Friday, June 01, 2012

Bangladesh turns from ship-breaking to ship-building

Bangladesh, known worldwide as a place for breaking up old ships, is making a push to grab more of the global shipbuilding business, slashing corporate tax as an incentive for its more than 100 shipyards to expand.

The National Board of Revenue of Bangladesh has approved a 12-year tax rebate facility under which corporate tax is cut to 10% from 18.75% effective July 1. In the event of any shipbuilder becoming listed, it will have to pay only 5% corporate tax. The government hopes the move will help to create 1.5 million additional jobs and lead to as much as US$2 billion in export earnings by 2015. 

Companies such as Western Marine Shipyard and Ananda Shipyard and Slipways are seeking to attract more buyers of small vessels as the world's leading shipbuilders in China and South Korea increasingly focus on large vessels such as ever-bigger container carriers and specialized ships such as transporters of liquefied natural gas. 

Bangladesh's 124 shipyards, with more than 100,000 skilled and 150,000 semi-skilled workers, can easily secure a substantial share of the global small shipbuilding market, according to a World Bank study published in March. 

If the country can capture even 1% of the $167 billion global shipbuilding market, "exports will be worth $1.6 billion", the World Bank noted earlier this year. Total export orders can easily exceed a billion dollars within a year or two "if we succeed in maintaining our present momentum despite the worldwide economical turmoil", Mohammad Shahidul Bashar, public relations deputy manager at Western Marine, told Asia Times Online. The industry at present has orders to build 42 ships worth around $600 million, he said. 

Export earnings from ships, boats and floating structures rose to $40.4 million in the 12 months to last June from $12.7 million in the year to June 2009, according to the Export Promotion Bureau. The latest tax incentive comes after a dip in exports to $9.3 million in the 2009-10 fiscal year. 

The World Bank's "Bangladesh - Diagnostic Trade Integration Study" released in March said the sector accounted for 0.57% of the global market by 2008, up from 0.08% in 2006 and 0.35% in 2007. 

The shipbuilding industry could become the country's third-largest foreign exchange earner in less than 10 years if the government provided support relating to bank guarantees and declares export-oriented shipyards as export-processing zones, the Bangladesh Foreign Trade Institute says. The country's exports are dominated by textiles and ready-made garments, at around 70% of value. 

The Association of Export-Oriented Shipbuilding Industries has for the past three years been urging the government to ease taxes to make the industry more competitive. Association president Abdullahel Bari, in a written proposal to the government, earlier forecast that global ship manufacturing capacity would rise to 10,000 vessels by 2015 from 7,500 at present and that "the traditional shipbuilders will come to new builders like Bangladesh in the coming years to meet the rising demand". 

Present buyers of Bangladesh-made vessels come from as far afield as Europe and Africa. On March 21, German buyer Grona Shipping took possession of the last two of eight 5,200 deadweight tonnage (DWT) ice-class cargo vessels ordered from Western Marine. Each vessel was sold at $9.74 million. 

Western Marine has also delivered six vessels to buyers from Denmark, Pakistan and Finland, said Bashar. "The shipyard has also built more than 60 ships including ferries, tankers, cargo vessels and dredgers for coastal and inland use in Bangladesh," he said. 

Ananda Shipyard and Slipways (ASSL) in April handed over the $12 million Enzian, a 6,100 DWT multi-purpose ship, to German's Komrowski Maritim. ASSL has also sold ocean-going vessels to buyers from Germany, Denmark and Mozambique. Other local shipbuilders winning international orders include Highspeed Shipbuilding, Dhaka Dockyard and Engineering Works, Khan Brothers Shipbuilding and Karnaphuli Shipyard. 

Bangladesh is historically noted for its ship-breaking industry, which competes with India, China and Pakistan to be the world's largest, but it appears unlikely that the steel garnered from old hulks will make its way into new vessels destined for the world's oceans. 

"Ships built for foreign buyers and even local owners comply with a set of standard guidelines set by the International Maritime Organization [IMO]," said Bashar of Western Marine. "Classification societies work under the IMO to monitor each new building project. Therefore all machinery and equipment used and installed in new building must be class approved. According to this, parts from expired ships are not permissible."

First published in Asia Times online, Jun 2, 2012

Syed Tashfin Chowdhury is the Editor of Xtra, the weekend magazine of New Age, in Bangladesh

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