The world shipbuilding industry holds the largest portion of global transportation sector and is continuously growing. The industry's main driving force is economic growth because sea is the main source of export and import of goods across countries. The industry requires huge investment in capital, labour and technology. Manufacturing ships is a very long process and orders in the shipping industry have to be placed long before they are built.
According to various reports and sources, many countries are eager to enter Bangladesh's shipbuilding market mostly due to lower labour cost, which is typically 20-30 per cent of the total ship manufacturing cost. Compared to other shipbuilding nations, the overall investment cost for shipbuilding in Bangladesh is estimated to be 15 per cent lower. With an aggressive marketing plan, the new breed of Bangladeshi entrepreneurs is expected to secure a notable slice of about 400 billion-dollar global shipbuilding business.
The prospects for Bangladesh's shipbuilding industry are bright mainly due to a large pool of practically experienced workforce (available welders, cutters and other technical hands may be trained quickly with codes and standards), vast river front and quiet deep water up to sea, low cost of human input as a major strength and a reasonably low cost of infrastructure. Ships are technically sophisticated and high-value assets. A large ship may cost over 100 million US dollars to build.
Role of IMO: The International Maritime Organization (IMO), the London-based UN agency, principally regulates the shipping industry and is responsible for safety of life at sea and the protection of marine environment. The IMO has adopted a comprehensive framework of detailed technical regulations, which govern the safety of ships and protection of marine environment. National governments, as members of IMO, are required to implement and enforce these international rules and ensure that the ships, which are registered under their national flags, comply with them.
The Bangladesh government has rules and regulations for controlling domestic shipbuilding industry. The Ministry of Shipping has been looking after this industry. There are some other authorities from the government's end to control this sector such as BIWTA, which was established for development, maintenance and control of water transports and certain inland navigable waterways.
There is an international law for all shipping nations to ensure the "Safety of Life at Sea (SOLAS)" called "Flag State Implementation (FSI)". It means the country's flag shown in the ship represents its ownership and it belongs to that country. The ship is registered in that country and the country has to ensure its safety. The government conducts a survey before registering the ship on the government register book. If the government official finds any discrepancy in the ship, then the vessel does not get permission to sail. If everything is okay, only then it will get go-ahead to start its voyage.
At present, the Ministry of Industry is overseeing the shipbuilding industry in Bangladesh and the Ministry of Commerce is supporting the industry in terms of raw materials being brought by the shipbuilders in lieu of customs duty, which is revenue for the government. The Ministry of Environment has a significant influence on shipbuilding industry as it regulates and implements environmental law. The Finance Ministry is not directly related to shipbuilding but it has a great impact on the industry itself when it comes to bailout or financial issues.
Problem areas: Financial problem is often acute in shipbuilding industry. A shipbuilder needs huge working capital for manufacturing ships. This cannot be met by the company's capital or customer down payment. However, as the loan's amount is very big and there is no significant solid collateral, the banks are not interested to take that much of risk by giving such huge amount of loan to a single firm. If they do, they charge high interest rate.
Bank guarantee is considered to be the major problem for shipbuilding industry, especially for the export-oriented shipbuilding industry, as the foreign buyers do not accept bank guarantee from local banks. So, local banks have to contact with their foreign counterparts on behalf of the company for bank guarantee, which ultimately increases the processing cost and thus the cost of manufacturing ship increases. In case of green channel facility, the raw materials have to be cleared within 24 hours but because of the procedural problems sometimes, it becomes delayed. Tax cannot be a barrier for export-oriented shipbuilding as there is five-year tax holiday but companies, which have been running in the industry beyond five years, are deprived of such facilities.
Majority of businessman involved in the shipbuilding industry complain about facing problem in the import of raw materials and the time taken by the license issuing authority due to bureaucratic tangles. This delay is inappropriate for development of the industry. They also face problem in acquiring lands for shipbuilding.
Recommendations: Following analysis of the data collected through this research, IBFB has recommended the following:
1. A special zone, having technical and geographical facilities, including deep channel, 200+ meter height of bridges on the rivers and uninterrupted electricity and gas supply has to be established for 100 per cent export- oriented shipbuilding industry. 2. Providing government "Khas land" at competitive prices in favour of shipbuilding industries under prefixed rules and regulations to be jointly arranged by the Ministry of Land and the Ministry of Environment.
3. Bangladesh Bank should introduce refinancing at a lower rate to be arranged by the government for industrial loan for setting up shipbuilding industry as well as working capital.
4. Since bank guarantee, issued by local commercial banks, is not accepted by the buyer's bank, it is necessary to re-issue the guarantee by a foreign international bank based on the guarantee issued by local commercial banks. Commission per annum is charged by foreign banks for issuing counter guarantee. Bangladesh's banks may maintain a record of such guarantee issued by a local commercial bank with cross reference to each other. This will help to avoid issuing counter bank guarantee by a foreign Bank.
5. Green channel facility should be implemented.
6. Bangladeshi shipbuilders should have the raw material transfer facility from the buyers without opening L/C.
Shipbuilding is a technology-based heavy industry. No nation, except those endowed with mineral and natural resources, has ever become economically strong without developing the heavy industry, and the heavy industry cannot be developed without government support. Timely implementation of the recommendations is expected to create an enabling business environment for the country's shipbuilding sector to flourish and sustain with global competitiveness.
Available reports and information indicate that there is a huge opportunity for Bangladesh to grab a sizeable share of global market for small and medium ships. The exact nature and extent of the market should be explored critically and the industry should be prepared to meet the huge market demand。