A computer generated image of the Lekki Free Zone, Nigeria

With an abundance of resources and a growing trade economy, Africa needs ports, planes and infrastructure. Countries like Nigeria, the continent’s tiger-economy – leaping forward thanks to its manufacturing and oil and gas industries – are fighting hard to capitalise on their growth but are being hindered by a lack of basic logistical investment. Now, Nigeria’s leaders and foreign investors are changing all of that – one free trade zone at a time. The model, based on China’s success story, has seen the formation of free trade zones across the country, with the biggest and most crucial one located adjacently to the country’s commercial capital, Lagos.

The Lekki Free Zone is an ambitious project with the potential to transform Nigeria’s economy, but it is still very much in development. The key focus now is to make the zone viable for business and more importantly, to set up an unprecedented suite of infrastructure that will make any logistics veteran giddy. Potentially, Lekki’s deep-sea port will be one of the most advanced in the world, and the area’s sheer size will provide for warehouses storing millions and millions of trade wares. This is all in addition to a nearby refinery, which will ensure that the zone also becomes a hub for energy exports. All this is part of a national programme. The Nigerian Enterprises Promotional Agency has set out to create a slew of free trade zones all over the country, in the hopes that Nigeria can repeat China’s story, and become the leading economy of its region. The Chinese model – which first came into force in 1988 – saw the creation of several special economic zones that employed more flexible economic policies and government measures, in order to foster growth and foreign direct investment within those areas.

Nigeria statistics Consumer price index 147.4 July 2013 158.6 July 2014

This later led to the expansive growth of economic hubs such as Shenzhen, Shanghai and Guangzhou, which have greatly contributed to China’s double-digit surges in GDP on an annual basis. With Nigeria’s GDP stumbling at five to six percent growth in recent years (see Fig. 1), its authorities are eager to move forward and light a fire under the country’s industries.

Incentives in West Africa

As such, Nigeria’s free trade zones are set to start industrial development, improve the local economy and generate employment and technological knowledge, through incentives such as a 100 percent tax holiday, custom duties and levies, foreign ownership of investments, no restrictions on the hire of foreign employees and a complete waiver on import and export licences. Lekki specifically will have four areas covering 16,500 hectares, with each phase dedicated to specific industries and types of business. Crucially, the overarching and all-encompassing focus and basis of the zone is facilitating logistics, says Chairman Olusegun Jawando of the Lekki Free Zone Development Company in an exclusive interview with World Finance.

“We are currently in the initial stages of development, with phase one’s roads and infrastructure already in place; the refinery in phase two up and running; and we’ve started construction on the deep sea port. The next step is to develop an infrastructure throughout Lekki. Electricity in Nigeria is very epileptic and we cannot allow that to happen in the zone, which is why we are developing an independent power supply. We’ll be working on ensuring the supply of water, telecommunications and increasing the road network in and around Lekki, because all industries coming here will require these things,” explains Jawando.

Lekki deep sea port Facts and figures: The port can handle the largest vessels in the world, including Majestic Maersk, which at 396 metres long is the world’s largest ship

The approach channel will be 16.5 metres deep, making it the deepest in West Africa

It will cover an area of 90 hectares with room for expansion in future

It will be capable of holding three container berths and one dry bulk berth

It can handle four million tonnes of cargo

It will create over 162,000 jobs in the area

The hope is that this will foster a strong trade, manufacturing and logistics sector, driven by the local light industries and energy exports. This is why the development company has established a massive land area for warehouses that can house the millions of goods set to come in and out of Lekki through its deep-sea port and the new international airport built within the zone.

In particular, Lekki’s deep-sea port has been dubbed the port of West Africa, being the deepest and one of the largest harbours on the continent. The project itself comes at a pricy $1.35bn, funded by the federal government, state government, and private investors (see Fig. 2). But in return, the port will create over 162,000 jobs and help to facilitate decongestion at Nigeria’s other ports, built initially to handle 60,000 tonnes, but which are now handling over 100,000 tonnes of cargo.

According to the Lekki Port LFTZ Enterprise, the port is designed to accommodate the largest vessels in the world and is expected to cover an area of 90 hectares with room for expansion, making it able to handle four million tonnes of cargo. Within 45 years, the government plans to see a $345bn payoff on the port, making it highly profitable. As part of the bargain, authorities have agreed to invest in significant road improvements to and from the zone. “We expect that about 25 percent of Lekki’s revenue stream will come from logistics,” says Jawando. “Nigeria is pivotal in West Africa and other countries are dependent on our industries and exports (see Fig. 3). Lekki will facilitate this and strengthen our links within the region”.

Creating new development

The hope is that Lekki will become a nerve centre for distribution for the Lagos area and nearby sub-regions. The current international airport in Lagos is extremely congested, and for many travellers, it’s common knowledge that the trip to and from the city can easily take three hours on muddy, chaotic roads. By establishing an airport in Lekki, the current hassle related to Lagos will be eliminated and by firstly focusing on the transport of cargo, Lekki will effectively become a major manufacturing and development zone.

“Logistics are important for the light industries in and around the Lagos area”, says Jawando. “There’s a lot of electronic manufacturers for household equipment such as washing machines and air conditioners, as well as manufacturers of leather goods. Lekki is also going to be a centre for oil and gas as we establish tank farms [oil depots] throughout zone two – this is crucial because there are currently only two other tank farms in Nigeria and they are seriously overrun, so there is high demand for these kinds of facilities. We know that with the sheer scale of the deep sea port, the development of another airport and the massive infrastructure within zone, we’ll be able to generate exports and improve the local economic base”.

With Nigeria’s growth dropping to an above average of five to six percent in recent years and Lagos’ population growing increasingly dense, development projects that can boost growth and supply the Lagos region with various products are much needed. In this respect, the Lekki Free Zone would help support the 15 to 20 million population in Lagos and its surroundings. At the moment, Nigeria’s industry is dominated by elementary industries, and not the manufacturing and secondary industries that typically foster long-term growth in developed countries.

Despite a surge in resource exports, Nigeria’s government restrictions on foreign investment as well as sabotage in oil fields such as the Niger Delta, has scared off several major corporations like Chevron and Royal Dutch Shell, which are currently divesting their Nigerian assets.

What’s more, broad-based issues with lacking infrastructure and security in the country, has made it hard to attract foreign corporations to set up shop in Nigeria. A key problem is the lack of a stable electrical supply in the country, as well as the road and rail networks being sparse and poor. All these things make it extremely challenging for production and manufacturing firms to establish their businesses in the country, as such industries are typically very dependent on the supply of energy and a strong infrastructure that can secure the import and export of necessary parts and products.

After the initial opening up of Nigeria’s economy in the mid-2000s, these are the key problems that have somewhat stunted its growth, not to mention the constant concerns of growing extremism in the country.

Essentially, this is why special economic zones such as Lekki are being established in the hopes that they will radically transform the economy. There are, however, also concerns that Chinese involvement in the project may leave the zone too dependent on volatile foreign income, and in particular, force Nigerian actors to only deal with China and not the broad spectre of markets. In this respect, attracting FDI is crucial, says Jawando, but not all.

“It is necessary to have a balance between domestic and foreign investment in the zone, because we can’t rely entirely on foreign money,” says Jawando, referring to the surge and ebb of investment flows that other developing economies have thrived on and later suffered from. “Domestic firms are used to the local challenges, but are also restricted by them, which makes them less competitive when compared to foreign actors. So it’s important that we also foster a sustainable domestic development that can support the economy”.

A Chinese connection

Nevertheless, the Lekki Free Zone Development Company has been marketing the zone and its business potential aggressively. In particular, the area has garnered interest from Chinese and Turkish players – the former undoubtedly thanks to the billion-dollar joint venture with the Chinese, which is partly backing the development company and any works within the zone. In this respect, Nigeria, like so many other African countries, is receiving a growing amount of FDI from China, which has been bolstering its hold on African economies and their resources.

China’s government has long been keen on fostering strong relations with Nigeria, as its dependency on oil continues to grow and pushes the demand for new sources. To this end, partnerships between the two countries on a business or governmental scale are considered mutually beneficial with Nigeria’s 177 million population, providing a ready market for Chinese goods and firm’s gaining access to the Bida basin in Niger State for oil and gas exploration.

This has, however, also prompted concern that China’s interests in Nigeria could develop into regular land grabbing, as has been a growing problem in East African states such as Angola. China’s hold on the growing economy of Nigeria was recently cemented when Beijing issued a $1.1bn low-interest loan to the Nigerian government in order to build much-needed infrastructure across the country. As is, Chinese companies are already building roads across Nigeria in contracts worth $1.7bn.

Such improvements to infrastructure and the growing interest from particularly Chinese actors, has begun a ripple effect among potential Lekki investors. According to Jawando, feedback on the Lekki project has been strong and having attended a slew of trade shows and exhibitions, the zone has managed to attract several manufacturing and logistics players who are eager to set up shop in Lekki. Whether it will be a success and live up to the Chinese experiences, remains to be seen, but crucially, the zone could be a major Nigerian breadwinner in just three years, when its infrastructure and self-sufficient power plant is set to be up to par.