Challenges of Managing Free Trade Zones in Nigeria

As globalisation continues to define economic progress of nations and the relevance of FTZs continues to grow, so do the challenges relating to assuring standards, effective regulatory oversight and achievement of the objectives for which the zones were created.

However, the standards, oversight, and regulations governing FTZs have not kept pace with these developments. As a result, illicit actors sometimes take undue advantage of government incentives thus defeating the noble objectives of setting up the zones. The result of these activities can be likened to economic sabotage.

Stakeholders at different forums have expressed concerns on the activities of some operators in the FTZs infringing on the movement of goods and sometimes raw materials from the Zones to the Customs territory, thus creating unfair competition with similar businesses in the latter.

Other concerns raised include gross under prizing of purported raw materials and semi processed products into the territory as well as the export into the Customs territory without the required value addition which underscored the provision of the various incentives by the Government.

Such activities deny the nation of due revenue and create economic imbalances while the perpetrators and their collaborators continue to smile to the banks.

The FTZs Dilemma

The policy initiative for the establishment of FTZs and the above listed incentives are deliberate efforts by successive administrations in Nigeria to provide enabling environment for businesses to thrive, more so that majority of those cited within the FTZs, whether private or government owned are from the private sector.

While the President Tinubu led federal government has placed premium attention to plugging financial leakages leading to significant and unprecedented improvement in the nation’s income, there have been serious concerns raised by stakeholders on the activities of some operators in the FTZs.

Such concerns include taking undue advantage of the incentives provided by the government while working against the realisation of the noble objectives of setting up the Zones in the first instance.

Exploitation of exemption from taxes and rates and crass criminality in some cases. These activities can range from trading in unapproved items, inadequate and under disclosure of trade volumes of approved products, under invoicing, use of wrong description and HS codes, trading with related entities in the customs territory without full or any disclosure, to using the FTZs as conduit for trading of imported raw materials and goods without any value addition.

Trading in unapproved items is fraudulent and criminal, inadequate and under disclosure of trade volumes, under invoicing and use of wrong description and HS codes rub the Nation of valuable income while also playing regulators against each other. Trading with related entities in the customs territory without disclosure aids under invoicing and promotes trading in raw materials without the necessary value addition as required for operators in the FTZs.

Vivid examples of these untoward activities can be drawn from the result of an alleged discreet investigations conducted at the Ogun and Calabar Free Trade Zones in the last few months on the steel sector. While international market price of wire rods obtained from World Steel news was about $480 per metric ton, an FTZ operator in Calabar allegedly imported 6, 027 metric tons valued at $67, 250 which implies a ridiculous FOB price of $11 per metric ton.

Such alleged gross under valuation and under declaration of import volume denies the nation of correct import duties collection, creates price distortions in the market and the attendant danger posed to competitors in the Customs territory. All these negative consequences of exploiting government’s incentives for FTZs cannot but be tagged economic sabotage.

What Next?

The relevant Ministries and agencies of government with responsibility for oversight on the FTZs need to ensure that regulations relating to imports from other parts of the globe to Nigeria also apply to imports from the FTZs to the Nigerian Customs territory e.g., the Standards Organisation of Nigeria Offshore conformity assessment programme (SONCAP).

There’s need to apply regulations that relate to financial crime preventive measures such as reporting large value currency transactions and, in some cases, suspicious transaction reports (STRs) as they relate to financial institutions and businesses operating in the zones.

It is also essential to put in place mechanisms for stricter monitoring of the use of raw materials imported into FTZs, the attendant value addition and export of the final products as well as waste/scrap.

The Nigerian Government under President Bola Ahmed Tinubu need to extend its reforms to the operations within the FTZs especially focusing on plugging income leakages and taking negative advantage of the Government’s incentives.

Hawk wrote in from Lagos