The maritime industry is pivotal to the economic growth and development of a prosperous Nigeria, thus, it is imperative for Nigeria to expand the capacity of indigenous maritime operators to enable effective participation in the country's maritime activities and transactions. Participation of indigenous operators should encompass all maritime-related business activities, from offshore to onshore, including port activities, shipping transport, ship construction, repairs and associated maintenance activities. However, the participation of indigenous operators appears severely constrained by financing challenges due to the significant capital outlay required for vessel acquisition and other maritime infrastructure needed for the efficient delivery of services. This financial constraint has made indigenous operators unable to take full advantage of several business opportunities available in the Nigerian and West African maritime markets. Recognising the need to enhance the financial and operational capacity of indigenous maritime operators in the country, the Federal Government of Nigeria via the Coastal and Inland Shipping (Cabotage) Act 2003, established the Cabotage Vessel Financing Fund (CVFF or "the Fund"), to provide financial assistance aimed at increasing indigenous ship acquisitions.
In this Article, we explore the nature of the CVFF and how eligible indigenous maritime operators can access finance from the Fund to expand their maritime assets and capabilities.
Overview of the Cabotage Vessel Financing Fund (CVFF)
The CVFF was established by the Coastal and Inland Shipping (Cabotage) Act 2003 to develop indigenous ship acquisition capacity and to provide financial assistance to Nigerian operators in the domestic coastal shipping business.
The source of funds for the CVFF is mainly from a surcharge of 2% of contract sum performed by any vessel engaged in coastal trade, tariffs, fines and license fees and any other amount determined and approved by the
National Assembly. The funds for the CVFF are collected by the Nigerian Maritime Administration and Safety Agency (NIMASA) and administered in line with the Cabotage Vessel Financing Funds Guidelines ("CVFF Guidelines") issued in 2006.
The CVFF Guidelines prescribes the procedure for the administration and implementation of the CVFF with clear guidance on eligibility criteria, types of maritime activities transactions to be financed by the Fund and financial requirements to be met by eligible applicants. Since its establishment in 2004, the Fund has largely been undisbursed for the intended purpose as specified in the CVFF Guidelines.
However, in December 2022 the Minister of Transportation, Mr. Muazu Jaji Sambo, reportedly announced the Federal Government's approval for the disbursements of the CVFF as part of the Federal Government's commitment to grow indigenous ship ownership and the local maritime industry. The total funds which have accrued to over 16billion Naira and USD 350million, will be disbursed to eligible applicants through the approved Primary Lending Institutions (PLI).
Who Can Access the Fund?
The CVFF Guidelines stipulate that only Nigerian citizens and shipping companies wholly-owned by Nigerian citizens are eligible for a loan or guarantee under the CVFF scheme.
Furthermore, consideration for financial assistance by eligible applicants would be limited to:
- Acquisition of vessels for use in domestic/coastal trade.
- Facilitation of vessel charters for use in domestic/coastal trade.
- Development of shipyard/maritime infrastructure for construction, repairs and maintenance of vessels.
- Any auxiliary projects designed to improve local tonnage capacity and shipyards.
For an applicant to be considered eligible for a loan under the CVFF scheme, NIMASA and the PLI would require the applicant to also submit the following key documentation:
- A bankable feasibility report that provides a comprehensive analysis of the project. This report will help to assess the economic and financial viability of the project.
- Provision of an acceptable equity participation of a minimum of 15% of the acquired vessel/ total project cost. Equity participation is a portion of the funding that an applicant is required to contribute. This is an important way for applicants to demonstrate commitment to the project and align their interest with that of the Fund.
- An acceptable security/collateral that guarantees repayment where the applicant defaults.
- Managerial and operational capability to competently run the acquired vessel/project to achieve the desired output. The applicants must be able to prove their ability to manage resources, implement strategies, and execute projects to achieve the stated goals and objectives.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
