Saturday, 19 December 2015

HOW TO BOOST INDIGENOUS PARTICIPATION IN THE SHIPPING SECTOR

Shipping is the movement of freight from one location to another. It meets the need to move cargo from one place to another. So, shipping sector is a section of the economy that engages in income generation from moving cargo from one place to another. It is a well-known fact that the shipping sector is a key sector of the Nigerian economy owing to the fact that as an oil producing and exporting country, as well as a consumer nation, the country is a large market for foreign goods, because of its population.

In this regard, the shipping sector holds the key to the nation’s growth and development. Presently, the shipping sector is characterised by the domination of foreign flag vessels. This situation has led to the loss of billions of naira annually in freight revenue. 

To boost indigenous participation in the shipping sector, the followings should be done:

IMPLEMENTATION OF THE 2003 NIGERIAN COASTAL AND INLAND SHIPPING (CABOTAGE) ACT
The Cabotage Act is essentially a framework to restrict domestic shipping business from complete foreign domination. It was enacted to encourage indigenous companies participation in shipping generate freight, expose them to coastal shipping business as a lunch pad to deep and international shipping and provide employment for Nigerian seafarers.

It is very unfortunate that the Act has presented nothing but 12 years of failed expectations and worries because there are still several foreign owned vessels providing shipping services locally. There are over 100 vessels owned by foreigners but trading in Nigeria under questionable circumstances.

To implement the Cabotage Act, the Federal Government should give incentives to indigenous ship owners, for instance granting 12 years tax holiday to Nigerian incorporated companies investing in green field projects; designating some shipyards free trade zones to allow for import of equipment, spare-parts and allied infrastructure and granting waivers of Value Added Tax (VAT) on ship, engines, spare parts etc as subsidy for the capital intensive nature of the industry in line with global practice. Other incentives are income tax exemption for seafarers employed locally as a means of encouraging more people to take up seafaring jobs, 50 per cent reduction in berthing charges for ships awaiting repairs, ship laid-up after repairs and ships lying afloat for repairs to help shipyards facilities in the country and also help reduce the overhead cost of business.

Also, NIMASA should give accelerated depreciation regime for ship and capital assets to assist Nigerian companies accumulate capital for future investment in fleet expansion, and also ensure regular maintenance for any ship that has made use of local shipyards for upward of three times consecutively.

There should be a review of International Commercial Terms (Incoterms) for the sale/purchase of crude oil/petroleum products from Free on Board (FOB) to Cost, Insurance and Freight (CIF) which is expected to enable Nigerian carriers participate in the lifting of Cargo, especially as it affects petroleum products.

REMOVAL OF WAIVERS CLAUSE AND THE ROLE OF NIMASA
Owing to the waiver clause in the Cabotage Act, the Minister of Transport has powers to grant waivers to foreign vessels to partake in Cabotage trade where he is satisfied that there is no capacity on the part of the Nigerians with respect to satisfying the requirements.

To boost the indigenous participation in the shipping sector, the waiver clause must be removed so that Transport Minister does not have the power to grant waiver to any foreign vessel.

Also, NIMASA should carry on the shipping sector regulation duties without interference from anybody including the Ministry of Transport. For this to happen, the legal framework of Cabotage must be amended in such a way that wherever the name of the minister occurred in the Cabotage Act must be deleted and its place, it will be inserted NIMASA.

There should be the required synergy between NIMASA and the various government agencies and Ministries like the Finance and Agriculture Ministries, and others that will assist in the realisation of Cabotage. Also, there should be modernisation and institutionalisation of NIMASA, which is the agency with the mandate of implementing Cabotage and building shipping capacity in the country.

DISBURSEMENT OF CABOTAGE VESSEL FINANCING FUND (CVFF):
Part of the Federal Government’s mechanisms to indigenous local participation is the floating of the Cabotage Vessel Financing Fund (CVFF), currently warehoused by NIMASA. The CVFF is an intervention loan with very low interest rate meant to assist debt-ridden local players in the shipping business, majority of whose vessels (in near comatose state) lay idle in various ports across the country.

CVFF was also designed to enable indigenous shipping companies acquire adequate tonnage to be able to participate in coastal and inland trade currently dominated by foreigners, who also dominate deep sea shipping.

The groaning local operators are desperately longing for the CVFF loan and, painfully, no single ship owner has successfully accessed the loan. The government has not shown any sincere plans to assist them via the loan, as there are incredible bureaucracies in place that have naturally robbed them of any opportunity to access the fund.

To boost indigenous participation in the shipping sector, the government should demonstrate the will to develop the shipping industry through faithful and committed disbursement of the Cabotage Vessels Financing Fund (CVFF).

MAKING CREDIT FACILITIES ACCESSIBLE FROM MARITIME BANK:
Loans should be accessible from a special bank called Maritime bank that will fund shipping industry and activities.

EXTENSION OF TENURE OF LOANS BY COMMERCIAL BANKS:
Owing to the fact that the Cabotage Vessels Financing Fund (CVFF) will not be enough to satisfy the demands that will be made on it, recourse will have to be made to other sources of funds like commercial banks.

To boost indigenous participation in the shipping sector, Nigerian commercial banks should learn to focus on ship building and ship ownership by funding indigenous players. The tenure for loan repayment in Nigeria (24 months) is very short and unfavourable for the growth of shipping business because shipping is a long-term business that takes a long time for the investment to mature and investors to make profit. Nigerian banks need to think of long-term borrowing for shipping firms.

Nigerian commercial banks should also engage professionals to head their shipping departments, so that they do not get their fingers burnt after having invested in ship acquisition. They also need to employ more shipping experts to help them navigate the intricacies of vessel acquisition.