Nigeria's efforts to promote trade on Nigerian-owned ships are being hindered by a financing loop. Shipowners need financing to purchase vessels capable of carrying cargo, but banks are reluctant to lend without existing cargo contracts. This impasse has prevented Nigerian operators from accessing the 23-year-old $700 million Cabotage Vessel Financing Fund (CVFF). The fund, designed to rescue the country's shipping industry from foreign dominance, has received 92 applications since January, but only 20 have reached the Primary Lending Institutions (PLIs), and just one has been cleared for final approval.
The CVFF's structure requires applicants to provide 15 percent of the acquisition costs in equity, while the Nigerian Maritime Administration and Safety Agency (NIMASA) provides 50 percent from the fund, and the PLIs finance the remaining 35 percent. However, this risk allocation has led banks to demand cargo cover as cash flow security. Sola Adewunmi, president of the Nigerian Shipowners Association, noted that without secured cargo, it is challenging for shipowners to repay loans and maintain their assets. Anokwuru Mike, group head at Zenith Bank, emphasized that banks will only consider applications with a clear commercial purpose backed by a contract or identifiable business opportunity.
The lack of cargo contracts has resulted in many applicants being rejected. Olisa Agbakoba, founding president of the Nigerian Chamber of Shipping, cited an instance where Fidelity Bank told an applicant to show cargo or risk being denied funding. Shipowners argue that cargo owners are not obligated to prioritize them, despite laws reserving coastal and inland shipping for Nigerian-owned vessels. The Coastal and Inland Shipping (Cabotage) Act of 2003 grants waivers for foreign operators where no suitable Nigerian vessel is available, but Agbakoba claims that this waiver regime is being abused.
Poor enforcement of the Cabotage Act has led to foreign vessels dominating the market, locking out local players. Aminu Umar, a shipowner and president of the Nigerian Chamber of Shipping, noted that cargo owners prefer established international companies, and the law does not compel them to engage Nigerian shipowners. Additionally, Nigerian owners face higher taxation and vessel duties, making it difficult for them to compete with foreign competitors.
The Nigerian Ports Authority reported a 12.3 percent increase in total cargo throughput to 35.74 million metric tonnes in the second quarter of 2023. However, shipowners argue that this cargo is not being prioritized for Nigerian vessels. Dangote Group, one of Nigeria's largest cargo owners, agrees that policy implementation is crucial to resolving the issue. Edwin Devakumar, vice president for oil and gas and fertilizer at Dangote Group, suggested that the financing scheme should tie vessel owners to companies with assured cargo.
Devakumar noted that between 2001 and 2003, Dangote Group's operations generated close to 300 vessel calls a year, providing a potential source of business for Nigerian shipowners. However, without a guaranteed business, shipowners struggle to secure capital to invest in developing their capacity. Umar contrasted Nigeria's practice with Turkey's, where a waiver was not available for a non-Turkish vessel, and the vessel had to wait from September to December, costing his company at least $2 million.
Dangote Group is now looking to Chinese shipyards to build its own shipping fleet as its operations expand. The group's 700,000 barrels per day mega refinery currently generates about 75 to 100 vessel calls a month, or roughly 900 annually. This could rise to about 1,800 vessel calls a year if the refinery doubles its capacity. The refinery handled 40 percent of all cargo traffic in Nigeria in the first half of the year.
Key points
- Nigerian shipowners need cargo contracts to access the $700m Cabotage Vessel Financing Fund.
- The lack of policy implementation and enforcement of the Cabotage Act hinders the growth of Nigeria's shipping industry.
- Dangote Group's expansion plans may lead to increased demand for Nigerian-owned vessels.
