National interest and local shipowners

Last month China gave four shipping lines including China Cosco 1.8 billion yuan ($293.3 million) in subsidies to encourage them to retire and upgrade their vessels. This amount is about the size of Nigeria’s Cabotage Vessel Financing Fund (CVFF).

In December 2013, China announced it would hand out subsidies to the shipping lines to replace old models with new and greener ones and to generate orders for its shipbuilders, which have been hit by an order slowdown in a global shipping slump.

Shortly after the announcement, one of the shipping lines, China Cosco said it had received 1.3 billion yuan through its controlling shareholder, state-owned China Ocean Shipping Group, to compensate it for scrapping and upgrading old vessels. Sister company Cosco Shipping also said it had received 182.9 million yuan for ship upgrades while China Shipping Development Co. said China’s finance ministry had given it 215 million yuan in subsidies for scrapping 15 ships. China Shipping Container Lines also acknowledged receiving a subsidy of 40 million yuan.

The companies said they expected the subsidies to have a positive impact on their full-year results.

There are arguments that China has become the leading exponent of an economic model called “state capitalism,” in which state-owned or state-supported companies used public money to dominate markets and advance strategic interests.

Truth is state capitalism, as well as a range of new forms of protectionism involving barriers behind borders such as regulations, discrimination against foreign companies, and forced technology transfers have become tools with which countries enable their indigenous businesses compete in key markets.

Every country, including the United States of America which professes open, free, transparent, and fair system practices some form of protectionism which is what state capitalism is all about.

Besides, developing economies like Nigeria have a lot of work to do to lift hundreds of millions of their people out of poverty. This imperative must outweigh any obligation to play by established doctrines.

The notion of open market operation is a misnomer in shipping parlance and that is why I am concerned about our government’s laissez-fair philosophy, which has entrenched a hands-off approach in the sector.

Whereas developed nations and emerging super powers like China are consciously providing subsidies and other relevant incentives to their ship owners, ours is flexing all the muscle it can to decimate its own. The actions of government through the Nigerian Maritime Administration and Safety Agency (NIMASA) clearly show that the administrators either lack requisite knowledge to promote the sector or are deliberately entrenching policies that will shove operators down the cliff.

Late 2007, NIMASA concluded plans to float a ship repair and maintenance fund. The plan was to carry out an audit of Nigeria-owned ships, repair and place them in class so they could effectively perform Cabotage operations. An MOU was to be signed with the Naval Dockyard in Victoria Island, Lagos. The idea was not to give money directly to the ship owners but pay the shipyard seventy per cent of the repair cost while the owner pays the rest. It looked good on paper and was applauded across the industry but problem was; the scheme never saw the light of day.

Four years earlier, government had enacted the Coastal and Inland Waterways Act, known as the Cabotage Act. That law is now eleven years old and it is nowhere near implementation.

With the Cabotage Law came the Cabotage Vessel Financing Fund (CVFF). CVFF is a contribution by ship owners and it is not government money. It smirks of mischief (or ignorance) to describe the CVFF as an intervention fund. It is a direct contribution by ship owners at the instance of government and backed by adequate regulation and guidelines.

The idea behind CVFF was to create a pool fund accessible by the contributors from time to time at a single digit interest rate to acquire vessels.

The CVFF account has grown to over N50 billion in ten years with no hope in sight for disbursement. There is a sort of ding-dong and a game of musical chairs between the uncanny banks selected by NIMASA as primary lending institutions and the docile maritime administration. The banks are the beneficiaries of the non-disbursement as it provides them cheap deposits while NIMASA is content with using the fund as a bait and bargaining chip.

Over the past four years and especially under the present NIMASA leadership, the nation’s fleet has suffered substantial depletion due largely to lack of sufficient funds needed grow and maintain them. There are also instances of nepotism, which are better discussed some other time.

Without belabouring the issue, the leaderships of NIMASA and the Federal Ministry of Transport are accountable for the comatose state of the shipping sector.

They have one more chance to redeem themselves by disbursing the CVFF and reviving the fleet maintenance subsidy. The lesson from China is a good one to imbibe.

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