SHIPPING TRADE AND ITS IMPACT ON ECONOMIC GROWTH

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SHIPPING TRADE AND ITS IMPACT ON ECONOMIC GROWTH

CHAPTER ONE

INTRODUCTION

1.1 BACKGROUND

Seaborne trade represents greater than 90% of the international trade in the World. The phase “he who controls the trade controls the world economy “has remained truism. It may seem obvious to say that today we live in a global World and it is certainly true that Seaborne trade makes it possible for a truly global economy to work.

Stopford (1998) defined Seaborne trade as the movement of merchandise by Vessels between the Port of origin where merchandise is received from the exporter at the Port of origin to the Port of destination where merchandise is claimed by the importer. Seaborne trade connects countries, Markets, Business and people allowing them to buy and sell goods all over the World. Seaborne Cargoes comprise commodities of different types and sizes. They can be grouped into six main categories; Energy trade, Agriculture trade, Metal industry trade, Forest product, Manufactured commodities (Emah, 2016). The history of the World is a history of exploration and trade by Sea. As a result of this Seaborne trade was established; Coal from Australia, Southern Africa, West Africa and North America to Europe, Grains from North and South America and Australia to Europe and the East, Oil from the Middle East, West Africa, South America and Asia (Buhari, 2013). With these, Seaborne trade has changed the shape of the World economy. This benefits consumers by creating choice, boosting economic and creating employment and this turn creates impacts on the environment as well.

Globalization through Seaborne trade has “decouple time and space” resulting in the “death of distance”. With globalization the big world has turn into a “one little village”. Seaborne trade has been one of the main causes of globalization. The impact has been most phenomenal. Developing countries has contributed the largest shares to world exports and imports. Their contribution has been declining over the years. The uneven performances among country groupings impacted the performances of containerization. Seaports are complex dynamic systems in seaborne trade consisting of numerous interacting elements, influenced by random factors. Today in any context and in country, it is essential that Ports provide efficient, adequate and competitive services. If they fall, ship owners will go elsewhere. Hence, if Ports do not provide cost effective services, imports will cost more for consumers.

According to Chizea (2008), Maritime transport is essential to the proper operation of any country’s economy and a vital part of a nation’s transport infrastructure. Without Maritime transport, Nigeria would have be landlocked and its economy will not move forward but remain stagnant in different areas and as such Maritime Nation will be competitive in world markets, national revenue will decline as well as the standard of living of all people. The seaports due to their strategic location foster industrial growth. Industries are located close to seaport in order to reduce the cost of transportation. It has also encouraged the development of other modes of transport e.g. the railway etc. In the Maritime industry, Seaports in relation to trade are major gateways to the economy and hence play important role in the development of a country, by creating means of generating revenues for governments (Branch, 1986).

According to Oriaku, et.al (2011) in trying to assess the contribution of Ports to economic development wrote that, Seaport is a major entry and exit point in international trade and are regarded as the most important link in the transport chain and for the development of regional and international trade. He added that Tin-can Island Port complex came into existence in 1977 and commissioned to ease the pressure of heavy imports in Apapa Port. As a result of the Oil boom of 1977-1979, the idea of more Ports creation and expansion promoted the Federal Government construct more Port which included; New Sapele and Warri Port Complex, Calabar Port Complex and Ocean Terminal at Onne, River State. Maritime transport is of significant importance to and greatly influences the development and growth of the Nigeria economy. The volume of Cargoes at a country’s Port determines economic activities within the Port and the amount of revenue generated by the Nigerian Customs through tariffs and duties. Cargo throughput can be classified on the basis of Cargo types into general, dry and liquid Cargoes. Lack of adequate Cargo handling equipment in a country’s Port has led to Cargo congestion especially in Nigerian ports and this led to loss of revenue as well as affecting the economy as a whole.

As with exports where goods leaving the Country must be recorded, so there is a legal requirement for all goods entering the Country to be declared in full details on the correct form by a Custom officer. Customs are charged with the responsibility to parliament for collection of import duties and other charges in accordance with the law, levy, clearing of Ship’s inwards and outwards etc. In some large continental Port like Rotterdam which handles about 7500 containers daily, it is impossible to check each and every container physically, electronic device are used. Custom import duties remain a significant source of government tax revenue in many developing countries although their share has declined as tarry rates have dropped through multilateral, bilateral and unilateral initiatives. In 2013, WCO collected information on Custom’s contribution to government tax revenue in 135 countries, or the recent statistics available, it custom duties alone provided more than 50% of government tax revenue in 18% of countries concerned. Revenue loss caused by under-invoicing, smuggling, origin fraud amongst others, significantly undermines national economic development and competitiveness. In particular, highly taxed goods such as tobacco product incur a high risk of smuggling and can lead to significant revenue loss (WCO, 2013).

Economic growth determines the level of competition and investment in an economy. Rising income of people and investments by firms leads to a greater demand for goods and services. The relationship between the economy, trade and shipping demand is strong but it is very difficult to fit them into simple and direct models. The world economy is dependent on the Maritime sector. Seaborne trade contributes a greater percentage of the gross domestic product (GDP) is one of the primary indicator use to gauge the health of a country’s economy. It represents total dollar value of all goods and services produced over a specific time period. Gross Domestic Product has a large impact on nearly everyone within that economy. For example, when the economy is healthy, there will be low level of unemployment and wage increases as business demand labor to meet the growing economy.

All countries, regardless of the size of their economy that has hold significant Foreign Exchange Reserves in the world are held in US dollar, the most traded global currency. The British Pound Sterling (GBP) the Euro zone’s Euro (EUR), the Chinese Yuan (CNY) and the Japanese Yen (JPR) are also foreign exchange currencies. Many theorists believe that its best to hold Foreign Exchange Reserves in currencies not immediately connected to ones’ own, to further distance it from potentials shocks this has, however, became more difficult as currencies have become more interconnected. China holds the world’s largest Foreign Exchange Reserves with more than 3.5 trillion of assets held in foreign currencies.

Over the years, World gross domestic product (GDP) has been growing about the same rate as trade. This may be the result of limited growth in the fragmentation of global production processes, a maturity of value chains (China and the United States), a change in the composition of global demand with a slow recovery in investment goods that are more trade intensive that government and consumer spending (International transport journal,2015).It therefore becomes necessary for countries to try to evaluate the impact of seaborne trade on their economies.

Consequently, this study is an assessment of seaborne trade and economic growth of Nigeria.

1.2 STATEMENT OF RESEARCH PROBLEM

The maritime industry is international in nature and is acknowledged to be a very dynamic component in the socio-economic configuration of any given maritime nation. Nigeria is no exception. Even land-locked countries such as Mali and Burkina –Faso in West Africa also hinge, their economic fortunes on the maritime sector relying as it were on the port on Abidjan for import and export transactions. One major problem that has continued to plague the industry in Nigeria is the issue of adequate policy formulation and implementation, hence the contribution of shipping trade to economic growth has therefore being a subject of debate.

In traditional maritime nations such as United Kingdom, U.S.A, the SSA , the Scandinavians, Other European Countries among others, the factors of time, power planning, co-ordination and implementation of clear-cut policies through government intervention largely account for the enviable levels of efficiency, sophistication and monumental success in their maritime activities especially in respect of its contribution to economic growth. The reverse appears to be the case in Nigeria as the fortunes of the industry have continued to suffer progressive catastrophe over the years. A very near example is the fact that the Nigerian National Shipping Line (NNSL) which took delivery of 19 (nineteen) brand new tonnages from European shipyards in 1979 and 1980, has not only lost all her vessels but has been liquidated altogether. This is complicated by the inability of governments of different types to float an indigenous national carrier up till date.

1.3 PURPOSE OF THE RESEARCH

The aim of this research is to assess Seaborne trade and Nigeria economic development. The objectives of the study are;

To determine the effects of Cargo-throughput on Nigerian Gross Domestic Product.

To determine the effects of Custom revenue on Nigerian Gross Domestic Product

To determine the effects of Custom revenue on Nigeria’s Foreign Exchange Reserve.

1.4 SIGNIFICANCE OF STUDY

As economic growth and development is one of the most sensitive issues in Nigeria of today, This research work aim at covering an overview of the nature of the relationship between Seaborne trade and economic growth in Nigeria, given a special attention to all the Seaports in Nigeria including; Lagos Port Complex, Tin- can Island Port Complex, River Port, Onne Port Complex, Calabar Port and Delta/Warri Port Complex as they are major determinant of cargo throughput and revenue generation in Nigeria. Also the following indicators shall be given an attention namely: Cargo-throughput and Custom Revenues, accessing their contribution to the growth and development of Nigeria economy. This research work covers a period of 39 years, 1977-2015. A research of this kind is considered to make contributions to the following;

The Federal Government of Nigeria to make policies that will promote Non-Oil export and import.

The Federal Government of Nigeria on the necessity of reforming the Nigerian Port system so as to increase the level of Cargo-throughput in the Ports and thereby generating more revenue to the Government.

The Nigerian Customs and other Government agencies operating in the Ports, so as to encourage them on the use of electronic system of clearing of Cargoes to avoid such delays that can affect generation of revenues to the Country.

This research work will also be of great benefit to the Federal Government and Nigerian Ports Authority on the need to dredge new Seaports that will be deep enough to accommodate larger vessels like Post-Panamax etc. instead of losing revenue to neighboring Benin and Cameroon which have deep Seaports at Kirby and Lolabe .

Impactful to researchers for academic referencing.

1.5 RESEARCH QUESTIONS

Since the above objective has been stated, the researcher will attempt to provide answers to the following research questions;

What are the effects of Cargo throughput on Nigerian Gross Domestic Product?

What are the effects of Custom revenue on Nigerian Gross Domestic Product?

What are the effects of Custom revenue on Nigeria’s Foreign Exchange Reserve?

1.6 RESEARCH HYPOTHESIS

In other to provide answers to the research questions above, the following hypotheses shall be made;

There is no statistical relationship between Cargo throughput and Nigerian Gross Domestic Product.

There is no statistical relationship between Custom revenue and Nigerian Gross Domestic Product.

There is no statistical relationship between Custom revenue and Nigeria’s Foreign Exchange Reserve.

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