Special economic zone incentives, innovation and export performance of firms in Nigeria

Purpose Nigeria’s quest to industrialize has received major attention in recent times. Special economic zones (SEZs) are thus recognized as capable of providing opportunities for firms to improve innovation capability and export performance. Limited empirical evidence exists on their economic impacts, particularly in terms of promoting innovation and exporting. This makes it difficult to provide accurate impact estimates or identify the channels through which the SEZ affects firm behavior. This study aims to specifically establish the Nigerian pattern of firm behavior in SEZs to improve the understanding of African SEZs and the appropriate incentives that can foster industrialization. Design/methodology/approach The study used primary data from a survey of firms in Nigeria’s active SEZs and in-depth interviews of major stakeholders. The primary data was collected through a semi-structured questionnaire administered to firms within the selected SEZs and an in-depth interview guide. The sampled SEZs were in Lagos, Ogun, Kano and Cross River States. In-depth interviews were conducted with the zone management, Nigerian Export Processing Zones Authority officials and the Manufacturers Association of Nigeria. Data were analyzed using descriptive statistics, content analyses of policy documents, principal component analysis, logit regression and two-stage least squares regression. Findings The results suggest that the number of incentives offered to SEZ firms does not matter for improved firm performance in terms of innovation and exports. Firms’ export performance is poor because firms do not comply with the basic tenet of SEZ as an area dedicated to free trade and consequent mandatory export of manufactures and services from the free trade enclave. Although firms in the Nigerian SEZs are considered to be fairly innovative, it is important to note that there is no evidence of innovation that is new to the world among these firms. Research limitations/implications The research team could not visit the zones in the Northeast region of the country due to insecurity. Some of the zones had also become inactive at the time of the survey, and the response rate from firms was very low. This limited the number of sampled firms. Practical implications The findings imply that the NEPZA Act needs to be revised to reflect the contextual realities of SEZs in Nigeria. The policies and details of each incentive offered by the government should be made clear to investors. For example, the permission given for SEZ firms to sell 100% of their manufactured, assembled or imported goods into the domestic market should be revisited as it obviously affects innovation and exports negatively. This would tremendously help SEZ firms fulfill their mandate of promoting exports, improving FDI attraction, enhancing industrialization and promoting economic competitiveness. Originality/value Previous studies have either focused on how SEZs affect innovation or influence export performance without accounting for the role of incentives in shaping innovation and export performance. This study fills this knowledge gap by providing evidence on the type of incentives for firms in Nigeria’s SEZs, investigating their effects (or otherwise) on innovation activities at the firm level and ascertaining how improvement in innovation capacity arising from the incentives affects firms’ export performance.