Continental Free Trade And Shipping In Nigeria: Ownership Or Flagging?

In March 2018, 44 African Union member states signed the African Continental Free Trade Agreement (“AfCFTA”). The Agreement established the Continental Free Trade Area which would formally exist once all documents are concluded and ratified by 22 states. The Agreement currently has 49 signatories out of the 55 member states. The Agreement seeks to enhance intra Africa trade and the free movement of goods and services within Africa. The Agreement is projected to increase intra-African trade by 52% (fifty-two percent) by 2022.

Nigeria is yet to sign the Agreement as consultations are still ongoing between the government and stakeholders in this regard. The Agreement contains a Trade Protocol which deals with import and export duties, liberalization of trade and trade remedies.

There are aspects of the Trade Protocol which impact directly on carriage of goods by sea and shipping and by extension the maritime industry in Nigeria. The Trade Protocol streamlines the requirements that qualify vessels to ply African waters which in turn highlights the intersect between indigenous tonnage and the benefits of intra African trade.

VESSLEL FLAGGING

Nigeria is heavily reliant on shipping for imports and statistics show that over 90 percent of goods imported into Nigeria are carried by sea. Carriage of goods by sea is indeed the most common route for imports into Nigeria and when regard is had to economies of scale it appears to be the most cost effective mode of transport. Even goods that are not landed directly at the Ports in Nigeria come from neighboring Ports like Cotonou port in Benin Republic.  Consequently, legislation and the supply chain in respect of Shipping has a substantial impact on Nigeria’s economy with regard to revenue and the market forces of demand and supply.

Most of the vessels that call at Nigerian Ports are owned by foreign entities. These vessels reflect the composition of the global merchant fleet which are owned by the shipping majors from Europe and Asia. Many of these vessels fly flags of convenience from other registries for commercial reasons and expediency.

Some of these vessels fly Nigerian flags or are bareboat chartered for cabotage operations in Nigeria. Ships registered under flags of convenience tend to tactically reduce operating costs or avoid the regulations obtainable in the owner's country. To do so, a vessel owner will find a nation with an open registry, or a nation that allows registration of vessels owned by foreign entities. A ship operates under the laws of its flag state, so vessel owners often register in other nations to take advantages of reduced regulation, lower administrative fees, and greater numbers of friendly ports.

The Nigerian Maritime Administration and Safety Agency (NIMASA) is the agency in charge of registration and flagging of Nigerian vessels.

The advantages of flying Nigeria’s flag include qualification to participate in supplying services for coastal and inland shipping (ie, cabotage trade) which is reserved for Nigerian-flagged ships which are built and crewed by Nigerians. Where a vessel is not built in Nigeria or crewed or managed by Nigerians, it may still qualify for cabotage ahead of other vessels if flying the Nigerian flag. Secondly, the vessel will acquire a high rating/classification to provide shipping services for specified contracts in the oil and gas industry under the Nigerian local content policy, which interestingly was designed to increase the capacity of Nigerians to participate in the oil and gas industry.

NIGERIA AND TONNAGE

In 2003 Nigeria enacted a Cabotage Act 2003, to restrict the use of Foreign Vessels in Domestic Coastal Trade, promote the development of Indigenous Tonnage and to establish a Cabotage Vessel Financing Fund. This Act was geared at shoring up indigenous tonnage to partake in coastal shipping. Although the Cabotage Act deals more with coastal shipping rather than merchant shipping outside Nigeria’s coastline the provisions of the Act included a Cabotage Vessel Financing Fund which was designed to enable Nigeria acquire indigenous tonnage. There is to be paid into the Fund a surcharge of 2 per centum of the contract sum performed by any vessel engaged in coastal trade:  This Fund is yet to be allocated to garner vessel financing. The net effect is that most vessels plying Nigerian waters are operating under the cabotage waiver system as bareboat charters involved in cabotage operations. These vessels are equally owned by foreign entities.

Why is the issue of vessel ownership a crucial issue with regards to the AfCFTA? The simple answer would be that there are economic benefits that accrue to ownership and that in itself is one of the key reasons why the AfCFTA was created. More so the benefits are regional and as such ought to be utilized by a specific demographic with a core emphasis on the movement of capital within the region.

It is important at this stage to draw the distinction between flagging and indigenous ownership. Even though a vessel may be Nigerian flagged it may very well not be indigenously owned by a Nigerian or be of   African ownership. The Nigerian flag may very well be a flag of convenience.

The issue of ownership in contradistinction to flagging becomes important under the AfCFTA because of the criterion for liberalization and incentives enumerated therein.