Free Trade Zones in Africa will equate to mass disablement of the African economies and nationals unless the current configuration is addressed. Version 2

1. 2011
Free Trade Zones in Africa will equate to mass
disablement of the African economies and
nationals unless the current configuration is
addressed. Version 2
Ben Oguntala, LLB Hons. LLM (LONDON)
Ben.oguntala@dataprotectionofficer.com
3/19/2011

2. Contents
Executive summary ....................................................................................................................................... 3
What does this paper propose as a solution: African opportunity............................................................... 4
African opportunity....................................................................................................................................... 4
What is a Free Trade Zone? .......................................................................................................................... 5
Ireland Shannon Free Zone ....................................................................................................................... 5
TAZARA Railway ........................................................................................................................................ 5
The problem with Africa: lack of systemic capacity building .................................................................... 5
What is the problem with African Economies? ............................................................................................ 6
Deficient self sustainable continuity capability ........................................................................................ 6
Government officials risk exposure .......................................................................................................... 6
Bribery and corruption: “Oiling the wheel” .............................................................................................. 6
Lack of direct consumer interactions........................................................................................................ 6
What is the current plan in Africa for Trade Free Zone? The FTZ Nigerian plan .......................................... 7
Consequences of the current FTZ configuration in Nigeria .......................................................................... 8
About the Author: Ben Oguntala ................................................................................................................ 11

3. Executive summary
Free Trade Zones (FTZ) are concepts that can only create mutual benefits if other key relevant factors
are in place to ensure effective operation. Africa does not need to go out of its way or create
unreasonable and outrageous offers to Multi National Enterprises (MNE) as a means of attracting new
investors because it has in abundance the resources and markets for profitability already in place, the
question is: what is the right level of Governance that can be used to ensure mutual benefit.
As of 2011, most of Africa lacks the right Governance framework in place to benefit from the mutual
effects of FTZ and therefore FTZ that are designed to benefit the communities are fast becoming factors
that disable local developments and impede the promotion of local economies. Eventually, this will lead
to significant tensions between the two sectors.
China has demonstrated its interest in assisting Africa, but the lack of adequate Governance is leading
Chinese firms to focus on their narrow objectives rather than consider supplementary add-on services or
corporate social responsibilities which ultimately put Chinese firms offering FTZs in direct competition
with the local market thereby creating an atmosphere for friction or exploitation. China’s efforts need to
be commended due to the fact that they have taken considerable risks in engaging African countries.
China is using its own initiative to engage Africa and it is bringing to the forefront the many reasons why
MNEs are left with no choice but to focus on their own priorities due to the weakness of Governance
and efficiency in Africa.
The diagram below describes how FTZ in the wrong environment can be problematic:

4. FTZ can be better designed to resolve the vast array of Africa’s problems if it is configured in the right
manner and the right engagement is employed with commensurate Governance. Significant part of the
work starts from Africa admitting that it has a problem and needs the right kind of partnership to
improve as opposed to hand outs.
What does this paper propose as a solution: African opportunity
The solution for Africa needs to be incubated in an environment that is competing with the best, i.e. it
can not be based in Africa but needs to interface with Africa.
African opportunity
The aim of the African opportunity is
multifaceted and can be summarized as
follows:
1. Sourcing International business for
Africa – opportunities and reporting -
Engage UK and International
businesses with products and services
that are needed in Africa to promote
economic improvement and services to
the communities as well as improve
their operational performance in
accordance with internationally
acceptable standards. These
businesses would be SMEs that are interested in Exporting their products are services and such
a service would be beneficial to them in light of the current economic depression across the
world and the appetite for diversification.
2. Engage Africa – a platform whereby
African communities across the continent
can engage directly with international
businesses in (1) that are interested in
engaging them to form business
partnership for the resolution of the
community issues and working towards a
framework that promotes mutual
benefits.

5. What is a Free Trade Zone?
A free trade zone (FTZ) is an area of a country where some normal trade barriers such as tariffs and
quotas are eliminated and bureaucratic protocols are lowered in the aspiration of attracting new
business and foreign investments. Free trade zones can be described as labor intensive manufacturing
centers that involve the import of raw materials or components and the export of factory products. This
theory makes perfect sense in mature economies but can be hazardous in immature economies due to
the asymmetry of governance level between the two. In a mature economy, FTZ can promote export
and allow SMEs to develop their businesses further as well as expand. In an immature economy, the
converse would be the case, where competition is non-existent and unfair trading conditions take
advantage of weaknesses in the local economies.
Ireland Shannon Free Zone
FTZ was implemented in Ireland, Shannon, Co. Clare, Ireland Shannon Free Zone, whereby the Irish
Government promoted employment within a rural area, making use of a small regional airport and
generate revenue for the Irish economy. It was hugely successful, and is still in operation today, its
benefits to the communities are self evident.
TAZARA Railway
Ireland Shannon Free zone can be contrasted with the TAZARA Railway built between 1970 and 1975 by
the Tanzania-Zambia Railway Authority to give landlocked Zambia a link to the Tanzanian port of Dar es
Salaam, as an alternative to export routes via rail lines to Zimbabwe, South Africa and Mozambique.
The railroad was a turnkey project financed and executed by the People's Republic of China. Total costs
were about US $500 million, making it at that time the largest foreign-aid project ever undertaken by
China. The railway has fallen into difficult times however ironically the trade in the area has seen
significant growth.
The problem with Africa: lack of systemic capacity building
Africa has always been renowned for opportunity but several factors keep contributing to ineffective
management mostly starting from an ineffective systemic capability. African communities need a major
overhauling of their systemic capability in almost all sectors; the focus needs to be on driving self
sustainable development that is capable of creating services. Almost 90% of Africa’s problem since their
independence seems to revolve around direct or indirect maintenance capability, self-motivation, path
for development, services delivered without the capability to maintain. All these and many more seem
to be a re-occurring theme across Africa. Using the TAZARA Railway as an example, delivery of a railway
system that did not cater for Tanzanian companies’ capability to manufacture the spare parts needed
meant it was one of the facts that crippled the development. In Hospitals across Africa, donations of
state of the art equipments are delivered but no maintenance and support provided, meaning the
minute the machines develops a problem they are rendered obsolete.

6. What is the problem with African Economies?
Deficient self sustainable continuity capability
There is a significant deficiency in sustainable continuity capability right across Africa and FTZ in its
current nature is significantly worsening the situation. The absence is not pronounced but profound as
significant failures in Africa today across most sectors are related to this particular point. If a machine is
installed without sustainable continuity plan it will eventually stop working, if the parts and expertise to
fix it are not readily available, the resulting effect would be a halt in the service. By way of example, FTZs
are going to be machines operated and managed by MNEs, domestic businesses are external to this
machine and simply supply raw materials, and they don’t participate in the business services. FTZ’s
current configuration disables them from being able to participate or develop.
Government officials risk exposure
At the forefront of African Economies are Government officials at various levels who often have a belief
that unlawful enrichment is an inherent right therefore the community benefits are often farfetched
consideration that is rarely considered and even if it is there is a further hindrance brought to bear by
the depth of poverty that makes the average African in Africa neglect the community benefits.
The Government officials are a reality of life in Africa, their financial situations and hardships are equally
a reality of life that ought to be considered as a risk, this paper does not seek to portray Government
officials as corrupt but rather to take an objective assessment of the risk their predicament poses to any
potential investment which they play a role in. The likelihood of exploiting the opportunity is high with
Government officials and therefore the original intention of assisting communities may never be
realized if it is implemented via this channel.
Bribery and corruption: “Oiling the wheel”
By the time MNEs get into most African countries, unspoken amount of funds would have been spent
“Oiling the wheel “, this is euphemism for bribery and corruption. By the time the MNEs get into the
reality delivering their services, it is inevitable that their focus would have been stripped of all
community based initiatives and simply focus on making a return on their investment at all costs. “Oiling
the wheel” is a shadow operation that is as secretive as most Cartels.
Lack of direct consumer interactions
Most consumers in African economies are often unable to participate in any MNE initiative where the
Government agencies playing a role due to the bias role they play and therein exists the aforementioned
Government officials problem and “Oiling the wheel” scenario. MNEs with all the best intentions will
face an insurmountable challenge if they are attempting direct consumer interaction.

7. What is the current plan in Africa for Trade Free Zone? The FTZ Nigerian
plan
The facts below demonstrate the unilateral nature of the benefits of FTZs in Nigeria, it demonstrates
that there is no plan for skills transfer or direct improvement of local economies but rather a complete
exploitation of local economies and resources mainly for the advantage of the MNE, which begs the
question of what the benefits of such deals are to the community.
Below is a proposal from the Nigerian offering:
1. Large domestic market for the 25% of production that FTZ producers can sell in the Customs
Territory.
2. Favorable quotas on certain products exported from Nigeria to the European Union (EU) and the
United States.
3. Made in Nigeria products enjoy preferential tariffs concessions in the EU.
4. Abundant supply of skilled labor at very competitive rates.
5. Nigeria's FTZ regulatory regime is liberal and provides a conducive environment for profitable
operations.
6. The incentives available are among the most attractive in Africa and compares favorably with
those in other parts of the world.
7. Exemption from all federal, state and local government taxes, levies and rates.
8. Approved enterprises shall be entitled to import into a zone, free of customs duty on capital
goods, consumer goods, raw materials, components and articles intended to be used for
purposes of and in connection with an approved activity.
9. Freedom from legislative provision pertaining to taxes, levies, duties and foreign exchange
regulations.
10. Repatriation of foreign capital on investment in the zone at any time with capital appreciation of
the investment.
11. 100% foreign or local ownership of factory allowable.
12. One stop approvals which grant all licenses whether or not the business is incorporated in the
Customs Territory
13. Unrestricted remittance of profits earned by investors.
14. Permission to sell 100% of total production in the domestic market.
15. No import or export license.
16. Rent free land at construction stage, thereafter rent shall be as determined by the management
of the zone. Foreign managers and qualified personnel may be employed by companies
operating in the zones.
17. Operations within a zone shall commence on the date when the constructions of the perimeter
fence and gate have been completed and the Authority has declared it so.

8. Consequences of the current FTZ configuration in Nigeria
1. Large domestic market for the 25% of production that FTZ producers can sell in the Customs
Territory.
a. This seems to be a one way streak of benefit mainly to the MNE and no exchange of
ideas or improvement of methods to the local businesses.
b. The large domestic market is merely providing raw materials and quite often unaided in
the manner they make the acquisition and when MNEs create local businesses they get
rid of the local competitors in the market.
c. Raw materials often involve manual labor and MNEs are not engaging the local labor
force in a manner that creates self sustainability and development.
d. In some instances, MNEs can create their own organization to compete directly with the
small local businesses that are already struggling to exist which creates an unfair
advantage.
e. Even though an increase in sales may be experienced by the domestic market, this
equates to giving them a fish as opposed to teaching them how to fish.
f. Should the demand from the MNE dry up, the domestic market is left in the old position
they were in prior to MNE intervention and from a development point of view stagnant.
2. Favorable quotas on certain products exported from Nigeria to the European Union (EU) and the
United States.
a. These provisions should be made available to domestic businesses as a means of
encouraging them to produce products that are capable of supplying the EU and US
markets.
b. Such increase will drive technology developments, standard improvement, quality of
service development and so on.
3. Made in Nigeria products enjoy preferential tariffs concessions in the EU.
a. There is no facility to improve the quality of products being made in Nigeria therefore
the demand in the EU still remains stagnant or non existent
b. The ability of Nigerian products to compete internationally is still low due to the fact
that the facilities are nonexistent to compete internationally
c. Preferential tariffs therefore more or less a red herring from a demand that is stagnant
due to the lack of local businesses exposure to International requirements.
4. Abundant supply of skilled labor at very competitive rates.
a. Skilled labor in Nigeria exhibit a significant level of immaturity when compared with
performance and competence when compared with their international counterparts
due to the disparity that exist in the level of education received.
b. Asymmetry of standards emanating Cultural work ethic between skilled domestic labor
and MNEs
c. No incentive to transfer work ethics across to domestic labor

9. d. MNEs are therefore forced to bring in their own unskilled labor to counter the
deficiency in local
5. Nigeria's FTZ regulatory regime is liberal and provides a conducive environment for profitable
operations.
a. The profitability is significantly to the detriment of the domestic market and does not
offer a bilateral benefit capable of improving the local economies
b. MNEs are constantly in search of problems in order to apply their solution, therefore
there is little need for over liberalization that is detrimental to the economy
6. Exemption from all federal, state and local government taxes, levies and rates.
a. Over liberalization in a sector that is driven by supply and demand
b. If exemptions are put in place, this implies oiling the wheel becomes the next unofficial
source of revenue
c. FTZ activities are not supposed to be altruistic therefore this concept is at odds with
commerce
7. Approved enterprises shall be entitled to import into a zone, free of customs duty on capital
goods, consumer goods, raw materials, components and articles intended to be used for
purposes of and in connection with an approved activity.
a. No transparency on approval process therefore capable of incubating “oiling the wheel”
principles
b. Lack of governance means there would be conflicts of interest and inability to enforce
strict accountability principles
8. Freedom from legislative provision pertaining to taxes, levies, duties and foreign exchange
regulations.
a. Understandable incentives to attract MNEs however over liberalization can create
platform for abuse
b. In the absence of other measures, the benefits become acutely unilateral
9. Repatriation of foreign capital on investment in the zone at any time with capital appreciation of
the investment.
a. An incentive for MNEs but no commensurate benefit to domestic business
b. Not an incentive that supports domestic business or technology transfer
10. 100% foreign or local ownership of factory allowable.
a. Detrimental to domestic businesses
b. Creates direct competition with domestic business with little return
c. No incentive for domestic partnership
d. No incentive for technology or business process improvement
11. One stop approvals which grant all licenses whether or not the business is incorporated in the
Customs Territory
a. Lack of governance
b. Lack of transparency
c. Potential to incubate corruption
12. Unrestricted remittance of profits earned by investors.

10. a. No commensurate incentive to the benefit domestic business rendering the incentive
exploitative
13. Permission to sell 100% of total production in the domestic market.
a. Creating direct competition for domestic businesses
b. Lack of governance
c. Unilateral benefit
14. No import or export license.
a. Unfettered ingress and egress license should be aligned with commensurate social
benefits to the local economy.
15. Rent free land at construction stage, thereafter rent shall be as determined by the management
of the zone. Foreign managers and qualified personnel may be employed by companies
operating in the zones.
a. This measure will create a competitive disadvantage to local businesses and expertise
b. MNEs already have more significant financial firepower will now be aided to enter a
market
c. No incentive for local partnership

11. About the Author: Ben Oguntala
Ben Oguntala is London based Lawyer and Business consultant that provide Advisory, regulatory and
compliance services to MNEs, FTZ implementation, creation of policies and procedures for MNE
engagement as well as matching FTZ to MNEs. Specialties include: Competition Laws, Contract Laws,
business development, Compliance and Governance implementation.
His idea of “African opportunity” will provide a conduit for British businesses to export their products
and services to African communities via the right governance that will create mutual benefits for the UK
and international businesses and the African communities in need to direct foreign investment.
The African opportunity will create an open platform whereby businesses and African communities can
engage and create partnerships for mutual developments. To request a copy of the Afrcian opportunity,
please email ben.oguntala@dataprotectionofficer.com
The African opportunity aims to work in collaboration with Chambers of commerce across the UK,
international chambers of commerce, DFID, BIS, UKTI, CBI, IOD, commonwealth, UN, EU agencies in the
development of the capacity.