Free Zones

Introduction to the Free Zones

Free Zones form part of a recognised Trade Facilitating Mechanism.

They are usually designed to stimulate trade and export activities and to attract Direct Foreign Investment (DFI).
There are over 850 Free Zones in the World.
However, World Bank statistics record over 50% to be failures, most especially in the developing world.

Reasons for failure include:

  • Inept application of the project.
  • Inadequate assessment.
  • Political and economical instability.

The Onne Oil & Gas Free Zone

The implementation of the Oil and Gas Free Zone Onne was the object of a detailed and thorough process. From promulgation of the Decree in March `96, to its ratification by an Inter-Ministerial meeting in July 97. This involved various Government Arms, collating their efforts through an Inter-Ministerial Technical Sub-Committee.

The Committee worked in collaboration with the Free Zone Management Consultants and also the “Potential Users.”

The establishment of the Oil and Gas Free Zone Onne has been a crucial development in Nigeria. It is the only Free Zone in the world to focus exclusively on the oil and gas industry. The Oil and Gas Free Zone Onne was opened by the government during early 1997 in a bid to draw in fresh investment into the country and promote local and regional economic growth.

The Free Zone is supported by an Oil Service Centre and other facilities to provide oil companies and service companies alike with virtually everything they need to operate. Most importantly, the Free Zone offers a highly competitive range of tax concessions plus other investment incentives including minimal bureaucracy, to ease the flow of business.

The initiative has proved popular so far and is expected to play an important future role in meeting the needs of domestic and foreign firms within the oil and gas sector. Oil and Gas Free Zone Onne is now the largest and fastest growing oil and gas transit and supply base in the world today.

West Africa is expected to see a phase of unprecedented growth over the next few years fuelled by developments in the energy sector. International companies, attracted to the region by its status as a major low cost oil producer and seduced by the growing potential of natural gas, are becoming increasingly interested and ready to commit levels of funds previously unheard of in the African region. But the window of opportunity is open now and companies will need to be in position early to take advantage of any future growth.

It was decided by the Committee that Oil and Gas Free Zone Onne would be a “mix” of various types of Free Zone, at various stages in its evolution:

  • Firstly, a Free Port.
  • Secondly, a Free Trade Zone.
  • Ultimately, a Specialized Export Processing Zone.

Development Strategy

It was agreed by the Committee that an “Approved Strategy” needed to be agreed upon for the successful development of the Oil and Gas Free Zone Onne.

Firstly analysing and matching Government, and Potential Users objectives.

Government Objectives:

  • Foreign Investment.
  • Capital Growth.
  • Technology Transfer.
  • Employment Opportunities
  • Skills Acquisition.
  • Revenue Generation.

Potential Users’ Objectives:

All sectors of the Oil Industry, Oil Producing Companies, Oil Service Companies, Oil and Gas Project Companies and Down Stream Companies had specific expectations.

Oil Producing Companies:

  • Facilitating their procurement and logistics requirements for Exploration and Development programmes. So as to satisfy their “just in time” policies for offshore requirements.
  • Co-ordinating a regional procurement approach.
  • Major cost savings due to the reduced inventories required when utilising the “stockist” concept.
  • Ability to share both facilities and services.

Oil Service Companies:

  • Facilitating specific or specialised services to Oil Producing Companies.
  • Regional distribution centre.
  • Better environment for development of local content.

Oil and Gas Project Companies:

  • Logistics or regional base.

Down-Stream Industries:

  • Long term objectives for export orientated projects.

Role of Government to be limited to:

  • Providing the best possible infrastructure “surrounding” the Free Zone, with emphasis on:
    • Road and Rail Links
    • Enhancing Port and Airport
    • Electrification
    • Communication
  • Providing funding for fencing and building of administrative building.
  • Initial funding of the Management.
  • It being understood that the Free Zone Management would progressively be able to generate its own revenue, with a view to reaching a self-financing situation as quickly as possible.

Private Sector Response

The Private sector has clearly demonstrated its willingness to take up the challenge and opportunities offered by the Free Zone.

REALISATION OF GOVERNMENT’S OBJECTIVES:

Investments & Capital:

  • More than $300m has so far been invested by the Private sector into the Free Zone.
  • Ministry of Commerce’s direct investment within the Free Zone is less than $12m.
  • Port Authority’s considerable investment in the new facilities completed in the last six years, have all been self financing.

Employment:

  • More than 4,000 people are now employed by the private sector, Free Zone Licensees, at Onne.
  • More than 700 public servants are working at Onne for government agencies and authorities.

Skills and Transfer of Technology:

  • Several of the Free Zone Licensees have taken the Onne Free Zone opportunity to transfer to Nigeria some of the activities previously performed overseas.
  • Such transfers have thereby contributed greatly to the increase of “local content” within the Oil Industry.
  • These include: equipment stockist; pipe coating; cement plants; waste management; dry dock; specialised maintenance services.

Revenue:

  • Cost of Oil –indirect, but very substantial, revenue savings by government.
  • Made through large savings in the cost of Logistics in the exploration and development of Nigeria’s oil fields.

Port Authority Revenue:

  • Substantial revenue generation for NPA. Including the creation and control of new sources of revenue within the Oil Industry.
  • These are self-financing all NPA infrastructure improvements and developments at Onne.

Customs (NCS) Revenue:

  • Improved control and revenue “facilitation” for the Nigerian Customs Service.

Free Zone Management Revenue:

  • Progressively increasing, enabling the Free Zone Management to be self financing by 2003.