Unravelling struggles of domestic shipowners amid failed promises

Despite controlling 70 per cent of the cargoes in West and Central Africa, the promised economic growth and job creation remain a mirage with domestic shipowners struggling to compete against foreign-flagged vessels due to inconsistent regulations and high operational costs, creating an uneven playing field that stifles indigenous operators, ADAKU ONYENUCHEYA reports.

Nigeria’s Cabotage Act, enacted in 2003, was intended to reserve certain maritime activities, such as coastal shipping, exclusively for vessels registered in Nigeria and manned by Nigerians.

The goal was to give Nigerian-flagged vessels a competitive edge, promote the growth of the local maritime industry and reduce the country’s dependence on foreign shipping operators.

However, inconsistent law enforcement has created systemic barriers and regulatory hurdles that prevent Nigerian-flagged vessels from thriving in their waters, giving foreign-flagged vessels an advantage in securing lucrative contracts for Nigeria’s coastal operations.

These hurdles, including policy frameworks, export strategies and taxation rules, have created an uneven playing field that continues to stifle local maritime interests.

Nigerian-flagged vessels suffer operational disadvantages compared to foreign-flagged vessels, which benefit from a more favourable business environment, including incentives such as waivers, tax breaks and subsidies that allow them to operate within Nigeria’s coastal waters.

These waivers, often granted due to perceived inadequate local capacity, undermine the very purpose of the legislation, as registering Nigerian-flagged vessels comes with prohibitive costs.

These unfavourable policies have driven indigenous shipowners out of business, leaving room for foreign vessels that benefit from zero duty and near-zero tax regimes, making it difficult for Nigerians to compete in transporting about 70 per cent of their cargo between the West and Central African regions.

For example, Greg Ogbeifun, former president of the Shipowners Association of Nigeria (SOAN), shared his experience of commissioning a ship built in China in 2018 for $10 million, aiming to meet all Nigerian requirements.

However, the process of bringing the ship into the country added a staggering 14 per cent of the ship’s cost in expenses due to Nigerian regulations, a burden his foreign counterparts did not face.

While Nigerian-flagged vessels grapple with such costs, foreign-owned vessels entering Nigerian waters benefit from a more lenient regime, often only needing to post a one per cent customs bond.

This disadvantage has led many Nigerian shipowners to find it more viable to register their vessels abroad, where they encounter lower regulatory costs and enjoy greater access to international trade routes, all while operating in Nigeria’s seamless environment, advantages typically reserved for foreign vessels.

“That is why you find that a lot of Nigerians have ships, but they don’t even bother to come here. They register everything outside, and the economic benefits, including job creation, flow out of the country,” Ogbeifun said during the 2024 National Discourse with Distinguished Maritime Personalities (DMP) held in Lagos, themed “The Human Capital Component, Assets, and Infrastructure for the Blue Economy.”

Figures show that Nigeria has the largest fleet in Africa, with 291 vessels, 265 of which are registered abroad, combining for a deadweight tonnage of over 6.48 million tonnes.

This has raised concerns about the capital flight lost due to the 91 per cent of ship registrations in foreign registries, with neighbouring countries like Togo, Ghana, and Liberia offering fully digitised and seamless registration processes for vessels flying their flags on international trade routes. Ogbeifun, who is also the chairman of Starz Marine and Engineering Limited, highlighted the Federal Government’s failure to effectively enforce the Cabotage Act of 2003 and the NIMASA Act of 2007 to support national carriers.

As a result, foreign vessels dominate the domestic market, with no indigenous shipping company currently transporting Nigeria’s crude oil and non-oil imports and exports.

Meanwhile, Nigeria held a significant stake in various international shipping conferences, with national and foreign carriers each entitled to 40 per cent of cargo allocations, while cross traders were entitled to 20 per cent.

According to Ogbeifun, this situation not only reduces the market share of Nigerian-flagged vessels but also limits job opportunities for Nigerian maritime professionals, who could benefit from increased local shipping activities.

The urgent need for national vessels
Nigeria is heavily dependent on foreign vessels to transport its crude oil, liquefied natural gas (LNG), and other non-oil imports and exports.This dependence means a substantial portion of the money spent on freight services is funnelled out of the country, representing a missed opportunity for domestic revenue generation.

According to the Managing Director of Genesis Shipping and former Minister of Interior, Captain Emmanuel Ihenacho, Nigeria loses over $86 billion yearly to the dominance of foreign vessels in its freight business for both oil and non-oil cargoes.

Owning a national fleet could ensure that these services are kept within the country, adding to Nigeria’s gross domestic product (GDP) and reducing reliance on foreign operators.

The benefits extend beyond GDP growth, as the creation of a national fleet could catalyse job creation in an industry that has the potential to employ thousands of Nigerians, from seafarers and engineers to administrative staff and shipbuilding professionals.

Maritime lawyer and Senior Partner at Akabogu & Associates, Emeka Akabogu, lamented that despite existing laws like the Cabotage Law and the Nigerian Maritime Administration and Safety Agency (NIMASA) Act, implementation challenges have stunted the growth of a national carrier.

“The laws provide the framework, but vested interests often dictate the outcomes,” he explained. He argued for a re-evaluation of the current taxation system, advocating for a tonnage tax that levels the playing field.

According to him, it currently does not pay for Nigerians to flag a vessel in Nigeria, highlighting the advantages that foreign-flagged vessels enjoy, including waivers that are often difficult for local operators to obtain.

Learning from foreigners
Several countries have long recognised the strategic value of a national fleet and have reaped their benefits. Despite their relatively smaller geographic sizes compared to Nigeria, Greece, Japan, and South Korea have become global maritime powers through strong investment in their shipping industries.

Also, Liberia and Panama ship registries have seen hundreds of vessels with their flags trade international routes. In contrast, Nigeria, despite its vast natural resources and strategic position along key maritime routes, has lagged.

Although NIMASA has taken steps to address some of these concerns, including efforts to digitise its registration processes, the pace of reform has been slow, and the impact has yet to be felt across the industry.

In the meantime, shipowners continue to opt for foreign flags, taking their businesses and potential tax revenues to countries with more business-friendly environments.

Stakeholders identified the issue as originating from the way Nigeria structures its crude oil exports, primarily selling on a free-on-board (FOB) basis, which allows buyers to nominate their vessels for transport.

This arrangement, according to Ogbeifun, restricts Nigeria’s role to merely loading crude oil onto foreign vessels, excluding the country from critical shipping opportunities like freight and insurance.

He explained that the implications of this arrangement are significant. Without control over the transport of its exports, Nigerian shipowners miss out on valuable contracts that could drive demand for locally flagged vessels, thereby forfeiting a chance to build a robust domestic shipping industry.

“If Nigeria were selling its crude oil on a CIF (Cost, Insurance, and Freight) basis, we would be in a position to nominate the ships, thereby stimulating demand for Nigerian-owned vessels.

“ In this scenario, Nigeria would control more aspects of the shipping process, from selecting the vessel to managing the insurance, creating a direct incentive for Nigerian businesses to own and operate ships. Yet, the current FOB model places the power and profits in the hands of foreign shipping companies, reinforcing a status quo where Nigerian vessels struggle to compete in their market,” he explained.

Beyond the economic implications, Ogbeifun pointed out a strategic concern, which is the erosion of Nigeria’s ability to play a role in its defense through maritime capacity.

He recalled the role of the defunct Nigerian National Shipping Line as an auxiliary navy during the ECOMOG peacekeeping missions, providing critical logistics support alongside the Nigerian Navy.

Today, he noted, Nigeria lacks such capacity, highlighting that in the event of a conflict requiring naval logistics, the country would have to rely on foreign vessels that may not always align with Nigeria’s strategic interests.

Addressing human capital development
The former Director-General of the Nigerian Maritime Administration and Safety Agency (NIMASA), Temisan Omatseye, envisioned a future where Nigeria can harness its youthful population, many of whom are currently unemployed, for maritime careers.

Despite the evident growth potential in the maritime sector, Omatseye criticised the lack of support from government policies, which he believes have failed to create an environment conducive to human capital and infrastructure development.

Omatseye emphasised the transformative potential of the Dangote Refinery, arguing that it could produce more than the combined output of Nigeria’s oil sector over the past six decades. He suggested that revising Nigeria’s International Commercial Terms (Incoterms) could be a crucial step towards enabling local industries, such as Dangote, to thrive in the maritime space.

The former NIMASA boss highlighted missed opportunities for local manpower development due to government inaction in supporting shipowners and broader maritime infrastructure.

Omatseye lamented the situation, pointing out that there are too many young men wandering the streets who could be gainfully employed on board vessels. He emphasised that the maritime sector could provide substantial employment opportunities and growth if properly managed. With the Dangote Refinery set to revolutionize the industry,

Omatseye stressed the urgent need for vessels and trained personnel. He noted that, even with Dangote’s capabilities, the company would still rely on maritime logistics for transportation, further underscoring the need for local maritime support systems.

The Managing Director and Chief Executive Officer of Maritime Nigeria, Kelvin Kagbare, expressed concern that, since the establishment of the Ministry of Marine and Blue Economy in May 2023, progress in human capital development within the sector has been limited.

Kagbare highlighted that, given the Blue Economy’s potential to generate over $1.5 trillion annually and create upwards of 30 million jobs, there is a disconnect between policy intentions and their actual implementation.

He called for actionable policies that translate discussions into tangible outcomes and emphasised the need for transparency and communication regarding the commitments made by maritime executives.

Way forward
Stakeholders believe that for Nigeria to realise the full potential of its maritime sector, a strategic shift in policy is needed, aligning with the goals of promoting local capacity, creating jobs, and retaining revenue within the country.

According to them, this shift must involve improved enforcement of existing laws, like the Cabotage Act and the creation of a more favourable environment for Nigerian-flagged vessels through financial incentives and regulatory reforms.

Ogbeifun’s recent efforts to establish a new global trading group with support from Lloyd’s of London exemplify the potential for Nigerians to reclaim their place in the international shipping arena.

“We don’t need to wait for government intervention. We need to think strategically, study the market and create our frameworks for success. If we build the platform, the investment will follow,” he stated.

For local shipowners and operators, the choice between flagging locally or abroad will remain a difficult one until policy changes favour local flagging. Ogbeifun emphasised that as long as the current situation persists, Nigeria’s maritime potential will remain underutilised, with the country missing out on the benefits of a thriving, locally driven shipping industry.

“There’s no reason why Nigeria cannot have a vibrant, competitive ship registry like Liberia or Panama. If we streamline our processes, improve coordination among regulatory agencies, and make the costs competitive, we could attract not just Nigerian shipowners but even international operators looking for a stable and efficient registry in Africa,” Ogbeifun stated.