By Dr Adesina Agboluaje, Principal partner of Sinolat Consultants
RE: THE FEDERAL MINISTRY, TRADE AND INVESTMENT; TECHNICAL WORKING GROUP REPORT ON FREE ZONES.
The Federal Ministry of Industry, Trade and Investment (FMITI) recently embarked on a performance evaluation of free trade zone licensees in Nigeria. A Technical Working Group was set up to conduct the evaluation exercise. The TWG has submitted a draft report dated March, 2021 of its findings and recommendations to the office of the Minister for consideration and transmission to the Federal Executive Council (FEC) for Presidential Approval.
The evaluation exercise’s main Objective is stated as ‘revamping the delivery of world –class Free Trade Zones (FTZ) across the country…’
For the purpose of achieving this objective, the FMITI established the TWG to:
Address the questions of ambiguity between supervising Authorities;
Review the performance of current licensees; and
Recommend the necessary reforms to unlock the FTZs true potential as an instrument of economic growth and diversification.
The composition of the Committee are as follows:
Honourable Minister, Federal Ministry of Industry Trade and Investment – Chairman
Honourable Minister of State, Federal Ministry of Industry Trade and Investment-Member
Permanent Secretary, Federal Ministry of Industry, Trade and Investment- Member
Director- Industrial Development Department (IDD) – Committee Secretary
Director-Commodity and Exports Department (CED) -Member
Managing Director Nigeria Export Processing Zone Authority (NEPZA)-Member
Executive Director Nigeria Export Promotion Council-(NEPC) – Member
Managing Director Oil And Gas Free Zone Authority (OGFZA)-Member
Technical Adviser to the Honourable Minister, Federal Ministry of Industry, Trade and Investment -Member
Head Public-Private Partnership Unit-Member
To us as Consultants and stakeholders in the Free Zones, we wish to state our observations and reservations on the Draft Report made available.
• General Observations
INITIAL PLANNING /STAKEHOLDER ENGAGEMENT.
Despite the Technical Working Group claims, to have engaged and interacted with the stakeholders to agree on specific frameworks for obtaining information from them.
• There is nothing in the document to show that any stakeholder engagement activities or inputs ever took place. If at all, only CFTZ (NEPZA) and OGFZA (OGFZA) were engaged out of about 48 Free Zones. There is also no report or outcome of such engagement mentioned in the document to support the reliability of the purported engagement.
DOCUMENTATION REVIEW/ANALYSIS (PG. 8)-
The Technical Working Group claims to have obtained and reviewed key information from the stakeholders before arriving at its conclusions despite;
• There is no record of documents or information received from the stakeholders.
• No engagement or interaction with licensees under NEPZA apart from the CFTZ which is just one out of about 45 zones under NEPZA.
• No request for submission of information was made to any of the free zones under NEPZA apart from the CFTZ.
• There is variance in the analysis done between the two Authorities where 5 years was used for NEPZA and 20 years for OGEFZA respectively to arrive at a conclusion.
• Using only two sample, CFTZ for NEPZA and OGEFZ for OGEFZA, for Research (meant to be qualitative) out of 48 zones amounts to nothing but a wilful intention to misrepresent and mislead the FEC with a misleading and deceptive result/research.
• The review and analysis failed or neglected to acknowledge the fact that the sectors, types and numbers of zones managed by both agencies are different.
• Secondary data submitted was incomplete and so inadequate to arrive at such overreaching conclusions contained in the Report.
• Non validation of Data. No attempt was made to even validate data published in the report especially as regards employment figures posted in favour of OGEFZA.
PHYSICAL INSPECTION
The report mentioned that the Technical Working Group physically visited and inspected the Free Zones in the course of its exercise.
Reference was made to CFTZ and OGFEZA. Invariably, physical visit and inspection were conducted and restricted only on these two zones. We observe that the duration within which the evaluation took place was a period of eight weeks, we opine that 8 weeks is too short for the committee to have reached a wide and adequate inspection. This is why such inspection was restricted to only two zones and a job done was done haphazardly.
DOCUMENTATION AND PRESENTATION OF FINDING
Key findings were documented and probable solutions developed
• The key findings made by the TWG were presented in juxtaposition with what the committee referred to as National Aspirations for Free Zones Scheme.
• The source of the national aspiration for free zone scheme stated in the report is not mentioned anywhere in the report. National aspiration, objective or policy of Government are usually documented and published. It does not just suddenly appear as wishful thinking.
RECOMMENDATIONS
Option 1:
Restructure the Commodity and Exports Department (CED) as sole regulator then transform both NEPZA and OGFEZA into FTZ Developers.
• The conclusion under this option contradicts the facts revealed in the analysis of the regulatory framework of other countries
(Pages 32-34).
To think of replacing statutory bodies with the department of commodity and export under the FMITI is not only absurd but baseless. Commodity production or export is just one of numerous business activities under the Free Zone scheme. It confirms a suspicious belief that the whole evaluation exercise was set up to strip NEPZA of its regulatory mandate protected by law and give same powers to OGEFZA through back door and scrupulous acts.
Option Two:
Transform OGFZA into sole FTZ Regulatory Authority, while NEPZA becomes FTZ Asset Holding Company
• This view runs contrary to the position of the Federal Government which necessitated the approval of FEC for the privatization of the CFTZ to allow NEPZA function only as a regulator instead of assets manager. Several funds had been appropriated and expended in order to actualize this objective.
• There are only Two public zones in Nigeria, namely CFTZ and KFTZ which are being managed by NEPZA. All other zones are private zones. Where are the zones/assets being proposed for NEPZA to manage their assets?
• The World Bank Group has clearly stated its support for the separation of regulator and operations/development functions. WBG’s position is that Government agencies should concentrate on regulations and leave zones development and management for private investors. It is therefore contrary to good conscience and global best practice to conclude that NEPZA with years of experience in both regulations and management of more than 40 zones relinquish such function to OGEFZA who has remained in the management of just one zone since inception.
• It will be necessary for the Technical WG to provide evidence where the World Bank Group stated that OGEFZA should be transformed into sole FTZ Authority with NEPZA becoming assets holding co.
The Federal Government already has an entity, Ministry of Finance Incorporated, through which it makes investment and represents its interest in any PPP arrangement.
Option Three
Keep current role of Authorities and develop a new agency to provide regulatory oversight
This option appears to create more confusion than solution. This would not address questions of ambiguity which the evaluation exercise is set out to solve. This would only further dampen investors’ confidence
Option Four
Restructure both Authorities to have separate regulatory and asset holding divisions.
• The conclusion under this option contradicts the facts revealed in the analysis of the regulatory framework of other countries. It is strange enough that Nigeria is the only country where there exist two parallel agencies of Government in the Free Zone. This option is an attempt to compound the problems by proposing two agencies of Government with both regulatory and management powers and functions.
Overview of National Aspirations( Pg.13)
Assessing overall performance of NEPZA( in line with NIRP
• An Industrialization Advisory Board was set up to ensure the implementation of the NIRP and the Board was to be chaired by HMITI with the secretariat domiciled in the Ministry for ease of coordination of all the agencies involved in delivery of the policy objectives. As such, the Ministry is the driver of the Policy document
NEPZA is only a subset of the whole implementation plan and the Authority carried out initiatives that were expected of it. E.g development of a baseline assessment report for selected industrial zones across the Country
Evaluation of performance against National Aspirations ( Pg.14)
Exports & Active Licensees
Assessing overall performance of NEPZA ( in line with the Country’s Development Strategy)
• It was observed that focus was only on export promotion based on our current act and the TWG failed to recognize in their assessment that the market access and developmental objective for the Free Zone Scheme was expanded to support import substitution by allowing 100% sale of FZ product into the Customs territory via a FEC circular It must be noted that approval for Free Zone license is made by Mr. President on recommendation by NEPZA. Most times, the late approval timeline affects the immediate kick-off of the zones as key macroeconomic indices used in modeling the financials of the project would have changed as at the time of approval and in some instances, most funding partners might have lost interest and confidence in making funds available.
Performance Evaluation(Pg.16 & 21)
Analysis of key financial metrics for NEPZA
• Figures for duties paid and VAT was sent to the TWG via email but the report recorded 0%, stating that the information is pending. This shows that the TWG’s recommendation was based on the use of incomplete data and the outcome of the exercise would not help in positioning of the scheme as a veritable tool for industrialization
REVIEW OF REGULATORY FRAMEWORK ( AGES 32, 43-44)
Reviewing FTZ regulatory framework around the World
It was concluded in the report that Zone Authorities should remain engaged in purely regulatory functions, and do not develop or operate zones, so it is confusing as to why it was recommended that NEPZA take up a developer’s role in the recommended option.
• With the current shortfall of revenue for FG, it is doubtful if there would be adequate funds to allocate to a publicly managed assets co.
• It must be noted that NEPZA doesn’t develop enterprise but only infrastructures in the FG owned Zones.
• The two reasons given for the selection of OGFZA as the sole regulator isn’t sufficient enough as review of this document has revealed that some of the data that informed the decision is inadequate
• It was stated in a section of the report that the performance of OGFZA is partly attributed to the nature of its oil & gas enterprises and not the Authority’s Management and regulatory experience. So it is somehow conflicting for another section of the report to state that the rationale for selection of OGFZA is due to its experience in regulating and supervising.
• It must be stated that it is a private company that developed and operates the Zone and not OGFZA per say.
Details of Moribund Zones( pg.64)-Liberty Oil and Gas Free Zone
Provision of information on inactive zones
Approval for the Zone showcases weak site selection criteria/ assessment on the part of OGFZA as an existing entity under NEPZA (Alscon EPZ) was erroneously recommended as part of the liberty Free Zone.
Conclusion
The objectives of FMITI in carrying out the evaluation exercise is stated to be aimed at ‘revamping the delivery of world –class Free Trade Zones (FTZ) across the country. It is reasonable therefore to expect the conclusions and recommendations of the TWG to achieve the set objectives rather than creating more problems for the scheme.
Research conducted by the TWG on international best practices taking samples from about ten countries of the world shows that the only acceptable regulatory model is one single regulatory agency for free zone operations per country. The advice of the World Bank Group also reiterates the importance of the government staying off zone development/management and concentrating mainly on regulatory functions. These positions corroborate NEPZA’s standpoint over the years on the need to have a single regulatory Authority for Nigeria free zones scheme regardless of the sectors. Therefore, the recommendation of TWG that OGEFZA should be the sole regulator of free zones in Nigeria and NEPZA to function as free zone assets management company is confusing, contradictory, misleading and in no way problem solving. It is a well-known fact that the biggest aspiration of OGEFZA from all its antecedent is to take over NEPZA statutory mandates in deviance to the national interests and objectives for the establishment of Free Zones scheme in Nigeria as well as the various advice from both local and international advisory bodies including the international Finance Corporation (IFC) who is the major financier of investment in Nigeria free zones.
In the same vein, the recommendation that OGEFZA should become the sole regulator of free zones in Nigeria despite the fact that it has since its establishment remained a one-zone regulatory agency until recently when two additional zones were unlawfully added to it exposes the real intention of the FMITI in the conduct of the exercise. To have chosen an agency who is lacking in competence, experience and capacity is ridiculous. It must be noted OGEFZA is a public-private partnership arrangement where INTELS Ltd commands a large percentage of shareholding. Meanwhile, NEPZA is solely owned and funded by the Federal Government of Nigeria. The TWG deliberately and mischievously misrepresented NEPZA like a one-zone authority in order to arrive at its premeditated findings and recommendations. In the course of its exercise TWG restricted its visit and data collation to only Calabar Free Trade Zone under NEPZA whereas NEPZA is a multi-sectoral zone authority unlike OGEFZA which is a single sector regulator that’s focused on service and logistics in the oil and gas sector. Since inception, NEPZA has remained a regulator of multiple zones and sectors. There is no other way to explain the reason for the exclusion of the numerous zones under NEPZA in the purported evaluation exercise whether in the course of engagement/interaction, data collation or physical inspection of the zones.
Where our country is currently facing the Corona Virus pandemic like the rest of the world and feeing the negative economic impact, Government’s aim is to merge parastatals for fast and uniform economic development, increasing and duplicating parastatals is a waste of time, money and investments. There is no where In the world where two parastatals managing one scheme, the free zone have only one licensing agency, Nigeria should not be an exception.
Our Recommendations:
The exercise should be seen as a charade and an attempt to misguide the Federal Executive Council in taking decisions that would jeopardize all the efforts that had been hitherto put into the free zone scheme.
It is our recommendation that the Federal Executive Council kindly consider the adoption of Oransanye Committee’s report and merge the two regulatory authorities in the interest of the scheme and the nation at large. This is the only way to sustain investors’ confidence in the scheme and the country.
PRINCIPAL PARTNER
DR. ADESINA.A. AGBOLUAJE.
SINOLAT CONCULTANTS.
05/05/2021.
