Local-shippers1It is 10 years since the Coastal and Inland Shipping, Act, known as  “Cabotage Act in Nigeria” was enacted to give local shipping companies a comparative advantage over their foreign counterparts that engage in business in the country’s waters in order to develop local capacity and indigenous shipping industry. Despite the availability of the law, Nigeria continues to lose billions of naira annually in capital flight to foreign vessels and their seafarers due to non-implementation of the Cabotage Act, SAMSON ECHENIM writes

In Nigeria’s maritime sector, a law was needed to build up the nation’s vast potential in the sector. It was clamoured for with nationalistic zeal for over a decade.  In May 2003, it was enacted with enforcement starting in November same year. It was called the Coastal and Inland Shipping (Cabotage) Act N0.5 of 2003, Laws of the Federal Republic of Nigeria. Put simply, the Act was sculptured to stop foreign vessels from lifting crude oil or other cargoes within the Nigeria’s territorial waters, while making jobs available for vessels owned and managed by Nigerians and Nigerian indigenous shipping lines.

Ten years down the line, it has been all stories and excuses. Stories about how the agencies have tried hard to make it work without success and excuses about why the law cannot work. The Act defines Cabotage in Part 1, (2), as “The carriage of goods by vessel, or any other mode of transport, from one place in Nigeria or above Nigeria waters to any other place in Nigeria or above Nigeria waters, either directly or via a place outside Nigeria and includes the carriage of goods in relation to the exploration, exploitation or transportation of the mineral or non-living natural resources of Nigeria whether in or under Nigerian waters;

“The carriage of passengers by vessel from any place in Nigeria situated on lake of river to the same place, or to any other place in Nigeria, either directly or a place outside Nigeria to the same place without any call at any port outside Nigeria or to any other place in Nigeria, other than as an in -transit or emergency call, either directly or via a place outside Nigeria.” All these activities enumerated in this definition of cabotage by the Act are supposed to be solely undertaken by indigenous shipping lines. Unfortunately, the Act has yet to achieve its purpose, a decade after enactment.

A Failed Cabotage Vessels Financing Fund
The Cabotage Act also established the Cabotage Vessels Financing Fund (CVFF), which is under the custody of the Nigeria Maritime Administration and Safety Agency (NIMASA). Current situation of the fund, which the Transport Minister, Idris Umar says has reached N40 billion as at May 2013, suggests it has failed to live to its billing as no indigenous shipping company has yet drawn from it despite the process for disbursement kicking off in February  2012.

Although, the minister said that six local shipping companies have benefitted from the fund; he failed to give their names. A source at NIMASA while also defending the Fund says an indigenous shipping line would soon be loaned $25 million (about N4 billion). Meanwhile, the House of Representatives, which has lost confidence on House Committee on Marine Transport, has set up an Ad-Hoc Committee to probe the fund.

Billions Of Naira Lost To Capital Flight
Experts including indigenous ship owners and relevant agencies have a common opinion about how Nigeria is losing billions of naira annually for not putting its maritime sector at the reach of her citizens. While different figures are given by the various interests as to what the country loses annually to foreign-flagged vessels, the fact remains that Nigeria’s losses to non implementation of the Cabotage Act in monetary and employment terms are unquantifiable.

The Indigenous Shipowners Association (NISA) puts the loss at N2 trillion annually to capital flight to foreign countries that own vessels used to lift about 150 million tonnes of cargo, including oil products. “Nigeria is losing N2 trillion annually from shipping business. From fisheries, because we are not protecting our water, other nations are taking our fish away and we are instead importing fish, we are losing about $2 billion that is about N300 billion. Then we are also losing the entire insurance of that amount, because if these ships are working, they will be insured. So our insurance companies also lose N16.5 billion. In terms of employment, Nigeria is losing five million jobs,” says NISA’s general secretary, Capt Niyi Labinjo.

Globally, about 80 per cent of the world trade by weight is done by sea. In the case of Nigeria, 90 per cent is done by sea. Despite this huge potential, local capacity in the maritime industry remains low. Nigeria imports over 100 million tonnes of cargo and general goods annually, according to 2010 estimates. In 2009 the country imported 93 million tonnes; 87 million in 2008 and 80 million in 2007.

Capt Labinjo says “If you look at the number of ships to be engaged, the total number of ships that called at Nigeria ports for one year is over 4,000, so you can imagine where indigenous ships are working. Then we have our oil. We produce 2.5 million barrels per day. In one month, that gives us about 70 million barrels. Over 20 ships are needed to lift the oil. So, we calculated the number of ships that are required in every sector. We also realised that we need about one million direct employments. But you know that shipping also has auxiliary services providers, including the financial sector—banks and insurance.”

Nigeria’s apex maritime regulator, the Nigeria Maritime Administration and Safety Agency (NIMASA) gave its figures when the agency’s director-general, Mr Patrick Akpobolokemi said it was time to begin the development of the country’s shipping and maritime human capacity to bridge and save about $6 billion (N930 billion), which the country was losing to capital flight to foreign seafarers.

In a recent speech delivered at a training programme for maritime journalists at Oron, Akwa Ibom State, Akpobolokemi said, “Nigeria loses an estimated $3 billion (about N465 billion) annually to foreign seafarers. If you add the remuneration of other foreigners in the shipping and logistics chain, we would probably be talking of losing about double this amount. “The implication of retaining about $6 billion in the country annually cannot be underestimated. Besides, a lot of foreign income can also be earned from seafarers working on foreign-flagged vessels.”

According to the executive secretary of the Nigerian Content Development and Monitoring Board (NCDB), Engr Ernest Nwakpa, engaging 40 indigenously owned vessels hired by international oil companies to replace contracted foreign vessels will lead to retention of $1.8 billion (N287 billion) in the nation’s economy. He says, “From our calculation, in 2012, we will be retaining over $1.8bn just by ensuring that these vessels are owned by Nigerians. In the past, they were getting spot contracts, but nobody can invest without a long term contract.”

“The Nigerian maritime industry is capable of generating N1.6 trillion yearly as revenue and could provide employment to over five million youths in the country,” NISA chairman, Dr. Isaac Jolapamo told officers of government maritime agencies and fellow shipowners at a recent industry forum.

Why the Cabotage Act Is Not Working
Perhaps, due to the euphoria surrounding the high expectations from the law, the Cabotage Act may have been built on four false pillars like a pseudopodium. The Act says a vessel to be engaged to do business in the cabotage area must be a Nigerian-flagged vessel, built in Nigeria, owned by a Nigerian and manned by Nigerians.

Mr Ibrahim Zilani, Former Executive Director, Labour and Cabotage, NIMASA, said the Cabotage Act was virtually built on almost nothing.  “Coming to the perspective of the Cabotage Act, you will note that the Act is built on four legs—all the vessels that will be engaged in constant trade must be owned, built, manned and registered in Nigeria. One of the practical problems we are having is to meet the requirement of coastal trading which says that all Cabotage vessels must be built in Nigeria. Is Nigeria a ship building nation? No”, he says.

While experts have blamed these recommendations for the failure of the Act, the Act does have a leeway in form of waivers. Ironically, part of the waivers also helped the failure of the Act. For instance, the Act states in Part 3 (10, 11) that “The Minister may on the receipt of an application grant a waiver to a duly registered vessel on the requirement for a vessel under this Act to be wholly manned by Nigerian citizens where he is satisfied that there is no qualified Nigerian officer or crew for the position specified in the application.

“The Minister may on the receipt of an application grant a waiver to a duly registered vessel on the requirement for a vessel under this act to be built in Nigeria where he is satisfied that no Nigerian shipbuilding company has the capacity to construct the particular type and size of vessel specified in the application.” However, what seems to have ridiculed these two beautiful waivers above is another waiver penned in Part 3 (9) even before these two waivers were provided.

The Act says in Part 3 (9), “The Minister may on the receipt of an application grant a waiver to a duly registered vessel on the requirement for a vessel under this Act to be wholly owned by Nigerian citizens where he is satisfied that there is no wholly Nigerian owned vessel that is suitable and available to provide the services or perform the activity described in the application.”

Agencies of government who have the responsibilities of enforcing this Act, such as the Nigeria National Petroleum Corporation (NNPC) and the Nigeria Maritime Administration and Safety Agency (NIMASA) have continued to hide under this very waiver and similar provisions of the Act as reason for not being able to enforce the law.

Oil companies which operate in the upstream sector are also relishing on this waiver to engage foreign vessels to lift their crude and it appears that they are using the ministerial approval to engage any vessel from any country other than those from Nigeria. Of course, such ministerial approvals will come from the NNPC and the NIMASA in most cases, whose group managing director and director general respectively may give such approvals on behalf of their various ministers.

According to a renowned authority in the country’s maritime industry and chairman of Nigeria Ports Consultative Forum, Otunba Kunle Folarin, the four pillars of the Cabotage are a mere façade which is not really obtainable in the industry. Folarin identified ship building and ship repair yards as areas that Nigerians had not been able to venture into, which he said were fundamentals of Cabotage.

Making The Act Work
There were reports in the last two years of the National Assembly reviewing the Cabotage Act.  Indeed, the Act needs amendment, in which the culpable waivers can be eliminated. According to a frontline maritime consultant, Hon/ Green Ekeledo, one of the factors that had militated against the law was the inclusion of the waiver clauses. The reasons for having the waiver clause (especially that penned in Part 3 (9)), no longer exist, hence it should be terminated, he says.

Hon Green advised that NIMASA should approach the National Assembly to replace the waiver clause with “the right of first refusal” clause which will give indigenous companies considerable advantage when bidding processes are carried out. “The waiver clause should be expunged from the Act because Cabotage is a home trade and not foreign policy business, and we have more Nigerians qualified to handle the business,” he says.

He also noted that the two per cent that is being collected by NIMASA on every vessel that berths in Nigeria was not enough and that there was need to amend the Act to increase the money in order to strengthen the development of the Cabotage Vessel Financing Fund (CVFF). But the CVFF has also not seen good days.

According to Folarin, there has also not been the required synergy between NIMASA and the various government agencies and ministries like the petroleum ministry, the finance ministry, agricultural ministry and others that will assist in the realisation of Cabotage. “Is the ministry of transport working in tandem with the ministry of finance? Is the ministry of petroleum and natural resources working with the ministry of transport?

“There must be synergy between us and these ministries otherwise it will be a different tune whose melody will not be melodious. Ministerial antagonism must stop, the ministry of finance oversees the Customs, but the Customs are not here, are we going to implement Cabotage without the customs? It’s not possible,” Folarin enthused.

He however, called for the establishment of an inspectorate unit of NIMASA to monitor vessels and compliant levels, adding that Cabotage cannot only be enforced administratively. There may also be the need for the indigenous shipowners to begin to look inwards. There are about 400 vessels that are owned by indigenous operators, but over 70 per cent of the vessels are said to be below required standards.

The Executive Secretary of the Nigerian Local Content Development and Monitoring Board (NLCBD), Engr Earnest Nwapa, identified the proliferation of small vessel owning companies as another reason Nigerians had been unable to get contracts in the upstream oil business. He therefore advised that the indigenous practitioners should put heads together and fuse into one big company in other to be able to reap the reward of Cabotage.