Bangladesh: Emerging potential of shipbuilding industry

It's a good piece of news that the country's shipbuilding industry has recently received orders for 40 oil tankers worth Tk 6.0 billion. This is the largest ever order won

by local vessel makers, ushering in a new era for Bangladesh's nascent shipbuilding industry. Already quite a number of ocean-going cargo vessels were exported and orders for more are in the pipeline. It is projected that the contribution by the sector would otherwise be about 3.0 to 4.0 per cent of the country's gross domestic product (GDP) by 2015, and that export earning may go up to $2.0 billion in near future.
A report published in the FE last week suggested that if the local builders could successfully deliver the order for oil tankers in time, they would be receiving more orders from foreign companies. This is a big test for the new industry. New ship-makers like Meghna, Khan Brothers and Three Angle won the contracts for building 40 tankers. Ananda and Western Marine - country's two other major shipbuilders -- have already graduated into world class companies, exporting ocean going vessels worth over $100 million since 2007. They are now eyeing on lucrative overseas deals to build ships.
In order to give a big shot in the arm, the industries minister announced about a government plan to set up separate zones for the shipbuilding sector and to formulate a policy to support this promising sector. The zones will be created on the south bank of the river Karnaphuli in Chittagong and in Barisal. A coordination cell will be formed comprising experts in the shipbuilding sector to ensure safety and operational efficiency of Bangladesh-built ships.
The industries minister appeared upbeat about the future of the industry. If the current trend continues, the sector will help Bangladesh become a middle income country by 2021, he said. The emerging industry will also give Bangladesh a new name as a shipbuilding nation through securing bilateral trade with friendly European partners and other nations.
More than 50 per cent of the world's ships are over 20 years old and require replacement in the next five to ten years time. It is anticipated said Bangladesh could build ships at a cost which is, at least, 15 per cent lower than that of other countries. The authorities do need to extend all possible support to help develop new shipyards, train a workforce for both the local and foreign markets and facilitate backward linkage industries for flourishment of this industry.
Indeed, the government should not waste so much time in making it a thrust sector as India, Indonesia and other nations are increasing their own ocean-going vessel capacities. The ship building industry in India had grown from Rs 10.17 billion in 2002 to Rs 36.57 billion in 2007 as a result of government support, with sales increasing to Rs 52.83 billion a couple of years back. This would otherwise indicate what an important role the government can play in setting up an enabling environment for the local shipbuilding industry.
The government has already granted the industry a partial green channel status. In terms of the current provisions, no customs duties are payable on imports of raw materials and components for use in shipbuilding. However, granting full green channel status to export-oriented shipbuilders will not place any additional burden on the government. It will save the industry 0.9 per cent of the contract value. If the shipbuilding yards are declared export processing zones, it would imply that all sales made to such shipyards would be considered exports.
The shipbuilding sector is endowed with a certain level of technical edge that allows it to participate in higher value addition in terms of production. Taking this as the cue, it is assumed that while it took around 25 years for the country's garment industry to flourish and play a key role in foreign earnings, shipbuilding could do the same but in less time, say about 10 years, with higher local value addition, assuming proper facilities and policies are provided towards the development of its backward linkage industries.
Bangladesh has advantages like cheap labour, a presence of nearly 0.1 million skilled and semi-skilled workers and industry-related educational and training institutes. A long history of maritime activity and a favourable geographical location also placed the country at an excellent position, with about 200 shipyards and workshops to cater to the domestic needs for water vessels. To boost the industry's growth, the government needs to thoroughly streamline all authorisation, permission etc., including environmental certification, for avoiding corrupt practices.
Country's economy is at present dependent on a few export items. It badly needs export diversification for its sustainable growth. The shipbuilding sector has the potential to expand the country's export basket, fetching much-needed foreign currency as well as generating employment opportunities. With an aggressive marketing plan, the new breed of entrepreneurs is expected to obtain a notable slice of the US$400 billion global shipbuilding business.
Bangladesh can really emerge as a quality shipbuilder, provided the nation cashes in on the growing demand in the post-recession time worldwide. The government has to play the key role here by creating the frameworks and policies to address the shipbuilders' problems that include financial constraints. The local entrepreneurs willing to make investments in the shipbuilding industry need to be facilitated to have every access to bank finance. High lending rate and the cost of getting bank guarantee are the two major problems these entrepreneurs are facing. If such problems are properly addressed, it will help strengthen the confidence and interests of foreign buyers and local investors.
Source: The Financial Express