The purpose of free zones is misunderstood, even among government agencies in their line of duty. In this interview, Senator Tijanni Kaura, managing director of the Oil and Gas Free Zone Authority, says the zones have contributed tremendously to the country’s economic growth—and stand to add even more value, if they are supported to operate as they should.
The position of Oil and Gas Free Authority is very central to issues of the economy of Nigeria. What is a free trade policy as a strategy for economic growth in any country?
Let me start by saying what the concept of Oil and Gas Free Zone is in Nigeria. The concept came up in 1996. The aim was to have a dedicated free zone for the purposes of Oil and Gas. Prior to that, we had Export Processing Zone which deals with manufacturing of several other commodities. But oil and gas is a specialized area. That is because Nigeria is endowed with Oil and Gas. It happened that Oil and Gas Free Zone in Nigeria was the first to be established in the whole world. Thereafter, several other countries followed suit—not only establishing Oil and Gas Free Zone, but also constituting an authority just like ours to regulate them. A typical example is that of Iran and China.
Essentially, Free Zones, the world over, I can say is a shorter way of accelerating growth in Foreign Direct Investment. It is often misunderstood, especially by revenue-generating agencies that by establishing Free Zones, the government of a country loses revenue accruing to the country.
But the reverse is the case. If you want to catch a bird, you must throw some grains to attract them. So, Free Trade Zone in Nigeria and indeed all the world, have the same objectives. And that is to accelerate economic growth, by way of inviting investors, providing them with some incentives so that they will come and invest in the country.
If you measure the amount of revenue that would have been collected outside Free Zone and compare it with the volume of Investment that would have come through the Free Zone, the difference is very clear. You in fact generate more revenue because of the volume of the influx of people coming into through the Zones. So, it is a catalyst for accelerated economic development all over the world.
How does a free zone typically operate?
To a layman, Free Zone simply means, come, and do business in a certain territory that government has declared a Free Zone where you will have tax-free activities, especially multiple tax-free activities, where you have a one-stop stop. Whatever you need in different agencies of government to establish a business is available in the free zone. For instance, if a foreigner wants to come to Nigeria to establish business in a Free Zone, he does not need to go Immigration at the National Headquarters, because there is an Immigration post in the Free Zone. There is Customs post in the Free Zone. In fact, all necessary documentation can be done at the Free Zone. In short, a Free Zone is a way of cutting down on bureaucracy.
Tax being a major source of revenue for government, how does government make up for the loss resulting from tax-free policy in the Free Zone?
Even in the Free Zone, there are still some revenues paid and generated. But, still, the benefits outweigh whatever appears to have been lost. Customs, for example, are in the Free Zones and collect duties minimally as a kind of incentive to investors
It was in public domain the controversy over the desirability of having a specialised oil and gas free zone with a special regulator like you. What is the justification?
There will not be need to talk of justification. Because if there had been any quarrel about that, then the existence of Oil and Gas Free Zone in Nigeria has shamed the advocates of those ideas. From 2001 to 2021, Oil and Gas Free Zones in Nigeria have achieved tremendous successes.
How many oil and gas zones do we have in Nigeria?
We have eight altogether; six of them are fully operational namely:
Onne Free Zone in Rivers; Eko support Free Zone, Bestaf in Lagos, Liberty in Akwa Ibom, Notore in Rivers State.
We have one that has just been approved by Federal Government, which is SBS. Total, we have seven. But remember, we started with only one in Onne in 1996. In these years, we have developed up to seven to eight. Then in the next three years, there four more in the pipeline awaiting the approval of Federal Government.
OGFZA is mandated to offer incentives to free zones under its purview. What are these incentives and are they attractive on a comparative basis globally?
Policies differ among countries, but there are common denominators with slight differences reflecting the unique policies of the countries. In Nigeria for instance, one of the major incentives is custom-free charges. Another is zero expatriate quota. If you are coming to invest in Nigeria, your expatriates are given automatic visa following the laid down rules and regulations. There are other taxes that investors coming to the Free Trade Zones are exempted from.
In quantitative terms, how much has investment in the nation’s oil and gas free zones contributed to the country’s GDP in the last decade?
Let us take three aspects. The FDI so far achieved, the skills transfer to Nigerians and the number of Nigerians who have been able to secure various levels of employment. From 2001 to 2021, we had an estimate of expected foreign direct investment of $41billion. Within that period, we have been able to achieve $29billion. That, you will agree with me is a significant percentage. You can imagine the effect of this on the GDP.
President Bola Tinubu’s administration has finally removed fuel subsidy and stakeholders in the energy sector are suggesting compressed natural gas could provide alternative to the prohibitive cost of petrol for our transportation needs. Are there capacities in the free zone to meet our requirements?
We are conscious of the fact that we are major stakeholders in energy business in Nigeria. The policy thrust of the present administration of President Bola Ahmed Tinubu now is a welcome development. Oil and Gas Free Zone Authority in Nigeria is already prepared. We have aligned our objectives and actions to the Federal Government and global transition from petrol to gas. This is in tandem with the “a decade of gas”. Right now, we have a plan of ensuring that we gather mechanics. We are going to start at the grassroots, that is to the commonest man. We are going to lead the campaign on how to change the carburettor of the hitherto petrol to gas engines. That will reduce the need for consumption of petrol in the short term and in the long term, eliminate completely the use of petrol in our local generators. I am referring to generators that vulcanizers use, those that use generators to refrigerate water and drinks—in fact, all the small and micro businesses that depend on generators for their energy needs. We are thinking of inviting several gas companies to come and partner with us in the different Free Zones.
In the next six months, we will invite you to see the launch of the programme in Onne, Rivers State.
Are you collaborating with National Automotive Design and Development Council?
Of course, we are. After all, we are under the same Ministry of Industry, Trade and Investment and the National Trade Policy that Oil and Gas Free Zone is following is with NADDC.
With current trends in energy transition globally, how would you position OGFZA to be in the best location for transition investment?
It is oil and gas. That answers the question. We have prepared our objectives and plans geared towards making the best use of oil and gas. That is why I told you that we have already designed a plan to effectively switch over from petrol machines to gas machines. Even though it is not time to abandon petroleum completely, the transition will be gradual. In Nigeria, it has been declared a 10-year programme of gas action.
That is one area of interest to me. No matter how much you try, you cannot play down on the relevance of OGFZA in Nigeria. No matter how much you argue about its relevance, you cannot win. In fact, you cannot sustain the argument that OGFZA is a duplication. This is because, from 2001 to 2021 OGFZA has achieved monumental successes.
What are the limitations hampering the operations of the authority?
There are issues hampering effective management or operations of Free Zones in Nigeria especially Oil and Gas Free Zones. The most worrisome is the lack of synergy between Free Zones operators and regulators on one hand and other government agencies on the other hand. By this I am referring to the Customs, Immigration, Standards Organization, Central Bank and so many related to the operations of the Free Zones. But, to some extent, I will blame their lack of cooperation on a poor understanding of the law guiding the operations of Free Zones.
There is a need for concerted efforts to educate our sister agencies to understand what is meant by Free Zone. They need this understanding to help them see the need to accord the Free Zones their deserved natural status. As for us in Oil and Gas Free Zones, one problem I must mention is road infrastructure and power infrastructure deficits. For instance, at Onne, the Premier Free Zone, over 200 companies used to be there, but most of them have left, leaving just 60 to 70, mainly as a result poor access road. This problem is in other Free Zones like Warri and Kirkiri.
Our legal framework is another problem deserving of serious attention. The laws guiding both OGFZA and NEPZA are obsolete. NEPZA’s legal framework was put together in 1992, while OGFZA’s was 1996.Look at what changes have happened to businesses globally and the lacuna created from obsolete laws that can stagnate the operations of these institutions. Many changes have happened that are not covered by these laws.
Are you using your legislative experience to advantage to remedy this gap?
Efforts were made by our predecessors to get these legal frameworks updated. But somewhere along the line, things have been difficult. But, with my experience in parliament, I was a member in the 8th Assembly of the Nation’s legislature, and I am acquainted with the procedures, so I will bring that experience to bear to ensure these obsolete laws are updated.
Have the OGFZA’s awards, both national and international, translated into increased foreign direct investment into country through the Free Zones?
Let me take Investment. We have been rated by the Federal Ministry of Industry, Trade and Investment in Nigeria as third best in its 2021 rating.
Presidential Committee on Enabling Business in 2018,2019,2021, 2022 rated us the first in efficiency in 2018, best in terms of compliance and transparency in 2019 and third best among all the MDAs in Nigeria in terms of accountability, compliance and efficiency. That is a landmark by all standards. We have won either first or third in three consecutive years in arow of all the MDAs in Nigeria in terms of transparency, compliance and efficiency. These are our watchwords. Without efficiency, there will not be ease of doing business; without compliance, ease of doing business is impossible; and without transparency, there will be mistrust. So, we are high at Ministerial level, PEBEC and global levels. We received four awards in terms of global ratings at different occasions between 2018 and 2022.
The records are there. OGFZA is a huge success in Nigeria.
Recently, President declared 50,000 hectares of land in Akwa Ibom as a Free Zone. Right now, there is an investment of over $3billion by Sterling in that area and we are planning to invest in that Zone. So that in the next four years, OGFZA will not request for any capital grant. Right now, as we speak, OGFZA is partially self-funded. We pay our personnel emolument from our locally generated revenue, and we also take care of our overhead from our IGR. We only go to government for capital expenditure. In the next four years, we will be able to tell government not to give anything for capital expenditure.
