by Joao Marques, Contributing Editor

April 2017 – Nigeria has had Free Zones (FZs) since 1992, and today counts more than 30 licensed areas under that title, between operating and in-development projects. However, since 1996, a separate piece of legislation allowed for the creation of another type of structure, the Oil and Gas Free Zones (OGFZ). Under the authority of the Oil and Gas Free Zone Authority (OGFZA), OGFZs opened the door to dedicated FZs with a separate regime of benefits, specific to the oil and gas industry.

First on the scene: The first of such projects to come into operation was the ONNE Oil and Gas Free Zone, in the Rivers State, an area fully dedicated to oil and gas logistics services and activities operating as a hub for the country’s hydrocarbons industry and the West African region at large. ONNE, established in 1997, was the first free zone of its kind in the world and is considered today to be the most successful FZ in Africa by foreign direct investment attraction, while being the biggest oil and gas dedicated FZ in the world.

It is located 30 km from Port Harcourt, Nigeria’s oil hub, giving it easy access to one of the continent’s most intensive oil and gas working areas. While its geographic location represents a major advantage, it boasts a number of oil and gas specific fiscal benefits that have made it a strategic investment hotspot for nearly all of the major oil and gas companies operating in West Africa. Beyond the usual tax exemptions offered by FZs in Nigeria and elsewhere, ONNE also offers customs privileges for goods consigned to the OGFZ, duty Free Stock, no double handling in and out of Nigeria, access to major projects on-shore, off-shore and regionally, cost efficient operations and a sophisticated oil service center support.

ONNE’s ability to attract foreign investment, to the tune of $20 billion since its inception, contrasts sharply with its non-dedicated counterparts across the country. The OGFZA estimates ONNE to have created 100,000 direct and indirect jobs, through the hosting of hundreds of companies.

The FZ’s particularity of using public-private partnerships (PPP) to finance its infrastructural developments and expansions has proved particularly beneficial for raising the capital necessary for the infrastructural development needed to remain one the best equipped oil and gas support hubs in the regions.

Designed with job creation and FDI attraction in mind, FZs have been an effective way to boost Nigerian industrial development, but none as much as ONNE.

Refining and expanding: The success of ONNE in attracting FDI has been regarded as a paradigm shift project in Nigeria and has promoted the creation of new sector specific FZs, particularly focused on hydrocarbons, Nigeria’s biggest industry. Hence, the OGFZ Act of 1996, which established ONNE as a one-off exception to the standard legislation applied to other FZs in Nigeria, has been amended to allow for the expansion of the model.

Today there are three OGFZs in Nigeria, including ONNE, Warri OGFZ, in the Delta State, which is already operational, and the Brass OGFZ in Bayelsa State, which has been licensed but is still under development. Ekko Support Group, a logistics company dedicated to oil and gas and located at the entry of the port of Lagos, has requested a license to become an OGFZ and counts with the support of the OGFZA. The Authority is looking into further expanding through three more FZs, in Ibaka, Ibeno and Ikot Abasi, in Akwa Ibom State.

The organisation is seeking a 50% growth rate in FDI and volume throughout the 2017-2019 period. Other FZs, including Olokola, in Ondo State, Snake Island, in Lagos State, and LADOL also in Lagos, do not fall under the authority of the OGFZA, even though its services are almost exclusively dedicated to oil and gas. There have been talks of possibly the OGFZA taking over control over these zones, as it is foreseen by the law. In the mean time, these zones fall under the Nigerian Export Processing Zone Authority and do not enjoy special oil and gas related regulation.

The downturn in global oil prices has had an impact in the work of the OGFZs, with ONNE losing almost a third of its resident companies, which evidences the risks of an FZ dedicating itself exclusively to a single commodity. The OGFZA has already announced that it would be reducing its tariffs in 2017 to compensate for the depressed investment period.

Oil & gas FZ outlook: Despite trying economic times, the model’s success has been repeatedly lauded in Nigeria and abroad, and it is important to consider the potential of its applicability in other oil producing nations. Its capability of emitting sector specific tax and fiscal regulations and of concentrating all the necessary equipment and services in a streamlined and cost-effective hub present very attractive advantages for the sector continent-wide. So far, there are no examples of this kind of structures outside Nigeria, but it is likely that its success will interest countries like Angola, Cameroon or Gabon.

Streamlining of services, reduction of red tape and an attractive and sector dedicated fiscal regime could go a long way in securing investor interest. Perhaps the closest example to the Nigerian ONNE is Equatorial Guinea’s Luba Freeport, a Special Economic Zone dedicated to providing logistics services to the oil and gas industry and part of a strategy to turn Equatorial Guinea into the regions oil and gas services hub over the next decade. For that to come to pass, Luba’s administration might want to look at what is happening in ONNE, for it represents fierce competition.