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Historical insights for Nigerian Cabotage Vessel Financing Fund 20 Jun 2025

The Federal Government of Nigeria is set to operationalise disbursements of the country’s Cabotage Vessel Financing Fund (CVFF). Such funds in many advanced and developing economies are rooted in broader framework of cabotage laws, which aim to protect and promote domestic shipping industries by restricting coastal trade to nationally owned, flagged, and crewed vessels. Many countries have implemented cabotage laws and associated financing mechanisms to bolster their maritime sectors. This is often done with the aim of enhancing national security, economic growth, job creation, and maritime infrastructure development. 

To understand the importance of the current efforts to activate disbursement of the Nigerian CVFF, which was established under the Coastal and Inland Shipping (Cabotage) Act of 2003, it is important to explore the history of such funds in other countries, drawing on available information to highlight how they were established, managed, and their outcomes. The historical context may provide further support to the work being currently done by the Nigerian policymakers. 

Historical Context

Cabotage laws have existed for centuries, with early examples like the British Navigation Acts (1651–1849) restricting colonial trade to British vessels to promote national shipping and economic control. These laws laid the groundwork for modern cabotage policies, which often include financial mechanisms to support domestic operators facing high capital costs for vessel acquisition. 

United States: The U.S. Title XI Federal Ship Financing Programme, established under the Merchant Marine Act of 1936, is one of the most prominent examples of a government-backed financing mechanism for vessel acquisition and shipyard modernisation. The programme was created to promote the growth and modernisation of the U.S. Merchant Marine and shipyards, aligning with the Jones Act (1920), which restricts cabotage trade (transport between U.S. ports) to U.S.-built, -owned, -flagged, and -crewed vessels. Title XI has been active for nearly nine decades, with significant updates in 2019 to align with modern vessel financing practices and federal credit standards. 

Administered by the U.S. Maritime Administration (MARAD), Title XI provides long-term loans and loan guarantees to U.S. shipowners and shipyards. The loans cover up to 87.5% of vessel construction or modernisation costs, with repayment terms of up to 25 years. They are offered at lower interest rates and funded more than commercial lending markets for such financing. Applicants must demonstrate project viability, provide equity contributions (typically 12.5–25%), and provide collateral, which may be the vessel itself. The MARAD conducts rigorous economic and financial assessments, including credit appraisals and risk evaluations. Funds are disbursed through commercial banks or directly by MARAD, with oversight to ensure compliance with the Jones Act’s requirements and repayment schedules.

Title XI has supported the construction and modernisation of numerous vessels, enhancing the U.S. Merchant Marine’s capacity for domestic and international trade. It has also bolstered shipyard activity, creating jobs and maintaining maritime infrastructure. For example, since 2019, the programme has financed vessels critical for coastal trade and national defence. 

However, the programme had faced issues with defaults, particularly during the 1970s–1980s “distress” period when a shipping market bubble led to $10 billion in defaults and $4 billion in write-offs. Poor project viability and inadequate monitoring contributed to these losses. Recent reforms have tightened eligibility criteria and risk assessments to mitigate such risks. 

Brazil: Established in 1958, Brazil’s Merchant Marine Fund (FMM) is a financing mechanism to support the development of the Brazilian shipping industry and shipyards. It was set up in alignment with the cabotage laws restricting domestic trade to Brazilian-flagged vessels. The FMM was created to address the high capital costs of vessel acquisition and to reduce Brazil’s reliance on foreign vessels, particularly after the 1930s when cabotage was critical for bulk cargo transport due to underdeveloped road and rail networks. The fund saw renewed importance in the 1990s and 2000s as Brazil sought to lower logistics costs and environmental impacts, with cabotage handling 23.6% of cargo by 2020. 

The FMM is administered by the Brazilian Ministry of Infrastructure and funded through contributions from freight taxes, port fees, and government allocations. Loans are provided at subsidised interest rates – often below market rates – for vessel construction, acquisition, repair, and shipyard modernisation. Applicants must provide equity, typically 10–20%, and collateral, with projects evaluated for economic viability and alignment with national maritime goals. 

The fund prioritises Brazilian-built vessels and local operators, ensuring compliance with cabotage laws. Oversight involves regular audits and project monitoring to ensure funds are used for intended purposes, with banks acting as intermediaries for disbursement.

The FMM has significantly expanded Brazil’s cabotage fleet, with over 270 million tons of cargo transported by sea in 2020, a 12.5% increase from the previous year. It has supported job creation, reduced freight costs by up to 20% compared to road transport, and lowered CO2 emissions (8g CO2/ton-km vs. 52g for road). 

However, bureaucratic delays in fund disbursement and stringent eligibility criteria have limited access for smaller operators. Calls for reform have emerged to increase flexibility and support for smaller vessels, particularly as Brazil aims to enhance trade efficiency. Nevertheless, Brazil’s FMM demonstrates the value of a dedicated fund with clear funding sources (e.g., freight taxes) and government oversight. 

Indonesia: Indonesia introduced its comprehensive cabotage laws in 2005, requiring domestic shipping routes to be served by Indonesian-flagged vessels to strengthen maritime infrastructure and support local shipbuilders and crews. While no specific cabotage vessel financing fund is named, the Indonesian government has provided financial support through state-owned banks and maritime development programmes to facilitate vessel acquisition, particularly for its archipelago of over 17,000 islands. These programmes emerged to counter the dominance of foreign vessels, which operated freely before 2005, and to enhance national connectivity and economic integration.

As noted, financing is channeled through state-owned banks (like Bank Mandiri and BNI) and government programmes, offering low-interest loans and grants for vessel construction and acquisition. Eligibility is restricted to Indonesian citizens and companies with Indonesian-flagged vessels, with requirements for local crewing and compliance with safety standards set by the Ministry of Transport. Projects are evaluated for economic viability, with a focus on supporting inter-island connectivity and trade. Oversight is also provided by the Ministry of Transport, with audits to prevent misuse.

Indonesia’s cabotage policy and associated financing have boosted the country’s domestic fleet, supported local shipyards and reduced reliance on foreign vessels. The policy has enhanced connectivity across islands critical for Indonesia’s economy and created jobs for local seafarers. 

Unfortunately, smaller operators faced difficulties meeting financing criteria due to limited capital and collateral. Enforcement of cabotage laws has been inconsistent, with some foreign vessels still operating under exemptions. However, it is noteworthy that Indonesia’s success in expanding its domestic fleet underscores the importance of government-backed financing for vessel acquisition. 

Nigeria’s Experiments

Nigeria attempted to support indigenous shipping through government ownership and financing. But the state-owned Nigerian National Shipping Line (NNSL), established in 1961, operated until its liquidation in 1995 due to mismanagement and unpaid debts. Also, in the 1970s–1980s, the government provided financial support to individual shipowners, but these efforts failed due to recipients’ lack of shipping expertise and inadequate monitoring. 

The Ship Acquisition and Ship Building Fund (1993), managed by the National Maritime Authority (NMA) – the predecessor to NIMASA – was a precursor to the Nigerian CVFF, with the aims of expanding indigenous fleets. The fund was disbursed directly by the government or through state-controlled entities, with minimal oversight. Eligibility criteria were loosely defined, leading to allocations to unqualified operators who misused funds or defaulted on loans.

The NNSL’s collapse – with 21 vessels sold – and the failure of the 1993 fund highlighted the risks of poor oversight, lack of expertise, and inadequate risk assessment. Since these failures, foreign vessels have dominated Nigeria’s coastal trade. 

Success Factors for Nigeria

Nigeria must learn from the experience of other countries, including those discussed above. Effective cabotage programmes must prioritise local shipbuilding, like in Brazil and India; job creation as with Indonesia and the U.S.; and environmental sustainability as in the case of Brazil. 

Successful implementation of the CVFF in Nigeria can help transform the country’s maritime sector and the economy through economic diversification, reducing the reliance on oil through maritime revenue, which can contribute up to $300 million annually by 2032. It can also support the country’s implementation of the African Continental Free Trade Area (AfCFTA). Another area of benefit is job creation, with up to 4,000 direct and indirect jobs projected by 2032, addressing unemployment and boosting coastal communities.
 
The country can reduce capital flight from its shores by decreasing the current high level of dependence on foreign vessel charters, saving between $500 million – $1 billion annually in freight costs. By boosting shipbuilding and maritime infrastructure development, Nigeria can stimulated local shipyards and repair facilities, fostering industrial growth, akin to India’s “Make in India”. A stronger indigenous fleet will enhance Nigeria’s maritime sovereignty and blue economy potential. The country can also achieve its environmental goals as coastal shipping reduces CO2 emissions, aligning with sustainability goals.

Addressing Risks

Nigeria’s CVFF faces myriad risks, which must be well managed, for it to be successful. Past cabotage initiatives faced disbursement delays, allegations of misappropriation, and lack of transparency eroded trust. Addressing these challenges require clear guidelines on the operations of the fund, including vetting of applicants and compliance with disclosure requirements. The fund manager must also enforce the mandatory equity requirement, verify maritime experience, and conduct credit appraisals. It must also require bankable feasibility reports as mandated by CVFF guidelines.
 
Weak enforcement should be guided against. Foreign vessels currently dominate in Nigerian partly due to NIMASA’s frequent waivers, mirroring Indonesia’s enforcement gaps. But with the CVFF, waivers must be limited, Nigerian-flagged vessels should be prioritised, and penalties must be imposed for non-compliance.

To overcome the risk of exclusion of smaller operators, the loan offerings should be tiered, between $5–$25 million, and partial guarantees could also be offered. NIMASA’s 50% contribution and NNPCL’s 9% support should also ease repayment burdens. Also important is technical expertise, the lack of which contributed to the pre-CVFF failures. To bridge the technical expertise gap, there should be regular training programmes for seafarers and technicians. 

None of these can be done without strong political will. The administrative stagnation of the 2004–2024 period reflects this weak political commitment. Stakeholders have consistently pointed this issue out. The Minister of Marine and Blue Economy has the challenge of convincing stakeholders that the government is serious this time around. Such commitment should be regularly shared via forums, including NIMASA’s planned CVFF workshop.
 
Conclusion

Nigeria’s CVFF, if executed transparently and strategically, can unlock $500–$800 million in GDP contribution by 2032, create thousands of jobs, and position Nigeria as a maritime leader in Africa. Drawing from the experience of the U.S., Brazil, Indonesia, and India, the Nigerian CVFF must prioritise rigorous vetting, strong enforcement, and accessibility to empower operators. 

By addressing transparency, oversight, and capacity challenges, Nigeria can rewrite its maritime history, ensuring the CVFF delivers on its promise of economic resilience and sovereignty. As disbursement begins in August 2025, stakeholders must unite to navigate this transformative journey.

Joy Dimka is Senior Legal Officer at the Nigerian Shippers' Council.