Effectiveness of Nigeria's Cabotage Laws
Nigeria, as a maritime nation blessed with vast inland waterways and a coastline, recognizes the importance of a robust domestic maritime sector and the regulation of access to its coastal waters. Similar to other nations, Nigeria has implemented a maritime cabotage regime to ensure the sustained viability of its coastal trade. The cabotage practice serves as a means of local content development in the maritime and shipping industry. Its major objective is to minimize unnecessary competition between foreign and domestic ships or ships registered within the country, thereby promoting the growth and development of inland shipping and reducing capital repatriation. Ultimately, this practice encourages economic growth and development. Enacting laws to regulate inland coastal shipping, including restrictions on foreign ship participation, becomes crucial due to the capital requirements involved. Without such restrictions, Nigerian ships and businesses would face significant challenges in competing with foreign ships owned by multinational corporations and wealthy nations.
The primary legal framework for regulating cabotage practice in Nigeria consists of the Nigerian Coastal and Inland Shipping (Cabotage) Act of 2003, the NIMASA Act, and the Merchant Shipping Act. The Cabotage Act aims to increase indigenous participation in the Nigerian maritime industry, promote technology transfer and skill development, create employment opportunities, and enhance national maritime security.
Despite the anticipated benefits, Nigeria's cabotage policy has faced challenges in delivering its intended outcomes even after decades of implementation. Several economic advantages can be realized through the proper implementation of cabotage laws in Nigeria, including triggering economic growth and development, generating job opportunities, fostering skill acquisition, increasing internal revenue generation, and developing the country's shipping capacity, which is vital for its future. However, the effective implementation of the cabotage policy and laws in Nigeria encounters inherent challenges. The provisions of the relevant laws and institutions have contributed to the lack of effectiveness in Nigeria's cabotage policy. Loopholes in the laws have allowed foreigners to dominate the coastal and inland shipping industry, undermining the intended objectives. Additionally, the institution responsible for enforcement, NIMASA, has shown limitations in fulfilling its responsibilities.
The current outlook of Nigeria's indigenous shipping industry appears discouraging, with the objectives of the cabotage law still far from realization. The challenges for effective implementation of the act are substantial but not insurmountable. These challenges manifest in various forms, such as the absence of a national fleet or carriers that could provide necessary training and sea-time experience for cadets, officers, and engineers, hindering the achievement of the Act's manpower development objective. Another obstacle to the effectiveness of the cabotage act is the scarcity of cabotage vessels compared to the available tonnage. Insufficient funds for acquiring new ships and marine equipment have been identified as reasons for this shortage. Existing literature points to multiple facets of these problems, often attributing them to certain provisions of the Act.
In this article, we delve into the challenges and opportunities presented by Nigeria's cabotage policy. By addressing the shortcomings and proposing feasible solutions, we aim to revitalize the implementation of the cabotage policy for the growth and development of Nigeria's maritime sector. Through a comprehensive analysis of the existing provisions, we seek to provide recommendations to strengthen the cabotage framework, overcome obstacles, and unlock the full potential of Nigeria's maritime industry.
The concept of cabotage can be defined as a practice employed by maritime nations to regulate and reserve the economic privilege of shipping for trade between ports, internal waters and along their coastlines. This practice allows only duly registered vessels, according to the laws of the host country, to engage in such coastal trade. It encompasses the limitation of trade to vessels flying the flag of the country and is often referred to as "coastal trade" or "coastwise shipping," involving the transportation of goods and passengers between ports within the same country.
Cabotage has been in existence for over centuries, and its purpose varies from country to country. However, it is primarily used as a means to shield the domestic shipping industry from foreign competition. The term "cabotage" derives from the French word "caboter," which means sailing coastwise or "by the capes," signifying coastal shipping. It is also associated with the Spanish root word "cabo" or "cab," which refers to maritime circulation along short coastal distances or coastal trade. In the Nigerian context, cabotage refers to the coastal shipping opportunities within Nigeria's maritime trade, aimed at empowering indigenous competencies and skills in the maritime industry.
The origins of cabotage have sparked debates among scholars. Some argue that the French were the first to implement cabotage in the 16th century, restricting goods transportation between French ports to their own ships. Others suggest that the Portuguese, not the French, were the pioneers of cabotage, implementing it to protect their domestic fleet. This uncertainty about the origin of cabotage reflects the long-standing practice among nations and the need to safeguard their coastlines.
Cabotage may also refer to the coastal shipping opportunities within a country's maritime trade. The profitability of this coastal maritime trade hinges on the implementation of cabotage laws. A sovereign state's maritime cabotage law can be expressed in a single legislation or several acts of parliament, national constitutions, shipping laws, and so on. In Nigeria, the Coastal and Inland Shipping (Cabotage) Act of 2003 serves as the operative cabotage law. Enacted in April 2004, it aims to reserve commercial transportation within Nigerian coastal and inland waters for vessels flying the Nigerian flag, owned and crewed by Nigerian citizens, and built in Nigeria.
The significance of the Nigerian Cabotage Law extends beyond the country's topographical nature, characterized by coastal and inland waterways. Nigeria, being heavily import-dependent, benefits from the market reservation provisions of the cabotage law, stimulating growth in coastal shipping business opportunities. This is particularly evident in the oil and gas sector, where offshore vessel supply and various shipping services between Nigerian coastwise and offshore locations are reserved exclusively for Nigerian operators.
The strictest cabotage policy globally is found in the United States, based on the Jones Act of 1920, which heavily favors Americans in coastal shipping. However, the type of cabotage law implemented by a maritime country depends on various factors. Sometimes, the type of law is shaped by the desire to balance the competing interests of foreign and domestic players in the maritime sector. Some countries may seek maritime services at the best market rates, while others prioritize protecting their indigenous shipping industry or positioning themselves as sovereign entities to provide maritime services above the global market rate.
Cabotage is not limited to maritime activities within a country's coastal and inland waters. It also extends to the exclusive reservation or restriction of foreign participation in the aviation, railway, and road transportation sectors, where citizens of the country are the sole participants.
According to Igbokwe (2003), there are two types of cabotage laws implemented by different countries. Which are the strict and relaxed cabotage laws. Strict or restricted maritime cabotage laws impose three key restrictions: participation in domestic shipping trade is exclusively reserved for vessels that are built, owned, and crewed by citizens of the country.?In contrast, relaxed or liberalized maritime cabotage laws allow varying degrees of foreign participation in vessel ownership, building, or the nationality of operators involved in domestic shipping. Due to limited indigenous capacity in Nigeria's maritime and shipping industry, the 2003 Cabotage Act adopted a liberal policy, incorporating an internationally recognized waiver system. These waivers, based on non-availability, reciprocity, or bilateral agreements, provide exceptions to strict adherence to the provisions of the Act.
In the following sections, we will delve deeper into the challenges and opportunities associated with Nigeria's cabotage policy, exploring ways to revitalize its implementation and unlock the full potential of the country's maritime industry. By addressing shortcomings and proposing feasible solutions, we aim to strengthen the cabotage framework, promote indigenous participation, and drive economic growth and development.
The legal framework for cabotage in Nigeria is primarily governed by the Nigerian Coastal and Inland Shipping (Cabotage) Act of 2003, the Merchant Shipping Act of 2007, and the Nigerian Maritime Administration and Safety Agency Act of 2007. These acts, along with other supporting legislation such as the Admiralty Jurisdiction Act, Admiralty Jurisdiction Procedure Rules, and Companies and Allied Matters Act, form the basis for regulating cabotage activities in the country.
The Nigerian cabotage laws serve as a comprehensive framework aimed at transforming the dominance of foreign entities in coastal trade to a balanced synergy between local and expatriate stakeholders, fostering a mutually beneficial global trade relationship. The Nigerian Parliament defines the Cabotage Act as a means to restrict foreign participation in coastwise trade, emphasizing the intention to eventually eliminate foreign involvement altogether.
Cabotage, as a legislative creation, aims to safeguard and promote maritime and aviation trade within a nation for the exclusive benefit of its citizens. The introduction of the Nigerian cabotage policy was a response to the calls from maritime practitioners and administrators, urging the government to establish an organic instrument that utilizes indigenous maritime skills and ensures that the sector's substantial profits benefit the citizens. This policy shift was necessary to address the previous dominance of non-Nigerians in both local and international maritime businesses. The cabotage policy seeks to promote the growth of the maritime trade industry by creating an interventionist mechanism that supports the development of indigenous capacity, enabling greater competition with foreign entities.
The Coastal and Inland Shipping (Cabotage) Act of 2003 encompasses various aspects of maritime activities within Nigeria's territorial waters. It covers the transportation of cargo and persons, including minerals, natural resources, and any commercial marine transportation or activity. The Act aims to limit the use of foreign vessels in coastal and inland trade, thereby promoting the growth of indigenous tonnage.
One of the key provisions of the Act is the exclusive reservation of economic activities carried out within Nigeria's coasts for its citizens. To participate in these activities, ships must be owned, built, crewed, and registered by Nigerians. Unfortunately, due to the lack of appropriate legislation, qualified Nigerian citizens have often been marginalized or excluded from participating in these businesses. This has allowed non-Nigerian players to benefit from these trades at the expense of qualified Nigerian citizens.
The Nigerian cabotage regime strives to promote indigenous shipping by restricting foreign vessels from engaging in domestic coastal trade. This was necessary to increase the participation of local shipping companies in the carriage of Nigeria's seaborne cargo, given the intense competition from heavily capitalized and experienced foreign shipping firms. The introduction of the cabotage law aimed to protect newly established indigenous companies with limited funding, ensuring they are not driven out of the market by foreign dominance, thereby fostering the development of the shipping sector. However, critics argue that the Act merely encourages development without actively initiating it.
Section 3 of the Cabotage Act outlines the exclusions for vessels that cannot participate in domestic carriage of cargo and passengers. These include vessels that are not wholly owned, manned, built, and registered in Nigeria. This provision grants Nigerians the exclusive right to engage in the country's coastal trade and inland waterway transport, promoting a fully indigenous shipping industry. The protection of national and economic interests, national security, and the demands of the citizens were contributing factors that led to the introduction of the cabotage policy. While a protectionist policy like cabotage has the potential to benefit economic growth and development, proper implementation and regular evaluation of the policy are essential to avoid unfavorable outcomes.
The Cabotage Act also includes provisions for waivers in sections 9-14. These provisions empower the Minister of Transport to grant waivers in certain cases, including the requirement for vessels to be wholly Nigerian owned, manned, or built. The granting of waivers is based on the assessment that there is no local capacity to meet the requirements outlined in Sections 3-6 of the Act, which are necessary for Nigerian participation in cabotage trade. The Act also establishes the Nigerian Maritime Administration and Safety Agency (NIMASA) as the agency responsible for monitoring, implementing, and enforcing the Cabotage Act. NIMASA is empowered to perform various functions, such as restricting the use of foreign vessels in domestic coastal trade, promoting the development of indigenous tonnage, establishing a Cabotage Vessel Financing Fund, and safeguarding national interests in the maritime sector.
Legal Framework for Cabotage Practice in Nigeria
The legal framework for cabotage in Nigeria is extensive, primarily dominated by the Nigerian Coastal and Inland Shipping (Cabotage) Act of 2003, the Merchant Shipping Act of 2007, and the Nigerian Maritime Administration and Safety Agency Act of 2007. These acts, along with other supporting legislation such as the Merchant Shipping Act, Admiralty Jurisdiction Act, Admiralty Jurisdiction Procedure Rules, and Companies and Allied Matters Act, play a crucial role in regulating cabotage activities. According to Inyang and Odey (2021), the major legal instruments governing cabotage in Nigeria encompass a range of laws, as long as they are not inconsistent with the Nigerian Coastal and Inland Shipping (Cabotage) Act of 2003.
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The Nigerian cabotage laws aim to transform the coastal trade landscape from foreign dominance to a balanced collaboration between local and expatriate stakeholders, fostering a mutually beneficial global trade relationship. The Nigerian Parliament defines the Cabotage Act as an act to restrict foreign participation in coast-wise trade. Although the laws currently aim to restrict foreign participation, the ultimate goal should be the complete abdication of foreign involvement.
Cabotage is a legislative creation that restricts or preserves maritime or aviation trade within a nation for the exclusive advantage of its nationals. The enactment of the Nigerian maritime cabotage policy by the federal government was a response to the demands of major maritime practitioners and administrators. These stakeholders urged the government to establish an organic instrument that harnesses indigenous maritime skills and ensures that the sector's substantial profits benefit the citizens. The timing was crucial to address the prevailing situation where both local and international maritime businesses in the country were predominantly controlled by non-Nigerians. The introduction of the cabotage policy aimed to stimulate the growth of maritime trade through an interventionist mechanism, promoting the development of indigenous capacity and enabling greater control over foreign competition and dominance.
As Nigeria's cabotage policy seeks to encourage indigenous participation in maritime trade, it is essential to understand its scope and objectives. The policy is designed to cover various aspects of maritime activities, including the transportation of cargo and passengers, mineral and natural resource shipments, and any other commercial marine transportation or activity within Nigeria's territorial waters. By limiting the employment of foreign vessels in coastal and inland trade, the policy aims to promote the growth of indigenous tonnage and empower local shipping companies.
One of the significant elements of the Cabotage Act is the reservation of economic programs within Nigeria's coasts exclusively for its citizens. To participate in these programs, ships must be owned, built, crewed, and registered by Nigerians. Unfortunately, due to the lack of appropriate legislation in the past, qualified Nigerian citizens have often been marginalized or excluded from these businesses. This has allowed non-Nigerian players to profit at the expense of qualified Nigerian citizens.
The Nigerian cabotage regime aims to promote indigenous shipping by restricting the participation of foreign vessels in domestic coastal trade. This step was necessary to increase the involvement of local shipping companies in carrying Nigeria's seaborne cargo. The intense competition from well-capitalized and experienced foreign shipping firms necessitated the introduction of the cabotage law. It aimed to protect newly established indigenous companies with limited funding, ensuring they could thrive in the market and contribute to the development of the shipping sector. However, it is important to note that critics argue that the Act primarily encourages development rather than actively initiating it.
Section 3 of the Cabotage Act outlines the specific exclusions for vessels that cannot participate in domestic cargo and passenger carriage. These exclusions include vessels covers vessels?wholly owned, manned, built, and registered in Nigeria. The section?grants Nigerians the exclusive right to engage in the country's coastal trade and inland waterway transport, thereby ensuring full indigenization of domestic shipping. The introduction of the cabotage policy was driven by the need to protect national and economic interests, address security concerns, and respond to the aspirations of Nigerian citizens.?
The Cabotage Act also provides for waivers under sections 9-14. These waivers are granted by the Minister of Transport in cases where certain requirements cannot be met by Nigeria shippers. Waivers include exemptions from the requirements for vessels to be wholly Nigerian owned, manned by Nigerian citizens, or built in Nigeria. The granting of waivers is based on the Minister's assessment of the lack of local capacity to fulfil the criteria outlined in Sections 3-6 of the Act. It is worth noting that the Act acknowledges the rights of foreign investors under the Nigerian Investment Promotion Commission Act and establishes a Special Register for Cabotage to accommodate foreign-owned vessels engaged in cabotage trade.
To monitor, implement, and enforce the Cabotage Act, several key pieces of legislation empower the Nigerian Maritime Administration and Safety Agency (NIMASA). These include the NIMASA Act of 2007, the Merchant Shipping Act of 2007, and the Cabotage Act of 2003. NIMASA is entrusted with various functions, including the restriction of foreign vessel use in domestic coastal trade, the promotion of indigenous tonnage development, the establishment of a Cabotage Vessel Financing Fund, and the reservation of coastal trade for vessels built, owned, registered, and manned by qualified Nigerian seafarers. NIMASA's role extends to stimulating the participation of Nigeria's indigenous shipping firms in coastal trade, encouraging the acquisition of shipping technology, enhancing environmental safety, protecting national interests, improving domestic waterborne transportation, increasing the national fleet, developing shipbuilding and repair capabilities, creating employment opportunities, conserving foreign exchange, and safeguarding the national economy and security.
By understanding the legal framework and objectives of the cabotage practice in Nigeria, stakeholders can work collaboratively to ensure its effective implementation and address any challenges that may arise. This comprehensive framework paves the way for the transformation of Nigeria's coastal trade sector, fostering a thriving maritime industry that benefits both local and global trade relationships.
Nigeria has enacted numerous laws to regulate various industries within the country. However, in many cases, these laws are implemented with little impact or effectiveness. The legal framework for cabotage practice in Nigeria suffers from a lack of implementation of its underlying policies, leading to limited progress. Despite the enactment of the Cabotage Act in 2003, foreign-owned and foreign-crewed vessels continue to dominate commercial operations in Nigeria's inland and coastal waters.
Nigerians are yet to see significant changes since the enactment of the Act or the implementation of the cabotage policy. Foreign operators still control the cabotage business. A close observance shows?that indigenous participation in coastal and inland shipping in Nigeria remains largely dominated by foreigners, despite the existence of laws regulating cabotage practice. One contributing factor to the lack of progress is the inclusion of waivers in the Cabotage Act, which shifts the responsibilities of indigenous vessel holders to foreigners. the ineffectiveness of the legal framework for regulating cabotage in Nigeria is also a challenge to cabotage. The lack of resources and financing among Nigerians hampers their ability to dominate the coastal and inland shipping businesses in Nigeria. Additionally, the inclusion of waivers and the simplistic conditions for obtaining them have allowed more foreign ships to engage in cabotage in Nigeria. Consequently, the responsibilities that should have been shouldered by indigenous vessels have been shifted to foreigners, rendering the Cabotage Act ineffective and defeating its intended purpose.
Another setback is the influence exerted by the International Association of Classification Societies (IACS), which controls a significant portion of the world's fleet. Vessels owned by IACS members can operate in Nigeria despite the Cabotage Act due to their strength, capacity, and influence. The IACS takes advantage of draft restrictions in Nigerian ports and refuses to classify indigenous vessels due to deficiencies in safety, insurance, and fire prevention measures caused by inadequate financing. These factors make it challenging for local vessels to compete with foreign ones, thereby undermining efforts to increase local participation in the industry.
Several challenges and problems impede the enforcement of the Cabotage Act. These include the exclusion of the Indigenous Shipowners Association of Nigeria (ISAN) from the ministerial consultation process for granting waivers, inadequate implementation and monitoring, inter-ministerial and inter-agency conflicts, high enforcement and monitoring costs, lack of political will, lack of confidence, the dichotomy between local and foreign operators, and the resolution of cabotage disputes through the court system.
Flaws in the cabotage regime also arise from the conditions prescribed for obtaining waivers, which are considered less challenging. The inclusion of waivers, combined with the ease at which they are granted, fosters unhealthy competition from strong foreign shipping companies, hindering the participation of less-experienced indigenous shipping companies and undermining the Act's purpose.
Furthermore, the provision of funds remains a major challenge for the successful implementation of the Cabotage Act, despite the availability of the Cabotage Vessel Finance and Funding (CVFF). Shipping requires significant capital investments that indigenous shippers may struggle to afford, preventing their access to funds for vessel acquisition and perpetuating foreign dominance. Over twenty years since the enactment of the Nigerian Cabotage Act, the cabotage trade is still dominated by foreigners, raising questions about the reasons for the policy's failure to deliver its intended objectives. These challenges may be attributed to certain provisions of the Nigerian cabotage policy, a lack of capacity to implement the policy effectively, or a combination of various factors.
The Nigerian economy, faces the challenge of being underdeveloped. However, the maritime industry holds significant potential for generating revenue and creating numerous opportunities, which can contribute to economic growth and development. The purpose of cabotage laws, similar to local content laws, is to ensure that Nigerians benefit from these opportunities instead of allowing them to be exploited by foreigners. This serves to restrict or reduce capital flight, as foreign entities repatriate funds back to their home countries. According to Babatunde (2019) cabotage, like other areas of the maritime industry, is typically reserved for citizens due to its economic and defence implications. The primary objective of the Cabotage Act is to empower Nigerians, particularly entrepreneurs and professionals engaged in maritime activities. He further suggests that utilizing the cabotage Act to stimulate economic growth and development through local content optimization, entrepreneurship, human capital development, and material resourcefulness can have a positive impact on?Nigeria.
Given Nigeria's heavy dependence on crude oil, there has been a national call for economic diversification. Coastal and inland shipping can contribute significantly to the revenue needed for government expenditures. Moreover, the domestic shipping industry offers substantial employment opportunities, potentially addressing Nigeria's unemployment challenges if the cabotage laws are effectively implemented. As highlighted by Babatunde (2019), the employment of Nigerian seafarers, shop operators, chandlers, and ship managers would increase, as domestic shipping would involve Nigerian-built, owned, crewed, and operated vessels. In the United States, for example, approximately 124,000 people are directly employed in jobs related to cabotage, including 20,000 workers in shipyards and 14,000 involved in fleet maintenance and repair. Building and maintaining modern coastal vessels for cargo and passenger transportation would necessitate employing more Nigerian seafarers, masters, engineers, managers, and additional workers to meet international standards for shipbuilding, repairs, and maintenance.
The implementation of the cabotage law and practice can also address Nigeria's balance of trade problems. By restricting coastal shipping to Nigerian-built and owned ships and encouraging local shipbuilding and maintenance in Nigerian shipyards and dry-docks, the country can conserve foreign exchange that would otherwise be spent on purchasing and repairing ships abroad. The payment for freight and insurance, which would have gone to foreigners, would be earned and retained by Nigerians, leading to an improvement in the country's balance of payments. Consequently, this would reduce, if not eliminate, capital flight and contribute to the conservation and generation of foreign exchange within the country.
However, realizing these economic impacts of the cabotage law and practice in Nigeria is only possible with optimal implementation of the regulatory laws governing cabotage. If the domestic shipping industry continues to be dominated by foreign vessels, the realization of economic growth and development will remain elusive. According to Ngar and Okon (2018), "In many countries where the Cabotage Act has been practiced, its main thrust has been the promotion of indigenous participation in the primary sector of the economy, adding value to the local economy, increasing local participation, and building local capacity. Thus, inadequate indigenous participation in maritime shipping services portends great danger to both the economy and security of the nation."
Throughout this article, we have analyzed the effectiveness of the legal framework governing cabotage practice in Nigeria for economic development. It has been established that the primary legislation regulating coastal and inland shipping in Nigeria is the Cabotage Act of 2003, as amended in 2007. Other laws, such as the Merchant Shipping Act 2007 and the Nigerian Maritime Administration and Security Agency Act 2007, also play a role in regulating cabotage practice. These laws aim to restrict coastal and inland shipping to Nigerian ships and citizens, thereby limiting the involvement of foreigners and unnecessary competition.
We have also observed that the revenue and opportunities within coastal and inland shipping have the potential to contribute to the economic growth and development of Nigeria. However, numerous challenges hinder the implementation of the cabotage policy, resulting in the dominance of foreign ships and companies in the industry. These challenges stem from both legal provisions and the weaknesses of NIMASA, the institution responsible for enforcing Nigerian maritime laws.
Nevertheless, it is important to note that while the challenges within the legal framework undermine the realization of the cabotage policy in Nigeria, they can be overcome. There is hope for the effective implementation of the cabotage policy. The amendment of relevant provisions, particularly those related to waivers, is crucial as the current waiver provision significantly undermines the effectiveness of the policy. Additionally, empowering Nigerians through the provision of adequate funds is necessary for them to fully leverage the opportunities offered by the cabotage laws. The existing fund established by the Cabotage Act is insufficient to empower Nigerians to participate in the capital-intensive shipping and maritime industry. Moreover, it is recommended that NIMASA be granted increased financial resources and manpower to ensure the effective implementation of the cabotage laws in Nigeria.
By addressing these challenges and implementing necessary reforms, Nigeria can unlock the full potential of the cabotage policy. This would not only lead to economic growth and development but also strengthen the country's maritime industry, bolster indigenous participation, and enhance national security.