How Nigeria loses jobs, billions of dollars in capital flight to foreign vessels

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With mind set on empowering indigenous ship owners to take control of the nation’s coastal and inland shipping business in order to create jobs for Nigerian youths, the National Assembly enacted into law, the Nigerian Coastal and Inland Shipping (Cabotage) Act of 2003.

Primarily, the Cabotage Act reserves the commercial transportation of goods and services within Nigerian coastal and inland waters to vessels flying the Nigerian flag, owned and crewed by Nigerians. By so doing, it restricts the use of foreign vessels in domestic coastal trade, but promotes the development of indigenous tonnage.

Seventeen years down the line, the opposite seems to be the case as the nation’s coastal shipping trade is still largely dominated by foreign-owned vessels. This was largely due to the breach of this act through arbitrary granting of waivers to foreign-owned ships by the Federal Ministry of Transportation as well as poor engagement of local ships by the Nigerian National Petroleum Corporation (NNPC).

BusinessDay understands that to implement the provisions of Cabotage Act, it was recognised that there may be some capacities of vessels that might be needed for lifting of crude oil and refined petroleum products that may not be owned or provided by Nigerian ship owners. This was why the Act provided for granting of waivers at the discretion of the Minister of Transportation to bridge such gap.

Sadly, the nation’s coastal and inland shipping trade has been dominated by foreign-owned ships.

For instance, a recent report of the direct sale-direct purchase (DSDP) Vessels and Petroleum Cargo Shipments into Nigeria from January to August 2020, a copy of which was sighted by BusinessDay, shows that in the first eight months of 2020, about 320 vessels were chartered for the shipment of the imported 1.7 million metric tons, equivalent to 20 billion litres of petroleum products.

Unfortunately, out of the 320 vessels that benefited from the shipment, only six were chartered from Nigerian-owned companies while the remaining 314 were foreign-owned vessels.

In the 2019/2020, DSDP contract valued at $9 billion was undertaken while freight expenditure on import tankers was approximately $60 million monthly or $720 million annually. This involved the average monthly importation of 2.4 billion litres (1.8 million metric tons) of gasoline in foreign-owned tankers of 35,000 to 90,000DWT capacity (approximately 40 ship loads monthly).

Nigerian economy has lost over $120.53 billion in gross freight paid on import and export cargoes to foreign owned vessels in the past 14 years (2004 to 2018), according to the National Fleet Implementation Committee (NFIC).

A breakdown shows that the nation’s economy loss a total of $57.94 billion on freight paid by Nigerian shippers on imports and $62.59 billion loss on freight paid on export.

These foreign owned vessels have been dominating the nation’s shipping business following the near absence of indigenous ship owners in the carriage of import and export cargoes in and out of the country. This was why Hassan Bello, chairman of NFIC, who acknowledged that existence of Nigerian registered, flagged and crewed ships would have an immeasurable effect on the economy, pointed out that Nigerian ship owners have been losing by allowing foreigners to own and operate ships on the nation’s waters.

According to him, shipping business, together with other aspects of the maritime industry, would finance Nigerian annual budget if properly harnessed.

On his part, Mkgeorge Onyung, president of Shipowners Association of Nigeria (SOAN), once said that the NNPC needs to change some of trading policies that puts Nigerian ship owners at disadvantage in the area of crude oil lifting.

Determined to put an end to capital flight presently being experienced by Nigerian-owned ships, SOAN wrote a letter dated 17th September 2020 with the theme, ‘Urgent Need to Investigate the Breach of Nigerian Laws by Foreign Vessels in Coastal Shipping of Petroleum Products in the Downstream Sector of the Nigerian Maritime Industry,’ and addressed to Teslim Folarin, chairman, Senate Committee on Local Content.

The letter, which was signed by Onyung, a copy of which was sent to Committees on Downstream Petroleum Sector and Legislative Compliance, stated that foreign ship owners account for 95 percent of freight spending associated with downstream activity which is repatriated overseas as capital flight to the detriment of Nigerian economy.

The letter reads: “Foreign ships in NNPC’s fleet enjoy government incentives which are denied Nigerian vessels. The incentives include reduced Nigerian Ports Authority tariffs paid in Naira while Nigerian flagged vessels pay full tariffs in United States dollars; Customs Temporary Import (CTI) regime with insignificant fiscal earnings to government while Nigerian flagged vessels pay full Customs duty; Companies Income Tax is not paid by foreign vessels to the Federal Inland Revenue Service (FIRS) as Nigerians do annually. Freight is pre-paid and remitted in full by the NNPC/NIDAS to offshore bank accounts of foreign vessel owners, whereas freight for Nigerian vessels is always post-paid six months in arrears.”

It further stated that NNPC’s policies gives the lucrative marine service contracts to foreign ships, which ends up allocating marine-related jobs to foreign seafarers, thus encouraging massive loss of employment, capacity building opportunities and tax revenue.

Stating that there has been inadequate enforcement of the Cabotage and NOGICD Acts in the downstream sector, SOAN’s letter claims that NNPC Marine Service Contracts and associated commercial opportunities are not maximised as enablers to enhance technological innovation and in-country value creation.

“Through DSDP contract, fuel imports and coastal bunkering vessel service contracts for offshore lighterage and coastal shipping of imported petroleum products to in-country terminals and tank farms, NNPC becomes the largest employer of downstream shipping services,” the letter further reads.

To resolve this, SOAN recommended among other things that payments for Cabotage trade should be denominated in Naira due to scarcity of foreign exchange.

It also recommended that the Nigerian Maritime Administration and Safety Agency (NIMASA) should work closely with the Nigerian Content Development and Monitoring Board (NCDMB) for joint categorisation of vessels operating under the Cabotage Act in order to ensure full implementation of its provisions.

While calling for the suspension of Cabotage waiver to foreign vessels, SOAN suggested that relationship between NNPC, NIDAS Marine (her subsidiary) and their supply chain must include technology transfer, issuance of bankable contracts to Nigerian shipping companies, employment of Nigerians to man vessels.

Given the above mentioned letter, the Senate opened investigation on the issue of waiver and invited Rotimi Amaechi, minister of Transportation, who denied having hands in the issuance of waivers to foreign vessels operating on Nigerian coastal waters.

“I do not even know until recently that I have to issue a waiver. For me to know as a minister, the Director-General of NIMASA is supposed to write to me to request for an approval. As of now, no request for an approval is on my table or that has been on my table since 2015 till today,” he said.

Amaechi also denied knowledge of any record in the ministry that waivers was being granted before.

Going by these facts, it has become obvious that Nigeria needs to increase the number of indigenous players participating in the DSDP Crude oil contract, especially, importation of refined products.

For Nigerian ship owners to compete favourably with its foreign counterparts, the NNPC, which is the biggest employer of marine assets that feed the import of petroleum products into Nigeria, and services the export of crude oil, must provide the contracting tonnages that would enable Nigerians to invest in vessel acquisition.

It can also become an enabler by providing those contracts of carriage that would make vessel acquisition a more bankable investment in Nigeria.