Vicious circle in coastal shipping (3)

In the last two weeks, coastal shipping in Nigeria under the Cabotage Act has been x-rayed in this column with deductions made regarding inadequacies in indigenous ownership of vessels, manpower and shipbuilding. The funding mechanism is key to the success of the Act as this piece examines the extent to which the Cabotage Vessel Financing Fund (CVFF) has been useful to indigenous ship owners.

Funding mechanism
Part VIII of the Cabotage Act deals with the Cabotage Vessel Financing Fund (CVFF). The CVFF as provided by the Act is to assist indigenous ship owners acquire ships for cabotage operations. NIMASA is statutorily empowered to disburse funds to indigenous ship owners and has thus appointed some banks within the country as primary lending institutions for the CVFF. The fund is derived from 2 percent deductions from all contracts awarded under the cabotage regime. The CVFF guidelines however stipulate that ‘beneficiaries must link their applications for loans with maritime projects for which each must provide 15 percent of the project cost, having been pre-qualified by NIMASA which guarantees repayment’.
Some indigenous ship owners consider the 2 percent deduction as additional burden resulting in multiple taxation because there are several other deductions made by NIMASA and other agencies. There are reports that in the past, $2.5 million was granted by NIMASA as loan to indigenous vessel operators to acquire new vessels. Although this amount is grossly inadequate as it could only buy an old vessel, there are however reports that beneficiaries did not manage the funds properly. This is responsible for the large number of old vessels in Nigeria’s coastal waters.

In the past five years or more, no indigenous ship owner has benefitted from the CVFF and this has affected their businesses negatively. Report has it that the sum of $200 million has been earmarked by the management of NIMASA as loans for local operators to procure vessels for caboatge operations. This amount is insufficient as it can only buy few vessels in the international market. This is because a supply vessel of about 150 tonnes to bunker petroleum products costs about $40 million.

Other issues
Information from the Nigerian Ship-owners Association shows that 90 percent of the 78 registered ship owners are in debt and almost out of business. This is because petroleum products meant for Nigeria and to be carried within our coastal waters by indigenous ship owners are now diverted to Benin Republic and Togo by foreign vessels carrying these products. If vessels are to discharge cargo in Nigeria, why divert these cargoes to neighbouring countries? What are the Federal Ministry of Transport and NIMASA doing to ensure that cargoes for Nigeria are delivered within the country’s ports?

When funds are not available to indigenous ship owners as reflected in the Act, it would impact negatively on their business. Low level of business activities by indigenous ship owners in the marine industry has left most Nigerians in the sector unemployed. A situation where about only 25 percent of available jobs is done by Nigerians does not show that those responsible for enforcing the Cabotage Act are doing their best. Is the waiver included in the Act creating a problem in its implementation? If no waiver was included in the Cabotage Act how would cargo be carried within the nation’s coastal waters by only indigenous ship owners and what would be the economic implication to national interests? Anyway, it is certain that indigenous ship owners have the following challenges: inadequate funds for ship acquisition, deficiency in manpower and shipbuilding/ship repair facilities. Other challenges include multiple tax, soaring maintenance cost, and increased insurance premiums amongst others which affect business in the maritime industry.

Apart from the fact that all vessels must be registered in Nigeria, the remaining pillars of the Cabotage Act, namely, indigenous ownership of all vessels, 100 percent manning of vessels by Nigerians and all vessels to be built in Nigeria, are weak. Thus, poor implementation of the Cabotage Act has disabled development of indigenous capacity in the nation’s maritime sector. Unless these problems are addressed, there will be vicious circle in coastal shipping in Nigeria. There is nothing wrong with the Cabotage Act. The Act is not the problem but those who are implementing and regulating it. This is reflected in the manner in which they implement waivers and drag their feet on matters concerning the release of CVFF funds. Before the last minister of transport left office, it was alleged that he always confirmed that six indigenous shipping companies were approved to benefit from the CVFF but he lacked the political will to give the funds to deserving firms. Conversely, some indigenous ship owners are not trustworthy. This is the crux of the matter as most Nigerians in the maritime sector as in other sectors are used to cutting corners for survival. They collect funds to buy new vessels and end up with very old ships.

Way forward
The implementation and enforcement of Cabotage Act will require cooperation between NIMASA and other stakeholders in the maritime industry in order to fashion out practical and workable solutions to administer and implement the Act. Additionally, the Federal Ministry of Transport and NIMASA need to remove politics from their responsibilities in order to achieve objectives of coastal shipping in Nigeria. The CVFF is good but it is very small to buy any good vessel outside the shores of our country. The government should be prepared to provide incentives in form of tax relief to indigenous ship owners and also be bold in taking steps to develop shipbuilding capability in the country. A nation that wants to develop indigenous capacity in the maritime industry cannot be sluggish in taking bold steps to have a vibrant shipbuilding sector. The power and steel sectors must be revived to reduce production cost of shipbuilding and repair within the country. In fact a viable shipbuilding capacity is a force multiplier to building indigenous capacity in the maritime industry. The Federal Ministry of Transport in collaboration with the Federal Ministry of Finance should find ways of establishing a maritime development bank. This is to assist indigenous ship owners with funds at single-digit interest rate to enable them do their business in the maritime industry.

Who will provide the fund to start this proposed bank and will this opportunity not be abused by indigenous ship owners? The contributions by indigenous ship owners can be used to start the proposed maritime development bank. Importantly, the government must stop the diversion of Nigerian-bound goods to other neighbouring countries. Events within the global maritime environment are changing and ours is not an exemption. The entry barrier to the maritime industry is high and if appropriate steps are not taken by government and its agencies to strengthen the pillars of the Cabotage Act, coastal shipping in Nigeria will be in a vicious cycle. Nigerians need to strengthen their maritime culture, and display positive attitude in the overall interest of the nation. (Concluded)

 

MA Johnson