THE EFFECTS OF CREDIT FROM COMMERCIAL BANKS ON SHIPPING TRADE IN THE NIGERIA MARITIME SECTOR

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THE EFFECTS OF CREDIT FROM COMMERCIAL BANKS ON SHIPPING TRADE IN THE NIGERIA MARITIME SECTOR

CHAPTER ONE

INTRODUCTION

Background of the study

Small and Medium Enterprises (SMEs) have long been recognised by the World Bank and other multinational agencies as critical to economic growth and poverty reduction. They have increasingly attracted targeted assistance of these international organizations in their increasingly attracted targeted assistance of these international organizations in their interventions in developing countries. SMEs include a wide range of businesses, which differ in their dynamism, technical advancement and risk attitude. Many are relatively stable in their technology, market and scale, while others are more technically advanced, filling crucial product or service niches. Others can be dynamic but high-risk, high-tech

“start-ups” (Darlberg Global Development Advisors, 2011). SMEs are critical to job creation, contribute to economic growth and provide a platform for the development of entrepreneurial capabilities including indigenous technology. Thus, national governments have been making efforts toward providing for sustainable growth and development of economy through private sector led initiatives. However, one area attracting increasing global attention in the quest for private sector led development is SMEs in maritime shipping sector.

Maritime shipping comprises a large variety of different businesses which according to UNCTAD (2011) can be categoried as follows: Shipping building, ship owning, ship operation (container ships), ship financing, ship scrapping, ship classification, ship registration, ship insurance (Protection & Indemnity), seafarer supply and port operation (container terminal operators). These areas of maritime activities have prospects for sustained growth as supported by the positive trends in value of exports on ships, floating structures and the world seaborne trade.

Shipping as a service sector is an important component of the national economy. It makes a direct significant contribution to GDP, job creation and provides crucial inputs for the rest of the economy. Unfortunately, activities in this sector in Nigeria are dominated by a few foreign firms which afford the enormous capital required in this sector. For example, in terms of ship owning and operation, Okoroji and Ukpere (2011) document that only about eight (8) percent of the total number of vessels that called at the Nigerian port terminal between 1997 and 2006 are owned by Nigerians. Igbokwe (2006) finds that Nigeria has only three vessels duly certified for cabotage shipping services out of one hundred and fourty (140) needed by the oil industry. These statistics indicate negative implications on the growth and viability of indigenous SME’s in the maritime sector as they basically lack adequate capacity to operate competitively. Special intervention policies (albeit unproductive) have been initiated by the federal government in the past to correct this imbalance. These include direct funding through Ship Acquisition and Ship Building Fund (SASBF), Cabotage Vessel Financing Fund (CVFF), cargo reservation and outright Cabotage legislation. However, as is tradition in developed maritime nations, ship acquisition and fleet expansion is better done through debt finance which can only be provided by the banking institutions. This fact questions the commitment of the Nigeria’s banking institution especially the commercial banks in providing entrepreneurial finance to SME’s in the shipping sector.

Existing studies have identified funding as a major constraint to entrepreneurs in establishing and managing SMEs in developing countries; notable among such studies include: Abereijo and Fayomi (2005), Beck (2007), Hoff et al. and Gibson (2008). According to Dalberg Global Development Advisors (2011), SMEs which play a crucial role in furthering growth, innovation and prosperity in developing countries are unfortunately, strongly restricted in accessing the capital that they require to grow and expand, with nearly half of SMEs in these countries rating access to finance as a major constraint. A number of factors have been adduced to this development; at one extreme the government has been blamed for not providing direct funding or adequate legislative support for financial institutions to do so; see Cumming et al (2006), Lerner and Antoinette (2005); at the other extreme, financial institutions point to entrepreneurship related factor: lack of lender information, risk profile and legal environment etc. Thus, further research is needed to identify the constraints hindering banks funding in development of SMEs or the maritime businesses in the shipping sector. The outcome of this study would provide insight into factors affecting the commercial banking institutions in the provision of credit to private sector led SME development. The findings from this study would also provide basis for designing intervention policies aimed at addressing the funding issues of SMEs in the maritime sector. The rest of the paper is structured as follows: in section two, we develop the conceptual framework of this paper and examine related literature. Section three presents the methodology while results of data analysis of the study is presented and discussed in section four. In section five, we discuss the policy implication of the results and conclude the work.

Statement of the problem

There may have been previous researches in this subject. This work gives further explanations and analysis in the effects of credit from commercial banks on shipping trade in the nigeria maritime sector

Objectives of the study
To understand the effect of commercial banks credits on shipping trade in Nigeria maritime sector.
To understand the relationship between shipping trade productivity and credits from commercial banks in Nigeria.

Research questions
What is the effect of commercial banks credits on shipping trade in Nigeria maritime sector.
What is the relationship between shipping trade productivity and credits from commercial banks in Nigeria.