Cabotage implementation and the N2trn annual capital flight to foreign ships

Since the liquidation of Nigerian National Shipping Line (NNSL) in September 1995, the Nigerian economy has continued to witness an estimated annual capital flight of N2 trillion to foreign-owned vessels that dominate the nation’s shipping business.

This annual capital flight, analysts say, results from foreign domination of the national and international shipping of Nigeria’s seaborne trade. To salvage the situation, the Federal Government in 2003 took a bold step to change the face of Nigerian shipping business within its coasts by enacting the Coastal and Inland Shipping (Cabotage) Act.

Cabotage Act reserves the commercial transportation of goods and services within Nigerian coastal and inland waters to vessels flying Nigerian flag and owned and crewed by Nigerians. The Act was aimed at restricting foreign participation in Nigeria’s domestic coastal trade towards encouraging full indigenous involvement in the nation’s shipping business.

The Act also made provision for Cabotage Vessel Financing Fund (CVFF), which is expected to promote the development of indigenous ship acquisition capacity by providing financial assistance to Nigerian ship owners involved in domestic coastal shipping.

CVFF results from 2 percent surcharge of the contract sum performed by Nigerian vessels including monies generated from tariff, fees for licences and waivers under the coastal trade. According to the guiding principles, CVFF is meant to benefit Nigerian ship owners and shipping companies that are wholly owned by Nigerians.

The fund, which is currently in the custody of the Nigerian Maritime Administration and Safety Agency (NIMASA), has grown to $150 million (about N24 billion) and it is yet to be disbursed to qualified indigenous shipping companies.

Despite the availability of the Cabotage Act and CVFF, however, over 80 percent of Nigerian shipping companies are closing shop while the remaining few are struggling to survive in the nation’s shipping business. Industry analysts blame this on lack of jobs, especially crude oil lifting jobs, for locally-owned ships to execute.

According to them, the poor implementation of the Cabotage Act, non-disbursement of the CVFF and the low implementation of the fleet maintenance and repair scheme by NIMASA are among reasons Nigerian shipping companies are not getting jobs.

Callistus Obi, executive director, Maritime Labour and Cabotage Services of NIMASA, told BusinessDay about a month ago that six indigenous shipping companies (names withheld) have been selected as the first set of beneficiaries of the fund. He noted that the agency has in conjunction with the primary lending institutions (banks) done all the necessary preliminaries to facilitate the disbursement of the fund. “The paper, which is currently awaiting presidential approval for the disbursement to commence, has been studied and approved by the Federal Ministry of Transport,” he said.

According to him, each of the six companies will be given the sum of $25 million to acquire vessel. Here, each of the companies would pay 15 percent of the total sum; banks would pay 35 percent; while NIMASA would pay the remaining 50 percent. The aim, he said, is to build shipping capacity and create multiple cabotage and seaborne trade for ship owners to enable them create employment for Nigerian seafarers, who are currently facing limited job opportunities and difficult working conditions in an oil rich country like Nigeria.

BusinessDay investigation shows that NIMASA, in an effort to build local shipping capacity, recently selected about 21 indigenous shipping companies for the repair of their vessels. The 21 companies after surviving the audit of their fleet will benefit from the NIMASA ship repair and maintenance scheme. “The agency has awarded the contract for the ship repair. This is aimed at covering up the areas that are left behind by CVFF,” Obi said.

In a related development, Ziakede Patrick Akpobolokemi, director general of NIMASA, last week flagged off two 45,000 metric tonnes of seagoing vessels, MT Abiola and MT Igbinosa, owned by Ocean Marine Tankers Limited in Warri, Delta State and deployed for crude oil lifting business. The NIMASA boss, who urged more Nigerians to invest in the ownership of oceangoing vessels, assured all indigenous operators in the maritime sector of the agency’s commitment to protecting their rights under the Cabotage regime.

Ernest Nwakpa, executive secretary, Nigerian Local Content Developing Monitoring Board (NLCDMB), said the Goodluck Jonathan administration has provided the political muscle to break the monopoly enjoyed by foreign-flagged vessels in the freight of Nigerian crude.

To further grow indigenous shipping capacity towards domesticating the N2 trillion capital flight, the Federal Government needs to change the crude oil trade policy from Free-on-Board (FOB) to world preferred Cost-Insurance-Freight (CIF).

CIF allows the seller of crude oil to arrange for the ship that will transport the cargo to a port of destination and provide the buyer with the documents (Letters of Credit) required to obtain the goods from the carrier, while FOB trade arrangement allows the buyer to source for the ship that will freight the cargo.

Also, further findings have shown that the growth of Nigeria’s maritime industry lies on the implementation of Cabotage, which will be possible if government changes the unfair crude policy to enable ship operators to invest in ship acquisition, generate employment and create wealth. There is, therefore, need for the Federal Government, through NIMASA, to disburse the long-awaited CVFF so that the initial beneficiaries can acquire new vessels for cabotage trade.

By: Uzoamaka Anagor