The Nigerian Cabotage Act and the Ideals of the African Continental Free Trade Area: An Unwholesome Alliance?

Abstract

One of the primary goals of the African Continental Free Trade Area (AfCFTA) is to establish a single market for goods and services in order to achieve economic integration in Africa. Experts opine that the AfCFTA can be a game changer for improving intra-African trade and may pave the way to economic diversification and inclusion. To maximize the potential of the AfCFTA, African nations must eliminate or minimize trade and non-trade barriers that can undermine the AfCFTA's true intention. Nigeria is the largest economy in Africa; therefore for the AfCFTA to flourish, Nigeria must implement targeted industrial, structural and policy changes to facilitate the achievement of the AfCFTA's objectives. This article addresses protectionist cabotage as a non-tariff trade hurdle to AfCFTA aims, as well as the need for Nigeria to abolish or liberalize its restrictive regime on domestic cabotage trade. It proposes that Nigeria should take the lead in campaigning for a regional cabotage regime and eliminate its protectionist policy.

Introduction

The Nigerian cabotage regime is part of a protectionist effort for the Nigerian maritime industry. The Coastal and Inland Shipping (Cabotage) Act 2003 (“the Cabotage Act”), which came into force in May 2004, was a legislative measure to restrict foreign vessels in domestic coastal trade and promote the development of national tonnage; it was enacted to boost Nigerian participation in shipping, enable the acquisition of more domestic vessels and limit the dominance of foreign fleets in the local maritime industry.

However, to promote regional integration in Africa, the African Continental Free Trade Area (“the AfCFTA”) was established, taking effect on 1 January 2021 to create the world's largest trading area since the establishment of the World Trade Organization.¹ The AfCFTA is expected to create opportunities and boost intra-African trade, which it is anticipated will consequently have a positive impact on the continental economy. The blueprint of the AfCFTA is to create a single market across the African countries and facilitate the free flow of goods, services, capital and skilled labour. The AfCFTA seeks to liberalize trade and allow an integrated market, with tariffs phased out on 97 per cent of tariff lines within 10 to 13 years.² In order for the AfCFTA to reach its full potential, the current legal regimes in African countries need to be reevaluated in order to guarantee that they comply with both the text and the spirit of the AfCFTA.

This article argues that as the AfCFTA seeks to liberalize commerce and trade among its member states, it is necessary to reevaluate whether a protectionist cabotage system such as that in Nigeria is compatible with the principles of free trade. It seeks to demonstrate that liberalization of the Cabotage Act is essential to effective free movement of goods and services and can play a role in achieving the objectives of the AfCFTA. It advocates for the removal of the restrictions placed by the cabotage law and for the general need for African member states to take steps in harmonizing their respective shipping policies.

A historical conspectus of maritime cabotage

The exact origin of maritime cabotage is not clear. However, it is understood that the term “cabotage” is derived from the French word “caboter”; it refers to the practice of navigating and trading along the coast between ports.³ Nevertheless, this constrained interpretation is not one that has ever been put into actual use. Some nations simply were not willing to confine their maritime exploration and navigation to the waters immediately next to their coasts. Countries such as the United States of America, England and Portugal are examples of nations that extended the concept of cabotage to include limiting sea trade and the carriage of goods or persons by sea between the mother nation and its colonies, to be conducted only by ships and personnel of the mother nation.⁴

Because of this, the United States classed the trade that took place between it and the Philippines, the Hawaiian islands and Puerto Rico as cabotage trade in the years 1898 and 1899. This meant that even the colonies’ trade with other countries was conducted by vessels flying the flag of the United States, crewed by its citizens or those of the colonies. The end of active colonialism was a major factor in the decline of this type of maritime cabotage activity, which is now almost extinct. Because of the significance of commerce, navigation and various other maritime activities that take place in coastal waters, coastal states typically take measures to safeguard their maritime industries. A protectionist cabotage rule was enacted and enforced by a number of states with a coastal shipping trade for a number of centuries.

Ancient maritime powers such as Egypt, Carthage, Rhodes, Phoenicia and Rome were all interested in the adventuring and exploring opportunities at sea. These powers maintained authority and sovereignty over the oceans that bordered their territory (territorial sea). The objective was to prevent foreign vessels that belonged to competing nations from engaging in commerce or any other kind of maritime activity in the ports and sea areas that they controlled. Therefore, one could say that the notion of marine cabotage at that time was probably made easier by political and commercial requirements rather than by legal reasoning. The earliest known documentation of maritime cabotage legislation was passed in 1382 during the reign of Richard II in England. The law stated that “[n]o person shall import or export merchandise in any port within the realm of England except in ships of the King's liegance”.⁵ This law is considered to be the world's first example of cabotage legislation.⁶

Richard's successors also made comparable, but stricter, legislation. Edward IV, Henry VII and Elizabeth I all attempted to safeguard the coastal seas of England and stop foreign vessels from engaging in coastal trade and services during their respective reigns.⁷ Before Oliver Cromwell passed the Navigation Act of 1651, England followed a stringent marine cabotage policy for more than two and a half centuries (1382–1650). In 1849, the Navigation Act in the United Kingdom was repealed. However, until 1854, marine cabotage trade remained protected from competition for British ships that employed British sailors. The remaining vestige of the protectionist statute, which had been in effect by then for more than four and a half centuries, was eventually repealed by the Coasting Trade Act.⁸ In Scotland, lawmakers also passed the Scottish Navigation Act, in 1661.

Additionally, at roughly the same time, other maritime nations passed protectionist maritime cabotage legislations. From 1670, all trade between France and its colonies had to be conducted by ships flying the French flag.⁹ In 1789, the United States Congress imposed additional tariffs on goods transported by foreign vessels,¹⁰ while in 1817, the Navigation Act was enacted, prohibiting foreign vessels from engaging in domestic commerce and competing in coastal waters within the US. The law governing marine cabotage in the US was further expanded in 1886 to include passenger vessels, by means of the Passenger Vessel Services Act. Together, the legislations of 1817 and 1886 restricted maritime transportation of freight and people to vessels that were built and registered in the US and owned and crewed by Americans. Dredging, towing and salvage operations in the coastal seas of the US are still subject to a slew of protectionist legislation. The Dredging Act of 1906 and the Towing Statute of 1940, which has been amended numerous times, most recently in 1996, are essential pieces of legislation that govern these activities. In addition, the Merchant Marine Act, often known as the Jones Act, of 1920 is a key piece of legislation governing many areas of domestic maritime trade; it enforces specific provisions, such as requiring cabotage vessels to be owned, operated and crewed by US residents or corporations, as well as requiring the vessels to be built in the US. The Jones Act is critical in maintaining the domestic maritime industry and guaranteeing a level playing field for vessels flying the American flag.

Canada, still a British territory at the time, passed its first independent legislation in 1869, which limited maritime trade in Canadian seas to British vessels. As a result of the signing of the British Commonwealth Merchant Shipping Agreement in 1931, ships from countries that were a part of the Commonwealth had the same status as British ships and were, therefore, able to participate in the coastal trade in Canada. Elsewhere, the Treaty of Lausanne additionally paved the way for the Turkish Maritime Cabotage Act to become operational in 1926, while in light of Russia's recent annexation of Crimea from Ukraine, the regulatory framework for marine cabotage in Russia, the 1999 Merchant Shipping Code of the Russian Federation, has now been extended to regulate cabotage in Crimea.¹¹ This all reinforces the fact that cabotage is an age-old concept that has existed for centuries, intending to protect domestic shipping from foreign competition.

Revealing the silhouette of cabotage

When it comes to issues of liability and obligation in the field of maritime commerce, questions concerning the nationality of a ship and its ownership arise. In consequence of this, one of the most fundamental tenets of international law is that the authority to control a vessel that is operating in international waters must be ceded to the sovereign nation to which the vessel belongs.¹² This, of course, is subject to the requirement that all ships that travel through international waters must have a national character, which must include a domicile, the location where the ship is registered and the flag of the nation which it is authorized to sail under.¹³

However, in accordance with maritime cabotage legislation, the nationality of a ship's owners as well as the ownership of the ship itself take on a more significant role than liability and accountability. This is due to the fact that maritime cabotage legislations and policies proactively reserve the right for a country's instruments of commerce to engage in commercial activities within its own territorial waters. This reinforces the fact that the significance of the nationality and ownership of a ship is considered more from the point of view of national and economic growth than from the standpoint of liability and accountability. Accordingly, national cabotage legislations, which require that vessels be owned by a country's citizens and registered there, are geared toward the purpose of aiding the growth of the nation's economy.¹⁴

The UN Conference on Trade and Development (UNCTAD) defines maritime cabotage as the sea transport between two ports in the same country.¹⁵ It involves different operations and different services for the domestic, intra-regional and international markets. Webster's Dictionary defines cabotage as trade or transport in coastal waters or between two points within a single country or as the right to engage in cabotage.¹⁶ Cabotage may also mean the reservation of shipping within a national territory to only duly registered vessels in accordance with the laws of the host state, or may indicate the exclusion of foreign-flagged vessels from the domestic carriage of goods.¹⁷ It is said to be the oldest form of cargo preference and dates as far back as the 15th century.¹⁸

The term “maritime cabotage” is referred to by Lassa Oppenheim as sea trade that takes place between two ports that belong to the same nation and can be located either on the same coast or on different ones, provided that both belong to the same country as a political and geographical unit, in contrast to the coasts of a nation's colonial dependencies.¹⁹ Aniekan Akpan refers to maritime cabotage as the use of national flag vessels for the carriage of goods and passengers by sea between two geographical points in a country.²⁰ Cabotage includes the restriction of domestic shipping operations (domestic trade), of operations related to transshipment (including feeder services) and the shipping of empty containers.²¹ These services require different vessels, such as small container ships, ro-ro ferries, barges, etc, which operate as feeder boats and tugs.²²

Legal arguments giving rise to a nation's power to restrict trade in their territorial waters may date back to 1921; at the Barcelona Convention, the League of Nations came to the conclusion that a sovereign nation should have the right to reserve the transport of goods and passengers from one port to another to vessels flying its own flag.²³ This right was established internationally, and is conditional on the stipulation that the two ports in issue fall under the political and geographical jurisdiction of the same nation. The Geneva Convention on Marine Ports 1923 reiterated the same viewpoint.²⁴ It was also generally acknowledged that a nation with a coastline possessed sovereign control over its territorial sea to the extent that it could restrict marine activity to its own citizens. Typically, this sovereign authority should be exercised within a distance of 12 nautical miles from the baseline of the state, which is referred to as its territorial waters; however, it is not uncommon to see countries extending sovereignty as far as 200 nautical miles.²⁵

Article 2 of the United Nations Convention on the Law of the Sea bolsters a state's sovereignty over its territorial waters by demonstrating the ability of littoral governments to limit the amount of international competition caused by maritime cabotage trade and services between ports located on the same coast or sea within the same country. Despite the fact that the concept of sovereignty continues to play a central role in marine cabotage law, the definition of maritime cabotage is mainly predicated on the strategy that a government chooses to implement and the reasoning that underpins that decision.

The philosophy of protectionism as a tool for economic development

Maritime cabotage legislations play an important role in creating and securing a robust and sustainable domestic maritime sector in a country.²⁶ The approach adopted − protectionist, liberal or flexible − will be influenced by the needs of the country. A protectionist cabotage regulates a broad range of maritime operations and places stringent criteria on operators who want to engage in trade and provide services. The liberal approach is diametrically opposed to the protectionist approach; it typically places fewer limitations on operators. In this scenario, any vessels, irrespective of their flag, ownership, place of build or nationality of crew, are eligible to participate in the coastal trade and services. A flexible approach permits a state to shift between protectionist and liberal approaches, depending on the circumstances; the majority of nations that use a flexible approach are those with a historically protectionist regime.²⁷ Unique to this strategy is the built-in legal mechanism that enables the state to switch to a more conservative policy when necessary without having to go through generally lengthy parliamentary procedure.²⁸

Protectionism in cabotage trade, usually intended to improve the position of domestic business relative to foreign trading, can be implemented in numerous ways, from crewing or flagging to building. Some academics, such as Paixão Casaca and Lyridis, believe that implementing a protectionist policy in a coastal state will spur development and benefit the economy.²⁹ Among the economic benefits of a protective strategy are the enhancement of cabotage's contribution to the national balance of payments, ensuring the continued viability of national cabotage firms, encouraging the growth of the nation's shipbuilding industry, protecting a fledgling cabotage business until it is competitive on the global market, protecting an established cabotage business from global competition and increasing the domestic fleet.³⁰

The objective of protectionist trade policies appears to be the expansion of domestic production in the protected industry. The government enforcing these policies may also gain, for instance through tariff money. However, it is public knowledge that protectionism has its own associated costs. It is not uncommon for a protectionist industry to lose its competitive edge.³¹ In shipping, protectionist practices are linked to governments’ aspirations to build national fleets and ensure economic stability.³² However, in reality, this does not appear to happen. For example, the United States is well known in the shipping industry for its protectionist policies, which significantly restrict the ability of Americans to employ vessels registered or even built in other nations for activities from dredging to domestic transportation of cargo and passengers. In 1920, the Jones Act became the most well-known example of a protectionist statute, limiting domestic waterborne transportation of products to vessels flying the American flag, built in the United States, and crewed and controlled almost exclusively by citizens of the United States.³³ As a result of these restrictions, the domestic marine industry, which was supposed to benefit from this protectionism, is instead plagued by inefficiency, high costs and stagnation; the policy has been a complete and utter failure by any standard, and it is estimated that it has cost the US economy tens of billions of dollars. It serves neither the country's larger economic interests nor the industry's fortunes, which are its precise goals.

Grabow has stated that some maritime experts maintain that in the 1700s, having trade restraints did not incur any costs because of the level of competition that existed in the shipping industry.³⁴ However, circumstances today are very different. While the protected US shipbuilding industry once provided some of the best quality and most affordable prices in the world, its competitiveness eroded to the point where, by the late 1800s, it was estimated that ships built in US shipyards cost approximately 25 per cent more than those constructed in shipyards located in the United Kingdom. The US's competitiveness has only continued to decline; Grabow believes that the price of a merchant ship constructed in the United States is four to five times that of one constructed in another country. These price differences are, to a significant extent, a reflection of a vast disparity in productivity that exists between shipyards in the US and those in other countries; instead of carving out a specific segment in the cut-throat international shipbuilding industry, shipbuilders in the US focus on the much more limited captive local market.³⁵ There are a great number of experts who hold the opinion that the Jones Act is antiquated and ineffective.³⁶

A protectionist market may have negative effects on the economic growth of nations and may not be able to resolve their fiscal and economic issues. Paixão Casaca and Lyridis point out that protectionism causes monopolies, high pricing, inferior products, ineffective manufacturing methods and retaliation from other countries with whom the country has political and business ties.³⁷ The costs of protectionism have been the subject of extensive research and analysis; scholars and economists alike have observed a strong correlation between protectionist policies and anti-globalization sentiment, and agree that protectionism is harmful because its costs outweigh its benefits and stifle economic growth.³⁸ No nation has all it needs, so preserving and limiting one industry from competition may do more harm than good. Alan Greenspan, a former American Federal Reserve chairman, has condemned protectionism as leading “to an atrophy of our competitive ability. If the protectionist route is followed, more efficient industries will have less scope to expand, overall output and economic welfare will suffer.”³⁹

Recent years have seen moves toward liberalization in maritime transportation.⁴⁰ Experts advise removing restrictions on cabotage trading to expand and boost supply shipping services in mutual commerce and improve maritime nations’ negotiating position to push for a more liberal system.⁴¹ Some of the advantages of a liberal cabotage policy include the fact that such policies promote the globalization and internationalization of economic activity, encourage the growth and expansion of national and international economies, promote a nation's export-focused industrial strategy, encourage intra-regional commerce, and encourage foreign direct investment in and access to the national cabotage business.⁴² According to authors like Taylor, a developing country would naturally benefit from the liberal policy framework intended for industrialized nations.⁴³

Liberal cabotage rules foster economic development. Contrary to the protectionist viewpoint, there is no evidence that countries with a liberal maritime cabotage law are significantly endangered by foreign vessels trading in their territorial waters. Instead, the presence of these foreign ships adds to the growth of the domestic maritime industry, due to the fact that permitting foreign vessels to engage in coastal trade prevents domestic shipowners from charging very high freight rates. In addition, the liberal system makes it possible for domestic shipowners to participate in open competition, which is necessary for healthy growth.⁴⁴ A free-market liberalization benefits the maritime industry as well as other economic sectors.⁴⁵ The continued use of protectionist cabotage is equivalent to a tariff on goods and services because it impedes free trade.⁴⁶ As a result, a liberal system should be adopted for cabotage trading, as advocated for in the wider economy.

Regulating cabotage in Nigeria through the enactment of the Cabotage Act

After the Nigerian legislature enacted the Cabotage Act, the Nigerian Maritime Administration and Safety Agency (“NIMASA”) was the government agency charged with enforcing its provisions. The act adopts a protectionist approach; it was drafted primarily to encourage the development of domestic capacity in Nigeria's maritime industry.⁴⁷ Its main goal is to restrict commercial transportation of goods and services within Nigerian inland waters to vessels flying the Nigerian flag or wholly owned by persons of Nigerian descent and crewed by Nigerians. It defines “Nigerian waters” as including inland waters, territorial waters or waters of the Exclusive Economic Zone (respectively, together or any combination thereof) and the meaning given to them by the National Inland Waterways Authority Decree 1997. Sections 2(a)–(d) of the act enumerate what coastal trade entails. Furthermore, part 2's strict or protectionist approach states the kind of vessels restricted from trading in Nigerian waters, including vessels and tugs that are not built, wholly owned, registered and crewed by Nigerian citizens.⁴⁸ A look at the provisions clearly shows that the intention behind the law is to allow exclusively Nigerians to engage in the country's coastal trade and inland waterways, thus ensuring that shipping is fully domestic.⁴⁹

The Cabotage Act's sections 3 and 4 appear to have been written with the goal of fostering opportunities for the marine industry, but in actuality, the requirements seem unworkable and impracticable. It is obvious that Nigeria lacks the necessary number of ships to meet its needs for the domestic maritime trade. According to research, while the number of vessels wholly owned by Nigeria increased from 12 to 326 between 2007 and 2018, Nigerian-owned vessels had lower gross tonnage than foreign-owned ones engaged in cabotage trade in 2018.⁵⁰ Furthermore, Nigerians do not own any ocean-going vessels other than through third-party chartering, which is not 100 per cent ownership.⁵¹ Accordingly, despite the act's stated goal of preventing foreigners from participating in the domestic transportation trade and routes so that local shipowners can develop sustainably and take control of domestic shipping, this does not appear to have happened, as these shipowners have not been able to supply enough ships to take advantage of the Cabotage Act's provisions.

The director general of NIMASA recently put together a technical committee that found that less than 10 per cent of the 400 vessels held by members of the Indigenous Shipowners Association of Nigeria were found to be operational. Even those that are operational are insufficiently equipped to qualify for contracts with international oil firms.⁵² Financing the acquisition of new vessels has proven to be particularly challenging for local operators. Although section 42 of the Cabotage Act establishes the Cabotage Vessel Financing Fund (“CVFF”), which mandates that each vessel engaged in coastal trade pay a surcharge of 2 per cent of the contract sum into the fund, no local company has benefited from it. Numerous problems have continued to plague the management of the CVFF money, and there is currently no framework for its disbursement.⁵³ Interestingly, section 28 of the act states that vessels older than 15 years are only eligible for registration and participation for a term of five years if they obtain a certificate of registration and seaworthiness from a recognized classification body. The majority of vessels acquired and owned by Nigerians are well over 20 years old, due to a lack of financial capacity to acquire more modern vessels. Financing has therefore been a major impediment to the growth of local tonnage.

It is against this backdrop that part 3 of the Cabotage Act paradoxically provides for circumstances where the Minister of Transport may issue waivers to foreign vessels that do not meet the requirement for participating in domestic trade.⁵⁴ Despite the intention of the act to adopt a protectionist approach and create exclusivity for domestic shipowners, foreign vessels continue to have unfettered access to provide cabotage services because the waiver privileges are frequently abused. The notion that waivers should only be utilized in rare circumstances is at odds with the arbitrary use of the waiver mechanism.

The procurement of waivers appears to be a lucrative way for NIMASA to generate revenue. The Cabotage Act's provision for waivers on the requirements of crewing, building, flagging and Nigerian ownership of a vessel is problematic; it also allows for the issuance of waivers to vessels owned by a joint venture between Nigerian citizens and non-Nigerians, as well as any vessel registered in Nigeria and owned by a shipping company registered there.⁵⁵ According to section 12(a), joint ventures are prioritized over companies registered in Nigeria that are wholly owned by foreigners or companies in which foreigners own the majority share. As a result, many vessels operating in Nigerian waters are beneficiaries of the cabotage waiver system. As of 2018, the gross tonnage of foreign vessels with waivers is on a par with the gross tonnage of Nigerian-owned vessels with waivers.⁵⁶

The joint venture provision appears commendable upon cursory examination, given that it requires Nigerians to hold the most shares. On the other hand, foreigners have figured out how to outwit the regime by forming joint ventures with a Nigerian nominee. Section 12(a) of the Cabotage Act requires that a Nigerian own 60 per cent of the company's shares and a foreign entity or person own 40 per cent. What regulatory agencies are unaware of (or are aware of but choose to ignore) is that this joint venture is then laced with business contracts, such as shareholder agreements, that govern how the joint venture's proceeds will be distributed. A shareholder agreement, for example, may state that the foreign entity should receive 90 per cent of the profit because it provided the vessel or the capital for its operation. This was not the intention of a strictly protectionist cabotage policy.

It is impossible for Nigeria to justify implementing a protectionist marine cabotage policy that requires all cabotage vessels to be constructed in the country. It is quite obvious that Nigeria lacks the capacity to produce ships at a level that is financially feasible, and the shipbuilding industry does not have the capability to construct vessels that are designed to operate in deep water. In spite of the numerous expansionist efforts made by the government over the years, Nigeria has been unable to establish a shipbuilding industry that can support itself. Despite the fact that the industry is essential to the economic growth of coastal countries, there are limitations affecting it in Nigeria which hinder its development. These limits include a lack of financial resources and inadequate skills, competence and infrastructure.⁵⁷ Accordingly, everyone desirous of trading in Nigeria has no choice but to obtain a waiver for a vessel built in the country. The waiver provision creates administrative obstacles and grants the Minister of Transport excessive discretionary power. Additionally, there is no basis for assessing the success of the Cabotage Act due to the absence of a structure to monitor and report on the effects of the act on a regular basis, similar to that found in the EU. Furthermore, a lack of national capability, the regulator's complacency and lax enforcement of the act all work against the success of Nigeria's marine cabotage regulation. As a result, even the debatable benefits of protectionism are not realized.

A cursory examination of the potential benefits of cabotage and the current Nigerian shipping industry reveals that the cabotage regime has had only limited success in the last 18 years. Its seemingly lofty and appealing benefits remind us that “what appears to be the truth may not be the truth”; the government initiative of the Cabotage Act has not achieved its intended goal of fostering a strong domestic maritime transportation industry. In fact, it has manifestly failed, as a great deal of intra-coastal trade is conducted by foreign-flagged vessels that obtain exemptions. The problems of inadequate supply capacity and weak institutions have made it difficult to bridge the gap between local capacity and demand for services, resulting in widespread use of waivers. The application of the cabotage policy has not produced the expected outcome.⁵⁸ It is therefore safe to conclude that the introduction of the Cabotage Act was ill timed and doomed to fail.

Is a protectionist cabotage policy antithetical to free trade?

Undoubtedly, trade is a driver of the economic, social and political integration of African countries. The integration process led African leaders to establish the first regional body, the Organization of African Unity (OAU), in 1963 in order to advance intra-African cooperation and integration in the economic field.⁵⁹ The continent engaged in several programmes and created institutions to achieve the aim of boosting intra-African trade. However, the proliferation, level and rate of implementation of the trade integration programmes of many regional economic communities (RECs) faltered.⁶⁰ To revive the continental integration project, the OAU's Abuja Treaty Establishing the African Economic Community was adopted in June 1991; it articulated the formation of a continental free-trade area (“CFTA”) as a stepping-stone toward realizing the African Economic Community.⁶¹ Similarly, in 2001, the New Partnership for Africa's Development (NEPAD) was adopted by the African heads of states, the aim of which has been to resolve Africa's economic and social challenges within a new paradigm. NEPAD's main goals are to decrease poverty in African countries, set the continent on a road of sustainable development, stop African marginalization and empower women. Nonetheless, despite all of these efforts, Africa continues to lag behind in terms of integration and economic growth. Finally, on 21 March 2018, African Union leaders met in Rwanda to sign the Agreement Establishing the African Continental Free Trade Area.⁶² The agreement's primary goal is to increase trade inside Africa by establishing a single continental market for goods and services as well as a single customs union to allow for the free movement of people, goods and funds, as well as the temporary admission of business travellers. The AfCFTA Agreement has been signed by 54 out of the 55 African nations (Eritrea has not yet ratified it). In January 2021, trading under the AfCFTA began, and a number of state parties have already submitted their initial proposals and requests. The rationale for the establishment of the AfCFTA is to boost intra-African trade beyond the current levels of 13 per cent and improve the welfare of Africans.⁶³

To harness the benefits of a CFTA and promote developmental regionalism in Africa, there is a need to promote policies that can help expand markets for African goods and services and create unobstructed factor movements, structural transformation, technological development and the enhancement of human capital.⁶⁴ The CFTA must take positive steps to dismantle barriers, reduce costs to intra-African trade, and improve productivity and competitiveness.⁶⁵ Membership of the AfCFTA imposes binding obligations on Nigeria.⁶⁶ Several provisions and obligations under the AfCFTA Agreement must be implemented through domestic legislation in order to be operative. The responsibilities imposed by trade agreements such as the AfCFTA Agreement may entail modifications to domestic laws and procedures, especially within the legal regulatory ecosystem. It may entail the change or issuance of new legislation to abolish specific customs processes and valuation, duties, dumping or subsidies, as well as the establishment of a designated entity with the capacity to oversee and regulate service providers’ compliance with AfCFTA responsibilities.⁶⁷ For instance, a state party with restrictive practices on competition and market access, such as quotas or nationality requirements for foreign service providers, will need to enact a law or amend its laws to remove such restrictions, in order to operationalize some of the provisions and obligations on liberalization of market access and the most-favoured-nation principle.⁶⁸

Since Nigeria is a member state of the AfCFTA, it is essential to consider if the country needs to modify its protectionist cabotage policy, more importantly because it has failed. Protectionist cabotage is an example of a non-tariff trade barrier, since it has the effect of driving up the cost of transportation by ensuring that there is neither a free market nor healthy competition.⁶⁹ Although the AfCFTA Agreement did not alter any cabotage regulations of African countries and in no way prohibits the restrictions on foreign competition in the cabotage policy of member states, the protection of coastal trade, particularly to other African countries, is contrary to the overall liberalized trade intentions of the AfCFTA. The lack of a prohibition on cabotage restriction in the AfCFTA Agreement may be misconstrued as meaning that countries with cabotage policies can continue to restrict domestic traffic to national carriers exclusively. However, it does not seem to make sense that the AfCFTA Agreement removed the protection offered to trade in goods but retained the protection of domestic transportation markets. Prokop wrote that “if goods have been freed from protectionist barriers, it seems strange that protection for the transportation modes by which these goods are moved should continue … Unfortunately, it remains securely in place.”⁷⁰

Access to maritime services by member states of free-trade areas may contribute to vitality and competitiveness. Removing restrictions on cabotage within RECs or AfCFTA member states will eliminate another barrier to achieving a single internal market – a quest Africa has longed for since 1963.⁷¹ Trade experts have always noted that Africa's economic future lies in a single market and greater integration into the world.⁷² Over the last 20 years, a broad support base of policy bureaucrats, exporters, shippers, trade organizations and transport economists have clamoured for the relaxation or removal of cabotage restrictions. Multilateral organizations such as the Organisation for Economic Co-operation and Development, the World Bank and the International Monetary Fund (IMF) have adopted policy which strongly favours maritime deregulation and the opening up of coastal trade.⁷³ Some countries have begun to liberalize their cabotage policies in accordance with the suggestions.

While it has been argued that industrialized nations have not always adopted liberal free-trade policies as they have developed, this is not the case. Thirlwall and Pacheco-López claim that the development of industrial sectors was facilitated by protectionist trade tariffs and practices, but this is not a sufficient basis to disregard globalization's trends.⁷⁴ International organizations such as the IMF and the World Bank typically attribute the success of Asian economies to the implementation of open and free-market policies,⁷⁵ asserting that liberal policies enable export-oriented initiatives and assure minimal or no government intervention unless such action helps to develop a viable business environment.⁷⁶ As a result, a determined attempt is being made to adopt a full-frontal strategy to impose free-market principles on the maritime sectors of emerging nations.⁷⁷

In actuality, there have been calls to promote the much-needed international framework for maritime cabotage, which is frequently associated with a free-trade agenda.⁷⁸ At the Uruguay Round, the Doha Round and other high-level WTO meetings, there have been failed attempts to get countries to agree on a concept for a unified international maritime cabotage regime.⁷⁹ On that basis, one could argue that the failure of the Uruguay and Doha rounds to advance these discussions should be considered a missed opportunity. Furthermore, proactive discussions on global harmonization of maritime cabotage services continue to be avoided or given scant consideration at relevant international forums.⁸⁰ Due to the lack of an international regulatory framework, there is an opportunity to pursue a regional cabotage policy.

An efficient and low-cost transport system is a prerequisite for African countries to become competitive in the global market.⁸¹ To achieve full liberalization of maritime transport, there must be a framework of a common transport policy. One of the suggestions on the contents of a transport policy framework in Africa is that member states should remove cabotage restrictions, abolish barriers to short sea shipping, and establish undistorted pricing and fair competition among transport modes, etc.⁸² It is also suggested that improved connectivity between continents, regions and ports is vital to reduce transport costs and foster regional, inter-regional and world trade.⁸³ In accordance with the African Union Commission Agenda 2063 vision for Africa of a common market,⁸⁴ and to comply with all these challenges, the long-term transport goal for Africa should be to provide sustainable, reliable, modern, efficient, cost-effective and fully integrated infrastructure and freight and passenger services that support continental and regional integration.⁸⁵

As a significant economy in West Africa and Africa as a whole, Nigeria is in a strong position to dominate trade and benefit from the new AfCFTA regime, but only if it can implement policies that help it gravitate toward achieving and positioning itself for the benefits of the AfCFTA. The protection of coastal trade runs counter to the AfCFTA's overall trade liberalization intentions. With the Cabotage Act still in place, some of the issues that plague domestic transport are aging ships (a failure of fleet modernization), port congestion and low investment in terminals, and a decline in shipbuilding and repair and servicing capacity.⁸⁶

Reinforcing the position that cabotage is contrary to the intention of the AfCFTA, annex 2 of the AfCFTA Agreement deals with rules of origin. Paragraph 1(h)–(i) states that:

“The following Products shall be considered as wholly obtained in a State Party when exported to another State Party:

1. (h) Products of sea fishing and other products taken from the sea outside the Territory of a State Party by their Vessels;

2. (i) Products made aboard their Factory Ships exclusively from Products referred to in subparagraph (h).”

The term “vessels” was defined in chapter 2 of the AfCFTA Schedules of Rules of Origin as follows:

“The terms ‘their vessels’ and ‘their factory ships’ in paragraph 1(h) and 1(i) shall apply only to vessels, leased vessels, bare boat and factory ships which are registered in a State Party in accordance with the national laws of a State Party and carry the flag of the State Party and, in addition, meet one of the following conditions:

1. a) at least, 50 per centum of the officers of the vessel or factory ship are nationals of the State Party or State Parties; or

2. b) at least, 40 per centum of the crew of the vessel or factory ship are nationals of the State Party or State Parties; with a temporary 5-year exception for Island State Parties during which at least 30 per centum of the crew of the vessel or factory ship are nationals of the State Party or State Parties; or

3. c) at least, [50 / 51] per centum of the equity holding in respect of the vessel or factory ship are held by nationals of the State Party or State Parties or institutions, agency, enterprise or corporation of the government of the State Party or State Parties.”⁸⁷

From the above provisions, it is clear that the intendment of paragraph 1(h) is that products of sea fishing and other products taken from the sea outside the territory of a state party by their vessels are considered as wholly obtained in the state as long as the vessel fulfils the conditions in the proposals. Accordingly, it is clear that the AfCFTA Agreement intends to allow a free and unlimited passage to trade in the AfCFTA.

According to Suffian et al,

“Cabotage policy as non-tariff barriers … may have helped to shield foreign competition but it has also harmed domestic economic growth … The implications of the cabotage policy causes limited market access and natural monopoly in the shipping industry. Protectionism is supposed to allow a government to mobilise resources for infant industry to grow. Resources invested in infant industry should improve domestic firms’ learning curve, making them more competitive. However the policy has adversely impacted on domestic shipping industry, slowing down … export-oriented growth.”⁸⁸

The approach of protecting domestic trade from foreign competition by imposing restrictions, quotas and tariffs on imported goods or services (such as maritime services) is to ensure a positive balance of payments when services imports are threatening to outweigh local interest, or may be done to protect a nascent industry. However, the cabotage policy arguably has a negative result.⁸⁹

The relaxation of cabotage will bring some opportunities to Nigeria. Foreign-flagged vessels will be able to transport coastal cargo in Nigeria, consequently increasing coastal shipping and possibly breaking monopolistic tendencies. Nigerian ports will also serve as direct ports of call for ocean carriers. With this change, foreign carriers can transport laden export–import containers for transshipment and empty containers for repositioning between Nigerian ports without any specific permission or licence. Also, allowing foreign ships to pick up the slack will reduce logistics costs and congestion on the country's roadways.⁹⁰

Does the Cabotage Act therefore still have a place in the Nigerian economy? The time has come to ring the death knell for cabotage protectionism via repeal or, as a minimum, substantial liberalization to facilitate rather than impede much-needed African economic growth. In order for Nigeria to be compliant with the AfCFTA, there are various potential options that can be considered. The expansion of cabotage operations in Nigeria to encompass other member states of the AfCFTA is one possibility; another is for the country to provide waivers on a routine basis to other AfCFTA states. There is also the possibility of Nigeria including maritime transportation in the category of services excluded from liberalization under the AfCFTA treaty. Nevertheless, this article suggests that a regional cabotage policy should be put in place.

Developing a model of liberalization

This article suggests that a concerted effort be made to liberalize Nigeria's domestic shipping industry, and that, given the existence of the AfCFTA and Nigeria's commitment under the agreement, a regional cabotage policy be implemented; such a policy is consistent with the intentions of the AfCFTA objectives. It is proposed that, in light of the AfCFTA, the African Union should take steps to eliminate restrictions on the provision of maritime transport services within member states and establish an internal African market, comprising a zone in which the free movement of goods, persons, services and capital is guaranteed. Africa must embrace the liberalization of maritime cabotage and its economic and social ramifications. The freedom to provide services should be applied to marine transit inside the member states, and the beneficiaries of this freedom should include shipowners operating vessels registered in and flying the flag of a member state, regardless of whether that state has a coastline or not. This approach could even lead to the establishment of an African registry in the distant future, when the continent has successfully attained political integration. This liberal cabotage should be implemented gradually and not necessarily uniformly for all services, taking into account the nature of certain specialized services and the magnitude of the effort that economies in Africa with varying levels of development will have to maintain.

Regional cabotage policies have been successful in Europe, and the European Union is an outstanding model for free trade globally, considering its success. The European transport market has been liberalized in stages since 1987.⁹¹ In European Council Regulation (EEC) no 3577/92 of 7 December 1992, the EU ensured that maritime transport services within a member state (ie “purely national connections … offered by companies of other Member States”) applied the principle of freedom to provide services (maritime cabotage). The regulation grants freedom to provide maritime transport services for Community shipowners operating ships registered in a member state and flying the flag of a member state.⁹² The purpose of the regulation was to gradually apply this flexibility, so establishing an internal market for the provision of cabotage services within the European Union. For a ship to be permitted to perform cabotage in another member state, the regulation stipulates that it must meet the standards for cabotage admission in the member state in which it is registered. Member states permit all vessels on their registries to engage in cabotage without limits; as a result, these vessels have unfettered cabotage access in other member states. Regarding crewing, the policy specifies that member states may impose their own crewing regulations on ships involved in island cabotage and on ships less than 650gt (gross tonnage) engaging in other services. However, ships over 650gt will be subject to policy regulations.⁹³

In addition, safeguard provisions permit member states to suspend the application of Regulation 3577/92 in the case of a severe disruption to the internal transport market due to cabotage liberalization, in accordance with article 5. According to article 2(5), this is applicable when market issues arise that

“are likely to lead to a serious and potentially lasting excess of supply over demand, are due to, or aggravated by, maritime cabotage operations, and pose a serious threat to the financial stability and survival of a significant number of Community shipowners, provided that the short-term and medium-term forecasts for the market in question do not indicate any substantial and lasting improvements.”

According to the regulation's anti-discrimination principle, member states may not impose obligations specifically designed for one shipping business that would preclude other Community shipowners from entering the market.

Other developed nations, like Australia, New Zealand and even China, have liberalized the cabotage rule. In contrast, Japan continues to have closed cabotage. Japan made commitments in the Doha Round of the WTO to make some service markets accessible to international maritime transport operators on reasonable and non-discriminatory terms.⁹⁴ Also, in South America, cabotage was revoked or significantly relaxed in Argentina and Chile. I suggest a regulation that grants the right to participate in another country's domestic trade exclusively to ships that fulfil the domestic shipping requirements set by their flag state These requirements will be determined through mutual recognition, following the principles of freedom for shipowners to provide maritime transport services anywhere throughout the African Continental Free Trade Zone.⁹⁵

I suggest that the EU model should be adopted in an agreement that details the terms of a common transport policy and a single transport market. Ships registered in one African member state (the flag state) and capable of providing cabotage services should be permitted to operate in other member states (the host states). This in no way diminishes a nation's ability to choose which vessels can fly its flag. The proposed agreement will also define the geographical boundaries of the ships in the region, as well as who is a regional shipowner. If Africa wants to keep trade and opportunities within the continent, the new agreement should establish a common African cabotage policy.

In addition, I propose that, in favour of regional integration, an African cabotage system may be developed to exclude non-African multinational corporations that currently dominate the continent's offshore oil and gas transportation business. This will generate additional options for African shipowners, allowing them to invest in the specialized vessels required by their sector. Additionally, a country with a huge population, such as Nigeria, may gain from the creation of shipping jobs throughout Africa. Adoption of this proposal will provide a medium ground between proponents of stringent cabotage and proponents of a liberalized regime. Since most African nations are quite well resourced, it is pointless to place any restrictions on them. Additionally, the elimination of cabotage will enhance connectivity and permit competitiveness within the AfCFTA region.

Conclusion and recommendation

Nigeria has signed the AfCFTA Agreement, indicating that it supports the idea of free trade in products and services, but it seems that the nation has decided to maintain a distinctly protectionist attitude in regard to domestic coastal trade. A protectionist cabotage policy is in total contrast to free trade. In light of the AfCFTA, a review of the existing cabotage regime is expedient. As discussed above, the cabotage policy in Nigeria acts as a barrier between intra-African and domestic operations. More specifically, aside from artificially protecting domestic regimes, there is no evidence that the current regulatory structure creates the best conditions to support domestic shipping businesses. Nigeria still has no ship orders or operational shipyards, and the shipbuilding industry has not expanded in recent years. Vessel acquisition remains a difficult task. The import charge on vessel purchases adds another layer of complexity, with import duties up to 20 per cent of the imported vessel's value.

This article argues that, in view of the failure of the protectionist cabotage regime and the fact that Nigeria is a key player, if the objectives of the AfCFTA are to be realized, a regional cabotage regime should be implemented instead of a national one. In comparison to a national policy, a regional regime essentially permits more participants in the local maritime business. The sector will be able to capitalize on the continent's greater population. Benefits such as improved service and safety standards, the development of a world-class maritime industry and the opening of the domestic shipping industry to international competition have the potential to increase efficiency and decrease shipping costs, thereby boosting the likelihood of bolstering real income and creating more and better jobs.⁹⁶ A regional policy accomplishes all the above while keeping trade within the African region and with Africans.