How Not to Kill Businesses Operating Outside Free Trade Zones

Obinna Chima

Small and Medium Scale Enterprises (SMEs) contribute to improved living standards, bring about substantial local capital formation and achieve a high level of productivity. They have also been identified as a vehicle for employment generation, as they provide opportunities for entrepreneurial training and manpower development.

Also of importance in any nation are indigenous enterprises because they offer huge opportunity for both cultural preservation and economic progress. Resilience, creativity, and the incorporation of cultural values into corporate operations are frequently linked to their success.  All over the world, governments take deliberate steps to make sure that SMEs are nurtured.

This is why a recent revelation by the Comptroller General of the Nigeria Customs Service (NCS), Mr. Adewale Adeniyi, that companies operating in the nation’s Free Trade Zones (FTZs) violate the law regulating their operations is deeply troubling.

According to Adeniyi, who disclosed this at a recent House of Representatives public hearing on the tax reform bills in Abuja, some of the companies operating in the FTZs go into Customs areas where extant tax laws are operational to conduct their businesses.

He said, “The sticky issue over the years has been the compliance of free trade zone operators with the provisions of the law. The law allows them to import every manufacturing input they need, 100 per cent sometimes, including things that are prohibited into the customs territory.

“In fact, a lot of those incentives were given to them to manufacture. However, the initial incentives were for them to export everything that they (imported OR MANUFACTURED?) inside this free zone. But from time to time, I think they started to develop loan proofs for the local markets. There have been reported violations of these provisions.”

In Nigeria, FTZs, also known as Export Processing Zones (EPZs) are geographically designated areas that offer special privileges to businesses, including tax benefits and reduced customs regulations for activities like importing, manufacturing and exporting goods. FTZs in the country include the Calabar Free Trade Zone, Kano Free Trade Zone, Lekki Free Trade Zone, Ladol Logistic Free Zone, Ogun Guangdong Free Trade Zone, and Snake Island Integrated Free Zone. These zones were created to support the development of industries focused on exports and also to encourage businesses to operate with as low government interference as possible.

The primary purpose is to assist companies in the manufacturing, processing, and export of goods from Nigeria as they are exempted from payment of import and export duties thereby lowering their operational cost. Presently, most of the companies operating in FTZs in Nigeria have a significant foreign interests.

Regrettably, findings have shown that some companies operating within these zones flout the rules guiding their operations. Some of those who operate in the free trade zone that ought to focus on exporting their finished goods, end up selling them in the local market, thereby denying the government the necessary revenue. Besides, this creates unfair competition and unfair trade in the market place.

For instance, manufacturers who operate outside the FTZs that import raw materials for their production are charged Customs duties which range (from)REMOVE between 10 percent and 25 percent, depending on the item they are bringing into the country. After this, they bear the cost of production associated with the country’s harsh business environment before processing these raw materials into finished goods and they are sold to the market. For those who are into export business, they are made to pay the relevant duties and levies. However, those that have their plants located within the FTZs, when they bring in their raw materials, they don’t pay duties on the assumption that whatever they produce would be exported 100 per cent.

Therefore, after production, if they then decide to move their goods to the Customs areas, they ought to pay duties on the finished items. But unfortunately, due to alleged lapses and corruption on the part pf some regulators, these manufacturers now bring in their raw materials, process them, and instead of exporting these finished items as expected, they end up selling their products in the country.

What this does is beyond the loss of revenue to the government and the denial of the country the expected forex inflows, it also creates unfair trade to those manufacturers that are not fortunate enough to site their plants within the FTZs. This act is enough to throw them out of business. 

Indeed, this is unfair (for)TO businesses trying to create jobs, most who pledge substantial part of their property and resources as collateral just to get bank loans at cut-throat interest rates and THEN some disingenuous people work round the clock to make these loans go bad because they are allowed to sell their products at cheaper price due to their low production cost. This clearly stifles innovation and undermines business growth as these struggling businesses are systematically being discouraged.

The federal government needs to take action to guarantee the continuous survival of businesses outside the FTZs by ensuring that operators abide by the rules of the game to save jobs.

Beyond the lamentation by the Customs CG, Adeniyi, there is also a need for increased supervision and monitoring by the NCS and other government agencies saddled with the responsibility of ensuring adherence to regulatory requirements and compliance by those operating within the FTZs.

Besides, some of these challenges can be dealt with through the use of technology tracking devices. The Federal Ministry of Trade and its counterpart, the Federal Ministry of Finance should deploy technological devices to track the importation of raw materials and follow through till they are processed into finished goods and exported, to address inefficiency and laziness on the part of some of the regulatory agencies and eliminate corruption.

The choice is clear: It is either the government protects these businesses outside the FTZs or watch them vanish. We cannot afford to let these economic saboteurs thrive. Therefore, its time to defend our entrepreneurs in order to build a truly resilient Nigerian economy.