Presentation on theme: "'Examine the impact of policy and environmental elements on Free Zone development in Nigeria’ Paper Presented by Chris Ndibe, Executive secretary, AFZA,"— Presentation transcript:
'Examine the impact of policy and environmental elements on Free Zone development in Nigeria’ Paper Presented by Chris Ndibe, Executive secretary, AFZA, at the Nigeria 2012, Free Zone Conference, Lagos, April 4th - 6th, 2012.
The Topic “Getting it right” = providing high quality zone services and government support which is very important in attracting and retaining global manufacturers. In today’s competitive environment, offering comprehensive and unique services to your investors will be supportive in enhancing your zones competitive advantage.
It can catalyse economy- wide reforms in the medium-long term Can boost employment Increase and diversify exports; attract FDI and retain domestic investment Transfer technology and skills Stimulate local economy through linkages; Pilot new economic policies
Determinant of attractive investment climate Now let us come to the key determinants of an attractive investment climate which improves a country’s “product offer”. Regulatory certainty macroeconomic stability, low or no taxation, corruption, infrastructure; anti-competitive practices; skills and education of workers low crime, theft and disorder. Many of these top issues can be addressed through Zones in a targeted way while reforms in the overall economy may take longer due to resource constraints and political will.
Zones may increase the “product offer” of a country’s investment climate through: Duty and Tax free treatment of imports (raw materials, intermediate goods, machinery) and exports; Improved infrastructure through provision of goods quality infrastructure, uninterrupted utility services, and access to transportation nodes; Limiting opportunities for corruption through transparency and clear criteria/procedures; Reducing crime through improved security of assets and persons; Improved skills through investment in common training centres & programs for skill building. Access to markets both in terms of location and polices within zones compatible with global buyers demands.
Investors’ Reasons for selecting a FZ Experienced zones management Good labour pool Reliable infrastructure Strong state, local and FG support Zero level of corruption Provide investors with valuable assistance in setting up and operating in a foreign environment Shelter plan programme
Zones As Business Solution At this point it is necessary to mention that zones are not a panacea. In fact more zones have not met their objectives than zones that have. This can be for a variety of reasons such as: Being underutilized due to poor market access or that the zones have been located for political rather than economic rationale so they may not be close to either their input or output markets. They may not have been provided with adequate infrastructure, services or maintenance. There may also be very low net export due to low value- added. Investors primarily locate in Zones in order to access preferential trade agreements, liberal tax incentives, or subsidized land.
1. Zone should be a tool to catalyze reforms and not become enclaves that divert energies from nationwide reform. 2. The second design principle is to use Zones to promote effective land use and planning. 3. The third design factor is to ensure that your zones are open to industry; not overly restrictive. 4. The fourth design factor is leveraging public-private partnerships. 5. The last design factor is the streamlined regulatory environment since that is what developers and investors keep saying is the most important.
Ingredients necessary for zones to be used as catalysts for reforms include: Have a high-level Government “champion” Have an explicit commitment to use Zones to pilot reforms from start of program for improving the investment climate. Have a communication strategy with Public/Private dialog. Develop a monitoring and evaluation system. All of these have to be well couched in an effective institution that crates incentives for the Zone itself in having their success measured by the introduction of reforms into the domestic economy. This is best achieved when the zone is used as a catalyst within an overall economic reforms program.
As we aware, location is a key aspect of the value of a zone. But it is not just location; the price asked for the land should be based on commercial factors or market factors. There is forward planning required to ensure that you have the administrative and infrastructure capacity to deal with increased investments. This brings us again to what is now being regarded as a higher value- added proposition than the traditional Zones, and that is the hybrid Economic Zone model. A hybrid model refers to the coexistence of different export regimes one serving the domestic market and the other serving the international market in a single Industrial Park. This allows for the Zone to serve multi-markets and multi-activities that become more accessible to tenants. Integrated hybrid Zones refer to mixed land use and planning within the Zones. Zones offering support services, residences, schools, shops, hotels, etc. can have greater impact and opportunity for catalyzing broader reforms. This model also promotes greater backward and forward linkages.
So instead of having a positive list approach which some countries have adopted, adopt a negative list approach in terms of the industries and services you allow within the zones. For the hybrid-integrated approach to work, eligibility requirements can be greatly relaxed. There are lower export requirements and access to the local market on duty paid basis. This promotes forward linkages. More flexible provisions for domestic suppliers in terms of indirect exporting benefits. Equal footing policies are helpful. E.g, South Korea within 10 years of their Zones founding, 35% of the components used in the Zones were bought domestically because of liberal subcontracting arrangements and equal footing policies provided to domestic suppliers.
Privately operated Zones tend to do better for the same reason that privately operated businesses tend to do better than state owned business. They provide for a different role between the government and the private sector. Government has more of a role in land identification, marketing and transaction packaging. The private partner has more of a role in providing the on-site infrastructure and planning as well as the management and services of the Zone. This reduces the public capital outlay and lowers the risk for government while allowing them to access higher fees and tenants experience greater efficiency. Where both public and private Zones exist one must ensure that there is a level playing field, and that the public Zones are not subsidized to the detriment of the private Zones.
Here the key is to understand that the value of a Zone is tied to a streamlined and transparent process within the Zone. Providing on site approvals capabilities and not through tax incentives. Tax incentives cannot substitute for deficiencies in the Zone’s regulatory environment. Even where they are allowed, in least developed countries, is still not the best way to attract investment. Where tax incentives are used it is better to have them performance based and put into the tax code of the country, and use the Zone as a way of rationalizing the tax codes of the country. This is better than creating a special Zones regime. Where they are used in zones they should be fixed, time bound, transparent and able to be monitored so that the government can actually demonstrate that the incentives have a benefit, which is not always the case. We assume that incentives are actually good but they may in fact be creating a drain on the economy.
According to Robert Haywood, he said “people think that tax incentives are not effective, but the biggest advantage of having a tax incentive is not having the tax administration part of it; not having to deal with the tax authorities”. So again the incentive part is linked to regulatory simplification. In this way I want to bring back the point of the catalyst role of the Zone
SUCCESS STORIES Zones have successfully jump-started important investment climate reforms around the world. South Korea established the EPZ program in 1970 to spearhead a broad reform program. China used them broadly to test land reforms, tax reforms, labour regulations and other reforms. Jordan Aquba used their Zones to introduce customs automation, the automation of business registration, deregulation the telecoms industry in the Zone first before deregulating it throughout the nation. Taiwan used their Zones to liberalize their electronics sector policies, and that led to a takeoff in the economy. Mexico used their Maquiladoras as a step towards trade liberalization. Both Kuwait and the UAE have used their Zones to liberalize corporate registration.
Organization of FZ operation in Nigeria Reassess the status of all the 26 FZ approvals Quarterly monitoring of the performance of zones Review of operational manual of the Authority every other year because FZ should work with national strategic action plan/activities Review annual performance of the scheme Total re-organisation of FTZs Authority Board membership Minister of Trade and Investment to be the chairman Customs and Immigration Board members to be there for a minimum of 10 years Customs and immigration agencies to have FZ department
Establish a FZ Academy because the economy of the whole world is knowledge based. We cannot afford mediocrity in management of zones An all encompassing curriculum is imperative Workers periodic training with other agencies personnel in attendance for wider knowledge. The scheme must develop research grants for researches on country’s case studies. A tool kit for practitioners. System of internal credit for financing industrial operations especially to local investors Work out credit line with World Bank and others Banks like NEXIM and BoI should be encouraged to help FZs infrastructural development like is done in Mauritius especially in industrial buildings and providing basic services. Well planned promotional strategies (locally and internationally) Local TV programme that will educate and inform Foreign prints and electronic media – CNN etc