Why shipping investors shun Nigerian flag for vessels

The Liberian flag is the most sought after for shipping investors during vessel registration process in West Africa and is the second most popular flag flown by international cargo ships worldwide, generating a huge source of revenue for the country. In this report, TOLA ADENUBI examines why shipping investors shun the Nigerian flag. Excerpts.

Each merchant ship is required by international law to be registered in a registry created by a country, and a ship is subject to the laws of that country, which are used also if the ship is involved in a case under admiralty law. A ship owner may elect to register a ship in a foreign country which enables it to avoid the regulations of the owners’ country which may, for example, have stricter safety standards. They may also select a jurisdiction to reduce operating costs, avoiding higher taxes in the owners’ country and bypassing laws that protect the wages and working conditions of mariners.

According to the Nigeria’s Maritime Industry Forecast 2018 –2019 released by the Nigerian Maritime Administration and Safety Agency (NIMASA), the number of vessels acquired and registered under the Nigerian flag grew by 17.03 per cent in the last three years to 307 vessels, up from 262 vessels in 2015. These were vessels registered in Nigeria by NIMASA, the Federal Government agency saddled with the responsibility of shipping development, to operate under the provisions of the Coastal and Inland Shipping Act (Cabotage).

In 2016, the volume of Nigerian flagged vessel almost doubled as a total of 370 vessels with a total tonnage of almost 420,000 metric tons were recorded while in 2017, a total tonnage of 415,638.03 were registered as Nigerian flagged vessels under the Cabotage regime, the Nigerian Maritime Industry Forecast 2018 –2019 also added.

Despite these impressive indices, the nation’s share of national flag vessels remains a dismal 0.2 per cent of the world’s total fleet by flag registration, according to statistics from the United Nations Conference on Trade and Development (UNCTAD) Stats Data Centre. This is down to the fact that the 722 Nigerian flagged vessels with 4,526,000 deadweight are mere coastal vessels when compared to the 265 ocean going vessels with 6,485,000 deadweight registered under foreign flags by Nigerian vessel owners.

 

Issues with Nigerian flag

The immediate-past Secretary General of the Abuja Memorandum of Understanding (MoU) on Port State Control for West and Central African Region, Barr. (Mrs) Mfon Usoro, while speaking with the Nigerian Tribune exclusively, revealed that until Nigeria learnt to provide the enabling environment for investors, more Nigerians would continue to buy very big ocean going vessels and register them under foreign flags.

According to Usoro, “Statistics by NIMASA in the Nigerian Maritime Industry Forecast 2018-2019 showed that we have about 722 of 100 tonnages and above vessels registered under our flag. While we celebrate the fact that we are recognized by UNCTAD, if you look at the deadweight of the foreign registered vessels by Nigerians, you will realize that it is higher than the vessels currently flagged Nigeria. So, we have to address the issues that make Nigerians register their vessels in other nations’ flags.

“Yes, Nigeria has over 700 vessels registered under her flag, but these are small coastal vessels. We are talking of a situation where Nigerians acquire very large ocean going vessels and register them under the flags of other countries. These shouldn’t be so if the Federal Government had provided an enabling environment for ship investors. There is a need for the government to take a central position to prioritize maritime transportation in national economic development.

“Currently, our operating environment does not make it commercially wise for these set of wealthy Nigerians to register ships under our flag. For a business person, you will register your business where you think it will grow. An entrepreneur will domicile his business where he thinks it will be commercially profitable.

“Why can’t we make our Ship Registry to be a registry of choice for ship owners? Why can’t Nigeria, as a nation, provide those fiscal and non-tariff incentives that other countries provide to lure ship investors? It is not that some Nigerians don’t have money to buy ships. They buy ships but register them under the flags of other countries because we have failed to provide the necessary incentives to attract these investors.

“These sets of Nigerians are not looking up to the government to buy ships. They have the money to buy ships and have bought ships because they know that shipping is lucrative. However, these ocean going vessels are not registered under our flags despite the fact that the owners are Nigerians. These vessels are registered under foreign flags because we have not provided the enabling environment for shipping.

“Why do shipping investors rush to register their ships under the Liberian flag? Liberia is a West African country, and its ship registry is more attractive than ours because the country has provided those fiscal and non-tariff incentives to lure investors. Nigeria should follow suit and make her flag attractive to investors.

“How much of Nigeria’s import and export is carried onboard the over 700 vessels that carry the Nigerian flag? These are mere coastal vessels; we are talking of ocean going vessels to carry Nigerian import or export. As we talk about the African Continental Free Trade Area (AfCFTA), a reality check is the size of the Nigerian ships by flag registration.”

 

Attendant losses

On how the registration of ships by Nigerians under foreign flags affects the nation, the erstwhile Secretary General of the Abuja MoU on Port State Control for West and Central African Region stated that aside not creating employment for Nigerians, the registration of ships by Nigerians in other countries flags deprive the country of revenue in form of tax.

In her words, “With these scenarios playing out in shipping, what this means is that our Ship Registry won’t grow. We would have been ranked among the more serious maritime nations if we had just one of those ocean going vessels registered under our flag. What we have registered under our flags are mere coastal vessels, not ocean going vessels.

“Aside being a thing of national pride, if we have such ships registered under our flag, this will provide employment for Nigerians. Also, it will have a multiplier effect on our economy because these ships will pay tax to the Nigerian government. Imagine the huge employment opportunities that such an ocean going vessel will provide for Nigerians if she is registered in our flag?

”The incentives required to boost shipping won’t hamper the revenue generation of the country. Such incentives are still available in India, China, Japan and many other nations. These incentives have gone a long way to ensure the development of the fleet in these nations.”

 

Way forward

Usoro stressed that there is a need for Nigeria to have a plan to grow the national fleet, adding that the nation should aspire to reserve a percentage of wet and bulk cargoes for indigenous ship owners.

“Nigeria should have a target to carry a certain percentage of Africa’s trade and world trade in 10 years time. Nigerian flagged ships should constitute one per cent – two per cent or more of the global fleet and not a paltry 0.2 per cent as stated by UNCTAD statistics.

“In the Vision 2020 Economic Development Strategy, fiscal and tax incentives for several sectors in the Nigerian economy were captured. However, the maritime transport wasn’t captured in the plan, hence, no fiscal incentive or tax exemption was provided for shipping.

“Some of the incentives provided in the Vision 2020 framework include: zero import duty on commercial aircraft, zero import duties on equipment and machinery for agriculture, power and mineral mining, exemption of profit on agriculture and manufacturing, exemption of dividend from tax on agriculture and LNG, among others; only shipping was exempted. Nigerian ship-owners should enjoy zero import duties on ships to be registered in Nigeria. Ship parts should also enjoy zero duties,” Usoro stated.

She also argued that a holistic strategy would be needed to boost fleet expansion as Ministries, Departments and Agencies’ (MDAs) cargoes should prioritize indigenous shipping companies, especially for cargoes that require Central Bank of Nigeria (CBN) approval for forex.

Recall that NIMASA had recently set up a Ship Registry Committee under Emmanuel Ilori to reposition the nation’s ship registry outlook. The committee was saddled with the responsibility of ensuring that very large ship owning entities like the Nigeria Liquefied Natural Gas (NLNG) and others register most, if not all, their vessels under the Nigerian flag.

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