A Study on Ship Financing in Nigeria
CHAPTER ONE
Objective of the study
The core thrust of this study is to investigate the ship financing structure in the Nigerian middle of the expedition. Nigerian companies face problems far more enormous than their inability to raise the capital is far more historic than others. The purpose of this study is to achieve the following objectives:
- To know the concerns of the players in the shipping industry and the financial and relevant issues for both parties.
- To assess restrictions, requirements and expectations of the maritime and financial companies to facilitate a mutually beneficial relationship between the two.
- Coming up with an action plan based on the findings of the study to bridge the gap between shipping companies and financiers.
CHAPTER TWO
LITERATURE REVIEW
Conceptual Framework
SME’s include a wide range of businesses, which differ in their dynamism, technical advancement and risk attitude. According to the European Union (2003) micro, small and medium-sized enterprises are defined as enterprises which employ fewer than 250 persons and which have an annual turnover not exceeding 50 million euro, and/or an annual balance sheet total not exceeding 43 million euros. Small and medium enterprises are thus defined as firms with 10 to 250 employees as and more than 10 million euro turnover or annual balance sheet total. Researchers and practitioners agree that SMEs are crucial contributors to job creation and economic growth in both high and low-income countries. Access to finance is necessary to create an economic environment that enables firms to grow and prosper. SME’s in developing countries, however, face significant barriers to finance. Financial constraints are higher in developing countries in general, but SMEs are particularly constrained by gaps in the financial system such as high administrative costs, high collateral requirements and lack of experience within financial intermediaries.
Shipping Service Demand and Challenges to Shipping Sector Finance in Nigeria
It is estimated that Nigeria generates about 70 percent of the total volume of cargo traffic in the West and Central Africa regions which represents significant cargo shipping opportunities to Nigeria shipping companies. However, analysis of Nigeria’s balance of payment for the past three decades indicates three areas of imbalances in the shipping industry, namely:
– Freight earning/conservation: there is loss of revenue through non–participation of indigenous shipping companies,
– Ship–ownership: only five ships (of about 70,000dwt) are owned by indigenous carriers, and
– Cargo sharing: less than 12% of maritime traffic generated is carried with Nigerian ships.
Based on estimates of potential demand for shipping tonnage capacity; according to Ekwenna (2003), Nigerian entrepreneurs need a total of fifty-five (55) vessel of various types as shown in Τable Ι. These vessels may be chartered or purchased outright but each option requires substantial investment that can only be realized through pooling of resources of bank credit.
CHAPTER THREE
METHODOLOGY
Research Design
The commercial banks have a traditional function of assisting in the funding, development and sustenance of SMEs in the maritime shipping industry. The target population considered for this study is the commercial banks located in port cities in Nigeria. Based on the list of banks quoted in Nigerian stock market, a sample frame of commercial banks was drawn. Four port cities were purposively considered as locations of the study. These cities namely: Port Harcourt, Lagos, Calabar and Warri are home to clusters of maritime activities.
Sample and Sampling Technique
The decision to select only banks located in port cities was taken in the hope of capturing the extent of their direct involvement in maritime related activities of shipping firms financing which are based mainly in these cities. Since all the banks have either main or branch offices in these cities, they were selected using cluster sampling technique.
Research Instrument
Structured questionnaires designed (based on constructs derived from the research problem and literature review) were distributed to a sample of management staff of these banks to elicit their responses on questions relating to constraints and extent of their involvement in assisting shipping companies in shipping business financing and development. A total of ninety five (95) questionnaires out of one hundred and twenty (120) distributed were returned duly filled and were considered for data analysis. The response rate of seventy nine (79) percent was considered representative of the sample population.
Data Analysis
Descriptive and inferential Statistical models were applied to analyse data collated from the completed questionnaires. The descriptive statistics of the sample were presented with frequency distribution while ordinal Logit regression model was used to presents the result of the inferential statistics.
CHAPTER FOUR
DATA PRESENTATION AND ANALYSIS
Model Formulation: Ordinal Logit Regression Analysis
The ordered Logit model in its modern form was proposed by McElvey and Zavoina (1969, 1971, 1975) for the analysis of ordered, categorical, non-quantitative choices, outcomes and responses. The model is used to describe the data generating process for a random outcome that takes one of a set of discrete, ordered outcome. Ordered choice models are appropriate for a wide variety of settings in the Social and Biological Sciences. Some areas where they have been applied in the Social Sciences include: job training [Groot and van den Brink (2003)], job classification in the military [Marcus and Greene (1983)], labour supply [Heckman and MaCurdy (1981)], product quality [Prescott and Visscher (1977)], Stock Price Movements [Tsay (2005)], Vehicle Ownership [Train (1986)], and work disability [Kapteyn et al (2007), among others. Since the dependent variable for this study is based on the ordered Likert scale of “Strongly Disagree”, “Disagree”, “Unsure”, ”Agree” and “Strongly Agree”, the ordinal Logit regression model is appropriate in analysing and testing the hypotheses of the study.
CHAPTER FIVE
CONCLUSION AND RECOMMENDATION
Conclusion
The findings indicate that more focused administrative instruments should be put in place by the apex financial regulatory authority- the Central Bank of Nigeria to encourage more banks involvement to SMEs financing. Specific measures should target information transparency through maintenance of data base accessible to the commercial banks. Thus, this calls for more survey research to collect relevant data on SMEs.
Recommendations
The following recommendations were made based on the findings of the study;
- Fiscal incentives should also be employed to encourage active participation of the commercial banks in this direction.
- The oversight responsibilities of the maritime regulatory authority- Nigeria Maritime Administration and Safety Agency (NIMASA) should complement the role of the banks.
- NIMASA is expected to collaborate with the banks regulatory authority to ensure the smooth take off of the maritime banks already constituted by it.
REFERENCES
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- Beck, T. Financing constraints of SMEs in developing countries: Evidence, Determinants and Solutions. Journal of International Money and Finance, 31(2), (2007), 401-441.
- Beck, T; Demirgüç-Kunt, A and Pería, M.S.M. Bank Financing for SMEs around the World: Drivers, Obstacles, Business Models, and Lending Practices. Working paper, The World Bank Development Research Group Finance and Private Sector Team, (2008), Available_online http://wwwwds.worldbank.org/external/default/WDSContentServer/IW3P/IB/2008/11/24/000158349_20081124111459/Rendered/PDF/WPS4785.pdf
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