Industry Report: Hard times in port operations as cargo volumes drop, naira depreciates




 If port operations are determined and sustained by the volume of cargo coming through the ports, then the economics have to be done well and quickly too, to save Nigerian ports as the volume of cargo have kept reducing following unfriendly business environment.


Industry analysts say the preference by importers for ports of neighbouring countries can only be checked if the indices of conducive business environment (strong currency, high turn-over rate of cargo) favour the maritime business in Nigeria.

  Hit by a wake-up call to develop the non-oil sector of the nation’s economy following the steady decline in international oil prices, Nigeria's loud clamour for reforms in the maritime sector was welcomed with high expectations.
  
Ironically, concessionaires who invested in the sector to revive port operations and services in Nigeria are now bearing the brunt of decline in cargo volumes and depreciation of the naira, considering the falling oil prices and payment of operational charges in dollars to regulatory agencies.  

The falling oil prices, to below $50 however, led to a significant reduction in government’s expenditure and fixed investments in 2015, with a saddening lean foreign reserves.

Available statistics showed that the foreign reserves of Nigeria dipped from a value of $40.6bn in Jan 2014 to $28.3bn in June 2015. Shortly after then, the level of external reserves was equivalent to 7.1 months of import commitment, and could also finance 6.8 months of foreign exchange disbursements or 5.2 months of imports of goods and services.

It must also be noted that Nigeria cannot completely stop importation of goods as about 50 per cent of imports are done for materials required for further production.
Analysts’ speculation that a continued downward trend in oil revenues and foreign exchange receipts could lead to a situation of liquidity squeeze that would adversely affect the economy in the medium term, has no doubt started staring Nigeria in the face.

The greatest concern for the maritime industry is that it needs the ‘elusive’ exchange rate stability to function competitively in the port operation and shipping sub-sector which is global in nature and would strive where cost is relatively encouraging.

The situation has not experienced any improvement considering that the gap between the parallel and official exchange rate markets has continued to widen while several parallel market rates are now in existence. This has further increased the uncertainty of doing business in Nigeria for foreign investors.

No doubt, there may be more pressure on the value of the Naira in the short-medium term until the economy is able to diversify and reduce reliance on oil sector earnings. But there isn’t a realistic encouragement for such non-oil sector investment when existing businesses now face serious challenges repatriating foreign currency meant for various bills.

Looking at the performance of the maritime sector over time, it has had significant impact on the economy in terms of government revenue, improved trading affiliations with other nations and other indirect impacts which include job creation. Available records show that the Nigerian maritime sector accounts for over 50% and 80% of the value of West Africa’s imports and exports respectively (NBS).

The 2006 port concession resulted in significant improvements in the Nigerian port operations; there has been the emergence of larger vessels with improved cost effectiveness, improved cargo-handling technology and delivery speed, as well as reduced unit freight cost. In addition, the concession increased Nigeria’s port competitiveness, reduced waiting time for ships, and enhanced movement of goods across international borders and offshore manufacturing.

However, it is very important that the maintenance of port infrastructure is sustained for the ports to remain competitive. It is not enough to just count what the concession did 10 years ago, as the sector is now faced with challenges of traffic gridlock at the ports, uncertainty of policy direction, with non-passage of industry legislative bills like the ports and Harbour bill.

Other challenges include blurred assignment of regulatory functions, amongst others. As a result of these challenges, the business environment has not enabled the industry to reach its full potential as the hub of maritime in the West African region.

It noteworthy that as Nigeria is beginning to put in place several strategies to reform the non-oil sector of the economy in order to diversify its revenue base and promote local production of goods which could be exported, many of the goods will rely on an efficient ports system for it to be efficient and globally competitive.