Energising the shipbuilding industry

Dhaka,  Sun,  24 September 2017
Published : 22 Aug 2017, 20:09:23
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Energising the shipbuilding industry

Md Shakhawat Hossain
Shipbuilding has in recent years emerged in Bangladesh as a significant means of export diversification. It has high potential. In a short period, the industry has made a good reputation in the global market. As many as 40 ocean-going ships have been exported to various parts of the world in the last 10 years which has fetched us remittance of about Tk 12.0 billion.  Export destinations of the ships include Mozambique, Denmark, Finland, Germany, Pakistan, Tanzania, Ecuador, Uganda, New Zealand, Gambia and Kenya. Besides, 18 world-class Cutter Suction Dredgers have been constructed and delivered to the Bangladesh Inland Water Transport Authority (BIWTA) and Bangladesh Water Development Board (BWDB). 

Only a handful of shipyards in Asia are able to secure international orders during the current global economic downturn. Due to our competitive pricing, Bangladesh yards have been able to obtain foreign orders. Western Marine Shipyard Ltd and Ananda Shipyard & Slipways Ltd. are the leading shipbuilding companies in the country. Recently, an Offshore Patrol Vessel (OPV) was built and exported by Western Marine Shipyard Ltd to the Kenyan Ministry of Fisheries, Livestock & Agriculture. Export of this type of high-end product will surely bring a new dimension to the export sector of the country. 

Ship export earned US$ 65.61 million in 2016-17 which was more than double the target of US$ 30 set by the Export Promotion Bureau (EPB). 

Despite such promising prospect, the biggest constraint the industry is currently facing is the high cost of fund on capital investment and intermediate financing. Those who took loans at high interest rate and invested in the infrastructure development of the shipyards are in serious difficulty as the high cost of fund is about to devour their working capital to continue the projects in hand.

We need to address the issue appropriately to ensure building a resilient infrastructure that promotes sustainable development of the shipbuilding sector. Importance of this sector and its contribution to the economy have been noted in the Seventh Five Yearly Plan FY2016-FY2020 which does reflect serious intent of the government to take special care of this industry for sustainable growth. 

The shipbuilding sector of Bangladesh supports the Prime Minister's Vision 2021 (MIC) & Vision 2041 (Developed Country) objectives. Completing all substantial infrastructure works, development works, and logistics-related jobs are the key to achieving the Vision 2021 and Vision 2041 and meeting the UN Sustainable Development Goals (SDGs). It is the shipbuilding and heavy steel engineering industry of Bangladesh which is capable of addressing these works in an efficient manner. Further, the expansion of maritime boundary leading to the emergence of the Blue Economy is another area of high potential benefits which will be possible to reaped if the shipbuilding industry is nurtured for sustainable growth and development. 

It may be noted that the lifecycle of a shipyard is approximately 200 years, and the shipyards of Bangladesh are only 12 years old. What the sector has achieved in this very brief span of time is indeed highly laudable. Besides exports, meeting local demands by our own industry also deserves serious consideration. The need for dredgers to maintain navigability of our river systems and to raise river banks as a step to stop flooding is immense. If the local shipbuilders are provided with an enabling environment to build world class dredgers, the country can save a substantial amount of foreign exchange by procuring those locally. In addition, shipbuilding industry can also contribute considerably by supplying steel fabrication materials to the large number of development works that the government is presently executing. 

The recent implementation of the coastal agreement and the Protocol on Inland Water Transit Route between Bangladesh and India would require building of more than 300 small and medium-size ships for coastal agreement only. This will cost roughly Tk 30 billion. 

Shipbuilding is a capital-intensive industry. With the existing investment model in Bangladesh where investors are charged 12-14 per cent interest rates with short repayment time of five years, it is really unattractive for entrepreneurs to get into business. 

To overcome the challenge, a financial assistance scheme should be implemented in the form of 20 per cent of the "Contract Price" or, the "Fair Price" as determined by the authorised shipping values, for any vessel built in Bangladesh under Classification Society after its delivery. The quantum of financial assistance shall be reduced by 3.0 per cent after every three years. This scheme should be in force for a period of 10 years from the date of the granting of the scheme. Under this policy only those companies which construct and deliver under Classification Society with minimum eight years of experience and which are members of the Shipbuilding Association should be eligible for availing the financial assistance. It may be mentioned that a similar policy has already been adopted by the shipping industry of India which has made the shipyards more competitive. 

Moreover, the sector should be allowed low-interest rate of 3-4 per cent on capital investment like in China. Since it involves substantial investment, repayment time should be 20 years with a moratorium period of three years.

Due to the adverse effect of global recession resulting in debt backlog and irregular high-cost debt servicing capability, the industry is unable to service its accumulated debt which is still increasing on a recurring basis due to the accumulation of high-interest charges by banks and non-banking financial institutions (NBFIs) against the principal amount. As a result, despite having adequate work orders, the industry is facing great challenges to maintain smooth operation both financially and technically. It  needs to have a facility to freeze of interest charges on capital investment (Principal+Interest accrued) and repayment schedule up to 20 years with a moratorium period of three years, as already mentioned. 

At present, the industry employs 20,000 people. On implementing the financial assistance scheme, the shipyards will be at a much better financial standing and will be able to employ 50,000 people in five years, and possibly 100,000 in 15 years. At the same time, under the Skills for Employment Investment Programme (SEIP) initiated by the Ministry of Finance, the shipbuilding sector is now training 10,000 people. Value addition of such programme will be very remarkable. Furthermore, this sector is also contributing by producing high-skilled workforce (welders, fitters, fabricators, electricians, designers, administrative executives etc). 

Ship is a hi-tech product, and hence export of ships from Bangladesh means a brighter image for our country. Therefore, ensuring the sustainability of the shipbuilding industry, the government should adopt the proposed financial assistance schemes as well as modify the Export Policy Order 2015-2018 to provide incentive to the shipbuilders and protect the industry by banning import of ships the types of which could be built in Bangladesh. Most of the leading shipbuilding industries in the world have adopted this policy. 

The writer is a marine engineer and General Secretary of the Association of Export Oriented Shipbuilding Industry of Bangladesh. 

majid@wms.com.bd

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