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TPM00204 - SHIPPING TRADE AND ITS IMPACT ON ECONOMIC GROWTH IN NIGERIA


CHAPTER ONE

INTRODUCTION

1.1       Background to the study

Shipping has for a long time been recognized as one of the strong catalysts for socio-economic development. Back in 1776, Adams Smith noted that “A business working in a country town without links to the outside world can never achieve high levels of efficiency because its small market will limit the degree of specialization”. Because shipping is one of the cheapest and efficient modes of transportation over long distances, it has since the ancient times been at the forefront of opening up of the world, and thus a major driver of the process of globalization.

Shipping, especially container shipping, has been both a cause and effect of globalization. Container shipping could lay claim to being the world’s first truly global industry. In fact, container shipping could claim to be the industry which, more than any other, makes it possible for a truly global economy to work. It connects countries, markets, businesses and people, allowing them to buy and sell goods on a scale not previously possible. It is now impossible to imagine world trade, and ultimately our lives as consumers, without container shipping. Shipping has led to a phenomenal growth in world merchandise trade, which has consistently grown faster than output. In 2006, goods loaded at ports worldwide are estimated at 7.42 billion tonnes, up from 5.98 billion tonnes in 2000. The value of total world exports increased from US$6,454 billion in 2002 to US$40,393 billion in 2005, representing an increase of 64 per cent.

According to Kummi (2007), shipping has emerged as one of the most powerful socio-economic and political forces shaping the world today. The phenomenon of shipping is moving the world towards increasing and irreversible integration of economic, social, cultural and political systems. Globalization through shipping trade has “decoupled time and space” resulting in the “death of distance”. Thanks to globalization, the once big world has been transformed into “one little village”.

Due to close linkage between shipping activities and economic development, most nations cannot afford to treat it with levity, hence a conscious intervention needed to ensure that the national interest is protected (Obed, 2006). Shipping as a primary logistics provider is critical in the process of Nigeria’s international trade and economic development. As a mode of transport, shipping provides the cheapest and most efficient means of moving large volumes of import and export round the world thereby creating jobs and adding value to the economy (Ma, 2010).

Shipping has been one of the main causes and effects of globalization. The impact of globalization on shipping, especially container shipping, has been most phenomenal. Indeed, shipping connects countries, markets, businesses and people, allowing them to produce, buy and sell goods on a scale not previously possible. It therefore becomes necessary, if not imperative for countries to try to evaluate impact of shipping trade on their economies Oyedeji (2004).

Consequently, this study is an appraisal of the impact of shipping trade on economic growth in Nigeria.

1.2       Statement of the Problems

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 of 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, the USA, the Scandinavians, other European Countries among others, the factors of time, proper 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 (Iniodu and Ukpong,2004). The reverse appears to be the case in Nigeria as the fortunes of the industry have continued to suffer progressive catastrophe over the years.

Shipping in Nigeria basically started during the second half of the last century via efforts of the foreign shipping lines. Woreman line started as a trading house in Hamburg and developed into a visible shipping company in 1894. Their first ship “Theresa Henrietter” left Hamburg for West Africa on 24th march, 1849. Elder Dempster commenced services in Nigeria in 1892 with their first ship “Fore runner”. This was followed by another British line “Palm line” which came into being after the Second World War. In 1960, Nigerian shipping line joined the trade as a junior. This period marked the formation of the Nigerian National Shipping Line (NNSL) in 1958. This marked the beginning of our national carrier’s participation in sea borne trade from humble beginnings of three second hand vessels, it grew to 12 owned vessels in 1970. By 1977, NNSL contracted to build 12 new vessels which were successfully delivered, making a total of 24 vessels (Iniodu and Ukpong,2004). Today, the ships have all been grounded and some put to scrap due to poor management of the national fleet. However, there has been a renewed interest in the venture due to lack of alternatives to maritime transport.

1.3       Research Questions

Having stated the above objectives, we therefore, consider the following research question relevant for the study?

  • What is the nature of relationship between ocean shipping export trade and Nigeria’s economic development?
  • To what extent has ocean shipping export trade influenced the level of Nigeria’s gross domestic product?
  • What is the influence of ocean shipping export trade on Nigeria’s foreign exchange reserve?

1.4       Objective of the Study

The central objective of this study is to empirically determine the impact of ocean shipping export trade on Nigeria’s economic development. Specifically, the study intends to accomplish the following:

  • To determine the relationship between ocean shipping export trade and Nigeria’s gross domestic product.
  • To ascertain the influence of ocean shipping export trade on Nigeria’s external reserve.
  • To determine whether ocean shipping export trade significantly influences the level of external debts payment.

1.5   Research Hypotheses

In order to carry out an adequate research work, and to analyze the relationship of the needed variables, we shall make the following hypotheses:

H0: 1 There is no significant relationship between ocean shipping export trade and the Gross  Domestic Product.

H0: 2 There is no significant relationship between ocean shipping export trade and External Reserve.

  • Significance of the Study

There is no gain saying the fact that the issue of economic growth and development is one of the most sensitive issues in Nigeria of today. One reason for the sensitivity of this issue is the scenario of abject poverty in the Land of surplus as is the case in Nigeria. The reason for this boils down to the fact that every reasonable Nigerian is bothered about the economic imperialism brought about by the level of underdevelopment. The generation yet unborn is even saddled and sold to economic slavery because of the present level of poverty and penury.

A research work on such a sensitive matter as the relationship between economic development, external reserve and ocean shipping export trade in Nigeria, is therefore at this time a necessity. The need to provide a lasting solution to the problem of underdevelopment, abject poverty, tribal clashes, Niger Delta Youth restiveness, religious bigotry among others, provide workable economic growth scenario, management of our abundant natural resources among others as would be advocated in this research work is therefore a task that must be done and hence a justification for this research work. Hence, this study is significant.

1.7       Scope of the Study

This research work aims at covering an overview of the nature of the relationship between the ocean shipping export trade and economic development in Nigeria, giving special attention to the some indicators of economic growth in Nigeria - gross domestic product, external reserve and external debt payment.

1.8       Limitations of the Study

The research work has been intended to have an overview analysis of the Nigerian ocean shipping export trade in relation to its economic development and growth.

It would assess the concept of ocean shipping export trade in relation to the current level of economic growth given special attention to relationships between ocean shipping export trade and some indicators of economic growth. However, due to time constraints and lack of good data base and information sources in Nigeria and worst still because of lack of good data in the required government ministries and parastatals, the research work could not cover all the economic growth information of the country.

1.9       Operational Definition of Terms

  1. Shipping: The act of moving passengers and cargoes from one country to another by ship through sea.
  2. Container: it is any receptacle or enclosure for holding goods used in storage, packaging and shipping.
  • International Trade: the exchange of capital goods and services across international borders.
  1. Globalization: this is the interaction between companies and people, which leads to the growth of international trade, ideas and culture.
  2. Gross Domestic Product (GDP): is a monetary measure of the market value of all the final goods and services produced in a period of time