A STUDY ON SHIP FINANCING IN NIGERIA

A STUDY ON SHIP FINANCING IN NIGERIA

ABSTRACT

Small and Medium Enterprises (SMEs) have been recognised as critical to economic growth and poverty reduction in developing countries. Shipping businesses represent significant portion of SMEs and have dominated the private sector investments in developed nations. Existing studies have identified funding as a major constraint to SMEs in developing countries. The banking institution statutorily positioned to assist in SMEs funding in these countries are constrained by a host of factors. This paper investigates the factors affecting banks financing and development of SMEs in the maritime shipping sector of Nigeria. Data for this study were obtained from Likert scaled questionnaires which were administered to a randomly selected sample of commercial banks with shipping portfolios. Evidence from data analysis using ordered Logit regression model indicates that; risk perception attitude of banks, information constraints on SMEs, lack of skills in SMEs financing and unfavourable regulatory environment are significant factors affecting banks investments in SMEs in Nigeria’s shipping sector. Policy implications of the findings are discussed.

CHAPTER ONE

INTRODUCTION

1.1     Background to Study

Shipping has existed in over 5000 years and the first sea trade network we know of was between Mesopotamia, Bahrain and Indus River. Shipping is constantly changing and shipping today is far from shipping 5000 years ago. Thanks to the discovery of the global sea routs in the late fifteenth century, the industrial revolution in the late eighteenth century and the dismantling of the colonies in the second half of the twentieth century, shipping went from slow and expensive by land to a tightly knit global business community (Stopford 2008, p. 45).

Access to capital is central in building a business community like the shipping industry. High investments cost, due to highly technological vessels, require ship-owners who know how to get funding.“Because shipping is such an old industry, with a history of continuous change, sometimes gradual and occasionally calamitous, we have a unique opportunity to learn from the past.” (Stopford 2008, p. 4)

Finding out how ship-owning companies finance their investments, by using historical data and learn from past years, is the objective of this study.Hopefully, the study will provide answers to financing in the ship-owning industry.

Financing is an important stage in starting an asset-based company such as ship-owning companies. Knowledge of financing and capital can be a prerequisite for the company to create innovative products and services. The CEO of Havila Shipping said in an interview with Sysla (Aadland 2014) that it is important to maintain the maritime cluster in Norway to keep a leading position in the shipping industry.

A STUDY ON SHIP FINANCING IN NIGERIA