Lekki Free Zone near Lagos looks to offset some of the difficulties of investing in Nigeria by offering a safe, self-contained environment with varying tax and bureaucracy benefits. Chinese interest has been particularly strong so far, but the zone’s authorities are keen to attract investors from all over the world.
As a location for offshore manufacturing, Nigeria has not, historically, proved irresistible. Its many challenges have included corruption, poor infrastructure, onerous bureaucracy and, perhaps least attractive, a highly unreliable power supply. But now an ambitious free-trade zone project, the Lekki Free Zone (LFZ), promises to address each of these issues in turn.
Indeed, if it lives up to its promise, LFZ will be not just an industrial zone but a self-contained satellite city of Lagos, with its own manufacturing, logistics, residential, commercial and leisure facilities. At the same time, it will serve as a gateway to Nigeria’s thriving domestic market and that of wider west Africa, with a combined population approaching 500 million people.
The 165-square-kilometre zone lies 45 kilometres to the east of Lagos city, on the Lekki peninsular, with the sea to the south. It is intersected by a lagoon which loops around to create its northern border (with potential for waterborne transport to Lagos as well as watersports). Key to the project is the construction of Nigeria's first deep-water seaport on the southern coast. The port is scheduled to be operational by 2019, and work by a Singaporean consortium has already begun. There are also plans to build a new airport to the north-west of the zone, although the first-choice public-private partnership investors are reported to have backed out.
The LFZ land is owned by the Lagos state government, with some participation from the original communities. It has been divided into four quadrants, with development of the first three undertaken by three separate parties. Negotiations continue with potential developers for the fourth quadrant. “The north-west is earmarked for residential and commercial development,” says Lekki Free Zone Development Company (LFZDC) chairman Otunba Segun Jawando. “We have some interested investors but the process takes time.”
Phase one involves development of the 30-square-kilometre south-west quadrant by the LFZDC, focusing on both heavy and light industry. This is a Chinese-Nigerian joint venture, with 60% of its equity belonging to Chinese state-owned interests, and an effective 40% to the Lagos state government. Progress is ongoing, both in infrastructure development and in signing up investors, who must lease land and undertake to build facilities.
The zone now has its own 12-megawatt independent gas-fired power plant, with capacity for another 12 megawatts to be added as demand dictates and an eventual target of 540 megawatts. An 11,000 volt amps electricity transmission and distribution network has been built, covering 6.4 square kilometres. An administration building, exhibition centre, staff residential complex, clinic and laboratory test centre have been constructed, along with more than 11 kilometres of roads.
There are 13,500 square metres of standard factories, some already occupied on an interim basis by investors who have not yet built their own factories. Other plans include the construction of an office complex with commercial facilities, as well as apartment blocks and a four-star hotel.
Investors enjoy typical free-trade zone incentives such as a complete tax and tariff holiday, together with 100% ownership of investments and repatriation of capital, profits and dividends. They enjoy a waiver on all import and export licences and expatriate quotas, and strikes and lockouts are prohibited in the zone. If goods are sold in the Nigerian market, duty is payable on the value of imported raw materials.
A customs processing centre with its own container park will be completed imminently. Once operational, containers will be forwarded to the zone immediately from the port of entry to be dealt with promptly, instead of enduring the customary four- to six-week delay. Special units within the administration centre will deal with customs, visa applications, immigration, permits and any other bureaucracy. Investors will not deal with officials, but only with the LFZDC, which cuts out corruption.
China Moves First
“This is a platform, and its purpose is to provide investors with a good investment environment,” says LFZDC managing director Yonghua Ding. An important element of that is security. The zone will be completely fenced, and is already patrolled by 40 policemen and another 40 security men. A total of 100 policemen will eventually be based at the station now being built.
Investment agreements have been signed by 35 enterprises so far. They include a number of important Chinese investors, three of which have already started construction: Yulong Pipe, which has exported products to the Nigerian oil and gas industry for some years; China Glass, which will build a float and coated glass production line; and heavy-duty truck manufacturer Hongyan.
Candel, a Nigerian producer of agricultural chemicals, has already constructed a formulation and bottling plant in the zone. Nigeria’s Pinnacle Oil will construct a tank farm and a single buoy mooring facility to transport petroleum products in and out of the zone. The LFZDC is also negotiating with a US consortium interested in generating electricity for the zone and the wider Lekki area, according to Mr Ding.
The entire project received a boost when Dangote Industries, owned by Africa’s richest man, cement tycoon Aliko Dangote, committed to being the sole investor in the south-east quadrant, with a new oil refinery and fertiliser plant. Rendeavour, which describes itself as Africa's largest urban land developer, has also entered into a joint venture with the Lagos state government for a mixed-use development in the north-east quadrant of the zone.
Not all the boxes have been ticked, however. Offshore banking in the zone is not yet permitted, and proposals for new road and rail links to the area await the green light. Traffic on the existing 'expressway' from Lagos can be fiercely congested. Gas pipelines into the zone have yet to be sanctioned. But there is a sense that the new federal government – which, unlike its predecessor, is from the same political party as the Lagos government – is prepared to do more to see the zone succeed. That fact and the Dangote factor have boosted LFZDC morale.
“There is a new zeal from the change of government, and new interest from our Chinese partners,” says LFZDC deputy managing director Adeyemo Thompson. “LFZ is the future of Lagos. Nigeria is a huge market, with a need for goods, and it remains one of the best destinations for making quick returns on investment.”
Marketing is now being stepped up in Europe and the US. “This zone is not only for Chinese investors,” Mr Ding insists. “Right now we have two flags outside, Nigerian and Chinese. But I hope that in future we will have 50 flags, another United Nations.”
Source: fDi Magazine