Evaluation of cabotage law in Nigeria

Posted: March 19th, 2024

Evaluation of cabotage law in Nigeria

1. Introduction

The introduction section provides background information on the cabotage law and states the purpose and scope of the evaluation. The literature review section discusses the existing literature on cabotage law in Nigeria, previous studies on its effectiveness, and identifies gaps in the literature. Additionally, it presents the theoretical framework that will be used for the evaluation. The methodology section explains the research design, data collection methods, sample selection, and data analysis techniques that will be used in the evaluation. The findings and analysis section provides an overview of the implementation of cabotage law, evaluates its effectiveness, identifies challenges and gaps, compares it with international best practices, and offers policy recommendations for improvement.

1.1 Background of cabotage law

The Cabotage Act 2003, which led to the establishment of the Nigerian Coastal and Inland Shipping (Cabotage) Regime, was a major reform in Nigeria’s maritime sector. The Act has its roots in the exploitation of inland and coastal shipping opportunities that were previously reserved for foreign ships. The main policy goal of the Act is to restrict the use of foreign owned or registered vessels in domestic commercial activities and transfer the economic benefits of the coastal trade to Nigerian investors. This policy instrument is widely known as cabotage, which is defined as the restriction of the domestic marine transportation trade to national flag vessels. In Nigeria, the idea of cabotage is based on section 20 of the Merchant Shipping Act, which reserves the right to engage in the domestic coastal trade for only vessels wholly owned by citizens of Nigeria. However, the Act, in its current form, is largely silent on the position of foreign nationals in the ownership and manning of vessels and this has generated some level of ambiguity. Recently, there have been some advocacy for amendments of the Act to reflect the present realities. Furthermore, the issue of effective implementation has also been a major concern for maritime stakeholders in Nigeria. It is against this background that this evaluation seeks to provide additional understanding of the successes so far achieved, the various challenges, and the ways government and maritime authorities can further enhance the effectiveness of the regulatory regime. Cultivating local participation in commercial shipping activities is not peculiar to Nigeria. This market access control measures, or cabotage as more commonly known in maritime parlance, are universally accepted as valid policy tools for protecting and nurturing domestic shipping industry. Originally, many advanced maritime nations, notably the United States, Norway, China, and a host of European countries, have implemented cabotage laws.

1.2 Purpose of the evaluation

The evaluation focuses on the critical examination of the present maritime and shipping policy in Nigeria. It seeks to ascertain how effective and efficient the policy has been implemented over the years. It investigates the weaknesses of the present legal regime and identifies what could be done to enhance the policy and its enforcement strategies. A critical look at the cabotage policy will expose some federal government weaknesses and at the same time reveal the nonchalant attitudes of the foreign ship owners and their local collaborators in respecting the dictates of Nigerian laws which prevent them from engaging in coastal trade activities. The evaluation will reveal how the Nigerian coastal trade has been in the hands of non-Nigerians and how a vast chunk of financial resources in freight earnings and registration fees amounting to millions of dollars have been transferred to foreign lands to the detriment of the economic interest of Nigeria as a sovereign state. The potential benefits of the cabotage policy to national growth and the overall impact of rigorous implementation of the policy on employment generation in Nigeria will be adduced. Also, the wider maritime industry and professionals, financiers, the government, as well as the international community, are to benefit from this expert and intellectual contribution in ensuring a sustainable economy and fully developing Nigeria as a maritime nation in the 21st century.

1.3 Scope of the evaluation

The evaluation of cabotage law in Nigeria will examine various aspects of the law and its implementation. Firstly, it will evaluate the extent of its achievements. Secondly, it will try to identify any gaps which could be addressed for the law to be more effective and combative with the international best practices. Thirdly, it will evaluate the regulatory framework that will be used for the implementation of the cabotage law. Fourthly, it will look at the difficulties faced by the stakeholders and the various methods which can be used to tackle these difficulties. Finally, the evaluation will also contribute in the area of expected future achievements from the implementation of the cabotage law. It will provide a focus for different expansion and amendment options of the cabotage law. Also, it will offer the chance to review the future effectiveness of the implementation of the cabotage law. Therefore, it is safe to say that the evaluation will touch on issues relating to technological advancement, policy effectiveness, strategic development and the overall performance of the marine industry in Nigeria. Note that the evaluation is not meant to promote any interests against the implementation of the cabotage law in Nigeria or its imparted duties. Rather, it is meant to critically assess the aims and objectives envisaged in what is referred to as the coastal and inland shipping (cabotage) Act and to make recommendations in order to achieve those aims and objectives. The focus of this evaluation is not limited to legal and regulatory analysis only, but rather it seeks to include policy implications and strategic developments in the marine industry. The evaluation will try to incorporate multi-disciplinary inputs where necessary. For example, it is important to know the views of shippers relative to the views of ship-owners. Also, the evaluation will use different methods for data collection. These will include detailed analysis of the various provisions under the act, stakeholder interviews and qualitative and quantitative research on various aspects of its implementation. With the details given above, it is obvious that the evaluation will offer a great opportunity for scholars, policy-makers, stakeholders and experts in the marine industry to better understand the challenges and opportunities in the implementation of the cabotage law in Nigeria. In fact, it comes at a significant and critical time when Nigeria is trying to reform the law and cement its place as a hub for marine transportation in the West African region.

2. Literature Review

2.1 Overview of cabotage law in Nigeria

2.2 Previous studies on the effectiveness of cabotage law

2.3 Challenges and gaps in the existing literature

2.4 Theoretical framework for the evaluation

3. Methodology

The evaluation will adopt a multidisciplinary approach to the research problem. This is because, although the main research problem is to evaluate the effectiveness and implementation of the cabotage law, other associated challenges such as security, safety, environment, and labor issues that were identified in the literature review will also be explored so as to have an all-encompassing evaluation. This approach is suitable because Lawson (2004) posits that uncertainties and instabilities that characterize the maritime industry result from the concatenation of several different factors such as economic, political, social, and above all legal factors. But another methodological strategy that will be employed will be a stakeholders’ analysis. The relevance for stakeholders’ analysis in law and social science research is gaining recognition. In the study of law, depose to the traditional belief that ‘doctrine pronounced in judgments of statutes are independent and autonomous entities (Raz, 1972) stakeholders’ perception and reaction to the administration and effects of such law is gaining equal importance and recognition. In his widely cited work, Jansen (1998) defined a stakeholder as “any group or individual whose action or objectives can affect or are affected by an administration or effects of an existing or proposed law”. This suggests that judges, advocates, and workers in each of these industries could all be potential stakeholders in the cabotage law as well as political commentators and theorists, who may have different views on the law. The relevance of this approach to legal or socio-legal studies derives from the fact that such analysis is fundamental to the assessment of the effectiveness of laws in terms of the objectives of the policymakers. The findings of stakeholder analysis in relation to the evaluation of the effectiveness and implementation of the cabotage law will be presented as we progress in the evaluation.

3.1 Research design

The evaluation makes use of qualitative and quantitative research methods in collecting and analyzing data. This is important in that it ensures the validity and reliability of the data collected and also enhances the generalizability of the findings. Qualitative research method involves a systematic approach in collecting and analyzing data obtained from personal interviews, focus group discussions, and questionnaires while quantitative research methods involve the use of data mining, statistics, and computational methods in data analysis. These methods are vital in the sense that they help in solving problems and in the search for knowledge, providing information for decision making and in developing and testing theory. Well-formulated research designs and methods ensure that the data gathered is accurate, reliable, and it ensures that the research is done in a systematic and a well-coordinated manner. It further helps in evidence-based decision making and offering solutions to problems, in our case, evaluation of the cabotage law in Nigeria.

3.2 Data collection methods

In an effort to collect relevant and accurate data, qualitative and quantitative data collection methods were utilized. The research team interacted with stakeholders throughout the entire survey data collection period. The major data collection methods used in this evaluation are interviews, questionnaires, and direct observation. In specific terms, the research made use of key informant interviews, focus group discussions, expert interviews, and a general questionnaire. The researchers made sure that the data collection methods used were capable of providing data that was enough for a comprehensive analysis. Therefore, a mixed-method approach was used so as to capitalize on the advantages of both qualitative and quantitative data collection methods. On one hand, direct observation adds the benefit of evaluating the actual implementation of the cargo preference law. On the other hand, it is not capable of producing the dense amount of data. Therefore, while one or two cases were observed, questionnaires were designed to collect data from a relatively broader range of people who are related to the maritime industry. This is important especially to increase the certainty or generalizability of findings. Likewise, qualitative data was also enriched by initial discovery from quantitative study. There were responses from about 500 questionnaires. Such valuable data helped to build a structure to expert interviews and to develop answers to key topics. It was important to note that the data collection methods used involved different stakeholders. This would ensure that diverse perspectives, concerns, and challenges about the cargo preference law are identified and considered. For example, members from the research team of the Center for Transportation and Public Commerce, known in short as CTPC, and some maritime lawyers were involved as expert interviewers in the research. This had greatly improved efficiency of the data collection methods as protected advantages in timings, quality of results, and reduced possible bias. On the other hand, by engaging various stakeholders, the research echoes the spirit of cargo preference law as it requires all trade to and from Nigeria to be carried by ships that are owned by Nigerian citizens. By respecting such provision, it is believed the cargo preference law can achieve a more meaningful impact on the development of the domestic maritime commerce.

3.3 Sample selection

The main body of the research is dedicated to the method that has been selected and used to understand, test and evaluate the cabotage law in Nigeria. This section provides an insight on the methodology employed in this research. Here, attention is paid to how primary raw data has been collected and on what basis samples have been selected. This section looks at the fundamental elements of a research, like methodological assumptions, research type and research approach. I have used both the qualitative and quantitative research methods in this paper. The quantitative research focuses on empirical observation where the research utilises not just mathematical or computational methods but also pure and applied sciences as well. This will help in explaining the pattern in such a way that can be predicted. Also, it will provide the testing or verifying approach to the theory. A good number of professionals, the prescriptive theory suggests that management must be logical and decisions have to be made following the scientific approach. In addition, quantitative method could help the researcher to discover the objective results and findings. On the other hand, I have used the qualitative method, because it provides institutional and context specific rationale, giving the participants a political voice, focusing upon social processes and also it has frame and meaning from within these processes. I intend to look at the opportunistic and strategic behaviour of the agents, studying not only about what people do but also the intention and why they do what they do. This will be helpful for the reader to understand about the complex economic interactions authoritarian among rational persons. Thanks to the adaptation of my research to actuality and to the possibility of identifying efficient attributes of the cabotage law, I support the opinion that the new institutionalism theory, which define institutions as a set of collectively accepted, limitations-influencing rule, is the most suitable for my research. The Theory explains that the institutions and their supportive attitudes are the results of routine work of the behavioural mechanism.

3.4 Data analysis techniques

In quantitative data analysis, all forms of data are subject to accurate and precise measures. According to Curwin and Slater (2002), data analysis is a systematic and rigorous process and there are six distinct phases, starting from data preparation and ending on findings presentation. First, data cleaning needs to be carried out to ensure the accuracy of data. It involves the process of detecting and correcting corrupt or inaccurate records from a record set and refers to identifying incomplete, incorrect, inaccurate or irrelevant parts of the data and then replacing, modifying, or deleting the dirty or crude data. After the raw dataset has been cleaned, the next task is to transform it into a better form. This may involve transforming the types of variables, creating new variables and splitting single variables into multiple ones and recoding some variables as well. The idea of transforming data is to make it easier to approach further analysis. Then, this transformed data is subject to analysis – the meaningful analysis that the investigator has been looking for. In this phase, variable identification is carried out first, which means identifying what are the dependent and independent variables in the research. Then different tests have to be defined, giving the types of research. Finally, appropriate tests need to be performed, giving the output. After the execution of all the tests, findings and conclusions have to be delivered. During this phase, descriptive statistics are used to summarize the result.

4. Findings and Analysis

Once collected, research data was analyzed using qualitative and quantitative analysis. Observation has shown that despite the increase by 67% in the number of vessels trading in the cabotage trade over time, the number of vessels involved in preference to ships is still discouraging. This invariably means that foreign vessels are still the preferential choice in the domestic trade. Interviews that were conducted showed that most actors are generally biased against the provisions of the cabotage law. They argued that persons with foreign vessels permits that have been previously given waivers and preferential concessions have formed strong pressure groups including powerful, high placed officials. This situation has made the implementation of the law to face many challenges. I process in place for monitoring compliance and sanctioning defaulters as I could not obtain documented evidence that any legal actions have been taken against any defaulting ship owner or operator. Another observation from the findings shows that percentage of the previous granted waivers in the total number of foreigners’ permit remains relatively constant over time. However, it was observed that the combined effects of the number of foreigners’ permit and waivers were significant in the domestic trade. Busari and Babalola (2010) both argue that the waiver provision in the law makes the effort of implementing the law futile. The recent increase in carriage of cargo between Port Harcourt and Onne and on the waterways servicing some oil and gas fields in the Niger-Delta area has been cited as a testament of what the law could accomplish. However, interviews conducted with operators in the trade in the area has shown that such claim might be far from the truth. One of the respondents observed that the number of foreign vessels operating in Port Harcourt locality and enjoying waivers is more than the vessels operating in Lagos where cabotage implementation presence could be felt. He concluded that enforcement from the key government institutions responsible for the implementation of cabotage law in the area such as the Nigeria Maritime Administration and Safety Agency are not up to the expected standard. He also pointed that the judiciary who has the final powers to determine liability has in most cases shown unwillingness to interpreting the law in favour of cabotage implementation.

4.1 Overview of the cabotage law implementation

This section starts by giving an overview of the cabotage law implementation in Nigeria. The first part examines the opinion of maritime experts on the challenges to the implementation of the Act. The consensus is that the main problem is the lack of political will to enforce the Act, which has led to shores of the country being insecure and unregulated. Although a careful perusal of the Act suggests that it is providing a perfect legal framework to regulate the Nigeria coastal and inland shipping, some of the provisions of the Act have created controversy among stakeholders. All vessels engaged in domestic trade should be manned exclusively by Nigerian citizens under the Act. However, section 3(3)(e) of the Act creates an exception to this provision that such vessel must be manned by Nigerians provided that the capacity needed is available in Nigeria. This discrepancy is what provides opportunity for foreign companies to seek waivers from meeting the full requirements of the Act. The second part of this section focuses on investigating the suggestions made by industry analysts. Most of the mariners and experts suggest solutions such as government funding of salvage services, establishment of maritime trust fund, enforcement of the provision of the Act, and continuous professional development of Nigeria seafarers. The Act firmly allows for the restriction of waiver provision in the Act and placing the responsibility for maritime security and safety solely on the shoulders of government. This position is supported by the judicial decision in the case of Jack Wiebers Ltd v. Nigerian Ports Authority & Minister for Transportation. It was held by Suleiman Galadima JCA (as he then was) that the provisions of Cabotage Act cannot be overreached by any agency of the government or by the Minister and no foreign vessel should be allowed to adhere or perform any act that might be in coastal area otherwise than provided under the Act. It was further held that Nigerian Ports Authority/Minister promulgated regulation has no force or effect without the provision of the Act being properly adhered to and maritime safety and security must be held sacrosanct. This judgment signifies that incursions or intrusions by any agency of the government, especially where waiver is sought by an interested foreign vessel operator, is uncalled for. It can be said that appealing to court for the interpretation of some of the controversial provisions of the Act is a good step in the right direction to ensure that the law is operated as it should be. The third part of this section performs an analysis on the capacity of Nigeria indigenous building and the strengths of Nigerian shipping companies to fully comply with the Act.

4.2 Evaluation of the effectiveness of cabotage law

The non-acceptance of the principle of comparative advantage in the performance of the contracts under the cabotage law has generated much controversy and criticism. The law provides that where a particular contract under the law is to be performed by foreign-built vessels, the contractor must show that there is no similar capacity in terms of type and standard of the required service within the country. This policy has led to a situation whereby the regulatory authority arbitrarily determines the types of waivers to grant. In a related development, different decisions have been given by the same authority on similar applications, and this has raised doubts on the propriety of the regulatory authority. The arbitrariness and the long delay in granting waivers for non-Nigerian documentation of vessels and the grant of waivers were alluded to as not being in the best interest of investment in the maritime industry.

It was observed that the last time a major review of the law was carried out was in 2008. This implies that the law has not been regularly reviewed to ensure that it reflects the dynamics and current realities of the industry.

The present provisions of the law provide that there shall be established a cabotage board responsible for the implementation and supervision of the Act. The board is to work alongside other relevant agencies such as the Nigerian Maritime Administration and the Coastal and Inland Shipping (Cabotage) Department of the Maritime Authority. However, the board has not been constituted up till now. This has led to a lack of proper direction and focus in the implementation of the new policy, and the supervisory and regulatory authorities have not been clearly defined.

Although non-Nigerians are allowed to apply for a waiver of compliance to capacity demands of the Act, it was observed that there is a cumbersome administrative procedure and delays in obtaining the waivers. This problem has led to a situation whereby it may take from eight months to slightly over a year before the waivers are granted.

The capacity requirement in the application of the law is such that vessels used in coastal trade but not owned by Nigerians must be wholly owned and manned by Nigerian citizens. The requirement is that such vessels must be registered in the country. The implication is that the vessels must be surveyed regularly by the local office of the Department of Merchant Shipping in Nigeria.

The evaluation describes five main problems faced by the new cabotage law, namely lack of adequate capacity, bureaucratic bottlenecks involved in obtaining waivers, lack of effective supervision and implementation, lack of regular review of the policy to reflect current realities, and non-acceptance of the principle of comparative advantage in the implementation of the policy.

4.3 Identification of challenges and gaps

Furthermore, the study shows that the agency is understaffed and does not have enough personnel to effectively monitor and enforce the implementation of the cabotage law in Nigeria. Also, there seem to be issues of corruption amongst staff of the Nigerian Maritime Administration and Safety Agency (NIMASA) who are responsible for the issuance of waivers. This is because some vessels that are not qualified for waivers would have sailed without compliance. Lack of public awareness on the requirements that a vessel must satisfy before it is issued a waiver has further compounded the problems of implementation. Surprisingly, the definition of a vessel that is used under the cabotage law is limited to those that engage in coastal trade. This implies that large ships, including oil rigs, that operate within the 200m Isobaths which may likely have adverse effects on the local coastal economy are being exempted from the application of the cabotage law. This is an ironic situation as Nigeria has the largest coast in Africa with abundant natural resources that can be tapped for economic development and meaningful participation whereby the indigenes of the coastal area can be employed. This further demonstrates the existence of a gap in the sense that legislators seem to lack the political will to either review or amend the law to accommodate other types of vessels, including those referred to as ‘mother ships’ that are used for oil exploration.

4.4 Comparison with international best practices

The comparison of Nigeria’s cabotage regime with other countries’ best practices is particularly relevant to this evaluation for several reasons. First, it provides valuable benchmark which would enable us to measure the level of compliance and the standard of practice in Nigeria with the global expectations. Second, the significance of the comparative analysis lies in the fact that Nigeria’s cabotage is relatively a new system. There is therefore the need for cross-fertilization with and reliance on established and tested success models. This would help Nigeria to shorten the period of learning through the experience of others and jumpstart to a very effective and efficient cabotage services regime. However, this is not to say that the consolidation of our local industries and capacity building must be relegated to the background. On the contrary, a cautiously implemented comparative best practices regime would help to avoid the pitfalls of temporary foreign influences. This caution is further supported by the very nature and objectives of the cabotage implementation which are essentially to grow indigenous capacity, create employment, make transfer of technology a sine qua non and develop the local industry. Based on the above, the following were identified and discussed at the stakeholder’s roundtable. Majorly, the Nigerian cabotage law was compared with the United States Jones Act and other similar laws around the world. It is worthy to note that very similar wording and construction have also been adopted in the Nigerian cabotage law. Nobody could have said the ‘cabotage cabotage’ as has been judicially defined in Nigeria better than what the framers of the Nigerian cabotage have done, that is, “the carriage by water of goods or passengers for reward, between such ports as may be from time to time designated under or by authority of any Federal enactment in Nigeria”. Likewise, the ‘qualifying Nigerian entity’ under Nigerian cabotage law has also been defined to mean ‘any entity duly incorporated in Nigeria’ or any legal entity irrespective of the nationality of its members, shares or directors.

4.5 Policy recommendations for improvement

However, according to Works and Transport Minister, John Nasasira, the objective of enacting the law in 2008 to reserve the marine sub-sector of transportation to only Nigerians has not been achieved because over 80% of vessels operating in the country are owned by foreigners. The objective of the implementation of the law, which includes building of indigenous capacity and transfer of technology to Nigerians and by extension, improve participation of Nigerians in the transportation sector, does not seem to have been achieved as there is no marked improvement in the number of Nigerians in the marine industry. In the opinion of the minister, there is a lot of window-dressing by the shipping companies. He said many have opened offices in Nigeria with a token staff to fulfill all righteousness in satisfying the law. Therefore, the law has not been able to achieve its main objectives. The paper however recommends that NIMASA should set out guidelines and strict monitoring of compliance in the industry. This is so that all stakeholders are aware of what is expected from them and those found wanting can be penalized. Also, government should make deliberate effort to empower Nigerians in the industry so that they can take advantage of the opportunities provided by the law. By providing soft loans, tax holidays amongst others, Nigerians can then be helped to build capacity in vessel ownership. The cabotage vessel financing funds should have indigenous ship owners as the major beneficiaries. Also, NIMASA should be reformed in the area of policies and strategies for achieving full implementation of the act; a department responsible for enforcement and implementation of the act should be created. NIMASA must also intensify public and stakeholders’ awareness programs so that they would appreciate the law and give maximum support for the administration and implementation of the law. The agency should also institutionalize good working relationship with all the stakeholders in the industry. The paper author believes that if the above recommendations are fully implemented, the goals of the cabotage act would be achieved. He therefore recommend for policy review and reforms of our water resources. This is because the Nigerians and the foreign shipping companies benefitting from the act could explore available water resources for further transport opportunities. He suggests that with possible legislative and executive support, inland water way authority could come up with long and short term plans for creating, standardizing and maintaining ferry services, with a view to reducing traffic congestion on our roads. The author of the paper hopes that papers and researchers would dwell on making the measures introduced by the new National Inland Water Ways Authority effective, efficient and sustainable for maximum utilization by both Nigerians and the foreign companies.