Contributions Of Shipping Industry To The Development Of Nigerian Economy

Introduction

1.1 Background of the Study

Shipping has for a long time been recognized as one of the strong catalysts for socioeconomic development. Smith (1776) noted that a business working in a country town without links to the outside world can never achieve high levels of efficiency because its small market will limit the degree of specialization. Because shipping is one of the cheapest and efficient modes of transportation over long distances, it has since the ancient times been at the forefront of opening up the world for trade, and has become a major driver of the process of globalization. Trade has a quantitatively large, significant, and robust positive effect on income (Frankel, 1999). The recent trade liberalization has reduced tariff and nontariff barriers, the effect being an increase in the relative importance of transport cost as a determinant of trade (Amjadi, 1995). Clearly, the reduction in artificial barriers has created a situation where the effective protection provided by transport cost has gone higher than one provided by tariffs (Clark et al, 2004). Increased transport cost causes the price of intermediate and capital goods to rise resulting in an increase in the cost of domestic production and decrease in exports and trade. There is empirical evidence that suggests that doubling transport cost could lead to a drop in trade by 80% or more (Limao, 2001). Higher transport cost leads to lower levels of foreign investment, reduced access to technology and knowledge, lower savings ratio, decline in exports, and a decline in employment. The doubling of transport cost causes a drop in the rate of economic growth of more than half per percentage point (Radelet, 1998). The impact of transport cost on economic growth is increasing and varying across regions (Sanchez et al., 2003). Limao (2001) found that raising transport cost by10 percent reduces trade volumes by more than 20 percent and that poor infrastructure accounts for more than 40% of predicted transport costs. Radelet (1998) also observed that shipping costs reduce the rate of growth of both manufactured exports and GDP per capita. A seaport which is the most significant node in sea transport is responsible for a major proportion of transportation cost. It should be operated with high efficiency to reduce transport cost and boost the economy.

Theoretical approaches about the relationship of seaport developmental investments on the economic growth of the island regions can be attributed to modified neoclassical growth theory referred to as the theory of endogenous development (Grossman &Helpman, 1991). Sjafrizal (2008) considers that the amount of output (goods and services) which is produced by an economic activity is determined by the availability and quantity of production factors used. In addition, he found a positive correlation between marine transportation infrastructure and economic growth of archipelagic regions. Hence, the causative relationship between the development of the seaport and economic growth was established. The coherence of the physical structure of transportation and the physical structure of economy is needed, and the parameters should be in synergy. If the economic growth of a region is not supported by the transportation infrastructure, the GDP of the region will experience a decline. The growth of GDP could be either positive or negative, depending on the throughput volume of goods in the region. The throughput volume of goods depends on the vessel holds capacity or dead weight tonnage (DWT) and the visiting frequency of ships (Call). The ship DWT affects the overall length of the ship (LOA), where the LOA affects the length of the berth (LB).

Transportation networks have a positive causal effect on per capita growth rate across all sectors (Banerjee, 2009). Likewise, Essoh (2013), in his research concluded that the port activities resulted in an increase in fiscal revenue and accelerated economic growth. The achievement of certain economic levels is believed to encourage the development of the transportation system (Pangihutan, 2008). Overtime, the maritime industry has substantially changed from an industry that was always international in its character to a truly global entity with routes that span across hemispheres, transporting raw materials, spare parts and finished goods. Maritime transportation plays a major role in the national and international trade and economic growth. The seaborne trade represents over 90% of the international trade in the world.

Port operations such as scheduling of arriving vessels, allocation of wharf space and cranes to serve the vessels, loading and unloading of cargoes, yard operation and gate operations are enhanced through the provision and availability of efficient port infrastructure. Hence, efficient port infrastructure and operations is reflected in the volume of cargo and revenue generated by the port, which acts as a boost to the economy.

Port operations is very vital to Nigerian economy. Data obtained from port operations data can indicate if a port is efficient or not. The number of vessels that called at the port in 2016 had a decline of 2.72% when compared to the previous year. Also comparing the operations data to that of the neighbouring ports shows that the performances of the neigbouring ports are more robust. Hence, Nigerian port operations need to be reviewed to enable the ports to improve their competitive position in the regional and global market. Port congestions, high container dwell time, high turnaround time of vessels and trucks, inadequate of port facilities such as berths, etc have tremendously negated the operational performance of Apapa port of Lagos. These drawbacks in port activities have made Apapa port operationally inefficient leading to increases in demurrage charges and operating cost of vessels. The implied economic implication of the aforementioned inefficiencies is that most shippers will prefer to call at other ports with less congestion, better port facilities and sophisticated cargo handling equipment. The economy is also experiencing increases in the prices of consumable goods, cut-off-flow during operations by the production companies, decrease in per capital income of port employees and general decreases in the revenue accruable to the port.

Nigeria is a major force in international trade, with 70% of goods coming to the West, and Central Africa destined to Nigeria. Out of which 80% of the traded goods are transported by sea (UNCTAD, 2009). Therefore, the study of port operations is crucial to the sub-region. The World Bank African infrastructure country diagnostics assessment of ports in SubSaharan Africa ranked Nigeria as the top reformer (Vagliasindi, 2009). World Bank (2008) report put the total private sector investment in Sub-Saharan African ports at $1.3 billion, with 62 percent related to the container terminals and 32 percent to multipurpose terminals and little in the bulk cargo facilities. Nigeria accounts for 55 percent of the total private sector investment in the sub-region and the biggest single deal is Apapa Container Terminal in Lagos, Nigeria. Therefore, it becomes imperative to study the outcome of the programme that attracted such a huge investment in the sub-region and also ascertain the contributions of such an investment to the economy. This is besides the fact that governments in the sub-region seeking to embrace improvement in port operations and infrastructure could leverage on the findings of this study.

1.2 Statement of the Problem

The potential of Nigeria to achieve sustainable economic growth and development are no doubt due to its rich and diversified basic resources. Unfortunately, despite Nigeria’s huge investments in the public’s investment returns was less than 0.5% per year since 1960. So to remedy the poor performance of public enterprises, the federal government revisits privatization ideology that is hinged on reforms, including the concession of the port, which can have serious consequences for Nigeria’s economy if well guided.

In the 1990s, Nigerian ports showed very low levels of efficiency, which resulted in long lead times for vessels and increasing the residence time of the containers. It often took weeks to unload and reload a ship instead of 48 hours considered standard in other regions such as Asia. Furthermore, the workforce was bloated and unproductive, the cargo was subject to massive flight levels, and port charges were excessive. Maybe to top it all off, the port base required generous renovation and rehabilitation, and this investment would require substantial external financial support, the federal government was reluctant to provide given the existing operating inefficiencies in the sector.

Apapa Port Terminal, which handles over 90 percent of imports in the country is managed by three major operators; AP Moller, Dangote and sunflower under the 2006 concession agreement with the federal government. Despite this, the Nigerian ports still seems to be performing below expectations with case delay of cargo, congestion and poor ship turnaround times. More than four years after the granting of full operating license to terminal operators in Apapa port for managing terminal operations, investment and maintenance of the structure and the equipment port, one can only expect a positive change in all performance indices.

1.3 Objectives of the Study

The main objective of the study is to examine the contribution of Shipping industry to the development of Nigeria economy.

Specifically, the study sought to assess:

The impact of shipping industry on the Nigerian gross domestic product

The influence of cargo throughput on Nigerian gross domestic product

The significant influence of ship traffic on Nigerian gross domestic product.

1.4 Research Questions

What is the impact of shipping industry on the Nigerian gross domestic product?

What is the influence of cargo throughput on Nigerian gross domestic product?

What is the significant influence of ship traffic on Nigerian gross domestic product?

1.5 Significance of the Study

The recommendation of the study is hopefully contribute to a more competitive Apapa port in terms of better management and a better administration of the port in the West African region. It is believed that the economy of most developing countries such as Nigeria, are highly dependent on maritime transport system, while it is also responsible for the development of a transport system. This is because the effective port and cargo handling system will encourage shipping companies, importers and exporters to make full use of port facilities in the nation’s seaport. Therefore, the concession is a global phenomenon. It is often rooted in the culture longtime globalization; Thus Nigeria cannot afford to stay away from the global market where capital goods mainly channeled through the ports.

1.6 Scope and Limitations

This study is carried out on the contribution of Shipping industry to the development of Nigeria economy. The study focusses solely on Apapa Port, Lagos.

It is in the light of the foregoing that this study sought to analyze the impact of port operations on the Nigerian economy using Gross Domestic Product as the major economic index and port operations indicators such as Ship Traffic, Cargo Throughput and Gross Registered Tonnage from 2000 to 2015 with a view to determining the impact of gross registered tonnage of vessels on Nigerian gross domestic product.