ABSTRACT

TOPIC:

A DETAILED ANALYTICAL ASSESSMENT OF THE NIGERIAN FREE ZONE: LEGAL AND REGULATORY FRAMEWORK

PHD PROPOSAL

OLANREWAJU ABDULATEEF OLAYINKA

2012
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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 countrys 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 Governments tactical revolutionary instrument fashioned to stimulate economic growth towards industrialisation. The Governments rationale for adoption was based on the acclaimed global success of the Scheme and the Schemes 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 Schemes 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 Schemes Legal, Regulatory and Institutional Framework. Utilising the Nigerian Governments 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 Schemes 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 Schemes 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 Schemes 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 FDI FP FTZ FZ FMTI IMF IPs IPR JV M&E MOU NCS NERFUND NEPC NEPZA NIPC NIS NOIP NOTAP OPEC R&D SAP SEZ UNIDO WTO Export Processing Zone Foreign Direct Investment Free Port Free Trade Zone Free Zone Federal Ministry of Trade and Investment International Monetary Fund Industrial Parks Intellectual Property Rights Joint Venture Monitoring and Evaluation Memorandum of Understanding Nigeria Customs Service Nigeria Economic Reconstruction Funds Nigeria Export Promotion Council Nigeria Export Processing Zones Authority Nigerian Investment Promotion Commission Nigeria Immigration Service National Office of Industrial Property National Office for Technology Acquisition and Promotion Organisation of Petroleum Exporting Countries Research and Development Structural Adjustment Program Special Economic Zone United Nations Industrial Development Organization World Trade Organisation

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LIST OF FIGURES/TABLES Fig 1: Fig 2: Fig 3: Fig4: Fig 5: Fig 6: Fig 7: Free Zone Development Statistics Free Zone Typologies, Evolution and Development Trend Categories of Free Zone Legislative Instruments Evolutionary Model of Free Zone Objective Proposed Research Process Flow Proposed Comparative Historical Research Process 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......... 1.8.2 Research Design, Approach and Strategy..... 1.8.3 Research Method(s)... 19 26 27 1.8.1 Research Objectives, Questions and Hypothesis........................................... 19

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 governments economic diversification thrust was later strengthen by the nations 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 Governments 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 nations 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.

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. 1980-0818. 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 Nigerias New Industrial Development Strategy Jumpstart the Countrys 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 Schemes 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

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 Koreas Masan Free Export Zone Experience: Lessons For Nigerias 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 Governments periodic policy thrust per time so as to enable a detailed assessment of the Schemes Legal and Regulatory Framework real-time. Furthermore, extensive attention will be paid on the Schemes 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 Schemes typologies, evolution and economic theories (Aggarwal Aradhna, 2010; Xiangming Chen,12 1995) others explore the developmental catalytic
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 Schemes 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 countrys 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 Schemes Legislative Framework is currently characterised 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 governments aspirations for the Scheme which is to stimulate Nigerias economic towards industrialisation. Therefore, save and except a robust legal, institutional and regulatory framework is developed, galvanised by requisite statutes, the Nigerian Governments desire for the Scheme alongside its globally acknowledged static (increased capital and capital goods) and dynamic (technology diffusion, tangible and intangible technology transfer 14 and spill over, export promotion) benefits of FDI15 will remain a faade. 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 schemes 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 governments by absence of convergence in related legislations, a weak enforcement/regulatory agency and a lack of concerted efforts towards trade laws

Ibrahim F.I. Shihata. (1996) The Role of Law in Business Development. Fordham International Law Journal. Volume 20, Issue 5, Article 6. 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 dAnalyse et de Thorie conomique 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 Schemes 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 Nigerias thriving business environment. Accordingly, a clear and transparent legal and regulatory framework which codifies the Schemes 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 researchers 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 (18 th) and
Special Economic Zones Performance, Lessons Learned, and Implications for Zone Development 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 Governments 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

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 Jos, Cern (2004) Assessment of Mongolias 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 worlds 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 countrys 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
Http://Www.Shannonireland.Com/ 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-upas an integrated part of a national reform and liberalization program 33 or if they are used to integrate [their economy] into the worlds 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 Nations 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 Governments 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 Chinas 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 Countrys excessive dependence on oil sector revenues. The programme also sought to promote exports from other non-oil producing sectors including agriculture, solid mineral etc.

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

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The Government also established the Calabar Export Processing Zone 36 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.

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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 Governments 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

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 nonrelated/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 competitiveness 42 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
Ibrahim F.I. Shihata. (1996) The Role of Law in Business Development. Fordham International Law Journal. Volume 20, Issue 5, Article 6. 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.
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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--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 governments 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

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)

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44

Fig 2: illustrates Free Zone Typologies, Evolution and Development Trend H1b. Notable Free Zone legislative instruments include: a. Acts: i. ii. i. ii. i. Nigeria Export Processing Zones Act Onne Oil and Gas Free Zone Authority Customs & Exercise Act Immigration Services Act CAP 171 LFN 1990 Investment Procedures, Regulations and Operational Guidelines for Free Zones in Nigeria. 2004

b. Supplementary Legislations:

c. Policies & Operating Guidelines:

Meng Guangwen. [2003]. The Theory and Practice of Free Economic Zones: A Case Study of Tianjin, Peoples 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.
44

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45

Fig 3: Illustrates the various categories of Free Zone Legislative Instruments H1c & d. The Governments 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. j. k. Encouragement of foreign commerce Diversification of exportable products Overcoming structural balance of payments pressures

45

Ibid.

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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

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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 x. Enterprise Registration process and customs inspection procedures. Obsolete or Inadequate information technology based recordkeeping 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.

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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 governments response to these lapses?

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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.

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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 researchs 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

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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.

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1.10

DATA REQUIREMENTS 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.

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

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.

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Fig 7: illustrates a detailed Data Collection, Verification and Analysis Process 47

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

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BIBLIOGRAPHY
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 Akinci, G. and J. Crittle. [2008]. Special Economic Zones: Performance, Lessons Learned, and Implications for Zone Development, FIAS, WorldBank Group, Washington. Bearing Point. [2007]. International Labor Organization database; World Export Processing Zones Association: FIAS Research Bredo, William. [I960]. Industrial Estates, Tool for Industrialization. Glencoe (Ill). Chicago: Free Press Currie, Jean. [1979]. Investment: The Growing Role of Export Processing Zones, The Economic Intelligence Unit, London 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 dAnalyse et de Thorie conomique UMR 5824 du CNRS Hafeez, Seema. [2003]. The Efficacy of Regulation in Developing Countries; United Nations Department of Economic and Social Affairs, 31 - http://tinyurl.com/32wmlww - Accessed on 26/04/2012 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 Ibrahim F.I. Shihata. [1996]. The Role of Law in Business Development. Fordham International Law Journal. Volume 20, Issue 5, Article 6 Iliya Saidu Kure. [1998] The South Koreas Masan Free Export Zone Experience: Lessons for Nigerias Export Promotion Drive. Department of Economics, University of Jos. Volume 1; No. 1 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). Jayawardena. [1983]. Free Trade Zones, 17 J. World Trade L. 427 Jos, Cern. [2004]. Assessment of Mongolias Free Trade Zone Program and Site Evaluation: Mongolia Economic Policy Reform and Competitiveness Project (EPRC) Madani, Dorsati. [1999]. A Review of the Role and Impact of Export Processing Zones, (Washington, D.C: World Bank) Meng, Guangwen. [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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Meng Guangwen. [2003]. The Theory and Practice of Free Economic Zones: A Case Study of Tianjin, Peoples 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. Miles, M.B. Huberman, A.M. [1984]. Qualitative Data Analysis: A Sourcebook of New Methods. Newbury Park, CA: Sage. Obi, Iwuagwu. [2011]. The Cluster Concept: Will Nigerias New Industrial Development Strategy Jumpstart the Countrys Industrial Takeoff? Afro Asian Journal of Social Sciences Volume 2, No. 2.4 Quarter IV Thoman, R. [1956]. Free Ports and Foreign Trade Zones 140, cited in Note, Foreign Trade Zones, supra note 14, @ 732 n. 55. Watson, Peter. [2001]. Export Processing Zones: Has Africa Missed the Boat? Not Yet. Africa Regional Working Paper Series, No. 17, World Bank 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): 593621.

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