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CHAPTER ONE

INTRODUCTION

1.1 Background of the Study

Nigeria as a developing country is known for producing and marketing of primary products. Its agricultural sector plays a significant role in the economy. It employs a high percentage of the labour force, and accounts for over a quarter of the GDP in spite of the dominance of oil. The sector is crucial in national poverty reduction efforts. Agriculture remains important for the diversification of the economy, in particular, its export structure (Okoh,2004:51).

Prior to the discovery of oil, agricultural exports generated over 70% of Nigeria’s foreign exchange earnings (Nwakama,1999:13). Agricultural production is largely a private sector activity. According to Nwakama (1999), Government support to the sector is focused on: the supply of inputs, provision of extension services, stabilization of market prices for certain goods through a strategic reserve programme and provision of financial assistance at a limited level. Exportation in Nigeria started before independence. In the decades of the 1960s and 1970s, Nigeria’s economy was dominated by agricultural commodity exports. Such commodities include cocoa, groundnut, cotton, rubber, palm produce, etc.

The first Nigeria cashew plantation dates back to 1954, with 800 hectares in the present Enugu state and 200 hectares in the western part of Nigeria (Ezeagu,2002). Its production did not greatly increase during the early 60s, with harvests not exceeding 200 tonnes. However, since the deregulation of the economy in 1986, its production has substantially increased.

Major cashew growing areas in Nigeria by geo-political zones are

South-East Zone – Enugu, Abia, Imo, Anambra, Ebonyi.

South-South Zone – Cross-River state.

South-West Zone – Oyo, Osun, Ondo, Ekiti, and Ogun states.

North-East Zone – Taraba state.

North Central Zone- Kwara, Kogi, Nassarawa, Benue, Niger and FCT.

North-West Zone – Sokoto, and Kebbi states.

The Nigerian economy was deregulated in 1986 and the exportation of cashew nuts started in 1990. During the same year, a large number of companies and individuals entered the cashew market, with the resultant increase in production and exports. However, the exporters of cashew nuts have not been having smooth and fair exportation of their products and this has been causing some inefficiencies in the export business. Exportation of cashew nuts is operating below its potential, productivity levels are declining, facilities and incentives are not adequately given to manufacturing exporters

( Ezeagu, 2002).

Export Processing Zones (EPZs) are being established to promote exports and economic growth in developing countries. An Export Processing Zones (EPZs) are characterized as a geographical area within the territory of a country where economic activities of certain kinds are promoted by a set of policy instruments that are not generally applicable to the rest of the country (Cling et al 2005) . Firms investing in Export Processing Zones receive important subsidies and incentives by host governments in the form of income and sales tax-exempts, duty free imports and exports, free repatriation of profits, provision of enhanced infrastructure and public services, with exemption from local labour and other social protection regulations (Cling et al, 2005, ILO, 2003, Jayanthakumaran, 2003, Jauch,2002, Sargent and Mathew, 2001). In order to enter this billion- dollar industry, the Nigerian cashew industry must seek to transform Nigeria from a low-priced commodity producer to a reliable supplier and exporter of high quality cashew products (USAID,2002).

The activities concerning the non-oil products exportation in Nigeria, cashew nuts inclusive, were handled by the defunct marketing board, then the Nigeria Export Promotion Council, but exportation of cashew nuts fluctuates and production is at its declining stage. The Nigerian government, in order to encourage the investment and help improve the exportation of non oil products in Nigeria, led to the establishment of Export Processing Zones (EPZs) or Free Trade Zones (FTZ) under the management of Nigeria Export Processing Zones Authority (NEPZA).

Export Processing Zones (EPZs) in Nigeria started in 1992 and the subsidies, incentives, tax exempts, etc. have made EPZs in Nigeria a controversial development policy instrument because exporters of cashew nuts in Nigeria do not receive these net benefits. All these pose a fundamental gap for overall estimation of the adequacy of EPZs as a development policy instrument. Export

oriented manufacturing activities have been the main focus of EPZs where production tends to be dominated by foreign invested firms.

Exporters of cashew nuts in Nigeria are facing several impediments in achieving higher production and processing of their products for exportation which need to be tackled especially, in the areas of

• Incentives

• Infrastructural facilities

• Transportation means

• Quality of Nuts

It is also expected that the cashew nuts exporters in Nigeria who invested in the Export Processing Zones should be receiving free licence, (promotion of investment, tax exempt (import and export goods), tax holiday, etc) which are set out by the government. It is on this background that the researcher wants to assess the impact of Nigeria Export Processing Zones on the exportation of cashew nuts in Nigeria.

1.2 Statement of the Problem

Export Processing Zones are geographically bounded areas in which (different levels of) free trade including duty –free import of intermediate goods, is permitted provided that all (or most) goods produced within the zone are exported (Johansson and Nilsson, 1997). The creation of Export Processing Zones (EPZs) in Nigeria, which should offer improved infrastructure and/or tax incentives to investors, has become a popular instrument of economic development policy seeking to promote increased industrialization. Cashew production and exportation in Nigeria has been gathering more attention over the last decade but investment in the export zones for cashew nuts exportation is at its low ebb. Efforts to upgrade cashew nuts exports through processing and improved production strategies to increase economic growth in Nigeria have been fraught with difficulties.

The exporters of cashew nuts are not enjoying adequate incentives. The incentives which involves the customs-free and tax exempt, investment development and promotion, cheap utilities, remittance of profits, free import and export licences, repatriation of capital investment, etc which are supposed to be given to the cashew nuts exporters operating in the Zones are not being implemented.

Poor infrastructural facilities (power supply, water, processing plants, telecommunication system, etc) as well as delays caused by documentation and customs procedures at ports and airports have seriously affected lead time and costs in the cashew industries. Processing plants suitable for processing of cashew nuts are difficult for manufacturing exporters to acquire in this country. They use Italian technology which is too costly and this pose a problem to cashew nuts industry as they at times end up in wasting a lot of products as a result of using local engineers. Telecommunication system is always bad. There is erratic power supply.

Nigeria ‘s transportation system is not adequate.. Bad road network is a big threat to cashew nuts exportation in Nigeria. The backdrop of the transportation system in Nigeria does not in any way encourage investment, especially in Free Trade Zones in Nigeria, as potential investors develop cold feet to pump in their hard-earned money into an economy where returns on investments are unpredictable as they see such as waste of resources. Investors are not willing to commit their resources because of their belief that road construction is neglected especially leading to seaports and airports which have less but sensitive patronage. Cashew producing areas are located in remote areas, manufacturing exporters thereby find it difficult to find vehicle that can take those goods to export zones for processing. There are no ships to transport goods to other parts of the country.

Poor quality of cashew nuts produced and supplied for exportation by cashew nuts exporters is one of the greatest challenges facing cashew nuts exportation in Nigeria. This poor performance is attributed to low productivity, poor processing, and poor handling. They attract the lowest prices in the international market. Cashew nuts export oriented industries do not produce the product that measure up with international standard in terms of quality to withstand foreign competition and the Export Zones Authority have not looked into this aspect for export growth. Thousands of tonnes of cashew nuts are being wasted, if adequately processed and exported, would have contributed a lot to Nigeria economy.

1.3 Objectives of the Study

The purpose of this study is to assess the impact of the export zones on the exportation of cashew nuts in Nigeria. Specifically, the objectives of this study are:

1. To investigate the extent to which the export zones embark on implementing the incentives set out for cashew nuts investors in Nigeria.

2. To find out the effect of poor facilities confronting the export zones on the promotion of cashew nuts investment for exportation.

3. To examine how transportation problem affect export zones and its effect on cashew nuts exportation in Nigeria.

4. To find out the contribution of cashew nuts export revenue to the country’s GDP.

1.4. Research Questions

In order to obtain data to address the above given specific objectives, the following questions are raised:

1. To what extent have the export zones embarked on implementing the incentives that are set out for cashew nuts exporters operating in the zones?

2. What are the effects of poor facilities confronting the export zones in cashew nuts export growth and what are the measures taken to tackle them?

3. What are the effects of bad roads to the export zones and on cashew nuts exportation in Nigeria?

4. What is the impact of cashew nuts export revenue to the country’s GDP?

1.5 Research Hypotheses

1. The export zones are not significantly committed to the implementation of incentives accrued to cashew nuts investors in Nigeria.

2. The poor facilities in the zones do not significantly affect the performance of the export zones.

3. Bad roads do not significantly affect the activities of the export zones and exportation of cashew nuts in Nigeria.

4. Cashew nuts export revenue does not have any significant contribution to the country’s GDP.

1.6 Significance of the Study

The significance of this study can be viewed in two ways- Academic and Practical.

With regard to the practical significance, this study will show the Export Processing Zones or Free Trade Zones in Nigeria, how to tackle the problems being faced by them. If Nigeria Export Zones help the exporters of cashew nuts to co-ordinate export promotion investment, exempt all the investors operating in the zone from all levies, rates, customs, duties, and taxes (Federal, State, and Local government), free export or import licenses, set-up in good condition ,all infrastructural

facilities that are needed for the establishment of cashew nut industry like processing plant, power supply, water, good telecommunication system , warehouses, good road network, etc This will go a long way to reduce the problem that mare the exportation of cashew nuts in this country.

This study will also help them to formulate a comprehensive way of encouraging exporters by giving them access to trade with English-speaking largest market in Africa, 100% foreign ownership of enterprises in the zone, remittance of profits and dividends earned by investors in the zone, etc. This will help boost their export business and be beneficial to the economy.