In the present era of globalization, the role of logistics efficiency system on economic growth and development has become increasingly noticeable in recent times due to its functions that revolve around the channel of production, by enabling the flow of goods, services, and values from the point of production to consumption.
Logistics system has been noted as a vital industry that can facilitate adequate growth and development in an emerging economy. It reflects the processes of the flow of information from the raw material (intended to turn into a consumable good)
Logistics sector plays a very cogent role in promoting economic growth and development of any nation. Its inefficiency could have a grievous impact on the growth of the economy.
In a study, conducted at the Department of Economics, Adekunle Ajasin University Akungba, which investigated the effect of logistics efficiency on economic growth in Nigeria from 1981-2018. 1% rise in airway output, logistic efficiency and trade openness made a significant, positive contributions of 0.69%, 9.13% and 1% increase in economic growth in Nigeria.
The same study revealed, however, revealed a negative significant effect between waterway output and economic growth in Nigeria which is attributed to piracy and underestimated of waterway output in Nigeria.
This made them conclude that logistic efficiency, airway output, and trade openness stimulate economic growth in Nigeria, while waterway output depresses it.
Why does the Nigerian Maritime Sector depress the economy?
The Maritime Transportation Industry in Nigeria is that which is undeniably important to the economic growth of the nation. Its role can affect the economy positively or can also be a setback to the economy. The history, growth, and progress of nations are closely interwoven with the degree of development of the maritime transport industry that can exist or is already in existence.
The Nigerian economy is classified as a mixed economy and the maritime industry in Nigeria is pivotal, considering the country’s status as a major oil-producing and exporting country. Maritime trade has played a key role in Nigeria’s economic development. It accounts for about 95% of the vehicular means of Nigeria’s International Trade.
At the economic level, an adequate and efficient maritime transport system plays a crucial role in the development of a country’s market especially the market of international trade by transforming local markets into national, regional, and international focus. This allows economies of great scale in areas that have promising comparative advantages with a concomitant generation of huge employment opportunities.
In 2018, the Nigerian Maritime Administration and Safety Agency (NIMASA). the primary regulatory body for maritime activities in Nigeria, analyzed the Country’s maritime endowment as comprising a coastline of over 850kms, an exclusive economic zone of over 200 nautical miles, a vast inland waterways resource estimated at nearly 4,000kms, capable of supporting a vibrant intra-regional trade.
Nigeria’s total annual freight cost which is estimated at between $5 billion and $6 billion annually, places shipping at the heart of the Country’s economic growth.
With the above analysis in mind, one would expect that the industry would be at the forefront of attracting potential investors while increasing the Country’s revenue by significant numbers.
However, this seems not to be the current position as the industry is still faced with a myriad of challenges, a few of which are:
1. Marine Infrastructure and maintenance deficit
In 2019, the Marine infrastructure deficit was identified as one of the major challenges faced by the Nigerian Maritime Industry, owing to the fact that its success is largely dependent on its infrastructural development which includes ports, terminals, and cargo handling equipment, most of which were built several years ago, and cannot presently handle all of the tonnes or capacity currently received on a daily basis.
One of the major causes of the infrastructural deficit is the unavailability of operational equipment, coupled with the failure of the industry’s management personnel to widen the country’s shipping business, which has ultimately culminated in the country’s revenue loss in the industry in the last few years.
Even in cases where these equipment are available, the required expertise to achieve a proper maintenance structure seems quite hard to find, as most persons involved in the chain of vessel acquisition and maintenance do not always possess the requisite expertise.
In a maritime survey conducted in 2019, it was discovered that most companies in the industry have no room for maintenance expenditure, as it is often considered a waste of resources.
Although there have been various reactions to this issue, most of which highlight this challenge, it is clear that this is a crucial aspect that must be addressed to secure the consistent growth that is required in the industry.
2. Loss of revenue owing to inefficiencies and sharp practices
In recent times, research has revealed that Nigeria is currently losing over 15 billion naira in revenue, with its percentage in ownership of vessels lower than the 8% contemplated in extant legislations, owing to the unpredictability in maritime operations, sharp practices, unanticipated delays in ports shipment etcetera.
More so, the collaboration amongst stakeholders, inclusive of regulators and operators alike, to curb or mitigate the existing efficiencies through the promotion of global best practices, and the use of innovative technologies seem to be slow-paced.
3. Lack of funding
The Maritime Industry is largely capital intensive and thus, requires a significant amount of funding as a lot of businesses thrive on the success of the industry, which is due to the high demand for shipping and trade level in the country. As such, a lack of funding would impede economic growth to a large extent, creating a lot of risks for foreign investments.
As earlier highlighted, the Nigerian Maritime Industry is capital intensive. Hence, it requires a significant amount of capital to keep it afloat. Undoubtedly, investment has been acknowledged as one of the most reliable methods for the expansion and sustenance of any industry, irrespective of size.
However, the level of investment is also dependent on an ascertainable valuation of risks as well as revenue generated. So, in a case where the risks weigh higher than the revenue, this poses a challenge as it reduces investment options.
Regulatory frameworks put in place to mitigate a few of the highlighted challenges
a. Nigerian Maritime Administration and Safety Agency (NIMASA) Act 2007: The NIMASA Act created NIMASA and charges it with promoting the development of shipping and regulating issues affecting Merchant ships and Seafarers in Nigeria. Other statutory tasks of NIMASA include but are not limited to, regulating shipping safety in terms of ship construction and navigation, and administering ship registration and licensing.
b. The Coastal and Inland Shipping (Cabotage) Act 2003: The Cabotage Act was enacted in response to a growing demand from Nigerian maritime enterprises for legal intervention, to encourage Nigerians in the participation of the country’s internal coastal trade.
The Act in a bid to encourage participation restricts the participation of foreign vessels in domestic coastal trade (including the carriage of goods and passengers in Nigerian seas), encourages the growth of indigenous tonnage, and creates a Cabotage vessel financing fund.
The Act specifically prohibits a vessel that is not wholly owned and manned by a Nigerian citizen, built and registered in Nigeria, from engaging in the domestic coastal carriage of cargo and passengers within the coastal territorial inland waters, or any point within Nigeria’s exclusive economic zone.
c. Nigerian Ports Authority (NPA) Act: The NPA Act empowers the NPA to maintain, improve and regulate the use of the ports; ensure the efficient management of port operations; provide and operate ports facilities; form and establish or incorporate subsidiaries or affiliate companies with other persons or organisations, for the purpose of carrying out any of its functions.
d. Merchant Shipping Act, 2007: This Act provides for Merchant shipping in Nigeria and allows only registered Nigerian ships to operate commercially to the exclusion of others, except for statutory exempted cases
e. The Finance Act 2021: This Act primarily regulates the taxation of companies, inclusive of companies involved in the maritime business. It is important because taxation policies play a huge role in attracting foreign direct investments.
In closing, the Grand Nigeria Business News recommends better policies be formulated to stimulate domestic and foreign investors in the logistics sector and put measurements in place in order to reduce piracy and underestimation of waterway output in Nigeria to the barest minimum level. This way, the Nigerian economiy can fully harness, optimally, the full potentials of its maritime sector.
