive environment for investors to enjoy some incentives and engage in various economic activities approved for them. In this circumstance, the Legislature must be mindful of what legislation it makes so as to strengthen, encourage and promote the objective of creating the Free Trade Zones. In this way, the Nation will benefit more.

Today given our nation’s urgent need to diversify our economy, the traditional objectives of promoting exports of non-oil products and promoting Foreign Direct Investment, must be strengthened by the National Assembly through Legislations that will enable NEPZA and other agencies (i.e the public sector) develop the zones with the provision of critical infrastructures such as road networks, electricity supply, water supply and a host of other capital projects that will make the zones attractive to both local and foreign investors.

The Legislature must also be engaged to legislate for the strengthening of the institutional structure of the regulatory agencies so that regulations can engender competitive government policies on FTZs, integrated development approach and improving the investment climate. The Colon (Panama) Free Zone is a huge success because Panama has laws that protect the industrial and intellectual property rights and applies strict sanitary and health regulations for the FTZ and of course the country enjoys macro-stability.

Tussle among Regulatory Agencies of Free Trade Zones in Nigeria: NEPZA Vs OGEFZA

In recent times, the two major regulatory agencies have been locked in a battle of wits over attempt by OGEFZA to have its establishment Act amended by the National Assembly to expand its territorial mandate. Globally, it is not uncommon to have multiple regulatory agencies over Free Zone. OGEFZA is the regulator over specialized Free Zones (Oil and Gas Exports only). Ordinarily, this should not create any problem.

In the UAE, particularly in Dubai the regulation of FTZS is based on the framework of the zone concerned. There are as many authorities as there are Free Zones, notable among which are the Jabel Ali Free Zone Authority (JAFZA) and the Dubai Airport Free Zone Authority (DAFZA). However, this was consolidated in 2001 into what is now known as Ports, Customs and Free Zone Corporation (PCFC).

In the United States of America FTZs are called Foreign Trade Zones, the over 230 zones and subzones are being supervised by the Customs and Border Protection (CBP) but the authority to license and prescribe rules and regulations lies with the Foreign Trade Zone Board. In a nutshell, all the regulatory responsibilities that constitute the subject of discord in Nigeria are vested on the Foreign Trade Zone Board jointly run by the Department of Commerce and Treasury. This enables the process to have checks and balances as the board submits reports to Congress and thus halt the tendency to create monopoly in the rendering of services by certain enterprises using all or any of the regulators.

In the final analysis, the Legislature as an integral organ of government must jealously guide its powers of lawmaking as it affects the regulation of Free Trade Zones in Nigeria so as not to unduly create unnecessary competition amongst regulatory agencies rather than ensure they compliment one another.

In Nigeria, although by an Executive Order of 2014 and the proposed amendment of OGEFZA ACT have been sources of worry amongst the regulatory agencies, the pending Nigeria Industrial Development and Zones Authority or Commission (NDZA/NDZC) seeks among other things to promote and fulfill the economic diversification policy of the Federal Government. This bill is worth pursuing to its logical passage by the National Assembly. All said, it will be important for the National Assembly to be circumspect in acceding to the desire of one agency to expand its territorial mandate with its attendant monopolistic consequences.

The ongoing processes of legislating for Free Trade Zones (specialised or general purposes) must be utilized by the National Assembly and its Committees to ensure that there exist checks and balances among regulators and the enterprises licensed by them to carry on economic activities in the FTZs. The task of ensuring the promotion of industrial development, generation of employment, improvement on the Country’s GDP, cultivation of the nation’s exports and attracting foreign direct investment is a major responsibility of the government as well as the regulators.

The Legislature been an integral arm of government has an abiding duty to Legislate accordingly. And therefore, Stakeholders and regulators of the Free Trade Zones must regularly engage the Legislature on this all important task.

Rt. Hon. Samson Osagie, former Minority Whip of the House of Representatives, delivered this paper at a stakeholders seminar held recently in Abuja

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