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Port Reforms: Why Nigerian Ports Lose Money; Understanding The Economics of Inefficiency and Sleaze

Doing Business in Nigeria	4328 VIEWS
Doing Business in Nigeria
4328 VIEWS

Saturday, October 5, 2019 / 06.00PM / Teslim Shitta-Bey, Managing Editor, Proshare/Header Image Credit: EcoGraphics

Sea ports and terminals in Nigeria are amongst the world's most inefficient cargo handling facilities says a recent survey produced by the Convention on Business Integrity (CBi).

The survey commissioned in 2018 and published in August 2019 notes that Nigeria's sea ports suffer from a cocktail of challenges ranging from inefficiency to corruption. The short list of 'pain points' for Nigerian ports, according to the survey, included, but were not limited to the following:

Rampant exercise of discretionary power by port officials
A bouquet of payments made for services not provided
A lack of awareness by port users of grievance mechanisms available for addressing service challenges at the port facilities
Fees are verifiable but even where they are. Officials still exercise discretionary powers
Poor port infrastructure cost port users' excessive overruns in terms of extended port processing time and a rise in port charges due to processing delays.

These challenges have led to Nigerian ports and terminals being amongst the most expensive in the world; inefficient, and allegedly riddled with corruption, the poor value propositions of Nigeria's maritime handling facilities has resulted in individuals or group of individuals taking advantage of the poor conditions of port infrastructure, slow processing time, and wide discretionary powers of officials to create caches of personal cash.

Mapping the Ports Problems/Corruption Monsters

In addressing these problems, CBi's 2019 survey notes the following action points that need to be addressed:

Poor subscription to Standard Operating Procedure (SOP) by port management
Low quality port infrastructure
Differential use of ports; Lagos and Port Harcourt facilities are preferred over other coastal harbors
Negative operational elements at the ports cost the country N2.5trn annually according to the Lagos Chamber of Commerce (LCCI) and its relevant maritime industry members
Capacity Utilization at the ports is low as only between 38% and 40% of installed stevedoring and other port-related capacities are deployed regularly at dockyards. This has resulted in 40% of port businesses located around the major docks relocating their activities elsewhere
Custom officials and port operators function at the supply side of the system and are very influential in manipulating the system for and/or against the demand side of port users
Even though not as statutorily discretionary as customs officers, port officials like port gate officials, stevedores, document clerks, and scanner agents influence the demand side and can manipulate the system in manners that trade-off efficiency
The interface of the demand side and supply side commonly engender corruption and bridge ports/terminals processes

Port Challenges; The Other Layers

CBi's report further notes key challenges to port effectiveness and efficiency along the following lines:

The PESTEL Framework:

Political Factors: Politics plays an intrusive role in deciding appointments and taking decisions concerning port charges or waivers. This discretionary bias creates problems for port capacity as workers may not be the best for the jobs at hand.

Economic Factors: Rent-seeking and entitlement revenue models by individuals leads to situations were greed defines the actions of port/terminal officers and port/terminal patrons. The survey notes that, "Many public officers are themselves insurance covers for many in their society where many are unemployed thereby further creating and fueling the propensity for cycle of corruption within the economic system of the port".

Social Factors: A poor social value system and attitude towards productivity and reward has created problems around individual attitude to work. The CBi survey observed that, "the common orientation in Nigeria is that the end justifies the means. Nigeria is a system where people do not ask how people do their work to earn a living but celebrate bogus and unsustainable lifestyles. For example, if a port official has a fleet of expensive cars and houses in highbrow areas of the country, Nigerians will likely not ask the source of income but only celebrate his/her time has come and even wish they were like him/her". The social dissonance between value-based action and rent-based activity creates problems for patrons of the local terminals and ports.

Technological Factors: The report noted that, "There is no sufficient systemic technology to counteract corruption at the ports". In other words, high levels of human intervention at every point of the port service value chain makes the operations of the docks easily susceptible to corruption. If corruption is to be mitigated in our Ports technology needs to be deployed as a tool of first choice.

Environmental Factors: Postings to the ports are often based on ethnic, tribal or political factors regardless of the innate character of Ports. This means that several Ports officials are not indigenous to the local communities and are nor sensitive to unique demographic characteristics and idiosyncrasies. According to CBi's survey, "Although most Nigerians are poor, the country in itself is rich in terms of resources and the ports are seen as the nation's main source of income. Officials and non-officials at the ports are seen as working in rich sector of the country. This orientation and mindset create a cycle of mismanagement and corruption".

The report goes on to say that, "Based on the principle of Federal Character, postings in government establishments are often based on ethnic and political considerations and these affect the nature of operations at the ports. It affects how people perceive the ports and how they operate in them. Even though there are many ports in the country, there is significant power distance between the supply side and the demand side such that there are exercises of discretionary powers and demand for unofficial payments within a broader corruption framework" (see illustration 1 below).

Legal Factors: Similar to other areas of economic management in Nigeria the laws governing the Ports/Terminals are robust and appropriate but availability and enforcement are separate issues. Even though laws can be said to be adequate, enforcement is a major challenge, as officials find no personal financial benefits from adhering to the letter and spirit of official procedures governing port administration. Says the survey, "Many existing laws, rules and Standard Operating Procedures (SOPs) only exist on paper while applications are poor as people rather operate informally and see the laws as meant for the management and not to be applied thereby making the ports run as business as usual. This creates a fertile ground for corruption and inefficiency. The letters of the rules and SOPs are not usually activated to combat corruption and in many cases, officials and customers innovate fresh strategies to counteract the laws and rules through which they create systemic legal, regulatory and administrative bottlenecks for personal gains and against effective ports operations and anti-corruption since corruption fail where there are seamless operations and effective rules and SOPs".

Laws and rules are not worth the paper they are written on, unless they are enforced, and this is the challenge of Nigeria's Ports/Terminals as are being administered today. If the Ports are to become more efficient and effective, providing improved service quality at lower operating costs to users, SOPs need to be followed to the letter, technology needs to put to use in the context of an enforcement system blind to human intervention and disruption.

Soji Apampa, chief executive officer (CEO) of CBi Nigeria, and the Maritime Anti-Corruption Network (MACN) will need to do more than report writing and engage the federal authorities in actionable programmes to get the Ports working competitively driven by private economic imperatives and pervasive use of technology.

Illustration 1 The Economic Burden of Ports/Terminals Inefficiency

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Source: Proshare Content, Research

Behind the Walls of Fear

The report noted a myriad of challenges associated with gathering information needed to assess the conditions of port operations. According to the report, the Research team "encountered some challenges during the primary data collection process. This was not strange to the team given the nature of issues interested in and the general contexts of study which have been in the front burners of national and global discourses over the years. There was a high level of ambivalence, suspicion and resistance on the part of some respondents. Some people outrightly refused to participate citing frustration with the systems. Such people claimed problems at the ports/terminals have existed for too long without much serious positive interventions to address the problems. Many were frustrated with the system and have resigned to fate and see no reason to participate in any study."

The review went on to note that respondents developed a chill when they observed that their observations were to be recorded, "There were also cases where some agreed to participate but refused to participate within the ports/terminals for fear of persecution in case they give information that indict the system. They did not want to be seen to be speaking against the system for fear of reprisal even when they were assured of confidentiality and anonymity. They therefore agreed to be interviewed elsewhere or virtually. There were also cases where some people who have agreed to be interviewed blatantly refused interviews when they saw electronics to be used for interviews. They thought their voices were to be recorded so they refused for fear of the voices being used as evidence to victimize anyone who speaks against the system".

Sweating the SWOT

To understand the underlying difficulties of getting Nigeria's ports working at the competitive levels of Europe and the America's, CBi's report offered a strength, weakness, opportunities and threat or SWOT analysis to provide insight into the state of port operations and administration (see illustration 1 below)

Nigerian ports have well-trained officials with intensely competitive customers and a high level of port service demand. The ports and terminals are politically stable with proper supervisory frameworks but burdened by a perception of pervasive corruption.

The impression that Nigerian port officials are corrupt is compounded by visibly poor infrastructure, excessive discretion on the part of officers and weak implementation of anti-corruption laws. Politicization of the public service has also hurt port performance. One way out of the problem of efficiency and discretionary abuse would have been the use of technology, but this has been inhibited by those that currently benefit from the system as it exists presently.

The problems of corruption, rampant officer discretion and poor infrastructure are internal to the port management system, but external factors that may influence the port sectors future include, but are not limited to, the following:

Several stakeholder partnerships
Corruption as an opportunity for technology application
Digitization of SOPs
Building low base rebound from technology-driven efficiencies

These opportunities would need the authorities to address the threats posed by:

Poor Infrastructure
Difficult economic environment (recent GDP growth was a slow 1.94%)
Poor internal early warning/correctional signals such as 'whistle blowing' and personnel and data auditing
Fragile political will; the politicization of offices creates a thick layer of nepotism, favouratism and discretionary action

Sweating the Nigerian ports and terminals SWOT would require a set of bold and forceful initiatives in the areas of infrastructure and investment in technology to remove or at least reduce the amount of discretionary powers exercised by port officers.

Illustration 2 SWOT Analysis of Nigerian Ports

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Source: CBi 2019 Port Users Survey Report

Getting The Ports Operational Framework Right; Beyond Talk and Intentions

To reconfigure port efficiency and effectiveness to enhance regional competitiveness CBi's report takes into account strategic objectives and actions which if implemented could bring the desired results in port and terminal performance. CBi's Strategic objective/Impact Matrix provides clarity about the needed actions to bring the local ports to international standards of operation (see illustration 2/Matrix below).

Illustration 3 Strategic Objectives/Indicators Matrix

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Source: CBi 2019 Port Users Survey Report

The Search for Clearer Waters

To improve the Nigerian economy, subsystems need to be optimized, one of the most import subsystems are Nigerian ports and terminals, the ease of doing business is critically constrained by the challenges importers and exporters face at marine docks. For the overall strategy of improving the quality of the business environment to be achieved the government and private sector agents in the maritime sector must be prepared to make the CBi Report 'actionable'.

Unlike standard reports that gather dust in government cabinets, this report must do more, it must make Nigerian ports, efficient, effective and competitive for the country to predictably grow beyond the 2 per cent resistance growth rate of the past four years.

According to CBi's Survey Report, "There are charges that are not transparently arrived at and they could not ask valid questions/explanations in many instances. There is poor infrastructure, non-compliance with rules and regulations, exercise of discretionary and unofficial powers as well as poor infrastructures breed inefficiency that affect level of predictability and consistency at the ports. For instance, in Apapa and Tin Can, gridlocks have made it impossible to project how long it will take to finish and deliver goods and this has led to skyrocketed prices of doing business. Port congestion is another issue affecting consistency and predictability. Corruption and exercise of discretionary powers by officials also create problems. There is over concentration of activities at the Lagos Complex Apapa, Tin-Can Island and Port Harcourt ports while most other ports/terminals in the country are poorly used. The pressure on these heavily demanded ports/terminals overstretches capacity and breed corruption and inefficiency which partly account for most of the problems identified in the maritime industry" (see illustration 3 below).

Illustration 4 Port/Terminal Business Over 12 Months

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Source: CBi 2019 Port Users Survey Report

Download Survey Report Here

Improved policy framework with intensive use of non-human supervised compliance would enable the extraction of greater levels of value addition across ports and terminals.

The need for private sector intervention in port development is evident but recent disagreements between private sector operator BUA and the Nigerian Ports Authority (NPA) is an indication of the challenges that could frustrate a clearer direction towards the needed private public partnership (PPP) in the improvement of port operations and incremental growth in capital expenditure for port infrastructure (see "Our Case: Between NPA and BUA Ports and Terminal, Port-Harcourt").

Conflicts between Nigerian private port operators and government agencies can only lead to sub optimal performance of the sector; just as in a social marriage, success comes from tolerance and commitment and not impatience and irritation. There is a need for clearer waters in the relationship between government and the private sector to develop Nigeria's marine infrastructure and improve the management of its ports and terminal facilities. Blue ocean strategies do not emerge from Red ocean battles.

On Tuesday October 8, 2019 the Convention on Business Integrity (CBi) in collaboration with the Maritime Anti-Corruption Network (MACN) will organize a round table session with stakeholders to discuss the outcome of its recent survey and chart ways of building a transparent and robust operating standard that will improve the ease of doing business at Nigeria's ports and terminals.