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ABSTRACT

TOPIC:

A DETAILED ANALYTICAL ASSESSMENT OF THE

NIGERIAN FREE ZONE: LEGAL AND REGULATORY

FRAMEWORK

OLANREWAJU ABDULATEEF OLAYINKA

2012

PHD PROPOSAL

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ABSTRACT

Following the collapse of the crude oil market, successive administrations have explored and

adopted numerous economic stabilisation and development policies towards stimulating rapid

national industrialisation and reviving the country’s dwindling economic fortunes. Amongst the

export promotion industrialisation strategies adopted by the Nigerian Government included the

Free Zone Scheme.

The Scheme upon adoption became one of the Nigerian Government’s tactical revolutionary

instrument fashioned to stimulate economic growth towards industrialisation. The Government’s

rationale for adoption was based on the acclaimed global success of the Scheme and the

Scheme’s inherent potential to counter numerous domestic economic growth barriers.

Accordingly, Nigerian Zones were designed to create a thriving business environment so as to

attract Foreign Direct Investments galvanised by strategic business incentives.

However, the Scheme’s enacting legislative instrument (Nigeria Export Processing Zones Decree

No. 63 1992 Act Cap. N107 L.F.N. 2004) has remained substantially unchanged. Hence, these

enacting law has become obsolete, globally uncompetitive and business unfriendly. Therefore,

this paper briefly explores the historic development of the Nigerian Free Zone Scheme with

particular attention paid on the Scheme’s Legal, Regulatory and Institutional Framework. Utilising

the Nigerian Government’s Industrial Policy per time, this study employs a flexible qualitative

research methods in an attempt to accumulate relevant information concerning the

effectiveness or otherwise of the Scheme’s Legal, Regulatory and Institutional Frameworks.

Projecting forward, it is intended that this research will allow for a rigorous performance

assessment of the of the Nigerian Free Zone Scheme precisely the Legal and Regulatory

Framework: identifying cogent lapses affecting the Scheme’s functional effectiveness and

recommending necessary corrective measures towards repositioning Nigerian Zones.

Furthermore, upon conclusion of a rigorous examination of the effectiveness and efficiency of

government regulatory agencies directly or indirectly charged with the administration,

establishment, facilitation, supervision, co-ordination, regulation, monitoring etc. of the Nigerian

Free Zones, paying particular attention to the lapses and challenges faced by these institutions,

cogent recommendations will be made towards developing an effective and efficient

regulatory institution with a robust institutional framework.

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Conducting a concrete x-tray of the Scheme’s Legal and Regulatory Framework including the

supporting institutional structure(s) also affords a unique opportunity to contribute to the

increasing academic write-ups on the subject matter. As a result, a robust recommendation will

be proposed following a detailed evaluation of adoptable international best practices in order

to create an effective, vibrant and responsive Legal and Regulatory Framework.

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ABBREVIATIONS/ACRONYMS

EPZ Export Processing Zone

FDI Foreign Direct Investment

FP Free Port

FTZ Free Trade Zone

FZ Free Zone

FMTI Federal Ministry of Trade and Investment

IMF International Monetary Fund

IPs Industrial Parks

IPR Intellectual Property Rights

JV Joint Venture

M&E Monitoring and Evaluation

MOU Memorandum of Understanding

NCS Nigeria Customs Service

NERFUND Nigeria Economic Reconstruction Funds

NEPC Nigeria Export Promotion Council

NEPZA Nigeria Export Processing Zones Authority

NIPC Nigerian Investment Promotion Commission

NIS Nigeria Immigration Service

NOIP National Office of Industrial Property

NOTAP National Office for Technology Acquisition and Promotion

OPEC Organisation of Petroleum Exporting Countries

R&D Research and Development

SAP Structural Adjustment Program

SEZ Special Economic Zone

UNIDO United Nations Industrial Development Organization

WTO World Trade Organisation

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LIST OF FIGURES/TABLES

Fig 1: Free Zone Development Statistics

Fig 2: Free Zone Typologies, Evolution and Development Trend

Fig 3: Categories of Free Zone Legislative Instruments

Fig4: Evolutionary Model of Free Zone Objective

Fig 5: Proposed Research Process Flow

Fig 6: Proposed Comparative Historical Research Process

Fig 7: Illustrates a detailed Data Collection, Verification and Analysis Process

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TABLE OF CONTENTS

Abstract

Abbreviations/Acronyms

List of Figures/Tables

Table of Content

1.1 Background.......................................................................................................................... 7

1.2 Study Area............................................................................................................................ 9

1.3 Justification............................................................................................................................ 9

1.4 Statement of the Problem.................................................................................................. 10

1.5 Study Objective................................................................................................................... 12

1.4.1 Specific Objectives: ............................................................................................ 12

1.6 Significance of Research.................................................................................................... 13

1.7 Motivation for Research..................................................................................................... 13

1.8 Research Requirements……………………………………………………………........……. 19

1.8.1 Research Objectives, Questions and Hypothesis........................................... 19

1.8.2 Research Design, Approach and Strategy…….…………………………...…. 26

1.8.3 Research Method(s)………………………………………………………………... 27

1.8.4 Proposed Research Process Flow..................................................................... 27

1.9 Methodology...................................................................................................................... 28

1.10 Data Requirements.......................................................................................................... 29

1.10.1 Data Collection, Verification and Analysis Process..................................... 29

1.11 Expected Research Output............................................................................................ 30

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1.1 BACKGROUND

Since Nigeria became independent in 1960, achieving economic development through rapid

industrialization has remained a major economic thrust and challenge for successive

administrations. As a result, consecutive administrations have adopted numerous economic

development policies towards ensuring rapid national industrialization. However, upon the

discovery of crude oil and commencement of oil exploratory related activities, these

industrialization policies were passively jettisoned. Therefore the Nigerian economy became

wholly dependent on the FDIs and revenues from the oil industry.

But, the fall of the petroleum economy in 1980 caused by the collapse of the crude oil market

and the subsequent reduction in the production quota of the Organisation of Petroleum

Exporting Countries (OPEC) member countries1 signalled the need to diversify the economy

away from its subsisting mono-product state. Additionally, the government’s economic

diversification thrust was later strengthen by the nation’s dwindling foreign exchange earnings,

her alarmingly growing import bills, high interest rate, accumulating trade arrears, high

unemployment rate and mounting external debt servicing burden. Therefore, the Nigerian

Government frantically explored different economic stabilization measures and development

policies towards ensuring an even Balance of Payments.

Some of the Nigerian Government’s economic development policies ranged from Import

Substitution Strategy (ISS)2 or Resource Based Strategy3 under the First National Development

Plan (1962 – 1968) to various indigenization initiatives. Furthermore, the Government adopted the

Structural Adjustment Program (SAP)4 and other Trade and Financial Liberalization Policies5

towards the revitalization of the nation’s dwindling fortunes. The government also introduced

other far reaching economic revitalization initiatives towards the promotion of non-oil exports.

These initiatives included the promulgation of the Incentives and Miscellaneous Provision

Decree, No 18 [1986]6, the introduction of the Nigeria Economic Reconstruction Funds

(NERFUND) and the deregulation of the Foreign Exchange Market (FEM) with the aim of

enhancing price competitiveness of Nigerian goods in the foreign markets.

1 http://en.wikipedia.org/wiki/1980s_oil_glut assessed 13l06l2012 at 4:33pm. Oil Glut, Price Cuts: How Long Will They Last?". 89. U.S. News & World Report. 1980-08-

18. p. 44 2 Essentially to enable the country import capital goods like machinery, tools and spare parts and by so doing, facilitate the assembly of these products within the

country, while encouraging the manufacture of consumer goods. 3 Aim was to reduce the dependence on imported consumer goods and create employment opportunities for the Nigerian workforce. 4 The government also introduced that “Industrial Policy of Nigeria: Policies, Incentives, Guidelines and Institutional Framework” under SAP with the aim of

achieving an accelerated pace of industrial development towards making the industrial sector the prime mover of economic development. 5 Obi Iwuagwu, 2011. The Cluster Concept: Will Nigeria’s New Industrial Development Strategy Jumpstart the Country’s Industrial Takeoff? Afro Asian Journal of

Social Sciences Volume 2, No. 2.4 Quarter IV 2011 6 To provide different funds and financial assistance to exporter

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Furthermore, the Government also established the National Office for Technology Acquisition

and Promotion (NOTAP), the National Office of Industrial Property (NOIP), Nigeria Export

Promotion Council (NEPC)7 and the strengthening of the Nigerian Investment Promotion

Commission (NIPC)8 so as to control and administer incentives for investment attraction.

Nevertheless, the Nigerian Government failed to attain its industrial development targets despite

these industrial policies, strategies and reforms. As a result, the government switched from import

replacement policy under the philosophy of economic nationalism to export promotion

industrialization strategies for a faster economic growth and structural upgrade.

Amongst the export promotion industrialization strategies adopted by the government included

the Free Zone Scheme: an initiative that was touted by several International bodies including the

World Bank Group, World Trade Organisation, the International Monetary Fund (IMF) and United

Nations Industrial Development Organization (UNIDO) amongst other international institutions.

Therefore, established by the Nigeria Export Processing Zones Act,9 the Free Zone Scheme was

fashioned to create an enabling business environment aimed at promoting economic activities

geared towards the processing of local and imported raw materials into finished goods for

export. The Scheme’s entire ecosystem was designed to gyrate around importing, processing

and exporting of non-oil related trade items galvanised by strategic business incentives.10

The abovementioned Act also established the Nigeria Export Processing Zones Authority (NEPZA),

under the then Federal Ministry of Trade and Commerce (now Federal Ministry of Trade and

Investment), as the body charged with the registration/deregistration, regulation, supervision

and management of all Export Processing Zone, Free Trade Zones, Free Zone Enterprises, Free

Port, Free Industrial Parks etc. within Nigeria amongst other obligations.

Furthermore, the Oil and Gas Export Free Zone Decree No. 8, of 1996 established the Onne Oil

and Gas Free Zone (OGFZ) and created the Onne Oil and Gas Free Zone Authority (OGFZA)

towards facilitation of transhipment activities for the oil and gas industry. OGFZA like NEPZA also

functions under the Federal Ministry of Trade and Investment and is situated in Onne/lkpokiri

7 Agency vested with the responsibility of administering export incentives including Export Expansion Grant and Export Development Fund in Nigeria. The Agency

offers exporters to export incentives upon satisfying the prescribed requirements. 8 Grants Pioneer status certificate upon application to pioneer industry or product thus enabling the applicant access to tax holidays. 9 Nigeria Export Processing Zones Decree No. 63 1992 Act Cap. N107 L.F.N. 2004. 10 Iliya Saidu Kure. [] The South Korea’s Masan Free Export Zone Experience: Lessons For Nigeria’s Export Promotion Drive

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area of Rivers State in Nigeria. OGFZ till date remains the only Free Zone in the world wholly

dedicated to the servicing of oil and gas related activities.

Hence, by the year 2005, OGFZ had attracted investment worth over USD1.0 Billion and created

between 7,000 - 20,000 jobs. The Zone has also attracted and registered over 112 reputable

major multinational oil exploration and production companies and a wide range of support firms

in furtherance of its objectives. 11

Free Zones notwithstanding the briefly mentioned achievements and regardless of their

respective objectives, typologies, nomenclature or establishing instruments, are economic

enclaves where trade activities are conducted freely and foreign investments are exchanged

for goods and/or services.

Therefore, since terms such as Export Processing Zones, Free Trade Zones, Special Economic

Zones, Export Processing Factories etc. all refer to similar concepts with variations determined by

policy prescriptions and objectives, this paper adopts the term Free Zone of the Scheme to

encompass the several array of Zones for consistency and ease of understanding going forward.

1.2 STUDY AREA

This research will briefly examine the historic development of the Nigerian Free Zone Scheme

guided by the Government’s periodic policy thrust per time so as to enable a detailed

assessment of the Scheme’s Legal and Regulatory Framework real-time.

Furthermore, extensive attention will be paid on the Scheme’s institutional framework by

conducting a holistic performance evaluation exercise so as to effectively identify existing lapses

and propose requisite curative actions for future legal, institutional and regulatory reform

initiatives.

1.3 JUSTIFICATION

Numerous literatures have been written on the Free Zone Scheme globally. Whilst a significant

number pay considerable attention on Scheme’s typologies, evolution and economic theories

(Aggarwal Aradhna, 2010; Xiangming Chen,12 1995) others explore the developmental catalytic

11 Inye Nathan Briggs, 2007. Nigeria: Mainstreaming Trade Policy into National Development Strategies. Economic Commission for Africa: African Trade Policy

Centre. United Nations Development Programme (UNDP). 12 Xiangming Chen. 1995. “The Evolution of Free Economic Zones and the Recent Development of Cross-National Growth Zones.” International Journal of Urban

and Regional Research 19(4): 593-621.

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upshot and economic transformational possibilities in the economic affairs of the host country

(Meng Guangwen, 2003; Akinci, G. and J. Crittle, 2008).

Nevertheless, very few sighted and/or reviewed literature focus specifically on the Nigerian Free

Zone legal and regulatory framework. Besides, literatures on the Nigerian Free Zone Legal,

Institutional and Regulatory Framework are mostly obsolete, incoherent or sparsely obtainable.

Therefore, conducting a research squarely aimed at assessing the Scheme’s Legal and

Regulatory Framework including the supporting institutional structure(s) affords a unique

opportunity to contribute to the increasing academic write-ups on the subject matter.

Additionally, this research provides a unique up-to-date data collation opportunity upon which

real-time profitability and economic impact assessment can be based. The proposed research

also creates an avenue within which legislative, regulatory and institutional reforms may be

proposed and/or effected.

1.4 STATEMENT OF THE PROBLEM

Based on the brief introductory narration provided above and as further elaborated in the

succeeding sections of this proposal, the conclusion can be reached that the Free Zone

Scheme functions as a revolutionary engine for economic growth stimulation with an inherent

potential to counter numerous economic growth barriers.

Furthermore, the Scheme undoubtedly possesses the ability to propel a country’s economy to

industrialisation by facilitating the transfer of technology/expert knowledge within the shortest

time possible.

As a result, developed and developing countries have increasingly adopted liberal economic

policies via export-led growth strategies utilizing the aforementioned Scheme as a means of

generating FDIs, raising industrial output, upgrading production standards, reducing reliance on

traditional export, achieving broader/long term economic development and providing an

enhanced platform for global exchange amongst other objectives.

This phenomenon has led to a considerable upsurge in the number of Free Zones globally with

Nigerian Free Zones steadily increasing from zero (0) to twenty-five (25) since the adoption of the

initiative and enactment of the enabling statues.

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Nevertheless, the enabling Nigerian Free Zone Legal and Regulatory Framework have remained

static: thus rendering these Laws, globally uncompetitive and business unfriendly. Furthermore,

these laws as a result of its static nature have become hugely irresponsive to the challenges of

modern trade. Therefore elongated business dispute resolution processes are beginning to occur

without adequate legal succour. Moreover, the Scheme’s Legislative Framework is currently

characterised by absence of convergence in related legislations, a weak

enforcement/regulatory agency and a lack of concerted efforts towards trade laws

harmonisation.

Balancing the above state of affairs with the opinion that Free Zone Scheme require numerous

conditions that are not always strictly speaking economic or financial,13 the conclusion may be

reached that present day reality does not reflect the government’s aspirations for the Scheme

which is to stimulate Nigeria’s economic towards industrialisation.

Therefore, save and except a robust legal, institutional and regulatory framework is developed,

galvanised by requisite statutes, the Nigerian Government’s desire for the Scheme alongside its

globally acknowledged static (increased capital and capital goods) and dynamic (technology

diffusion, tangible and intangible technology transfer14 and spill over, export promotion) benefits

of FDI15 will remain a façade.

Furthermore, high net-worth individuals will continue to ignore the humongous business

opportunities available in Nigeria should Government continued to overlook, neglect and/or

refuse to reposition the Scheme by providing the necessary Legal & Regulatory Framework.

To this end, this research paper will highlight the direct/indirect consequence of the obsolete

legislations with detailed attention paid to the problematic sections of these Laws. These

legislative provisions will be compared with those of strategic countries so as to enable the

possibility of recommending worthy alternatives in line with international best practices.

Additionally, a rigorous assessment of the scheme’s institutional framework will be conducted

with special attention paid to the lapses caused by these institutions as a result of their

discordant mandates and modus operandi. The need to continue to enjoy government’s

13 Ibrahim F.I. Shihata. (1996) The Role of Law in Business Development. Fordham International Law Journal. Volume 20, Issue 5, Article 6. 14 Tangible transfers include the transfer of capital equipment and spill overs such as the development of auxiliary and support industries whilst intangible transfers

include the transfer of skills. 15 Enrique Blanco De Armas, Mustapha Sadni-Jallab. 2002. A Review of the Role and Impact of Export Processing Zones in World Trade : the Case of Mexico. W.P.

02-07. Groupe d’Analyse et de Théorie Économique UMR 5824 du CNRS

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support and long term commitment will also be stressed alongside a need for a

revised/streamlined/dedicated importation/exportation process for Free Zones.

1.5 STUDY OBJECTIVE

As mentioned in the Abstract Section of this proposal, the principal objective of this study is to

effectively assess the performance of the Nigerian Free Zone Scheme precisely the Legal and

Regulatory Framework: identifying cogent lapses affecting the Scheme’s functional

effectiveness and recommending necessary corrective measures towards repositioning Nigerian

Zones as a choice destination going forward.

Furthermore, this study will undertake a rigorous examination of the effectiveness and efficiency

of government regulatory agencies directly or indirectly charged with the administration,

establishment, facilitation, supervision, co-ordination, regulation, monitoring etc. of the Nigerian

Free Zones paying particular attention to the lapses and challenges faced by these institutions.

A robust recommendation will also be proposed following a detailed evaluation of adoptable

international best practices in order to create an effective, vibrant and responsive Legal and

Regulatory Framework.

SPECIFIC OBJECTIVE

1. To evaluate and produce a pragmatic unbiased detailed assessment report on the

effectiveness of the existing Nigerian Free Zone Legal & Regulatory Framework.

2. To appraise the effectiveness of established Free Zone Regulatory Authorities alongside

other supporting agencies and suggest essential corrective actions towards remedying

identified lapses.

3. To identify and propose robust remedial actions towards eradicating highlighted lapses

in the existing legal & regulatory framework.

4. To stress-test, identify loopholes and advocate necessarily corrective measures (where

applicable) to the proposed Free Zone regulatory reforms.

5. To explore and recommend globally recognized legal & regulatory best

practices/models towards creating a profitable and sustainable business environment

within Nigerian Free Zones.

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1.6 SIGNIFICANCE OF RESEARCH

The significance of this research becomes palpable when the lapses and inadequacies of the

existing Legal, Institutional and Regulatory Framework is examined against the backdrop of

current global challenges facing the Free Zones Scheme including terrorism, money laundering,

counterfeiting etc.

Additionally, the need for this research is further necessitated and strengthened by the fact that

except a robust Legal and Regulatory Framework including an effective institutional structure is

developed, investors may continue to avoid Nigeria’s thriving business environment.

Accordingly, a clear and transparent legal and regulatory framework which codifies the

Scheme’s strategy and establishes the Free Zone Rules for all concerned stakeholders must be

holistically captured in other to shape the boundaries of behaviour.

This research also echoes and contributes significantly to the call for a review of the Free Zone

legislations by offering a platform for a rigorous assessment of the existing framework towards

giving a fresh policy perspective to civil societies and government agencies/organisations

engaged in the promotion of the Nigerian Free Zone Scheme.

Furthermore, the significance of this research paper is effectively captured in the research

questions listed below which were developed from a plethora of reviewed literature, extensive

research and the researcher’s first-hand experience in a Nigerian Free Zone Management

Company. It is hoped that upon conclusion of this research, further studies will be inspired.

1.7 MOTIVATION FOR RESEARCH

Numerous factors instigated and consistently motivate the conduct of this research principally

amongst which includes the acclaimed performance of the Free Zone Scheme globally.

Undoubtedly, the Scheme within the last fifty (50) years has become increasingly popular in both

developed and developing countries mostly as an economic growth policy instrument aimed at

enhancing industry competitiveness16 and the promotion of export-oriented Foreign Direct

Investments.17

Historically, the Free Zone concept originated from Free Ports like the Port of Aegean island of

Delos and Port of Leghorn in the Bay of Genoa, North West Italy (1547). The eighteenth (18th) and

16 Special Economic Zones Performance, Lessons Learned, and Implications for Zone Development 17 United Nations Economic and Social Commission For Asia and the Pacific (UNESCAP) and Korea Maritime Institute (KMI), (2005) Free Trade Zone and Port

Hinterland Development, Transport and Tourism Development (TTD) Publication reference ST/ESCAP/2377

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nineteenth (19th) centuries also witnessed increased establishments of Free Ports in places like

Gibraltar (1704), Singapore (1819), Hong Kong (1848), Hamburg (1888)18 and Copenhagen

(1891) to name a few.19 Ephesus (now Turkey) for instance, through its Free Port initiative

welcomed traders and tradesmen with open arms as a result the region recorded remarkable

economic developments during those times.20

Free Zones historically were small, fenced-in, duty-free areas, offering warehousing, storage, and

distribution facilities for trade, transhipment and re-export operations, and were located in most

ports of entry around the world. The rationale of setting up these zones was to facilitate

‘transiting trade’ of other countries exports. Therefore, the level of international trade was linked

to domestic production but depended on expanding transiting trade related activities.21

However, the modern concept of free trade "zone," as opposed to free "port" or free "city," was

introduced by the United States in the Foreign Trade Zones Act of 1934.22 The New York Foreign

Trade Zone No. 1 was established in 1937 as the first FTZ in the world. However, the U.S. FTZs

remained rather small until a 1950 Act authorized export-oriented processing within the Foreign

Trade Zones. Thus creating for the first time an FTZ where manufacturing was permitted.23

As a commendable follow up, the Irish Government in 1959 established the Shannon Free Zone

by extending liberal policies normally accorded to ports and airports to the industrial area

adjoining Shannon Airport. The Shannon Free Zone was the first Free Industrial Zone (FIZ) created

expressly for customs-free export oriented manufacturing. The FIZ model developed at Shannon

was a combination of the FTZ concept with the emerging concept of industrial estates, i.e. "a

tract of land which is subdivided and developed according to a comprehensive plan for the

use of a community of industrial enterprises.24

The Irish Government’s rationale was geared towards attracting FDI, supporting existing foreign

enterprises and ensuring efficient government supervision of enterprises amongst other

objectives. Till date, Shannon Free Zone still remains Ireland's largest cluster of North American

18 In 1888, Hamburg became the first port to be granted the special privilege of manufacturing, on the conditions that it not compete with the hinterland and

remain export-oriented. Jayawardena (1983), Free Trade Zones, 17 J. WORLD TRADE L. 427 19 Currie, Jean (1979) Investment: The Growing Role of Export Processing Zones, The Economic Intelligence Unit, London 20 José, Cerón (2004) Assessment of Mongolia’s Free Trade Zone Program and Site Evaluation: Mongolia Economic Policy Reform And Competitiveness Project

(EPRC) 21 Aggarwal, Aradhna, (2010) Economic impacts of SEZs: Theoretical approaches and analysis of newly notified SEZs in India. Munich Personal RePEc Archive

Paper No. 20902, posted 26. February 2010 / 17:43 22 Foreign Trade Zones Act of 1934, Pub. L. No. 73-397, 48 Stat. 998 (codified as amended at 19 U.S.C. §§ 81a-81u (1982)). 23 R. Thoman, Free Ports and Foreign Trade Zones 140 (1956), cited in Note, Foreign Trade Zones, supra note 14, at 732 n.55. 24 W. Bredo. (1960).Industrial Estates: Tool For Industrialization 1

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investments with a successful track record as a choice location for international companies

wishing to invest in Europe.25

In addition, the modern concept of Free Zone unlike the abovementioned Free Port concept is

not static and does not need to be situated adjacent to a port. Modern Free Zones can be

located anywhere with relatively good connectivity. Modern Zones also evolve with economic

growth of the domestic economy, in terms of the composition of economic activity and

technological sophistication. Additionally, modern Free Zones are dominated by low cost labour

intensive industries in the earliest phase of development.

Mayaguez, Puerto Rico (1962), Kandla, India (1965) and Kaohsiung, Taiwan (1966) like the

Shannon Free Zone effectively exemplify the modern concept of Free Zone. By 1975, twenty-nine

(29) countries had seventy-nine (79) Zones across the world. Today, there are approximately

3000 zones in 135 countries worldwide.26

In 2007, total global exports from FTZs were estimated at USD 400 billion.27 The Colon Free Zone in

Panama, the world’s second largest FTZ, generated USD 8.6 billion in exports and re-exports in

2008.28

The United States which possesses more than 161 active Zones, exported more than USD 40

billion.29 Whilst China which leads Asia with 187 Zones, reports exports transactions worth more

than USD 145 billion followed by Indonesia, Philippines, Thailand, India, Taiwan and S. Korea.30

Nigeria, which possesses about twenty-five (25) Zones, has attracted over USD 13.6 billion

investment and paid over N150 billion to the government as customs duty since its inception.31

Overall Free Zones are estimated to account for more than USD 200 billion in global exports and

employ directly at least 40 million workers.32 Nevertheless, strong arguments have been made

that the FZ Scheme “…..is not a first best policy choice…. [for the development of a country’s

economy]. The best policy is one of overall liberalization of the economy… [Although], zones

can play a long term dynamic role in ...[a]… country's development if they are appropriately

25 Http://Www.Shannonireland.Com/ 26 Akinci, G. and J. Crittle (2008), Special Economic Zones: Performance, Lessons Learned, and Implications for Zone Development, FIAS, WorldBank Group,

Washington. 27 Akinci et al. (2008) These statistics were derived from a database developed by FIAS in close consultation with the World Economic Processing Zones

Association (WEPZA), and the International Labor Organization (ILO). Date from an ILO document dates April 2007. 28 U.S. Department of Commerce (2007), U.S. Commercial Service., Panama: Warehousing and Wholesaling, Panama City, published online at

www.buyusa.gov/stlouis/189.doc, 1. 29 Free Trade Zones Board (2009), 70th Annual Report of the Foreign Trade Zones Board to the Congress of the United States FY2008, Washington, published online

at http://ia.ita.doc.gov/ftzpage/annualreport/ar-2008.pdf, 2. 30 Akinci et al (2008), p. 27. 31 http://www.thisdaylive.com/articles/free-trade-zones-investment-hits-over-13-6bn/113362/ at14/04/2012 32 Trade Issues Brief: Special Economic Zones. World Bank Group - Poverty Reduction and Economic Management Network - International Trade Department

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set-up…as an integrated part of a national reform and liberalization program”33 or if they are

used “to integrate …[their economy]… into the world’s global economy.”34

The foregoing facts prove undeniably that Free Zones, as a Scheme, has certainly played a

critical role in economic growth and the development of a Nation’s rapidly increasing exports,

foreign exchange earnings, and employment generation capabilities.

Secondly, the use of the Free Zone Scheme by countries as a catalyst for economic reform also

constitutes another motivating factor. Historically, numerous countries adopted the Free Zone

Scheme as a development strategy and export promotion policy aimed at liberalizing their

respective economies by reducing economic barriers and facilitating global free trade in an

attempt to provide a stimulus to national and local economies towards international productive

capital.

The abovementioned policy change marked a deep structural reform for most countries and

puts an end to the monopoly of closed economies; thus introducing a hybrid system in line with

the host Government’s economic transformation agenda. The policy also acts as an economic

growth stimulus whereby capital, technology and resources introduced into Zones create new

job opportunities for local workers and business opportunities for local companies.

A vivid illustration of the catalytic effect of the Free Zones Scheme is best exemplified by the

Shannon Free Zone scenario mentioned above. This catalytic effect also holds the keys to

China’s rapid and sustained economic growth, outwardly-oriented economic strategy,

unbalanced regional policy (i.e. not all Chinese regions are treated the same way) and growing

integration into the global economy since the 1980s.35

Therefore, the Nigerian Government, like the rest of the world also commenced its

transformational economic reform initiative towards diversifying the economy away from its

subsisting mono-product state. Hence, the Government introduced the Structural Adjustment

Programme (SAP) as means of reducing the Country’s excessive dependence on oil sector

revenues. The programme also sought to promote exports from other non-oil producing sectors

including agriculture, solid mineral etc.

33 Madani, Dorsati (1999)A Review of the Role and Impact of Export Processing Zones, (Washington, D.C: World Bank) 34 Watson, Peter, (2001) “Export Processing Zones: Has Africa Missed the Boat? Not Yet. Africa Regional Working Paper Series, No. 17, World Bank 35 Meng Guangwen, The Theory and Practice of Free Economic Zones: A Case Study of Tianjin, People’s Republic of China

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The Government also established the Calabar Export Processing Zone36 with the aim of boosting

manufactured exports and promoting foreign and domestic trade in line with its economic

transformation objective. As a result, Nigerian Zones like rest of the Free Zones globally account

for approximately USD 200 billion in gross exports per annum and directly employ some 40 million

workers and perhaps some 60 million indirectly.37 Nevertheless, the point must be made that the

FZ Scheme is just an instrument of industrial policy whose success depends on carefully designed

and broadly implemented coherent strategy aimed at rapid economic development.

Hence, although the Scheme has recorded significant success overtime, concerted steps will be

taken in this research paper to understand the very essence of the Scheme as a cartelistic

economic development strategy. Fig1: illustrates additional Zone Development Statistics.

38

Thirdly, the need for an end-to-end reform of the existing Legal and Regulatory Framework

trumps all other motives and constitutes the fundamental objective of this research. This is

because until a holistic reform is carried out, the prospect of achieving the Nigerian

Government’s economic objective(s) via the creation of the FZ Scheme will remain an idea or

illusion.

Globally, evidence has shown that the development of a responsive and proactive legal and

regulatory framework still remains a critical component towards ensuring a stable, transparent

and predictable business environment. Therefore, except proactive steps are taken towards

36 The Calabar Free Zone, the premier FZ, was fashioned to create an enabling environment with suitable financial and other incentives towards promoting

economic activities which seeks to process local and imported raw materials into finished goods. 37 Ibid. 38 BearingPoint; International Labor Organization database; WEPZA (2007); FIAS research.

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enhancing the existing framework (including FZ Laws, Regulations and Operational Procedures),

the Nigerian Free Zone Scheme may continue to suffer serious conceptual and operational

weaknesses. Additionally, the Nigerian FZ investment climate may also continue to lose

credibility,39 competitiveness, investments, investors and global appeal.

Fourthly, the performance and efficacy assessments of the regulatory agencies direct and

indirectly charged with the administration of the Nigerian Free Zone Scheme also form part of

the research motive. Undoubtedly, the key to a successful Zone rests with the ability of the

overseeing authorities and supplementary government agencies to act efficiently and

independently while encouraging more developmental activities.40

Nonetheless, the Nigerian Free Zone Scheme currently lacks a harmonised institutional

framework. Hence, Nigerian government agencies directly and indirectly charged with the

administration, establishment, facilitation, supervision, co-ordination, regulation, monitoring etc.

of Zones appear to function discordantly. This is because a significant number of government

agencies with specific function(s) within Nigerian Zones are established by non-

related/unsynchronised statutes. As a result, operationalizing their respective mandates often

create red-tapes and/or corruption.

Therefore, spirited efforts must be taken by the Nigerian Government towards developing an

effective and efficient regulatory institution with a robust institutional framework. These Institutions

going forward must possess established well-functioning systems, with clear and transparent

rules, effective checks and balances and strong enforcement mechanisms.41

Additionally, these Institutions must help shape a revised institutional matrix of new norms,

capacities, incentives, organizations and regulations aimed at fostering private and/or state

activities within the FZ Scheme so as to improve developmental competitiveness42 and

sustainable economic growth.

Finally, the fact that the study of the Nigerian Free Zone Legal and Regulatory Frameworks

remains a novel area also stimulates the conduct of this research. This is because although

numerous literatures have hitherto been written about the Free Zone Scheme globally, none

39 Ibrahim F.I. Shihata. (1996) The Role of Law in Business Development. Fordham International Law Journal. Volume 20, Issue 5, Article 6. 40 Howard, Stein (2008). Africa, Industrial Policy and Export Processing Zones: Lessons from Asia. Paper Prepared for Africa Task Force Meeting, Addis Ababa,

Ethiopia 10-11 July, 2008 41 Seema. Hafeez. (2003). The Efficacy of Regulation in Developing Countries. United Nations 42 Developmental competitiveness refers to an institutional continuum which propels a dynamic process of accumulation focused on increasing the diversity,

market share, linkages, and depth of an economy.

Page 19 of 33

specifically seeks to assess the functional effectiveness of the legal, regulatory and institutional

framework of the Scheme.

Hence, having observed this literature lacuna, this research paper aims at bridging the gap by

contributing to the critical x-ray of the aforementioned framework with a view to making

valuable contribution to the Nigerian Free Trade Zone Laws vis-à-vis recommending reforms in

line with international best practises.

1.8 RESEARCH REQUIREMENTS

1.8.1 RESEARCH OBJECTIVE, QUESTIONS AND HYPOTHESIS

OBJECTIVE 1: To evaluate and produce a pragmatic detailed assessment report on the

effectiveness of the existing Nigerian Free Zone Legal & Regulatory Framework.

RESEARCH QUESTIONS

RQ1a. What types of Free Zones exist in Nigeria?

RQ1b. What are the existing legislative instruments, government policies and directives

that established and regulate the Nigerian Free Zone Scheme?

RQ1c. What principle(s) guided the establishment of Free Zones in Nigeria?

RQ1d. What was the government’s establishment rationale?

RQ1e. What amendments have been made to these establishing legislative and

administrative instruments?

RQ1f. What lapses occurred as a result of these amendments?

RQ1g. Do the existing legal and regulatory framework(s) adequately provide an effective

administrative, supervisory and monitoring system for the Nigerian Free Zone Scheme?

HYPOTHESIS:

H1a. As stated above, there are Twenty-five (25) Zones in Nigeria. Although some Zones

are operational, a majority are still under construction. Historically, Free Zone

terminologies are diverse therefore in this study, Nigerian Zones will be, broadly speaking,

categorised into Territorial and Regime-type Zones.43

Nigerian Territorial-type Zones occupy clearly defined area(s) and possess a high quality

infrastructure and administrative facilities with better trained members of staff than in the

customs territory. Regime-type Zones strictly speaking are only ‘free economic regime’

43 Meng Guang-wen, [2005]. Evolutionary Model of Free Economic Zones- Different Generation and Structural Features. Science Press Beijing China. Chinese

Geographical Science Volume 15, Number 2, pp. 103-112.

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enjoyed within a defined location but are not ‘Free Economic Zones’ per se. Therefore,

for the purpose of this study our attention will be fixed on Territorial-type Zones.

Moving on, it is worth stating that Territorial-type Zones are further subdivided into Enclave

and Open type Zones depending on their linkages with the domestic economy and

customs supervision policy.

Nigerian Enclave Zones often have clearly defined boarders (such as Free Trade Zones;

Free Ports; Export Processing Zones etc.) and operate with a closed customs supervision

which result in a less direct linkage with the Nigerian domestic economy. The Open

Zones (such as Special Economic Zones, Science and Technology Parks, Free Financial

and Tourism Zones, Industrial Parks etc.) on the other hand enjoy special/open customs

supervision which encourages direct linkages with the domestic economy.

Therefore, grouped according to industrial sector and background features such as

economic freedom, geographical and macro location, Nigerian Zone can be classified

into the following types/categories.

1. Trade Based Zones – i.e. Free Trade Zone

2. Manufacturing Zones – i.e. Export Processing Zones

3. Service Based Zones – i.e. Free Tourism & Finance Zones

4. Science Based Zones – i.e. Science & Technology Parks

Globally, other recognised types of Zones include:

1. Comprehensive Zones – i.e.

2. Cross border Zones – i.e. Cross-border Cooperation Zone and Cross-National Growth

Triangles

3. Cross-National Regional Economic Integration (REI)

Page 21 of 33

44

Fig 2: illustrates Free Zone Typologies, Evolution and Development Trend

H1b. Notable Free Zone legislative instruments include:

a. Acts:

i. Nigeria Export Processing Zones Act

ii. Onne Oil and Gas Free Zone Authority

b. Supplementary Legislations:

i. Customs & Exercise Act

ii. Immigration Services Act CAP 171 LFN 1990

c. Policies & Operating Guidelines:

i. Investment Procedures, Regulations and Operational Guidelines for

Free Zones in Nigeria. 2004

44 Meng Guangwen. [2003]. The Theory and Practice of Free Economic Zones: A Case Study of Tianjin, People’s Republic of China. Submitted to the Combined

Faculties for the Natural Sciences and for Mathematics of Ruprecht-Karls University of Heidelberg, Germany for the Degree of Doctor of Natural Sciences.

Page 22 of 33

45 Fig 3: Illustrates the various categories of Free Zone Legislative Instruments

H1c & d. The Government’s establishment guiding principles and rationale(s) include:

a. Attraction of domestic and Foreign Direct Investment

b. Enhancement of foreign exchange earnings

c. Stimulation of the local/regional economic performance and the

transformation of the Nigerian economy

d. Generation of employment opportunities vis a vis the eradication of poverty

e. Implementation of liberal market economy principles and policies.

f. Realization of micro, macro, common and special economic objectives.

a. The microeconomic objectives evolve from creating trade, export,

employment, foreign exchange and attraction capital to absolving

advance technology, investment and training personnel.

b. Whilst the macroeconomic objective evolved from promoting

regional development to carrying out structural reforms and Regional

Corporation in order to foster Regional Economic Integration (REI).

See Fig 4 below for the Evolutionary Model of Free Zone Objective

g. Decentralisation of markets

h. Development of export oriented industries

i. Encouragement of foreign commerce

j. Diversification of exportable products

k. Overcoming structural balance of payments pressures

45 Ibid.

Page 23 of 33

l. Importation of modern technology, management know-how and human

capacity building within and outside the Zones

m. Improving domestic markets supply conditions

n. Augmentation of forward and backward linkages with domestic firms, leading

to potential formation of clusters

o. Integration of the Nigerian economy into the international economic system,

including international capital movements and international trade

Fig4: Evolutionary Model of Free Zone Objective46

H1e. Amendments to the establishing legislative instruments include:

a. There has been no amendment to the NEPZ Act but added-on guidelines

such as the…….have been drafted so as to regulate and guide Zone

operations.

H1f. Lapses that emanated from the amendment of establishing instrument(s):

a. A stated above, although there has been no amendment to the NEPZ Act

save the referred Operating Guidelines notable lapses yet include:

46 Ibid

Page 24 of 33

i. Consistently confronting novel issues with out-dated and unresponsive

legislative instruments which often expose investors to reoccurring

litigation and disputes.

ii. Inconsistent application of laid-down rules and regulations has

resulted in a plethora of conflicting judicial precedence.

iii. Drastic increment in bureaucratic bottlenecks and corruption caused

by the wanton abuse of inflexible rules and regulations.

iv. Weak and ineffective regulatory instruments have resulted in the

enactments of additional laws and regulations. However, these

regulatory laws have resulted in an arguably under-regulated industry

and undermined the chances of new investment in Zones.

v. The multiplication of ineffective, weak and excessive laws and

regulations also reduces their quality and the chances of their

enforcement.

vi. Lack of implementing regulations and procedural definitions prevents

the achievement of minimal transparency and operationalisation of

key international best practices

vii. Activation and implementation of the existing policy framework

underpinning the Free Zone investment climate is threatened by poor

human capacity particularly in the public sector.

viii. Lack of adequate coordination and cooperation between Zone and

Customs Authorities presents a unique money laundering and terrorist

financing threat/opportunity.

ix. Weak Enterprise Registration process and customs inspection

procedures.

x. Obsolete or Inadequate information technology based record-

keeping systems.

xi. Inadequate combative safeguards against customs fraud, trade

based money laundering activities, terrorism financing and weapons

of mass destruction proliferation.

H1e. Do the existing legal and regulatory framework(s) adequately provide an effective

administrative, supervisory and monitoring system for the Nigerian Free Zone Scheme?

a. This study will irrefutably and conclusively show that the existing Nigerian Free

Zone: Legal and Regulatory instruments are archaic, static and reactionary.

Page 25 of 33

Accordingly, the Legal and Regulatory Framework(s) have become

ineffective administrative and regulatory tools.

Therefore, a strong case will be made for a wholesome review of the

prevailing Framework so that Nigerian Free Zones can be repositioned as a

globally acclaimed, legally vibrant and profitable business destination.

OBJECTIVE 2: To appraise the effectiveness of established Free Zone Regulatory Authority(ies)

alongside other supporting agencies and suggest essential corrective actions towards

remedying identified lapses.

RESEARCH QUESTIONS

1. What legislative and regulatory instruments established the Free Zone Authorities and

supporting agencies?

2. Do the existing regulatory authority(ies) vis a vis the supplementary Government

Agency(ies) directly or indirectly charged with the administration, establishment,

facilitation, supervision, co-ordination, regulation, monitoring etc. of the Nigerian Free

Zone Scheme efficiently and effectively provide the requisite support?

3. What are the critical issues and challenges constraining the functional effectiveness

of these institutions?

4. What proactive remedial actions can be adopted towards addressing these

highlighted constraints?

OBJECTIVE 3: To identify and propose robust remedial actions towards eradicating highlighted

lapses in the existing legal & regulatory framework.

RESEARCH QUESTIONS

1. What are the identified and acknowledged (legal and otherwise) lapses affecting

the successful execution of the Nigerian Free Zone Scheme?

2. What are the direct and indirect consequence of these lapses on the profitability

and sustainability of the Nigerian Free Zone Scheme?

3. What corrective steps have the government taken to tackle these lapses?

4. How effective was the government’s response to these lapses?

Page 26 of 33

OBJECTIVE 4: To stress-test, identify loopholes and advocate necessarily curative actions (where

applicable) to proposed Free Zone regulatory reforms.

RESEARCH QUESTIONS

1. What are the proposed Free Zone reforms?

2. What are the direct and indirect effect(s) of proposed legislative reforms on the

continued existence, profitability and sustainability of Free Zone in Nigeria?

3. What are the possible remedial actions needed to cure the highlighted defects

benchmarked against international best practices?

OBJECTIVE 5: To explore and recommend globally recognized legal & regulatory best

practices/models towards creating a profitable and sustainable Free Zone environment in

Nigeria.

RESEARCH QUESTIONS

1. What innovative and globally acknowledged legislative best practices, instruments

and mechanisms can be adopted or mirrored in order to ensure a sustainable Free

Zone Scheme in Nigeria?

2. What other notable Free Zone developmental model/approach can be borrowed

from globally acclaimed Free Zones?

HYPOTHESIS:

H5a. What innovative and globally acknowledged legislative best practices, instruments

and mechanisms can be adopted or mirrored in order to ensure a sustainable Free Zone

Scheme in Nigeria?

a. United Arab Emirates

a. Dubai International Financial Centre

1.8.2 RESEARCH DESIGN, APPROACH AND STRATEGY

This study is a qualitative research that attempts to accumulate relevant information and data

regarding the effectiveness or otherwise of the Nigerian Free Zone: Legal and Regulatory

Framework. The impetus for doing this qualitative research is to investigate and become more

experienced with the subject matter so as to deliver a detailed description, assessment and

conclusion on the performance efficacy of the aforesaid framework.

Page 27 of 33

Additionally, the utilisation of a flexible qualitative research approach further enables the

rigorous examination of the aforesaid matter through the adoption of diverse qualitative

research approach, strategies and analysis (including statistical, stakeholder and comparative

policy analysis etc.) so as to conclusively verify assumed, observed and confirmed lapses with

the framework.

In line with the foregoing, the descriptive, analytical and exploratory research methods would

be utilised so as to obtain current performance information/indicators of the framework and to

yield instructive information concerning the problems with same. Primary and secondary

methods of data collection will also be used so that the research’s objectives can be achieved.

It is intended that following the application of these research methods, approaches and

strategies, considerable insight would have been acquired towards the production of a holistic,

accurate and verifiable report on the framework.

1.8.3 RESEARCH METHOD(S)

See Section 1.9

1.8.4 PROPOSED PHD RESEARCH PROCESS FLOW

Fig 5: Proposed Research Process Flow

Page 28 of 33

Fig 6: Proposed Comparative Historical Research Process

1.9 METHODOLOGY

This research will take a holistic look at Nigerian Free Zones generally as a unit of analysis in order

to effectively assess the functional effectiveness of the Legal and Regulatory Framework. Also,

this research will employ both library and qualitative field research methods alongside numerous

research techniques with the intention of improving accuracy of collated data through robust

triangulation methods.

The aforementioned research methods and techniques will also foster an in-depth

understanding of the general theoretical and philosophical nature of the Nigerian Free Zone

Legal and Regulatory Framework. Additionally, existing scholarly writing and jurisprudence on

the above-subject matter will also be utilised towards addressing the abovementioned research

questions.

Relevant Free Zone laws and regulatory practices will also be rigorously analysed alongside

various country reports on Free Zones prepared by local and international bodies (such as the

World Bank (WB) and the International Monetary Fund (IMF)) directly and indirectly involved in

the promotion of international trade.

The experience of countries with successful Free Zones like the United Arab Emirates, China,

Singapore, etc. will also be considered for an extensive comparative historical analysis.

Page 29 of 33

1.10 DATA REQUIREMENTS

The types of data that will be collected, analysed and utilised include:

a. Local and International legislative instruments including laws, treaties, policies,

guidelines, directives, agreements etc.

b. Statistical data, reports and indicators on Nigerian Free Zones from different level

governmental and nongovernmental organizations.

c. Robust literature search/survey and case studies on Nigerian Free Zones.

d. Outputs from focus group discussion and participatory performance appraisal (PPA)

method with Free Zone Stakeholders

e. Outputs from well-structured in depth interview for a comprehensive qualitative and

quantitative data.

f. Structured questionnaires and (one-on-one/telephone) interviews for subject matter

expert surveys.

1.10.1 DATA COLLECTION, VERIFICATION AND ANALYSIS PROCESS

Data for the purpose of this study will be collected mostly through rigorous review of Local and

International legislative instruments including laws, treaties, policies, guidelines, directives,

agreements etc. A robust literature search/survey will be conducted with case studies, email,

telephone and/or personal interviews and standardized questionnaires completed by subject

matter expert respondents.

The abovementioned subject expert respondents will include selected representatives of NEPZA

and other supplementary Government Agencies, Zone Managers and Operators, Investors,

Service Providers with cogent dealing in Nigerian Zones, Local and International Legal

Practitioners with requisite Free Zone knowledge and expertise and other targeted contributors.

Additionally, in order to ensure accuracy of collected data, several rounds of interactions via

email and telephone with many survey respondents will be conducted so as to verify the

received data and explore the reasons for inconsistent responses where applicable. This

verification exercise will involve the use of various Data Analysis methods alongside repeated

authentication exercises until the conflicting responses are totally reconciled.

Page 30 of 33

Fig 7: illustrates a detailed Data Collection, Verification and Analysis Process47

1.11 EXPECTED RESEARCH OUTPUT

The projected research output will be a PhD thesis containing numerous chapters in which

written articles, journals and/or presentations made at local seminars and international

conferences will be submitted for relevant assessment. Please see Fig 7: (above) for projected

yearly outputs.

47 Miles M.B., Huberman A.M. (1984) Qualitative Data Analysis: A Sourcebook of New Methods. Newbury Park, CA: Sage

Page 31 of 33

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