Tuesday, July 27, 2021

Nigeria Can Learn From China In Leveraging Free Trade Zones To Boost FDI

Nigeria can emulate China in leveraging free trade zones (FTZs) to boost foreign direct investments (FDI).

Nigeria’s free trade zones, if well harnessed, could bring in foreign direct investment and manufacturing inflows like China.

According to report, 87 percent of China’s exports are from FTZs while the national level zones attract $9.2 billion in FDI and provide access to more advanced technology, thereby boosting technological progress.

Special economic zones (SEZs) are generally defined as demarcated geographic areas within a country where the rules of business are different from those used elsewhere in the country. The main differences are usually related to investment conditions, trade and customs, and the regulatory environment.

China started developing SEZs in 1978 and currently has over 2,500 zones. Early development was focused on coastal cities (e.g. Shenzhen, Zhuhai, etc.) while later development was focused on the west of the country to promote regional development.

China developed a wide range of SEZs including industrial development zones, free trade zones, and export processing zones. The development of SEZs played a significant role in China’s economic rise and are estimated to have accounted for 22% of national GDP, 46% of FDI, 60% of exports, and created over 30 million jobs.

With its focus set on improving livelihoods and providing job opportunities, China developed tailored SEZ programs for different regions depending on its specificities. For instance, one of China’s key success factors was its early focus on manufacturing and retail industries which absorbed a large unskilled labor force.

Nigeria can benefit from China’s success story. First, by setting SEZ models adjusted to local circumstances instead of replicating existing models. For instance, China developed tailored SEZs that fully benefit from the local workforce, proximity to other manufacturing centers, and access to local markets.

Another lesson from China is the long-term planning of SEZs based on quantified data and objectives and ensuring its fit within the country’s long-term development goals. China leveraged SEZs to grow local industries in a constraining environment thus overcoming local constraints such as its labor force’s qualification level, market demand, and other hurdles in its development model. Nigeria needs to ensure that SEZs fit within its respective development plans using careful and skilled planning.

Throughout the development of its SEZs, China invested immense efforts in building sound infrastructure. The role of adequate and stable power, transportation links, and other infrastructural elements cannot be understated.

While financial hurdles can significantly impede infrastructure development, Nigeria can benefit from a PPP model to attract more private investors and thus over its hurdles.

Nigeria can benefit from SEZs to improve livelihoods and provide better outcomes for its working-age population.

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