Black gold fuels 'the giant of Africa'

Typography
As the world's eighth-largest crude oil producer at a time of all-time record high oil prices, Nigeria should by rights be a prosperous nation. But it is not, and more than half of its huge population lives in poverty. The problems facing those trying to conduct shipping-related business in the country are both extensive and complex.

As the world's eighth-largest crude oil producer at a time of all-time record high oil prices, Nigeria should by rights be a prosperous nation. But it is not, and more than half of its huge population lives in poverty.

The problems facing those trying to conduct shipping-related business in the country are both extensive and complex.

Nigeria is divided by tribe and religion because of the boundaries it inherited at independence.

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Trying to keep the lid on tensions between more than 250 ethnic groups speaking more than 500 languages, in a climate of frequent tension between Muslims and Christians, and extensive army input into politics, is hardly a recipe for stability.

The late 1960s even saw a descent into civil war. For several decades, Nigeria's history was one of successive military coups. Although those with a bullish assessment of the country's potential like to trumpet that fact that the last three transfers of power have been achieved through the ballot box, it perhaps remains best not to scrutinise the country's voting procedures too closely.

Nine years of civilian government have improved the situation somewhat, but massive underlying problems remain. Even the blessing of a rich endowment with oil produces the curse of environmental problems and a separatist movement in the main oil producing area, the Niger Delta.

Lloyd's List regularly reports attacks on, and seizures of, supply vessels in this area, most recently the incident involving Tidewater-owned Lourdes Tide in May this year.

Nigeria was, in the first quarter of 2008, the most piracy-prone country in the world. Of the 49 attacks reported to the International Maritime Bureau's piracy reporting centre between January and March, 10 were in Nigerian waters, frequently close to Lagos.

Corruption, all to often writ exceedingly large, is another major issue. The widespread perception is that nothing will get done unless the right officials receive a suitable cut.

In maritime industry terms, most of the action is energy shipping-related. Tanker fixtures lifting at Port Harcourt regularly appear in brokers' reports. But there are other things going on as well, notably the privatisation of ports previously controlled by the Nigerian Ports Authority. In particular, this feature will look at two container terminals in Lagos, now being run by multinational European ports.

Most of the box business is local; Abidjan in nearby Ivory Coast does the honours as the regional hub port, serving much the same role as Mombasa does on the other side of the continent.

That said, there is plenty of local business to go round. Nigeria does not describe itself as the "the giant of Africa" for nothing; its population of 145m accounts for around one quarter of all Africans.

Those that are doing well out of the oil boom ndash; an affluent layer that certainly does not include everybody ndash; have generated what is easily the largest market for consumer goods imports in Africa. Local industrial enterprises, such as the Peugeot Automobile Nigeria plant in Kaduna, require shipments from other countries too.

A possibly apocryphal story is that former president Olusegun Obasanjo became an overnight convert to port privatisation on a visit to Singapore for an International Monetary Fund meeting in 2006, where he saw first hand just how efficiently the Port of Singapore Authority ran the local port.

Later that year, Mr Obasanjo asked for expressions of interest in running various facilities in Lagos. More than 100 bidders were up for a slice of action, including all of the major international port operators.

But the sell-offs in Nigeria have not been without their social cost. As a result of handing over many facilities to foreign concessionaires, around 10,500 of the 14,000 workers previously employed by the Nigerian Ports Authority have found themselves out of a job. It is undeniable that the ports were previously grossly overmanned by world standards. Nevertheless, stevedore unions complain that they were deceived, as the privatisation programme was sold to them on the promise that 60% of the labour force would remain in employment, and that those who lost their jobs would at least be generously compensated.

In the event, the number of job losses was higher than expected and compensation lower than anticipated. But, as the successful bidders will point out, this is a matter between the NPA and the Maritime Workers' Union of Nigeria.

The largest container terminal, Apapa, went to Maersk subsidiary APM Terminals, which paid an eye-watering price reported at various levels north of $1bn for a 25-year concession. That is at least five times the size of the next highest bid, which came in at $200m. Given their readiness to hand over that kind of money, it is a safe bet that the Danes seriously wanted in.

The obvious question to ask is: is $1bn-plus too much for a run-down facility comprising just 1,000 m of quay and 20 ha of land area? Even loyal Maersk employees have been known privately to question the wisdom of the deal.

Perhaps surprisingly, other shipping industry sources would not necessarily concur. Much depends on how you evaluate future potential. On one level, it seems likely that a bid of $300m-$500m would probably have been enough to swing the deal, and anything above that has to be seen as expensive.

On the other hand, many players admit to having underestimated the potential for container volume growth in Nigeria in the past. On the assumption that APM has got the maths right and is willing to back its judgement with cash, it may be that the proposition stacks up. The buyers certainly seem satisfied with their purchase [see box].

The other successful bidder was a Bolloré/Zim joint venture, in which the two sides have taken 47.5% each and local interests hold a small 5% balancing stake. Tincan Island Container Terminal ndash; known as TICT ndash; was awarded a 15-year concession to operate a container terminal on Tincan Island, a smaller facility, which at just $83m looks rather better value for money than Apapa.

At just 10 days' notice, TICT walked onto the site on June 1, 2006 and found the whole area in something of a state.

Just one shore crane was in place. Most of the kit was 25-30 years old, and needed to be scrapped immediately. While there is a plan to introduce gantry cranes, the quays apparently do not have sufficient resistance and will need to be strengthened. A feasibility study is underway.

Productivity among the 400-strong workforce ndash; at 18 moves per gang per hour ndash; is still relatively poor, although the hope is that this can be doubled with proper cranage.

As things stand, the site has an area of 25 ha, and accommodates three/four berths, with a berth length of 770 m. The existing depth alongside, which is 10.7 m, is to be dredged to 11.5 m.

Equipment includes nine reach stackers, 16 top loaders, 24 tugmasters and yard trailers, and three forklifts. The terminal is also equipped with 100 reefer plugs.

In 2007, 236 vessels called, including ships of up to 1,800 teu, handling 194,941 teu.

Clients include China Shipping, Delmas, CMA CGM, Zim subsidiary Gold Star Line, Hapag-Lloyd, MOL, OTAL and Zim itself.

The projection is for something like 200,000 teu this year. TICT wants to build this to 650,000 or more by 2020, and is likely to have to invest $100m ndash; or more ndash; over the period if this is to be achieved.

Among the operational problems that have been encountered are dwell times of up to 30 days, compared to European average of around a week. TICT feels that there is a need to educate customers on this score, to everyone's benefit.

TICT also believes that Tincan Island has one major selling point over Apapa, claiming that there is less congestion around port exits. For those who are aware of the extent of the traffic problem in Lagos, that would prove a considerable marketing tool.

Congestion is just one of the many infrastructure-related problems that make doing business in Nigeria less than straightforward. Power cuts are frequent, leading to a reliance on private generators, for instance.

In addition, currency effects often exert a deleterious impact. Many shipping-related concerns bill in dollars yet have to pay out in local currencies. Yet swings of up to 50% in just a few months are not uncommon, playing havoc with sensible budgeting.

Then there is the C-word: corruption. According to the people who compile league tables of these things, Nigeria was for several years the undisputed world heavyweight champion in this regard.

Things have improved, but only slightly. Local representatives of foreign businesses make much of the fact that Nigeria is now regarded merely as the sixth most corrupt country in the world.

That is better than before but still hardly something to boast about.

Quizzed about how it does business in such an environment, one businessman involved in the ports sector argued that his company simply does not play the corruption game. That would be too risky.

Moreover, there appears to be a niche market that comes with having a reputation for being 100% above board, with companies such as Chevron and Texaco heedful of US anti-corruption legislation.

Another aspect of the Bolloré portfolio in Lagos is Logistics Base One, billed as a one-stop-shop for logistics services. Logistics Base One is set on a 90,000 sq m site, purchased in June 2007, and includes 16,000 sq m of warehousing, 25,000 sq m of bonded container terminal, a 11,000 sq m empty container party, a 5,000 sq m export stuffing yard, offices, a workshop and a customs processing centre. Utilisation of official Nigerian customs data entry software reduces customs clearance time.

Leading customers include Chinese telecommunications concern Huawei, which has signed a two-year service agreement to use the base. It also supports Delmas, MOL, Messina and Zim subsidiary Goldstar with empty container handling, storage, and export container stuffing, handing commodities such as cocoa, rubber and cotton.

April saw the introduction of a 3,000 sq m container freight station groupage operation to handle deconsolidation of less than container load cargo.

Elsewhere in Nigeria, there are plans for the deepest port in Africa, with a draft of 17 m, which is to be constructed in the Ibeju-Lekki area by the first quarter of 2009, at a projected cost of $700m. Lekki Free Trade Zone is planned for a location some 60 km from the Lagos business district and 80 km from Murtala Mohammed International Airport. The project is Chinese backed, and a Chinese consortium will hold 60% of the share capital.

Of the remainder, 20% will be held by Lekki Worldwide Investments Ltd, owned by the Lagos state government, and a further 20% will be allocated to LWIL for subscription by other investors.

Incentives to investors will include complete tax holidays; one-stop approval for all permits and licences; duty and tax free importation of raw materials and components for export goods, capital goods, machinery, equipment and furniture, permission to sell in the Nigerian market; 100% repatriation of capital, profits and dividends; a waiver of ex-pat quotas; and prohibition of strikes and lockouts.

It is fair to say that the Lekki project is attracting considerable interest locally, and several multinational port operators are openly keen to get involved. Yet it is interesting that two Chinese concerns ndash; named locally as China Civil Engineering Construction Corp and Beyond International Investment and Development Corp ndash; will hold onto the majority stake.

That is a timely reminder for Europeans, who sometimes seem too used to treating Africa as its backyard. There is now competition.