Powerful prospects

Workers at a clothes factory in the Lekki Free Trade Zone in Lagos, Nigeria. Provided to China Daily

A new free-trade zone developed by a Chinese company on a Nigerian peninsula is showing promise with its robust financing and strong local backing

Something taken for granted in many parts of the world, uninterrupted electric power, is one of the biggest attractions of a burgeoning free-trade zone on a peninsula on the outskirts of Lagos, Nigeria's commercial capital.

The upcoming completion of a 24-megawatt power plant in the Lekki Free Trade Zone is being touted as a major advantage by its developer, China-Africa Lekki Investment Ltd.

"It is difficult to imagine, but further development of our zone now hinges on the generator units," says Wei Xuemin, marketing director of the investment company known as CALI.

"However, for a country plagued by power shortages like Nigeria, a steady supply of electricity is an exciting incentive for enterprises, as it guarantees stable production and reduces mechanical wear."

The generator units will start operating at full capacity at the end of this month, making the zone on the Lekki Peninsula, one of the few institutions in Nigeria that can provide a 24-hour, uninterrupted power supply.

Bordering Lekki Lagoon in the north and the Atlantic Ocean in the south, the zone covers an area of about 30 square kilometers with 90 percent for urban construction purposes.

CALI was registered as a joint venture in Beijing in March 2006 with authorized capital of $33 million among four Chinese shareholders: China Railway Construction Corporation Ltd, China Civil Engineering Construction Corporation, China-Africa Development Fund and Nanjing Jiangning Economic & Technological Development Corporation.

That same year, CALI launched the Lekki Free Trade Zone, and with two Nigerian partners - the Lagos State Government and Lekki Worldwide Investment Ltd - established the Lekki Free Zone Development Company to take charge of the zone's daily operation.

At that time, China had just started to promote the model of overseas economic and trade cooperation zones in Africa, saying it would build 36 such zones on the continent in three years. The Lekki project was approved by the Chinese Ministry of Commerce in 2007.

The peninsula has sandy beaches that attract tourists, but CALI also aims to develop a modern new city with integrated industries, commerce, real estate development, logistics and entertainment.

Once completed, the zone, with an expected annual GDP of $20 billion, could house 120,000 people and create 100,000 jobs.

"It will also become a driving force for Nigerian economic development and a showcase example of cooperation between China and Nigeria," Wei says.

Construction of a 50-km natural gas pipeline is also being negotiated with the Lagos State Government. "The removal of the major development barriers of natural gas and electricity will greatly boost investors' confidence in our zone," he says.

Inspired by the favorable production environment, more than 30 enterprises ranging from energy processing to project contracting have already established operations in the park with prospective total investment of $700 million. Fifty additional companies are finalizing investment agreements.

Zheng Jun, managing director of CALI, says plans for the Lekki Free-Trade Zone are consistent with Africa's development trends and China's industrial transfer policies in the continent.

"As a country rich in young labor and natural resources, Nigeria's economy has been developing rapidly since the elected government put political fragmentation to an end in 1999, with a focus on improving infrastructure and people's livelihoods," Zheng says. "The country also attracts the highest foreign investment in Africa and displays robust purchasing power.

"For the Chinese business community, it means investment is likely to yield higher returns than others."

The Lagos State Government envisages the Lekki Peninsula as having a free-trade zone, an international airport and a new port - a "blue-green" environment satellite city of the crowded international metropolis of Lagos.

A blue environment means economically sustainable with little or no waste, and a green one is environmentally sustainable.

Nigeria's government has offered multiple preferential policies such as duty-free trade, creation of in-zone businesses and a tax holiday. The country has also pledged tax abatement to enterprises in "pioneer industries" such as steel, pharmaceuticals and cement.

Most pioneer industries Nigeria has identified are those with excess capacity in China, Zheng says. "Also because of the rising costs of labor and land, these Chinese enterprises are eager to transfer their production overseas, but they lack a thorough understanding of the African market."

"The ultimate purpose of the Lekki Free-Trade Zone is to tackle two problems that Chinese enterprises encounter in Africa: where to relocate and how to develop," Zheng says. "As an answer to these two questions, the zone helps them minimize costs and risk."

CALI, whose headquarters are in Beijing, pitches the zone at Chinese business groups. It also has offices in Europe and other African countries to promote the Lekki project. During the first half of this year, the zone received more than 150 business delegations from all over the world.

Chinese enterprises' misconceptions about Africa and inadequate preparation are major challenges in touting the zone's attractive investment climate, Zheng says. It takes a company with determination and vision to invest in the rising continent, he says.

"Some enterprises still associate Africa with poverty, disease and danger, and flinch because of concerns over geographic distances and cultural differences, while some just flock there without studying the local market and the regulations, or even having a good support team."

CALI is also helping to make the zone welcome by designating 0.5 percent of its total investment to support development of surrounding communities through drilling water wells, donating to hospitals, sponsoring local elections and other assistance.

"Chinese investors should interact more with native Africans," Zheng says. "They will have better growth prospects by employing local people and strictly controlling pollution."

Another challenge has been the outbreak of deadly Ebola hemorrhagic fever in the region.

Since February, more than 3,000 people have died in five West African countries from Ebola, which has also seriously battered the area's economy. But the three main countries struggling with the deadly virus are Liberia, Guinea and Sierra Leone. Nigeria has had seven deaths out of 20 diagnosed cases.

Although there has been no report of infection in the Lekki zone, Zheng says some business executives' confidence in Nigeria has wavered because of fear.

"We strengthened the management of people's access to the zone and introduced four temperature-measuring devices at the two main entrances," he says.

puzhendong@chinadaily.com.cn

( China Daily Africa Weekly 10/10/2014 page20)