Nigeria: finance for ship purchases remains stalled.
The tradition in major maritime nations is for ship acquisition and fleet expansion to be funded by debt finance instead of equity capital or retained earnings. In Nigeria, debt finance has not been a significant aspect of banking portfolios. This situation may be attributable to the perception of shipping as a high-risk business, with volatile returns dependent on cyclical markets.
Against this background, the Federal Government of Nigeria has articulated the expansion of national tonnage in the National Shipping Policy Decree of 1987. With the deregulation of the financial sector, the domestic capital market should constitute the lender of first resort, while government agencies play a complementary role.
However, commercial lenders are unlikely to commit funds without adequate security provisions and government policies which make ship finance a more viable undertaking.
Consequently, when the Federal Government announced plans to establish a Maritime Bank, it reflected the growing consensus that some form of direct intervention is required in order to stimulate private ship ownership.
Although the 1987 Decree - which gives effect to the UN Conference on Trade & Development (Unctad) Code of Conduct for Liner Conferences - reserves for national carriers 40% of liner cargoes and at least 50% of non-liner and bulk cargoes, these carriage rights have remained largely symbolic.
In the absence of the requisite national tonnage, shipping lines which have been designated national carriers are obliged to charter foreign tonnage. Apart from the outflow of foreign-exchange earnings, which does nothing to ameliorate the nation's precarious balance-of-payments position, the opportunity to acquire maritime transport technology and to promote merchant seafaring is further diminished.
Unfortunately, details of the composition, structure, objectives and functions of the Maritime Bank remain the subject of speculation. The project seems to be stalled for now.
Similarly, the full modalities for the operation of the Ship Acquisition & Building Fund (SABF) authorised under the 1987 Decree have yet to be clarified. The SABF is under the administration of the National Maritime Authority (NMA), which is charged with the implementation of the 1987 Decree.
The SABF will presumably be funded primarily from the 3% freight charges collected by the NMA on all exports and imports.
Prospective shipowners contend that it is reasonable to expect that the Maritime Bank and the SABF will offer soft loans at subsidised interest rates. Outright grants would be incompatible with the exigencies of economic efficiency.
Owing to the limited capacity of local shipyards and to the dearth of indigenous shipowners, some loans will have to be disbursed to settle foreign-currency obligations. With the devaluation of the naira, acquisition costs denominated in naira will be substantial.
Therefore, the power to raise and borrow foreign currency will be pivotal to the operation of the Maritime Bank and the SABF.
It is also necessary to consider whether the Maritime Bank and the SABF should have diversified engagements or whether lending should focus on particular ship types or geographical markets. The Maritime Bank and the SABF may operate as primary lenders to participating financial institutions.
Alternatively, they may engage in direct lending. Where borrowings have not emanated from the Maritime Bank or the SABF, guarantees may be offered to other lenders as security for their ship-financing engagements. The maximum limits of these guarantees should be clearly defined, and the fixing of guarantee fees should be sufficiently flexible to reflect the credit status of the borrower.
With a view to export earnings and the diversification of the national revenue base, the Nigerian Export & Import Bank (Nexim) may also provide supplier credits to finance ship construction and repairs.
Nexim was established in 1991 to replace the Nigerian Export Credit Guarantee & Insurance Corporation. For local shipbuilders seeking expansion into foreign markets, Nexim offers a variety of finance and risk-bearing facilities.
Through the medium of participating financial institutions, export finance can be obtained on preferential terms compared to conventional bank finance.
The Foreign Input Facility (FIF) may be used to source foreign exchange for the importation of services, spare parts, raw materials and capital equipment required for ship construction and repairs. However, advances under the facility are repayable in foreign currency. With the Stock Facility (SF), stocking costs for the construction/repair cycle can be obtained in naira.
It is advisable that export finance by Nexim be supported by credit insurance to cover the risk of non-payment by the foreign buyer.
The cover is available upon the payment of premiums in respect of which the exporter is entitled to tax allowances. Nexim's export-credit insurance is not available for risks which can be insured or are normally insurable in the commercial insurance market.
But political and other-country risks such as price, exchange-rate and interest-rate fluctuations are insurable to a specified limit.
Additionally, Nexim is empowered to design and implement export-credit guarantee schemes for exporters in Nigeria. It can enter into guarantee agreements with third parties, or it can act as surety for persons or companies with which it has regular dealings.
One such guarantee scheme is the Mutual Export Guarantee Association (Mega). It involves infant exporters' contributing to a fund which can then be applied by Nexim as a counter-guarantee facility for guarantees it has provided on behalf of exporters.
So, there is some prospect that construction finance (supplier or buyer credit) and acquisition finance (secondhand tonnage and conversions) may yet show an upturn if the various policy initiatives attain fruition.
Clearly, the activities of Nexim, the Maritime Bank and the SABF will overlap. But the choice of financing facilities should be regarded as a welcome stimulus to a flagging shipping sector.
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|Title Annotation:||Country Briefings|
|Date:||Jan 1, 1994|
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