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Trading in Contradiction of the Nigerian Cabotage Act

Dr. Akinseye Olatokunbo Aluko is Programme Leader in Oil and Gas Management at the University of East London.


Nigeria’s oil and gas sector has accounted for almost 90 percent of its foreign exchange earnings. The country primarily exports crude oil and imports refined petroleum products. However, the transportation processes of both the exportation crude oil and the importation of the refined products are largely dominated by major international shipping and maritime companies. This process actually contradicts a section of the Cabotage Act of 2003:

3. A vessel other than a vessel wholly owned and manned by a Nigerian citizen, Built and registered in Nigeria shall not engage in the domestic coastal carriage or Cargo and passengers within the Coastal, Territorial, Inland Waters, Island or any Point within the waters of the Exclusive Economic Zone of Nigeria, Coastal and Inland Shipping (CABOTAGE Act, 2003 p A79).

It is well documented that the Nigerian National Petroleum Corporation (NNPC) trades the country’s crude oil on a cost and freight basis. This implies that, the NNPC is the total authority in charge of the transportation of crude oil to prospective buyers, and none of these shipments are been carried out by any of the indigenous shipping companies. Furthermore, the economic implications demonstrate that Nigeria loses an additional 10 percent of the country’s revenue to international freighting of its oil and gas. This amounts to the sum of $6.57 billion annually.

The history of foreign shipping corporations within the Nigerian maritime sector dates back to the 19th Century when steam engine boats were in use to move people and loads of agricultural products such as cotton, timber and cocoa from Nigeria to other parts of the world.
In the late 1980s, the U.S. Congress moved to protect their domestic maritime industry by amending existing maritime laws (the Jones Act, 1920) to abolish unfriendly foreign competition in the U.S. maritime industry. This proposal was strategically embraced by Congress and subsequently increased the level of productivity, recognition and profitability of the U.S. maritime industry on a global scale.

The introduction of the Cabotage Act of 2003 within the Nigerian maritime sector aimed to preserve the Nigerian coastal shipping trade for local maritime companies. The primary goal of this Act was to reserve the commercial transportation of goods, products and service within Nigerian coastal and inland waterways to vessels flying Nigerian flag and owned by people with Nigerian citizenship.
In fact, the Cabotage Act and the Local Content Act were adopted by the Nigerian maritime industry to empower the indigenous shipping companies to increase their involvement in the exportation and transportation of crude oil and the importation of refined petroleum products for economic development.

However, the Nigerian cabotage regime is yet to produce an effective solution to the problems being faced by the maritime crude oil and gas transportation industry in Nigeria since the introduction of the Act in 2003. These problems can be related to the inadequate understanding of the basic requirements of the Cabotage Act by the regulators and the government’s lack of will power in implementing the regime. This has led to the annual loss of over $6 billion to foreign maritime operators due to the lack of indigenous participation.

Thus indigenous maritime operators have been unable to attain their full potential. A 2017 report by the National Bureau of Statistics/Nigerian Ports Authority (NPA) indicated that 19,833 vessels berthed at the various Nigerian ports between 2013 and 2016. Similarly, 544 million in tonnages was registered within the period under review. The report shows that 98 percent of freight was carried out by foreign shipping companies.

This confirms the outrageous involvement and participation of foreign shipping vessels within Nigerian territorial waters.

One of the most effective strategies for promoting and protecting the Nigerian maritime industry is to prohibit foreign vessels from participating in domestic coastal shipping. The government must implement and encourage a high level of maritime protectionism and consider the involvement of local shipping participants.

If the Cabotage Act of 2003 is effectively implemented within the maritime sector Nigeria would be able to maintain jobs and skills in an industry which will be of meaningful importance to the economy. This could make a significant contribution to the GDP of the nation and possibly make unemployment a thing of the past if it were effectively implemented.

Another workable strategy for the Nigerian maritime industry is to build an effective regulatory structure for the industry, beyond the simple issues of making a technical design for the most appropriate regulatory instruments. For instance, a constructive legal framework, which entails well-structured regulatory institutions and a proactive regulatory institution. In other words, having a well-structured implementation strategy in place will enhance the positive control of any regularity outcome within the maritime industry.

In conclusion, the key solutions to strengthening the Cabotage Act include the significant involvement of the Ship Owners Association of Nigeria (SOAN) in the official consultation process for granting waivers “Cabotage Vessels Finance Fund” to shipping firms, thus effecting the full implementation of the Cabotage Act within the maritime industry and resolving the Cabotage dispute between both the SOAN group and foreign shipping companies.

Dr. Akinseye Olatokunbo Aluko is Programme Leader in Oil and Gas Management at the University of East London.

Dr. Akinseye Olatokunbo Aluko is Programme Leader in Oil and Gas Management at the University of East London.

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