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How Nigeria can boost maritime financing 21 Oct 2024

During a visit to the Nigerian Shippers’ Council in March this year, the Chairman of the House Committee on Shipping Services, Abdussamad Dasuki, said the House of Representatives is working to facilitate the establishment of a maritime bank in the country. No doubt, such a bank can make significant contributions to the growth of the country’s maritime and financial sectors and the economy more generally. But it should be pointed out right at the outset of this article that, if the objective is to increase financial and industry capacities in the country’s maritime, a new institution on the landscape is not the only option available.

Notionally, a maritime bank is a specialised financial institution designed to provide tailored financial products and services for the maritime industry. Such a bank would be focused on addressing the unique financial needs of shipping, shipbuilding, ports, logistics, and the industry’s broader value chain. It can play a crucial role in achieving sustainability in maritime activities by offering innovative solutions that address the emerging challenges and opportunities in maritime, which include green technologies, fuel-efficient engines, alternative fuels (like LNG or hydrogen), and digital solutions that improve navigation and operational efficiency.

As already indicated, a standalone “maritime bank” is not essential to the provision of specialised maritime financing. Indeed, such standalone maritime banks are a rarity on the global financial landscape. In Nigeria, there is Maritime MFB Limited, which is licensed by the Central Bank of Nigeria (CBN). Located in the heart of the nation’s maritime hub, Apapa, Lagos, the microfinance bank offers services to SMEs in the value chain of the maritime sector.

Universally, however, there are two dominant institutional architectures for the provision of specialised, large-scale financing for maritime. These are private sector banks with a strong focus on the maritime sector, and development finance institutions (DFIs), especially export-import (Exim) banks. While the former are driven by corporate strategies for profitmaking, the latter function to deliver on the trade-related economic goals of the government, locally or internationally.

Denmark’s Skibskredit or Danish Ship Finance, whose ownership has evolved to become majority-owned by a private sector financier, is a specialised institution providing financing to the shipping industry. It offers loans to Danish and international shipowners, with the aim of supporting the maritime sector growth and development. In 2022, shipping accounted for 10 percent of Denmark’s GDP, 27 percent of the country's total exports, and led its productivity growth.

KfW IPEX-Bank is a German state-owned bank that offers financing for maritime industries. It plays a significant role in supporting the German and European maritime sectors with tailored financial solutions. Norway, a global maritime powerhouse, has institutions like Export Finance Norway (Eksfin) that provide financing and guarantees for shipping and maritime industries. Eksfin supports Norwegian exporters and shipowners, often collaborating with banks to provide structured maritime financing.

On its part, China has several institutions, such as China Exim Bank and ICBC Leasing, that provide substantial financing and leasing options specifically for maritime projects, shipbuilding, and offshore industries. In alignment with the export-growth economic policy strategy of the Chinese government, these institutions have significant commitment to the maritime sector to support the country’s exports.

According to Lloyd’s List, the top 10 financial institutions in shipping in 2023 comprised some of the world’s largest DFIs and commercial banks. At the top of the list is China Exim Bank, which has total assets of over US$850 billion. The Export-Import Bank of Korea is another export credit agency that ranks in the top tier of the index. The private sector institutions on the list include Citigroup, Societe Generale, Sumitomo Mitsui Banking Corporation, and BNP Paribas.

For the Nigerian government, the trends in the financial facilitation of maritime growth suggest it can consider a stronger financing role for the Nigerian Export-Import Bank. NEXIM Bank is already designated as the trade policy bank of the federal government. By increasing the capital base of the bank, it can expand its trade and project finance in the maritime sector. This option is not only prudent but will also leverage the existing expertise of the DFI and its ongoing efforts in facilitating the Sealink project to spur coastal trade in Nigeria and growth in the country’s intra-African trade.

Nevertheless, this strategy could be supported by incentivising the nation’s commercial and investment banks to significantly increase financing for the maritime sector. A new banking entity, which may be wholly owned by the private sector or a PPP – to ensure operational efficiency and long-term success – could be licenced by the CBN to complement the existing institutions.

There are immense economic potentials that can be harnessed in the Nigerian maritime sector, given that the country is a coastal state. First, as the President Bola Tinubu administration seeks to provide a policy fillip for the country’s marine and blue economy, the promotion of maritime-focused financial institutions can expand the opportunities for project finance, to deliver maritime infrastructures – including ports, shipyards, terminal equipment, and logistics facilities – and help build the national shipping fleet.

The second area of broad investment opportunities is technology. Nigeria can boost technology adoption with green shipping technologies, autonomous vessels, and digital maritime services. These are cutting-edge areas of innovation to cut carbon emissions in shipping and achieve sustainability in the maritime industry.

Third is human capital development. Increased financing for the maritime sector will come pari passu with improvement in technical expertise in the sector. The financiers will contribute to the pool of experts and professionals within their institutions as well as in the wider financial services industry. For instance, the industry is likely to see more product development for maritime insurance and related risk management solutions. Should the sector embrace digitalisation, technical capacity will further improve, which would have a salutary effect on productivity. As exampled by Denmark, where productivity growth in its maritime sector was higher than the economy-wide average, Nigeria can reap the reward of higher levels of human capital development and technical capacity in its maritime sector.

Last, but by no means the least, the stimulation of the maritime sector with policy and reinvigoration of the institutional framework for its financing can spur foreign direct investment (FDI) flow into the country. Such investments can help to develop the maritime clusters around the country to boost coastal trade, create jobs, and drive economic resilience and growth.

The House Chairman suggests the formation of a maritime bank would curtail capital flight from the sector. This is plausible. But the potential gains of boosting the financing of the Nigerian maritime sector is much more. It can drive down logistics costs and improve connectivity. It will promote compliance with Nigeria’s Cabotage Act, which mandates the use of Nigerian-owned vessels for coastal trade. The government should, therefore, be expansive in its consideration of the options for achieving increased funding of the maritime sector, with the aim of achieving efficiency and scale of impact.

Joy Dimka is a Senior Legal Officer at the Nigerian Shippers' Council.