• Thursday, July 25, 2024
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BusinessDay

Dangote Refinery opens opportunity for shipping business, AfCFTA

Three subsidiaries of Dangote Group listed on the Nigerian Exchange Limited (NGX) saw their combined market capitalisation rise by N513.69 billion on Monday, the first trading day after the announcement of the start of production at the conglomerate’s oil refinery.

…Exports of fertilizer, diesel now originating from Nigeria

New business opportunities are opening up for indigenous and international shipping companies following the commencement of the $20 billion Dangote Refinery and the implementation of the African Continental Free Trade Area (AfCFTA).

The refinery and its petrochemical industry now produce fertilizer and refined petroleum products such as diesel shipped to other African countries as export cargo, thereby changing the dynamics of shipping in Nigeria from being solely import-oriented to include export.

In addition to the refinery, which started production on Friday, January 12, 2024,

Dangote Refinery is positioning Nigeria for the AfCFTA, which is also creating new trade opportunities between Nigeria and African countries.

“The coming on board of Dangote Refinery has changed the dynamics of the shipping business in West Africa. Before Dangote Refinery started operations, all the petroleum products that came to Nigeria were 100 percent imported. We are seeing cargo delivered outside Nigeria,” said Aminu Umar, president of the Nigerian Chamber of Shipping, at the BusinessDay Maritime Conference.

According to Umar, fertilizer export is coming out of the Dangote Petrochemical industry and is creating new business opportunities for shipping companies.

Umar said in addition to the export of agricultural produce lifted by container liners, the refinery now creates opportunities for shipping wet cargo, including gas and petrol; and dry cargo such as fertilizer.

“Today, cargoes are loaded in Nigeria and delivered to Congo, Guinea, Gabon, and Senegal. This is a big development that has huge potential for investors in shipping. Nigerian shipowners need to find ways to tap into the opportunities provided by the refinery and its petrochemical industry,” he said.

He however decried the poor participation of Nigerian-owned ships in this space as international counterparts, which own Suezmax vessels, still control the import and export of cargo in and out of the refinery.

According to him, these players use Suezmax vessels to bring crude oil to Nigeria from the US and Europe and take refined diesel to destination countries.

To benefit from the opportunities provided by the Dangote Refinery, Umar said indigenous shipping firms need to invest in the acquisition of modern ships and large oil tankers such as the Suezmax vessels, which no Nigerian owns at the moment due to the capital required for such an investment.

Also speaking, Mohammed Bello-Koko, managing director of the Nigerian Ports Authority (NPA), said African countries need to work towards achieving seamless trade relationships to benefit from the opportunities created by AfCFTA and others.

He said several tariff and process barriers hinder trade in Africa.

“There is a need for seamless interconnectivity between ports in Africa that would ease shipping from one African port to another. Cargo originating from an African country meant for another African country does not need to first go to Europe before coming down to the destination port,” he said.

He called on African countries to encourage shipping companies by subsidising some of their services through tax holidays and exemptions.

Shipping is a capital-intensive business and access to cheap funding has limited the growth of indigenous shipping in Nigeria as many shipowners find it difficult to secure the needed funds to acquire modern ships to compete with their foreign counterparts.

As a result, Nigeria’s wet and dry cargo shipping is still dominated by foreigners.

BusinessDay understands that funding for ship acquisition is huge and takes a long time to be repaid. This makes short-term funds offered by Nigerian commercial banks unattractive to shipping businesses.

“Nigerian financial system offers short-term funds that do not allow the business to mature before the repayment period sets in. This is why shipowners are hoping that the Cabotage Vessel Financing Fund (CVFF), when disbursed, would be able to close this gap,” Umar said.

The CVFF was established alongside the Nigerian Coastal and Inland Shipping (Cabotage) Act of 2003 to empower indigenous ship owners to take control of the nation’s coastal and inland shipping business, otherwise known as the Cabotage trade.

Twenty-one years down the line, the fund is yet to be disbursed to shipping lines.

In 2023, the federal government announced that the money available in the fund was over N16 billion and $350 million while the Federal Ministry of Transportation said that vessels were expected to be acquired after disbursement.

It is expected that giving local shipowners cheap funds would help Nigerians have the needed number of fleets to participate in the Cabotage business and reduce the dominance of foreign shipping firms in Nigeria’s shipping business, experts say.

Speaking on the challenges and opportunities in Nigeria’s shipping industry, Iroghama Ogbeifun, managing director of Starz Investment Company Ltd, said it is important for Nigeria to have the political will to implement shipping reforms.

Pointing out that Nigerian shipowners face challenges in growing local capacity leading to reliance on foreign companies, she said shipowners need fiscal incentives, including tax breaks, grants, and access to very low-interest loans to be able to grow.

She said Nigeria still relies on foreign companies despite the existence of the Cabotage Law enacted to enable them to build the capacity to take over the Cabotage trade.

Ogbeifun acknowledged the role of Nigeria Local Content Law in shipping development as the Content Law gives shipowners partial guarantees to the bank and access to financing that helped them grow capacity.

Meanwhile, Emeka Akabuogu, a maritime lawyer, said Nigeria needs to create a digital ship registry.

He said Nigeria has a ship registry that is not yet digital, and that ship registry is fundamental to promoting shipping development.