Turning to special economic zones to drive industrialisation

Industries, Trade and Investment

Manufacturers have long been struggling to integrate into the global value chains that generate the goods and services that are demanded by consumers around the globe. Experts, however, say that the use of export-oriented Special Economic Zones (SEZs), which offer a concentration of high-quality infrastructure and mouth-watering fiscal incentives to producers in the zones, are drivers of improved competitiveness of local manufacturers and by extension, industrialisation. Assistant Editor CHIKODI OKEREOCHA reports.

As an industrialist operating in about 15 African countries, the President of Dangote Group, the largest conglomerate in West Africa, Alhaji Aliko Dangote, is in a vantage position to know what needs to be done to develop globally competitive manufacturing industries and position Nigerian industries to lead the economic transformation of the country and the continent at large.

So, when he said to be globally competitive, there was the need to produce either higher quality or at cheaper cost or ideally both, he sure hit the bull’s eye.

The pan-African industrialist said it would be better to start by being locally competitive, pointing out that initially, protection and incentives would be required to support the local firms. “As they (local firms) learn, they can then become more efficient over time until they are able to compete globally,” he said, adding, however, that governments must at the same time continue to remove the hurdles to competitiveness (e.g. poor infrastructure, unfriendly regulations, electricity, access to affordably finance, etc.).

The occasion was the recent high-level round-table discussion on industrialisation in Africa organised by the Manufacturers Association of Nigeria (MAN) to celebrate its 50th Anniversary. The hybrid event (both physical and virtual) was held in Lagos, with the theme, ‘Industrialisation in Africa: Positioning African industries for economic transformation and continental free trade.’

Dangote, who shared his experiences and insight on the subject matter via a virtual fire-side chat, said the afore-mentioned approach was the one adopted by the Asian Tigers. (i.e. the four high-growth economies of Hong Kong, Singapore, South Korea, and Taiwan. Between the early 60s and 90s, they maintained exceptionally high growth rates of more than seven per cent a year, fueled by exports and rapid industrialisation).

Import substitution industrialisation (ISI) was said to be the initial factor that led to the Asian Tigers’ economic success. The ISI was a way to protect domestic industries from the competition of the global market while subsidising and investing in those industries. It allowed industries to become successful in the global market after becoming successful domestically.

Also, market-friendly economic policies were another factor that allowed industries to develop quickly in each of the Asian Tigers. Also, while each of them had unique advantages, investments in industrialisation, tax incentives and quality education were all building blocks that allowed a period of extreme growth.

Dangote believes that Nigerian industries can draw strength from the same approach adopted by the Asian Tigers to become competitive and also drive industrialisation.

Incidentally, his preferred route or approach to achieving this objective bodes well for the Federal Government’s effort at accelerating the establishment of world-class Special Economic Zones (SEZs) across the six geo-political zones.

The Minister of Industry, Trade and Investment, Otunba Niyi Adebayo, who, at the roundtable discussion, said SEZs are being established across the country, listed the project locations to include Lagos State Lekki Free Trade Zone Area, one in Katsina in Funtua Cotton Cluster Zone Area and another one in Abia in Enyimba City. There is also Green Field Special Economic Zone in Akwa Ibom, in Benue and in Kano.

He explained that the idea of establishing the SEZs was to drive industrialisation by increasing the concentration of high quality infrastructure and providing fiscal incentives for producers in the zones.

“I urge manufacturers, specifically large scale processors, to take advantage of this great opportunity to benefit from incentives offered by the SEZs and the wider market of 1.3 billion consumers provided by the African Continental Free Trade Area (AfCFTA) agreement,” Adebayo said.

One of the incentives offered by the SEZs that put Adebayo and, perhaps, other industry stakeholders in an exuberant mood during the discussion is the putting in place of a special operating environment in the zones to encourage the use of the zones as manufacturing hub for economic diversification.

Some of the bespoke incentives offered to businesses that operate in the zones include exemption from taxation, including those of federal, state and local government; exemption from expatriate quota policy in the customs territory.

Others include exemption from customs duty on imports for value-added production; express processing of entry visas; the most expeditious clearance of cargoes; express processing of entry paperwork through the one-stop-shop policy and a host of other incentives.

The consensus of operators and industry stakeholders is that when the SEZs in the  geo-political zones fully come on stream and some of these mouth-watering incentives are extended to businesses and producers that will be operating in those zones, Nigeria may well be on its way to achieving her dream of becoming sub-Saharan Africa’s manufacturing hub.

Indeed, governments the world over are  identifying SEZs as veritable tool to diversify their economies and fast-track industrialisation. This is because such zones operate against the background of highly efficient infrastructural facilities, less bureaucracy and streamlined one-stop-shop operational procedures.

SEZs are being established across the country, listed the project locations to include Lagos State Lekki Free Trade Zone Area, one in Katsina in Funtua Cotton Cluster Zone Area and another one in Abia in Enyimba City. There is also Green Field Special Economic Zone in Akwa Ibom, in Benue and in Kano.

Partly because of the bespoke incentives and enabling environment offered to companies and businesses that operate in such zones, the SEZs are widely acknowledged as investors’ haven capable of attracting the much-needed Foreign Direct Investments (FDIs), generating employment, and boosting trade and industrialisation.

Also, the concept of SEZs bodes well for local and foreign investors looking for jurisdictions where they would save cost and maximise returns on investment. This is so as local manufacturers and would-be investors in the SEZs are assured of up-to-date infrastructure to help overcome their infrastructure disadvantages.

Essentially, the aim of the SEZs was to promote the cluster effects gained by locating similar manufacturing businesses together, as well as the need to improve the utilisation of Nigeria’s factor endowments and comparative advantages. Others are the need to create local models of global best practice in the provision of hard and soft infrastructure and an enabling business environment.

According to experts and economists, most countries that achieved rapid, inclusive and sustainable industrialisation, job creation and diversified export earnings rode on the back of SEZs and industrial parks that are world class. They recommend that Nigeria, which is seeking to industrialise should turned to the experience of Asian countries, most recently China, whose growth over the decades has been unparalleled, propelled by the use of SEZs.

The story of China’s phenomenal economic growth is inextricably linked to the use of SEZs. For instance, The Nation learnt that the transformation of Shenzhen, a small fishing village in the 1970s, into a city of almost nine million is an illustration of the effectiveness of the SEZ model in the Chinese context.

With many African countries, including Nigeria, still struggling to compete in industrial sectors and to integrate into the global value chains that generate the goods and services that are demanded by consumers around the globe, SEZs offer a potentially valuable tool to overcome some of the existing constraints to attracting investment and growing exports.

Will Nigeria ride on the back of SEZs to become globally competitive and industrialised? Will Africa’s largest and most populous economy demonstrate the necessary political will and walk the talk on the establishment of these zones and integrate into the global value chains? For  Vice President Yemi Osinbajo, doing so has never been this compelling.

He said given the limitless opportunities offered by the AfCFTA for Africa’s industrialisation, there was the need for Nigeria and authorities across the continent to take the right actions, including the protection of local industries and improving value chains to actualise them.

The AfCFTA seeks to create a common consumer base and market worth over 1.2 billion and $3 trillion. According to United Nations Economic Commission for Africa (UNECA), it will also escalate business-to- business spending in manufacturing, projected to reach $663.3 billion by 2030, which is $1.3 billion more than it did in 2015 and thereby improve the volume of trade within and outside the continent.

However, for these to happen, Osinbajo said: “We must take policy actions to create an environment in which businesses can thrive. To start with, we must adopt the right type of macroeconomic and industrial policies.

“It is important for African governments to provide a stable macroeconomic environment that avoids and smoothens out volatility in prices, sharp deteriorations in the current account and budget deficits, and of course, rapid accumulation in debt burdens.”

The Vice President also said on the industrial side, policies like tariffs, quotas, subsidies, and non-tariff barriers which protect the continent’s infant industries so that they can create jobs and enable learning are vital.

He also stressed on the need for manufacturers to become competitive to withstand stiff competition from imports. While aligning with Dangote that manufacturing industries must be nurtured and supported, Osinbajo, however, said they could not remain infants forever.

“One of the ways to increase the competitiveness of African industries is to develop and deepen regional value chains wherein production systems starting from conception and design right through to supply of raw materials, processing, transport, storage, marketing, and sales take place within our countries and continent,” Osinbajo suggested.

He also stated that for Africa to see the kind of manufacturing activity it desires, there was the need to develop a strong infrastructural base, pointing out that extensive, cheap, and affordable infrastructure was vital for the success of African economies.

“We must build a network of roads, bridges, and rail that will facilitate the movement of goods and people just as we build the electricity plants to power our factories and the broadband networks that lubricate modern business.

“It would also be essential in the interim to develop sites with dedicated infrastructural and regulatory structures like Special Economic Zones and Shared Facilities for small businesses,” he added.

  • Culled from The Nation

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