Why Nigeria needs Free Trade Zones around international airports

Louis Ibah

The Nigerian government says plans have reached an advanced stage for the establishment of viable Free Trade Zones (FTZ) within the country’s major international airports as part of measures of increasing earnings from non-aeronautical businesses at the airports.

The move comes following criticisms by stakeholders that about 96 per cent of earnings over the years from Nigeria’s airports have been restricted to aeronautical businesses like passenger service charges as well as Value Added Tax, landing and parking charges paid by local and international airlines.

Incomes from non-aeronautical businesses like hotels, eateries, car parks, banking, bookshops, shopping malls, among others from Nigerian airports have been very insignificant owing to the failure to make the requisite investments at the airports to attract patronage on these non-aeronautical services.

In most developed and emerging countries of the contemporary age, airports are no longer designed for purely aeronautical businesses but are structured to accommodate large scale businesses that also drive tourists to patronise the airports that often enjoy duty free status.

What are free trade zones

Free Trade Zones (FTZs), also referred to as foreign trade zones, are designated areas where finished goods and raw materials can be purchased, sold, manufactured, imported and exported without the barriers to trade that are ordinarily imposed by customs authorities. Free trade zones are commonly located in close proximity to airports, or seaports and national borders.

The absence of intervention and regulation by customs authorities in these zones offers several distinct benefits for consumers, businesses, manufacturers, importers and exporters. The elimination of export duties allows goods and materials to be imported to the zones and then exported without being taxed. For example, raw materials or components could be shipped to a manufacturer located in the free trade zone without incurring customs duties.

The manufacturer then incorporates the materials or components in the building of finished products. The products can then be exported without being taxed. In fact, many of the world’s leading FTZs are located immediately next to airports, facilitating international transportation for the incoming and outgoing movement of goods, particularly those with high-value.

Minister of State for Aviation, Mr. Hadi Sirika, who spoke at the stakeholders forum in Abuja recently explained that the decision to establish of Free Trade Zones in Nigerian airports was in line with the Aviation Road Map developed in 2016 by the Muhammadu Buhari government for the sector.

Sirika said top officials in the Federal Ministry of Transport, Ministry of Trade and Investment and Nigerian Export Processing Zones Authority had already commended work on how to establish the FTZ even as he expressed the optimism that the project would come on stream before the end of 2019 in some of the airports.

The international airports where the FTZ are slated to be established include the Nnamdi Azikiwe Airport Abuja; Murtala Muhammed Airport, Lagos: Akanu Ibiam Airport, Enugu; as well as the Malam Aminu Kano Airport in Kano and the Port Harcourt International Airport.

Benefits

Sirika said the establishment of the FTZ would go a long way in unlocking the dormant potential in Nigeria’s aviation industry for national growth.

Sirika also listed the following as benefits of siting Free Trade Zones at international airports in Nigeria.

“Free Trade Zones will create duty-free areas within international airports and provide warehousing, storage and distribution facilities for trade, trans-shipment and re-export operations,” said Sirika.

“This free trade zones that we will establish will grant exemptions from national import and export duties on goods that are re-exported from Nigeria. AndFree Trade Zones at airports will also decrease business transaction costs.

“But above all, siting of Free Trade Zones at airports will promote investments, facilitate trade, and create hundreds of jobs for Nigerians,” he added.

It must also be stated that the establishment of FTZs within airports will also facilitate technology and knowledge transfer through the creation of forward and backward linkages.

Indeed, one of the main objectives for establishing zones by governments is employment generation, which in turn can help increase the income of people and encourage domestic savings and investments into industries. FTZs, for the most part, have led to creation of jobs. Today, it is estimated that there are about 3,000 free trade zones in 136 countries accounting for 68 million direct jobs and over $500 billion of direct trade-related value.

Industry preparedness

The Nigerian Aviation Handling Company (Nacho) and Skyway Aviation Handling Company (Sahco) Plc are taking the lead in making the requisite investments to take advantage of the Free Trade Zones to be established in Nigerian airports.

According to Mallam Suleiman Yahyah, a former Chairman of Nahco, the establishment of a FTZ at Nigeria’s busiest airport, the Murtala Muhammed Airport Lagos will boost the country’s economy with up to $500 million in investments expected to be attracted over the next five years into the FTZ.

According to him, the FTZ, when fully operational, would create jobs and boost the country’s economy.
On his part, the Managing Director/CEO of the Nigeria Aviation Handling Company (NAHCO) Free Trade Zone, Mr. Baba Yusuf described the airport free trade zones are critical platforms for quick access to domestic and international market which would catalyze in standardised, qualitative and competitive products and services.
Demerits

Without doubt, free trade zones at airports also come with some disadvantages for which the Nigerian government must be prepared to handle. One of such disadvantage is for goods to be sneaked into the free trade zones to avoid the payment of taxes. And some of these goods may also be of substandard or low quality value.