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China-Africa and an Economic Transformation$

Arkebe Oqubay and Justin Yifu Lin

Print publication date: 2019

Print ISBN-13: 9780198830504

Published to Oxford Scholarship Online: June 2019

DOI: 10.1093/oso/9780198830504.001.0001

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The Political Economy of China’s Investment in Nigeria

The Political Economy of China’s Investment in Nigeria

Prometheus or Leviathan?

(p.192) Chapter 10 The Political Economy of China’s Investment in Nigeria
China-Africa and an Economic Transformation

Omolade Adunbi

Howard Stein

Oxford University Press

Abstract and Keywords

Nigeria’s transition to civil rule in 1999 and the eventual consolidation of a liberalized economy by successive administrations have resulted in the signing of several business deals with the Chinese government and Chinese enterprises. A key agreement was the establishment of two Chinese constructed and operated special economic zones in Lagos and Ogun States as part of a plan to create zones in five countries under the auspices of the Forum on China–Africa Cooperation (FOCAC). The hope was that zones would attract Chinese manufacturing businesses and help Nigeria diversify the economy away from oil dependency. This chapter will investigate the relationship between China and Nigeria in general with a focus on textile production and trade and the nature of the zones in particular to assess if China’s growing presence in Nigeria is in the image of Prometheus or Leviathan.

Keywords:   China, Nigeria, special economic zones, China–Africa cooperation, textiles, manufacturing, de-industrialization, industrial policy

10.1 Introduction

There has been a growing influence of China globally in the last two decades. One of the major changes shaping China’s growing economic and political impact is its ‘Going Out’ policy which has led to negotiations and the signing of multilateral and bilateral trade agreements across the globe. These agreements have been brokered through the organization of groups such as the Forum on China–Africa Cooperation (FOCAC), established in 2000 as a meeting point to discuss trade between China and Africa. These kinds of interactions have facilitated the growth of economic linkages between China and Africa which, as we have seen in other chapters, have rapidly expanded in the past decade and a half. One way to deal with the massive trade deficit in manufacturing goods which has characterized China–Africa economic relationships is to attract Chinese manufacturing capital. Closely linked to this is to establish special economic zones (SEZs)1 in African countries.

Proponents of SEZs argue it could draw on Chinese expertise on managing zones, which have been very successful in China in contrast to sub-Saharan Africa where they have generally done poorly for a variety of reasons (Stein, (p.193) 2012). This could propel sub-Saharan Africa onto the path of industrialization and move the continent away from aid dependency. At the First Ministerial Conference of the Forum on China–Africa Cooperation in 2000, China pledged to share its experience with Africa on investment promotion through SEZs. In 2006, China’s president Hu Jintao announced the establishment of three to five SEZs in African countries (FOCAC, 2006). Starting in 2007 Chinese SEZs were established in Zambia, Egypt, Nigeria, Ethiopia, and Mauritius (UNDP, 2015). Zone construction tenders were set in 2006 and 2007.

By February 2015, there were eight to thirty-eight companies operating in all but the Mauritius zone which was partly held up due to disputes over compensation for evicted farmers (Cowaloosur, 2014; Tang, 2016). Since then some zones have continued to attract Chinese companies. In Ethiopia, by 2018 the Chinese-run Eastern Industrial Zone had completely leased or sold all the land in its 233-hectare first phase. There were seventy-nine mostly Chinese companies in the zone, with fifty-six starting operations. The zone produced a wide variety of items including textiles and garments, motor assembly, chemical and soap production, pharmaceuticals, building materials including cement and steel products, shoes, aluminum products, and foodstuffs for both the domestic and export markets. Employment was estimated at 14,700 workers including 1,500 Chinese nationals. However they were having considerable difficult securing the 167 hectares for Phase two from the local government, partly due to protests from evicted farmers and the price that was demanded for the new land (interview with administration office, Eastern Industrial Zone, 25 August 2018).

Nigeria had two Chinese zones established, one in Lekki in Lagos State and another in Ogun State just north of Lagos. The remainder of this chapter maps out the history of Nigerian and Chinese relationships including their economic linkages before turning to a discussion of free trade zones (FTZ) in Nigeria with a specific focus on the two Chinese-run zones. A key focal point will be to present the nature and impact of the Chinese SEZs in Nigeria and determine if China’s economic relationship and presence can be seen as a Leviathan, the all-powerful giant monster that devours everything in its path, or should be seen in the spirit of the Greek God Prometheus who brought to humanity the gifts to dramatically improve their livelihoods.

10.2 Nigerian and Chinese Linkages: An Overview

Beijing established diplomatic relations with Lagos in 1971, overcoming the hostility that was associated with Chinese support for Biafra during the Nigerian civil war of 1967–70. A delegation visited Beijing in 1972 and signed (p.194) an open-ended agreement on trade and technical cooperation. Despite the close relations of the 1970s, Nigeria asserted its foreign policy independence. For example, Nigeria not only became a member of the frontline state but also supported materially and otherwise groups fighting for independence in many Southern African countries. For instance, following the 1975 civil war in Angola, Nigeria supported the Soviet-backed MPLA, while China aligned itself with the FNLA, which was also supported by the United States and CIA. During the Abacha dictatorship years of 1993–8 when Western aid was again cut off because of the abysmal human rights record of the regime, Nigeria adopted a ‘Look East’ policy, which strengthened the Beijing–Abuja alliance and built trust between the two nations.

Cooperation has continued to the present (see Chapter 4 documenting this historical cooperation for the rest of Africa and Nigeria). Since 1999 when democratic elections started, every Nigerian president has visited China. In 2005, China and Nigeria published a joint communiqué with China announcing Taiwan as an inalienable part of the territory of China. In 2015, China endorsed Nigeria’s attempt to become a permanent member of the UN Security Council, while Nigeria supported China’s position in territorial disputes in the Pacific region. China has also provided military support in counter-insurgency efforts in the Niger Delta (Ramani, 2016; Umejei, 2015).

Good political relations have spilled over into economics (and vice versa). Historically, there were a number of Hong Kong-based companies that invested in Nigeria after independence. Some originated in mainland China but moved to Hong Kong after the Communist takeover. Two are still operating in Nigeria. The Lee Group produces shoes, bread, plastic bags, steel, and ceramics. The second, Western Metal Products Company Limited (WEMPCO), which is controlled by the Tung family, is in ceramics, building materials, and the hospitality sector, and opened the largest cold-rolled steel mill in Africa in 2015 (Chen et al., 2016.)

In 2006, China and Nigeria signed a memorandum of understanding (MOU) on the establishment of a strategic partnership, which was the first for an African country. The partnership led to an oil-for-infrastructure arrangement, under which Chinese companies were offered first access to oil-processing licences. Presidential visits have led to large Chinese loans. President Jonathan’s visit to Beijing in 2013 led to a US$3 billion loan for infrastructure which included expansion of the airports in Lagos, Kano, Abuja, and Port Harcourt. Following President Buhari’s visit in 2016, Nigeria was offered an infrastructural loan of US$6 billion.

Chinese companies have increasingly been locating2 to Nigeria. As of 2013, according to the local investment agency, there were 208 registered Chinese (p.195) companies in Nigeria focusing on oil and gas, construction, and telecommunications (Umejei, 2015). By 2016, the number registered with the investment agency had grown to 308 though the numbers could be considerably higher (Sun et al., 2017). Chen et al. (2016) surveyed two sources—the Nigerian Investment Promotion Council (NIPC) and the Chinese Ministry of Commerce (MOFCOM)—for the number of Chinese companies approved to invest in Nigeria and found 221and 297 respectively though there was no guarantee they actually invested. 141 listed with MOFCOM and ninety-two with NIPC were in manufacturing. Only twenty-one to thirty were overlapping in manufacturing.

Nigeria has also been one of the largest recipients of loans from China (Chapter 7 details many of the Chinese loans contracted by Nigeria and other African countries). Between 2010 and 2015, Nigeria received the fourth-highest amount of loans in Africa from China and the sixth highest over the longer period of 2000–15 (SAIS-CARI, 2018). However, that is likely to have gone up in the wake of the US$7.5 billion dollar loan from China in 2017 for the Lagos to Kano and Lagos to Ibadan railways (Adamu, 2017). As of 2011, they were the second-highest recipient of FDI after South Africa (Umejei, 2015). Between 1995 and 2017, Nigeria has been the second-largest importer of Chinese goods after South Africa. Exports to China have also been in the top five in most years over the same period (UNCTAD, 2018).

10.3 Nigerian–Chinese Trade Relations and Textiles

The Chinese trade relationship with Nigeria has been severely criticized both in the press and in academic writings. Sansui, the former governor of the Central Bank of Nigeria, stated in 2013: ‘China takes from us primary goods and sells us manufactured ones. This was also the essence of colonialism.’ Others have been equally scathing. Agubamah (2014) writes: ‘The relationship between Nigeria and China is not a Win-Win situation as being claimed by China but rather Win-Lose situation as reality shows…Nigeria should be wary of being used as a dumping ground for cheap Chinese exports.’

Particularly heavy criticism has focused on the claims that Chinese imports have completely undermined the textile sector. Both China and Nigeria have long histories of textile production dating back to hand weaving in the eighteenth century in the Yangtze valley in China under the Qing dynasty and the city of Kano under the Sokoto Caliphate, which began in 1804. Both were affected by colonialism, foreign ownership, and mechanization in the twentieth century. In China, cotton textiles rapidly expanded after the nationalization following World War II. In Nigeria, the modern history of (p.196) textiles began in the 1940s and 1950s as part of the textile development scheme centred in Kano and Kaduna with support from overseas capital. The first indigenous factory was commissioned in Kano in 1952. Later the Emir of Kano, with the financial support of Lebanese businessmen, opened a number of factories. Other factories were opened in the 1960s with capital from Britain, Sudan, and the Hong Kong-based CHA group which provided financial support for United Nigeria Textiles Ltd (UNT).

In the 1980s Nigeria had 175 textile plants employing 250,000 people with many more employed as traders and suppliers of cotton and other inputs including thousands of cotton farmers. It accounted for around 25 per cent of manufactured value added with roughly 35 per cent exported to West African countries. However, by the end of the 1980s and early 1990s, production began to decline, while production in China led by FDI in the SEZs dramatically increased.

By 2007, Nigeria had only twenty-six companies still operating in textiles, employing roughly 24,000 people. Closures included early plants like United Nigeria Textiles Ltd. (UNT). Growth of Chinese imports was facilitated by the massive influx of Chinese company representatives to Nigeria and Nigerian traders flocking to China. The numbers by 2008 had reached 50,000 Chinese representatives in Nigeria and 20,000 Nigerians in China (Muhammad et al., 2017; Renne, 2015; Umejei, 2015). Muhammad et al. (2017) go as far as to call this ‘Chinese textile imperialism’ and blame the decline on the Chinese: ‘From this healthy state the textile industry began to decline steadily. This was largely due to cheap imports from China’ (p. 676).

Renne (2015) takes a more nuanced view. Nigerian textile production fell apart in the 1980s and 1990s due largely to internal problems though illegal cheap Chinese imports might have been present from the 1970s. The main source of the decline was poor and unstable leadership which failed to provide consistent supporting industrial policy, decline of infrastructure, including the failure to maintain the power grid, and the impact of structural adjustment after 1986 which among other things devalued the currency and made spare parts and modern weaving equipment prohibitively costly.

While Nigerian production declined, the Chinese industry began to prosper after the mid-1980s. The initial success of the four SEZs led to their expansion and the development of SEZ industrial clusters focusing on textile production in cities in Zhejiang and Hebei provinces. They started importing state-of-the-art equipment and producing high-quality textiles in an efficient manner. In 1980, China was the tenth-largest producer of textiles. By 1995, the improved equipment, large low-wage labour force, and modernized infrastructure propelled China to become the largest producer and exporter of textiles in the world. By the late 1990s and early 2000s Chinese textile companies and their (p.197) representatives had institutionalized new trading practices in Nigeria while fostering the presence of Nigerian trading representatives in China.

What does the data actually show on this and other issues? Data on the general trends in the structure of Nigerian trade with the rest of the world can be used as a basis of comparison with the China–Nigeria trade relationship. The structure of trade is very important from a development perspective. At least since the work of Prebisch (1950) and Singer (1950), development economists have been aware of the need to increase manufacturing exports and the problems with continuing to rely heavily on unprocessed resource exports. Among other things, manufacturing, is subject to increasing returns, is a conduit for the transfer of technology, has higher income elasticities compared with other activities, generates employment, is very tradable, is more heterogeneous which can allow for better market segmentation which helps avoid the price volatility of homogeneous commodities, and can stimulate extensive backward, forward, and demand linkages (Stein, 2013).

What is apparent is the continued problematic dependence of Nigeria on fuel exports and its apparent inability to increase manufacturing exports. Between 1995 and 2017, fuel accounted between 91 an 97 percent of total exports. In 2017 it was above 96 per cent, the highest level since 2006.

The percentage of manufactured goods, except for one year, stayed below 2.5 per cent of the total achieved in 1995. More worrisome is the dramatic decline in absolute dollar terms, with manufacturing exports in 2016 falling by nearly 80 per cent compared to 2014, to a level below 2005 (UNCTAD, 2018).

The import side shows a continued heavy reliance on manufactured goods which averaged 70.5 per cent in 2005–11, dropping slightly to 65.1 per cent from 2012–17. The other significant import is fuel which is quite extraordinary for a major oil exporter and comprises over 20 per cent of imports in 2016 and 2017. This reflects the very low refinery capacity and the need for Nigeria to import massive amounts of petrol and petrol products. In 2017, for example, it was estimated that the country’s refining capacity was only 17 per cent of its domestic needs with the rest imported (Reuters, 2017).

Nigeria generated large positive trade balances from 2005 to 2014 that contributed to very healthy reserves as high as US$53 billion in 2008 but still above US$45 billion in 2014 (World Bank, 2018). During the period crude petroleum was on average more than three times the 2000 price level but fell to less than half the 2014 price from 2015–17, leading to the rapid deterioration in the trade balance into negative numbers (UNCTAD, 2018). How do the general trade accounts for Nigeria compare to the trading relationship with China? Tables 10.1 and 10.2 provide data over the same period of 1995 to 2017.

Table 10.1. Nigeria–China exports 1995–2017 in US$m, except ratios


Exports of manufactured goods

Manufactured goods/Total

Exports of fuels


Total Exports



























































































Source: UNCTAD, 2018

Table 10.2. Nigeria–China imports 1995–2017 and trade balance in US$m, except ratios


Imports of manufactured goods

Manufactured goods/Total

Imports of fuels


Total imports











































































































Source: UNCTAD, 2018

We can see that fuels dominate exports to China though the numbers are not as high in recent years. Chapter 9 also shows the dynamism of China’s (p.198) oil interest in countries such as Sudan, Nigeria, and other oil-producing countries in Africa. Generally, manufacturing exports have been very low, in the range of 1–3 per cent of total exports, with the exception of 2010 and 2011 when there is likely to have been some re-export of equipment originally manufactured in China. The absolute exports seem to have actually fallen by half in 2016 compared to 2012–13. Overall, primary commodities completely (p.199) dominate exports to China and in most years exceed 95 per cent of the total (UNCTAD, 2018).

Table 10.2 looks at the import side of the trade relationship with China. What is striking is the very high dominance of manufacturing which is above 90 per cent of total imports over most of the period and well above the figures of Nigerian imports from the rest of the world. What is also striking is the huge trade imbalance in favour of China that is present in every year in the table. The imbalance has been extremely high since 2006 and has fallen in the range of 75–92 per cent of total trade. The contrast with the world figures is striking since Nigeria has been running a trade surplus with most of the rest of the world over most years.

Table 10.3 provides a detailed representation of the structure of imports with China. What is interesting is that the largest import category is machinery, which has the potential for technology transfer and the expansion of manufacturing production for the export and domestic markets. Chen et al. (2016) in their survey of Chinese companies and Chinese-linked companies in Nigeria report that cost is the major factor in purchasing Chinese machinery though they tend to be less durable. There was some evidence of technology transfer in the servicing and maintenance support provided by Chinese suppliers.

Table 10.3. Nigeria–China detailed structure of imports of manufactured goods 1995–2017 in US$m, except ratios


Imports of manufacturedgoods


Machinery/Total manufactured goods

Textiles and clothing

Textiles, clothing, and footwear

Textiles, clothing, and footwear/Total manufactured goods










































































































Source: UNCTAD, 2018 (machinery = machinery and transport-road vehicles and other transport)

As discussed above, a good deal has been written on the negative impact of the dumping of Chinese textile and clothing exports in Nigeria. What is evident is that clothing and textile imports, even when footwear is included, have not been the dominant manufacturing import falling into a range of between 10 and 17 per cent after 2012. However, there has still been a significant increase both in absolute dollar imports of textiles and clothing and in the percentage of total manufacturing imports from China. A key question is: how do the imports of Chinese textile and clothing compare to overall imports of this group from all countries? At what point, if at all, does it become dominant? Data on the trends in manufacturing production from the CBN annual report indicate that by 2002 the volume of the production of synthetic-fibre-based textiles was down by 56 per cent and cotton by 24.1 per cent compared to 1990 (CBN, 2006). By the fourth quarter of 2007 synthetic-based textiles fell an astonishing 77.1 per cent below their level of 1990 and cotton textiles were down 27 per cent. In both cases this is prima facie evidence of significant de-industrialization in the sector in line with the claims above. The figures in the CBN annual report for 2011 show continued problems in the sector, with production falling to only 69.1 per cent of the 1990 level in cotton textiles. Synthetic fibres recovered to 41.2 per cent in the first quarter of 2011 compared to the 1990 base year.3

(p.200) (p.201) We can draw some comparisons on the role that China played relative to the declines cited in the CBN data. From 1995 to 2002, Chinese imports were a very small portion of textile and clothing imports, averaging 9.8 per cent. Between 2003 and 2007, when domestic production fell further, total world imports rose by more than 50 per cent on average. The Chinese share significantly increased to 27.5 per cent of the total. During 2008–11 imports more than doubled compared to the 2003 period. The Chinese share rose slightly to 28.5 per cent. In the latest period, 2012–17, imports again soared by 50 per cent on average per year. During the period Chinese imports dominated and averaged 62.4 per cent of the total (UNCTAD, 2018).

How do we interpret this data relative to the claims above of the harmful role of Chinese imports? Clearly the period of the greatest de-industrialization in the textile sector occurred prior to the large surge in imports from China. To suggest as Muhammed et al. (2017) do that Nigerian textile production was in a healthy state until the Chinese came along is simply untrue. Clearly the Renne (2015) argument which points to the severe decline in the sector prior to the surge of Chinese imports is accurate. However, it is also clear that Chinese imports have become dominant, particularly since 2011. As pointed out above, Chinese and Nigerian trading networks have become entrenched in the textile trade.

Renne (2015) argues that one way forward is to get the Chinese to relocate their production to Nigeria. In her view, one possibility is in the Chinese-run SEZs, including the Lekki Free Trade Zone which has plans to expand into textile production and could become a model for a new trade zone focused on textiles in Kano. However she also warns:

Nonetheless, those seeking to establish export trade zone projects in Nigeria face many challenges. In the case of the Lekki Free Trade Zone in Lagos, there have been delays due to financing constraints and a lack of clarity over partnership terms within the Chinese consortium, misunderstandings between Nigerian partners and the Chinese consortium over funding and infrastructure responsibilities, and local Lekki community members’ protests over terms of resettlement…These problems exemplify more general problems with the implementation of Chinese-Nigerian Free Trade Zones, which include miscommunication and a lack of transparency on both sides, as well as distrust by Nigerians about the possibility that economic zones will become Chinese enclaves and be used to bring Chinese goods for resale in Nigeria.

(Renne, 2015: 228)

On the latter point, Shin and Eisenman (2012) reported that the Chinese Zhejiang company Yuemei, which used to export textiles to Nigeria, decided in 2008 to build a textile-focused industrial park and by 2013 had attracted twenty companies undertaking complementary activities such as spinning, dyeing, weaving, sewing, knitting, and embroidery, However, Chen et al. (p.202) (2016) visited the site and contested the claims in Shin’s World Bank working paper. In fact Yuemei was renting space in the Calabar Free Trade Zone. Only two Chinese companies had located there. One company embroidering cloth closed after a year in 2011 and the other involved with dyeing textiles ceased operation in 2014. Both stayed through 2014 and were evicted on suspicion that they were more interested in trans-shipping products from China without paying duties.

One positive sign is that the contribution of manufacturing to GDP has been rising in recent years. In 1980 manufacturing GDP was 9.1 per cent of total GDP. By 2005–10 it had fallen to the range 6.2–6.5 per cent. However, by 2014 it reached nearly 10 per cent of GDP before falling back in 2016 to 9.2 per cent (UNCTAD, 2018). Textile, apparel, and footwear production has increased its contribution to manufacturing from 9.9 per cent in 2010 to 22.8 per cent in 2016. In nominal value-added terms, this sector was responsible for nearly a third of the rise in manufactured GDP and was the second-highest contributor to the increase after food, beverages, and tobacco (CBN, 2016). What role did the EPZs or Chinese capital play, if any, in this expansion of this sector? How much is this a reflection of changing government priorities, and what role is China playing in this?

10.4 New Government Measures in Support of Industry

In 2010 Nigeria undertook a renewed effort to support industry. Nigeria adopted an ambitious long-term development plan, Vision 2020, which focused on propelling the country into the list of the top twenty economies of the world by 2020. The Industrial Sector-Specific Action Plan focused on the technologically driven and globally competitive manufacturing sector, with a high level of local content and a higher contribution to GDP. Five sub-sectors were prioritized, including chemicals and pharmaceuticals, basic metal, iron and steel and fabricated metal, food, beverages and tobacco, textiles and apparel and leather footwear, along with non-metallic mineral products. Priorities were set based on ease of development relative to the country’s comparative advantage and because they had the highest potential to provide raw materials for other key industries (Jereome, 2013).

The government also took steps to stem the bottlenecks associated with the importation of industrial inputs, including the establishment of a task force on trade facilitation to encourage compliance with multilateral and regional decisions, reduce the numerous check points in border areas, and better harmonize the activities of all government agencies involved in foreign trade. In addition to some efforts to involve the private sector in power generation, the federal government inaugurated several financing schemes (p.203) in support of industry. In 2010, the federal government, through its agencies and parastatals, inaugurated several financing schemes to unlock the potential of the industrial sub-sector. Packages included a 100 billion naira Textile Intervention Fund (150 naira/US$) and other funds to support power rehabilitation, small and medium-sized enterprises, and a restructuring facility for manufacturing with the 200 billion naira Commercial Agriculture Credit Scheme, the 300 billion naira Power and Aviation Intervention Fund, the 200 billion naira Refinancing/Restructuring Facility for the manufacturing sector, and the 200 billion naira Small and Medium-Scale Enterprises Credit Guarantee Scheme. By the end of December 2010, the restructuring/refinancing facility had been fully used and the textile fund had facilitated the re-opening of two textile firms in Kaduna and Kano states. The first recipient was UNT, which was reopened in December 2010 after being closed for four years (Madushir, 2010).

In 2014, the National Industrial Revolution Plan (NIRP) was launched. Its aim was to expand the country’s industrial capacity through agricultural-related industries, metal and mineral processing, oil and gas, construction, and light manufacturing. The federal government also initiated the National Cotton, Textile, and Garment Policy under the NIRP. The policy was aimed at reducing the US$2 billion bill on imported textiles and garments. It was also targeted at increasing export earnings of at least US$3 billion annually, attracting FDI, and expanding the country’s seed cotton production capacity from 300,000 MT in 2013 to 500,000 MT in 2015. Policies used in support of the goals were two-year duty and VAT waivers for textile manufacturing between 2015 and 2019, as well as a three-year tax holiday.

The textile sector gained further support in 2015 with the constitution of a special committee to help the country’s ailing cotton and textile industry. The Nigeria Investment Promotion Commission (NIPC) partnered with the National Cotton Textile and Garment (CTG) Policy Committee to promote ‘made-in-Nigeria’ products. The Central Bank of Nigeria committed to providing a concessionary loan under the Real Sector Support Facility (RSSF) to operators in the sub-sector (CBN, 2014, 2015). Jereome (2013) wrote:

A country’s industrial policy is the dynamic tool for stimulating and regulating its industrial development process. It is a blueprint detailing the objectives and strategies for optimally attaining the goals of non-primary production, particularly manufacturing, taking into consideration the resource endowment of the country in terms of labour, land, capital, entrepreneurship, international goodwill…Nigeria currently has no coherent national industrialization strategy. Rather, what exist are sectoral plans for sugar, cement and automobiles.

(Jereome 2013: 4)

While clearly Nigerian support for industry has now gone beyond these sectors into new areas including textiles, there are still questions about the (p.204) coherency of Nigeria’s industrial strategy, including the nature and role of Chinese investment. One other area neglected in Nigeria and other countries has been the integration of export-processing zone policy into a broader industrial policy strategy (Stein, 2012). The CBN’s industrial policy and institutional support section of their annual report (2010–15) does not mention zones anywhere. In line with Renne’s (2015) suggestion, can free trade/export-processing zones become a centre for attracting Chinese capital into textiles and other manufacturing areas? In the remainder of this chapter we turn to the issue of zones, with a focus on the two Chinese-run entities in Lekki and Ogun.

10.5 Export Processing Zones in Nigeria

Nigeria has a history of free trade zones that dates back to the 1990s. In 1989, the administration of General Ibrahim Babangida introduced a Structural Adjustment Programme (SAP) as part of his economic and political reform. SAP as an economic policy has as part of its objectives the establishment of export processing zones (EPZs) as a way to attract FDI. Thus, in 1992, a Nigeria Export Processing Zone Authority Act No. 63 was enacted as a continuation of the economic liberalization policy of the Babangida administration. The Nigeria Export Processing Zone Authority (NEPZA) was given the responsibility to establish, regulate, licence, and monitor EPZs and in 1992, Calabar EPZ was created, followed by Onne oil- and gas-free zone in 1997. In 2001, due to the poor performance of the zones (there were only two operating in the country then), Nigeria altered their export focus in the zones to become free trade zones focused on logistics, tourism, commerce, agriculture, and ICT. They no longer needed to export 75 per cent of their production but could sell to the domestic market without restriction though customs duties on imported raw material needed to be paid. With the new arrangement, public, private, and jointly owned zones became possible.

More importantly, with the expansion of the responsibilities of NEPZA, new regulatory practices in the establishment of EPZs were put in place. These included a new regime of incentives that guarantees: ‘complete holiday from all federal, state and local government taxes, rates, and levies; duty free importation of capital goods, machinery/components, spare parts, raw materials and consumable items in the zones; 100 per cent foreign ownership of investments; 100 per cent repatriation of capital, profits and dividends; waiver of all imports and export licenses; waiver on all expatriate quotas; one-stop approvals for permits, operating licenses and incorporation papers; and (p.205) permission to sell 100 per cent of goods into the domestic market…However, when selling into the domestic market, applicable customs duty on imported raw material shall apply. For prohibited items in the custom territory, free zone goods are allowed for sale provided such goods meet the requirement of up to 35 per cent domestic value addition.’ In addition the zones guaranteed to ‘minimize delays in the movement of goods and services’ and rent free land during the first six months of construction for government-owned zones (NEPZA, 2013).

By 2018, NEPZA lists a dozen active free zones in seven states and twenty-one which are inactive for various reasons. More than half were established before 2009 but are yet to operate. Five others come under the authority of the Oil and Gas Free Zones Authority of Nigeria (NEPZA, 2018; OGFZA, 2018) which was set up in 2000. Some are converted ports like Warri, which became a zone in 2011. The oldest is Onne which started in 1997 (first under NEPZA) and now boasts that it has licensed more than two hundred companies to operate in the zone.

Though the literature is fairly limited, it points to a generally underwhelming performance in the zones in Nigeria. Farole (2011) found that EPZ had no real effect on the export structure of the country with only a tiny contribution to non-oil exports (4 per cent). Only 25 per cent of production was destined for exports. The employment generated was lower than all but one of the five African countries surveyed. Only 29 per cent of inputs were locally sourced and only 46 per cent of managers were Nigerian nationals, which was the lowest of all countries surveyed. Stein (2012) focused on the Onne Oil and Gas Free Trade Zone and found that through 2007, ten years after it started, Onne was mostly being used as a warehouse for oil and gas companies. While there were roughly 7,000 jobs generated there was little or no evidence of any processing beyond a cement plant, a pre-cast panel factory, and a pipe-coating and machine shop.

More recently, Harry (2016, 2018) surveyed fifty-four randomly selected enterprises in four zones in 2015—Calabar, Onne, Snake Island, and Lagos—and found minimal local sourcing of materials or technological inputs with an overwhelming focus on labour and assembly. While respondents knew there was a value-added policy, ‘the level of variation in the participants’ views concerning the minimum value addition policy at the zones suggests that some of them may not be familiar with the actual value addition requirements of their zones’ (Harry, 2018: 169). There were few products exported out of the zone. Nearly 70 per cent of the respondents indicated they exported less than 20 per cent of their production (Harry, 2016).

(p.206) 10.6 Chinese Sezs in Nigeria

10.6.1 Lekki Zone

The Lekki Free Zone (LFZ) is located in the Ibeju-Lekki area of Lagos, about 60 km to the east of central Lagos, and covers a total area of 16,500 hectares. The governor of Lagos State, Bola Tinubu, first conceived of the idea of a free trade zone in Lekki in 2004 and allocated an initial 1,000 hectares for the project. In 2006, the Lagos state government, in partnership with a Chinese consortium, established the LFTZ. The partnership is being managed by the Lekki Free Zone Development Company. In the partnership, China–Africa Lekki Investment Company owns 60 per cent, the Lagos state government 20 per cent, and the Lekki Worldwide Investment Ltd., a local private investment group, owns 20 per cent. The members of the Chinese group are the China Railway Construction Corporation, China Civil Engineering Construction Company, Nanjing Jiangning Economic and Technology Development Company, which developed a zone in China, and Nanjing Beyond International Investment and Development Company (a private equity firm), along with the China–Africa Development Fund. The 20 per cent ownership by the China–Africa Development Fund (CADF) highlights the importance that the Chinese government attaches to the Lekki Free Trade Zone.

Construction for Phase I began in 2007 though there was a delay due to disagreement between the Chinese and Nigerians on financing and operations. In March 2007 an MOU, negotiated by the Lagos-based Social Economic Rights Action Center, SERAC, was signed with nine communities that were displaced by the project. A few communities frowned at the MOU, claiming that where they were to be relocated belonged to another community. In an interview conducted in July 2018, a leader of a youth group in the community stated that ‘we are not happy with how we are being displaced by this project. They promised us jobs but we have not seen the jobs’.4 Evictions began in 2009 and are still continuing. Promises made to the communities, many informants said, have not been fulfilled.

The Master Land Use Plan was developed in 2010 in China by the Shanghai Tongji Urban Planning and Design Institute with little or no input from Nigerians. Phase 1 (South-West Quadrant), made up of general mixed industries, was completed first while construction of the Phase 2 (South-East Quadrant) petroleum refinery commenced in 2014. Phase 3 (North-West Quadrant) is proposed for workers’ housing, while Phase 4 (North-East Quadrant) is proposed as a new town providing employment, and commercial, residential, community, and recreational activities. The master plan was (p.207) completed three years after construction began which was contrary to Nigerian law.

In 2010 the China Civil Engineering Construction Company was given the clear leadership in the project. The Chinese head of the project was experienced and first came to Africa to work on the Tazara Railroad in the 1970s. The deputy director is Nigerian. The approach taken, ‘one axis, six parks’, is aimed at light manufacturing, textile production, warehousing, logistics, car assembly, and real-estate development facilities. In the initial phase, the Chinese consortium committed US$200 million to the zone and the local public and private investors, US$65 million (Lawanson and Agunblade, 2018; UNDP, 2015).

A report by UNDP (2015) indicates that the Chinese government continues to put a high priority on making Lekki successful and there are frequent visits by the Chinese embassy and frequent exchanges between Nigerian representatives and stakeholders from the headquarters in Beijing.

It is seen by Chinese companies as a gateway to West African countries, which will attract interest. A key element is the construction of the long-delayed Lekki deep-sea port in the zone which finally began construction in March 2018. The aim is to complete the US$1.5 billion project by 2020 and to build it to a depth of 16 metres which would dramatically exceed the current maximum of 13 metres in existing Nigerian ports and make it competitive with most other ports in West Africa (LFTZ, 2018).

As of April, 2015, there were twenty-one companies operating with a total investment of US$12.4 million in areas that include construction, manufacturing, trading, and assembling. Another seventy-nine companies were registered and expected to commence within a year. However, as of August, 2018, the website only listed twenty-six operating enterprises. From interviews in July 2018, we learned that only twenty-two were operational. All but three were Chinese owned. As we can see in Table 10.4, of the twenty companies listed as operating in 2015 only eight were listed on the website in 2018, which is an extraordinarily high turnover rate. Table 10.4 also provides a list of the eighteen new firms. What is quite evident is the absence of a critical mass of companies in any one area which precludes clustering and its potential positive effects. What is also evident is that the number of companies listed is well below the expectations expressed to the UNDP investigators in 2015 when they interviewed key people operating the zone.

Table 10.4. Companies listed as operating in Lekki FTZ in UNDP, 2015 and new companies 2018


Year started

Type of operation

Listed August 2018?

Wanhao Doors




MC Lighting






Trading (human wigs)


Sinotruck FZE


Assembling (trucks)


Loving Homes


Assembling (furniture)


Crown Nature


Manufacturing (clothing)
















Manufacturing (pesticides)


















Dabu Pump




Hannover Boton


Assembling (sockets and switches)


Ruyat Oil




New Energy




St. Nicholas


Services (hospital)


Engee Pet




New Companies




Zhi Jiang Nigeria




Datang International




Huachang Steel and Engineering


Steel structures


ZCC Construction




Bollore Transport & Logistics


Telecomms products


Golden Dream


Baby diapers and insecticides


Aslan Nigeria




Asia Africa International


Assembling (trucks)


Yulong Steel Pipe


Steel pipes


Hidier Power


Assembling generators


Coral Beach


Real estate


RWE Africa LPA


LPG containers




Assembling (mobile phones)


Jiangsu Geology and Engineering






Spraying accessories






Sunshine Commodity






Building materials


Source: UNDP, 2015; LFTZ, 2018

The zone’s website claims there are 116 companies in the zone, though it would appear that these are mostly still companies that have expressed an interest and registered with the zone. One of the advantages of the zone is that it has its own power generation (gas-fired power plant started in 2015) and along with the Ogun zone it is the only free trade zone that can provide power 24/7 (Tang, 2016). In an interview in July 2018, an executive of one of the (p.208) companies in the zone confirmed that one of the major attractions of the zone is the level of security obtainable in the area. The executive, whose company started in the zone in 2017, projects a sense of optimism about the zone. When asked if he had started making a profit, he proudly responded with a ‘yes’ while also acknowledging that there are some hiccups. Overall, he is happy with the performance of his company and his Nigerian staff. The (p.209) zone is a gated community with areas earmarked as living quarters. While some apartments are still under construction, the Chinese expatriates occupied some of the completed housing units.5

However for Nigerian workers there was no local housing or transportation to the zone, which was a huge impediment to accessing labour. Companies had to bus labour in or provide dormitories, dramatically increasing the expenses. There were also no training facilities nearby and no linkages to any vocational training schools anywhere. There were also serious communication issues. The first teams appointed by the Chinese needed translators, had no experience building FTZs and ‘were overwhelmed, with weather conditions, with the working environment and working attitude of the locals and they simply did not understand how to deal with the Ibeju-Lekki community’ (UNDP, 2015: 30). Other problems included port delays, difficulties in repatriation of capital gains by companies, and inconsistencies in policy and decision-making which have caused companies to cancel their investments.

Disputes with the local community have also overshadowed the project, with violent outbreaks and demonstrations that led to the killing of the director of the project in October 2015. Through 2015 more than 50 per cent of the community had not been compensated for loss of land and crop production, contrary to the 2009 agreement. Rates of compensation were ridiculously low. Almost half of those who were compensated received less than US$67. An initial 750 hectares that were to go to the evicted villagers was land already occupied by others, leading to tension in the community. Another 375 hectares were allocated in 2014, but as of 2015 none had been occupied by the evicted villagers (Lawanson and Agunblade, 2018).

In 2015, total employment created was listed as 551 for the companies surveyed (UNDP, 2015). By July 2018, the workforce had risen to above a thousand. Roughly eighty-six were non-Nigerian (LFTZ, 2018).

10.6.2 Ogun-Guangdong Zone, Igbesa

The Ogun-Guangdong Free Trade Zone is located in Igbesa, Ogun State, 30 km from Lagos’s Murtala Muhhamed International Airport and 31 km from Nigeria’s main seaport located in Apapa, Lagos. Igbesa is a farming community noted for its proximity to Agbara Industrial Estate—a private industrial estate established by a businessman, Chief Adeyemi Lawson, but later acquired by the Ogun state government in 1976. Chief Lawson had wanted to create an industrial and residential estate that was not only very close to (p.210) Lagos but also accessible to countries such as the Republic of Benin, Togo, and Ghana in the West African sub-region. The proximity of Agbara town to Badagry, the border town with Cotonou in the Republic of Benin, made economic sense considering that the Economic Community of West African States, (ECOWAS) had been introduced in 1973 to facilitate easy business access for West Africans. The industrial estate thrived for a while until it was devastated by the economic liberalization policies of the 1980s and 1990s that saw the introduction of the Structural Adjustment Programme. While Agbara Industrial Estate thrived, the Igbesa community prospered in its farming activities while also providing support services to those who worked in the industrial estate. Thus, it was not surprising when the Ogun state government, in collaboration with a Chinese consortium, decided to locate a free trade zone in Igbesa.

The original feasibility study of the zone was undertaken in China and used successfully in a bid by the Xinguang International Group consortium in 2006. The original suggestion was to locate the zone in Imo State near the Niger Delta. However, for security reasons, after some Chinese were kidnapped in Imo State, and political reasons (former President Obasanjo was from Ogun State and the former governor of the state was staunchly pro-Chinese) the zone was relocated to Ogun. This delayed the start of the project with construction only beginning in the first half of 2009. Delays were also caused by the failure of the Ogun state government to provide promised infrastructure.

A total of 100 km2 were promised for the zone including 40 km2 allocated for displaced people. The start-up area consisted only of 250 hectares (2.5 km2), though Phase 1 was to cover 20 km2 in total. By June 2013, there were thirty-four enterprises registered in the zone, coming from Nigeria, China, Lebanon, and India (Brautigam and Teng, 2013; Chen et al., 2016).

Ogun-Guangdong Free Trade Zone was issued with a Certificate of Occupancy for 20 km2 in January 2008, and the start-up area was nearly exhausted by the end of 2017. In 2017, the erection of a perimeter fence for the second phase was completed. The most recent data indicates that there were fifty registered enterprises, twenty-six of which have started operation, with another twelve under construction. Around four thousand Nigerians were employed in the zone. The cumulative investment is US$325.3 million. Main enterprises included Hewang Packing & Printing FZE, Goodwin Ceramic FZE, China (Nigeria) Glass FZE, Sun Ceramic FZE, Winhan Industry FZE, Panda Industry FZE, and Green Power Utility FZE. The industries involved included ceramics, packaging, glass, furniture, electricity generation, electrical appliances, steel structures, wigs, and hardware (Economic and Commercial Counselor’s Office, 2018).

(p.211) 10.7 Evaluation of the Operation of Chinese Companies in the Zones

A key element of the zones is their potential to attract Chinese manufacturing companies. Chinese FDI has the potential not only to provide employment, expand manufactured exports, and increase demand linkages but also to contribute more broadly to the structural transformation of the country through technology transfer and spillovers to domestic companies. They are a potential source of labour skills development and training, entrepreneurship, and management upgrading, and have the potential to dramatically increase value added. FDI can develop forward and backward linkages which will allow domestic companies to be better integrated into global supply chains. The clustering of firms around a particular industry is a way to concentrate many of these effects.

There have been few studies of the impact of Chinese manufacturing companies in Nigeria either inside or outside zones. Chen et al. (2016) undertook interviews in July 2014 with a sample of twenty firms, including six in the Ogun-Guangdong FTZ and two of the four or five firms that are in Lekki. Chinese firms in Ogun-Guangdong FTZ were mostly in light industry including furniture manufacturing, ceramics, and paper and packaging. There were also two steel and construction firms in the zone. Two Chinese companies in Lekki were in furniture and light bulbs. There was no evidence of clustering among the Chinese firms in either of the zones or for that matter anywhere in the country. In fact one of the main reasons for the Chinese to come to Nigeria was the absence of competition. Clustering was one thing they directly wanted to avoid because it was seen as a source of potential competition.

One key way that spillovers into the local economy can occur is through joint ownership arrangements with local companies. However, there were very few examples of joint ventures in the study. There were cases where Chinese firms provided a small minority share to local government officials but this was seen as a quid pro quo for political reasons or to access land at favourable rates. There were virtually no examples of true partnerships with an equitable division of investment, responsibilities, and profits, nor were Chinese companies seriously sourcing local suppliers for inputs; hence there was little evidence of backward linkages.

Upholstered furniture was banned from being imported in 2004. There was a 35 per cent local requirement content for furniture produced in FTZs to be sold to the local market. This was being met with low-value bulk items like wood. However, higher-quality and higher value-added items like leather were still being imported from China. Steel producers simply used local scrap. In general, when used, the relationship ‘seemed shallow’. Companies (p.212) complained of the poor local quality of inputs. However no Chinese businessperson interviewed in the Chen et al. study had actively invested in upgrading the technology or skills of their local suppliers.

Total employment in the seven companies surveyed in the zones for which data is presented is 1,496, or an average of 214 people per firm. However only two firms employed above the average number. In all the companies, 84 per cent of employees on average were from the local population and 16 per cent Chinese.

10.8 Conclusions

The chapter has examined the nature of the Chinese and Nigerian economic relationship with a focus on the new Chinese SEZs created in 2006. We began with the debates in the literature on the characterization and impact of the growing Chinese presence in Africa and the associated expansion in financial and trade relationships. Among other things, there is little doubt that Chinese loans have dramatically expanded infrastructure on the continent. However the price is the growth of indebtedness.

There is also some question of the nature of trade relations in which China has overwhelmingly exported manufactured goods and imported mostly oil and other primary commodities which are raw and unprocessed. Nigerian relations with China have followed a similar pattern, though with worse trade deficits and even higher levels of manufactured goods compared to the rest of sub-Saharan Africa.

The chapter finally turns to the issue of SEZs which have been very successful in attracting FDI to China and have been centres for the manufacturing-focused transformation of the country. In general Nigerian zones which were organized in 1992 have performed poorly. Two new zones were created in 2006/7 with great fanfare and in the hope that they would draw on Chinese expertise in running zones and attract Chinese manufacturing capital which would have the potential to generate jobs, foreign exchange through exports, technological spillovers, management and labour training, and forward, backward, and demand linkages.

To date, neither the image of Leviathan or Prometheus seems to capture the impact of China. The zones have been disappointing, attracting a small number of Chinese firms, while generating little employment, and few of the other desired effects. Nigerian manufacturing exports have not expanded. There has been a rise in the manufacturing portion of GDP which is probably largely the result of government intervention to rehabilitate closed companies.

The government of Nigeria is keen on diversifying its economy and expanding the manufacturing sector, and has improved some of its industrial policies. However, to date they have done a poor job of integrating their export- (p.213) processing zone strategy into their approach to industrialization. To some degree, handing management and control of some zones over to the Chinese might look good politically (for China and Nigeria) but is far less important from an economic perspective compared to putting policies in place to attract FDI and domestic investors and to ensure their activities are developmentally enhancing.


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(1) There is a rather imprecise usage of language in the names associated with zones in Nigeria and elsewhere. They tend to be spatially defined and separated from the broader political territory and often have incentives to operate and produce within these zones with easier access to the international economy for trade and investment purposes. In this chapter terms like export processing zones, free trade zones, and special economic zones are used interchangeably. A more detailed investigation of the taxonomy of zone terminology can be found in Stein (2012).

(2) In May 2018 Nigeria signed a US$6.68 billion contract for the new rail line with the China Civil Engineering Construction Corporation (CCECC).

(3) The figures in the latest CBN annual reports available (2014 and 2015) combine footwear and textiles; hence it is difficult to identify the trends in textiles only.

(4) Interview conducted at the LFTZ, July 2018.

(5) Interview conducted at the LFTZ, July 2018.