India’s Tata International has given a vote of confidence to Tolaram’s Lagos Free Zone.
The timing of the second phase of construction of Nigeria’s Lekki deep water port depends on naira stability being achieved, Lagos Free Zone (LFZ) CFO Ashish Khemka tells The Africa Report.
The first phase of Lekki, a container port with two berths integrated within the LFZ, started operations in April 2023. The phase two plan is to add a third berth, along with project cargo and liquid berth terminals. The facility, with a depth of 16.5 metres, is Nigeria’s only deep-water port and can receive vessels carrying up to 18,000 Twenty-foot Equivalent Units (TEUs.)
Khemka says a start to construction on the second phase will depend on occupancy rates in the port, and estimates this may be three or four years away. He’s optimistic that the plans will come to fruition. The adoption of “orthodox” monetary policy by Nigeria’s central bank, which includes a 400-basis-point rate hike at the end of February, is “currently showing the results required” with the naira having been more stable over the last two weeks, Khemka says.
He says the naira is now “undervalued” at around 1,600 to the dollar, and expects to see some appreciation this year. “Foreign currency volatility is the most important factor” influencing investment decisions into the zone, Khemka says. “The macro situation needs to improve and to become stable.”
Khemka points to the fact that over 75% of bids received in government securities auctions on 1 March and 6 March came from foreign investors as a sign that the worst is over and international confidence can be restored. “Investors will return once stability is established.”
Asian model?
The LFZ, which extends over 850 hectares, was set up in 2012 as Nigeria’s first privately owned free-trade zone. The original idea was to try to replicate special economic zones, often designed in Singapore, which were seen as having underpinned rapid Asian industrialisation.
Optimism as to the wider usefulness of Asian-style zones has receded. Researchers led by Susanne Frick at the London School of Economics in 2018 examined 346 special economic zones in 22 developing world countries. They found that SEZs overall are unlikely to outperform the local economy. They “cannot be considered as a growth catalyst in emerging countries . . . their overall economic dynamism does not exceed that of the countries where they are located, casting doubts about claims that portray them as a panacea for growth.”
The LFZ is owned by Singapore-based holding company Tolaram. Multinationals operating there include Kellogg of the US, Germany’s BASF and France’s CMA CGM. The African Development Bank has estimated that the project has the potential to create 700,000 jobs. The zone in November 2023 secured financing of $150m from the World Bank’s International Finance Corporation.
Traffic at Lekki port has been increasing, Khemka says. A further boost came in November when Indian conglomerate Tata International agreed to lease a 6,000-square-metre facility in the zone for car assembly. Operations are likely to start by May or June, Khemka says, and will allow Tata to target Nigerian and West African car markets.
Tata International’s operations in Nigeria include distribution of commercial vehicles, tractors and agricultural equipment. Khemka says the conglomerate may set up further businesses in the zone. He hopes to attract more Asian multinationals keen to use LFZ as a manufacturing base to target West Africa. “There are players who are looking at it.” (The Africa Report)
