The news that China and Nigeria are partnering to form a 16,500 hectare free trade zone near Lagos could be a boon for potential investors and the Nigerian economy.  But, the devil lies in the details: success depends on implementation.  Similar “free trade” or “enterprise” zones have been tried before and have produced mixed results. Nigeria can look across Africa to the Mauritian experience to see that trading zones are not a “silver-bullet” but they can help promote lasting change if other pro-growth policies are pursued.

The idea in Nigeria is to create a free trade area that will allow foreign businesses to invest in Nigeria by circumventing the wide array of existing government imposed barriers. The need for a streamlined system of investment in Nigeria cannot be overstated. The World Bank reports that it currently takes over a month to satisfy the eight procedures in order to start a business at a cost of three quarters of a year’s average wages. In the new free trade zone this procedure is expected to take less than a week.

A similar country-wide Export Processing Zone was launched in Mauritius in 1970, allowing traders to import duty-free “inputs” (e.g. products used in exports) to circumvent vertiginous tariff barriers that crippled the rest of the economy. Yet success for the EPZs in Mauritius did not come until further liberalisation took place almost a decade later. A series of economic reforms launched in the late 1970’s, including reducing (eventually abolishing) the minimum wage (which had contributed to record levels of unemployment in the 1970s) and simplifying import licensing restrictions enabled the EPZ firms to develop and prosper, along with the wider economy. Since the mid 1980s the volume of imports and exports has grown, on average, by 8.7 per cent and 5.4 per cent respectively each year.  At its peak, in 1999, EPZ firms contributed 12.5 per cent to total GDP and accounted for up to 75 per cent of all exports.  And yet even these figures still do not fully account for the value of investment, migration and trade in goods and services that Mauritius’ EPZ garnered for the country’s wider economy.

The underlying point, that the government must listen to the needs of its businesses and investors, was essential to overcoming initial difficulties for the EPZs in Mauritius.  The original reforms in 1970 needed to be bolstered by further reforms, which have helped the EPZs and the wider economy boom.  This is essential to the success of the Nigerian experiment. Nigerian politicians should abandon their historical scepticism towards trade and allow their businesses and consumers to enjoy the expertise, investment and opportunities that opening up to the global economy will bring. 

A free trade island surrounded by a fortress of protectionism is a good start.  Let’s hope the free trade zone provides a beacon for the reforms so badly needed across the economy at large.

A new IPN study reveals the hidden costs of so-called “green investments”, bringing a key policy of Britain’s coalition government into question. “Seven Myths About Green Jobs” (opens PDF) shows that subsidising “green jobs” wastes resources and reduces growth without necessarily protecting the environment:

Bureaucracy: In practice, “green investments” get spent on red tape. “Green jobs” are taken by bureaucrats, siphoning resources away from the productive sectors of the economy.

Waste: For those advocating “green jobs”, inefficiency is a virtue. A United Nations study on green jobs actually calls for fruit to be picked by hand rather than machine. “Green” subsidies effectively pay companies to make everyday items more expensive and scarce, taxing the public twice over.

Debt: Today’s “green investments” are made by increasing Britain’s colossal national debt, borrowing heavily in the hope of making future generations richer. If the green gamble fails, our children and grandchildren will be left with the bill.

“Green investment” isn’t even a reliable way to improve the environment, the study finds. Steel is one of the world’s most carbon-intensive industries, yet the United Nations Environment Programme counts steelworkers as having “green jobs”, because steel is needed to make wind turbines.

Leaked plans to redirect government spending to the foreign aid budget are condemnable, but hardly surprising.

While the coalition government has decided to increase foreign aid spending to 0.7 per cent of national income each year, almost all other departments are having to cut spending by an average of 25 per cent. No wonder civil servants are engaging in “budget juggling”.

In fact, the 0.7% spending target for foreign aid makes no sense: the actual needs of the world’s poorest bears no relation to the size of the UK economy. If the government is serious about development it should abandon arbitrary targets, and appraise each case for aid independently with the interests of those suffering at the fore.

Wasteful spending should be cut in the foreign aid budget, just as it is being in other government budgets. 

Our daily round-up of what other think-tanks and commentators are saying on the big issues:

Kieron Ryan: how the “blood diamonds” scare is a 24-carat disaster for Africa.

Tragedy of the wildlife commons in the US explained. 

Critical:

Cocoa speculators are not evil.

Aid is not about generosity, it should be about helping the world’s poorest.