Bangladesh became a shipbuilding nation in 2008 when it exported its first ocean-going vessel to a Danish company and all of a sudden there were talks about the immense potential of the sector and the country capturing a major share of the global shipbuilding market.
Ananda Shipyard & Slipways Ltd has become the first shipbuilder to achieve the feat of exporting seagoing vessels from Bangladesh, in a demonstration of the country’s growing manufacturing prowess.
Soon, existing companies injected hundreds of crores of taka to expand their footprint. New shipbuilders have also emerged.
But, within a few years, the momentum was lost as demand from Western buyers, hit by the lingering effects of the global financial crisis, evaporated. On the home front, local contractors failed to build on initial success, maintain international standards and deliver ships on time, which undermined buyer confidence.
Tighter liquidity and higher interest rates on industrial loans also contributed to the decline.
Subsequently, the country’s ship exports began to decline. Exporters recouped just $0.2 million in the past fiscal year, the lowest in a decade, according to data from the Export Promotion Bureau.
Export earnings were $0.18 million in the July-April period of the current fiscal year, up slightly from $0.16 million in the same period a year ago. one year old.
Since 2008, Bangladesh has earned about $180 million by exporting 40 ships to several countries in Europe, Africa and Asia. However, no ocean-going vessels have been exported in the past two years.
The last vessels were exported in January 2020 when Western Marine delivered two vessels to Jindal Steel Works of India.
Bangladesh has more than 100 shipyards, most serving the local market.
FULL OF CHALLENGES
Shipbuilders have to import about 50-60% of the raw materials since there is no upstream linkage industry. As a result, it takes longer to build a vessel in Bangladesh compared to global competitors.
Vietnam takes a year and a half to build a ship, while Bangladesh takes two to two and a half years. “So buyers are hesitant,” said Sohail Hasan, managing director of Western Marine Shipyard Ltd.
In Bangladesh, there is no facility to design ships to international standards. The design work must be carried out in Singapore, China, Europe or India.
Until recently, a model ship could not be tested in Bangladesh either.
A shipbuilder says he is facing a financial crisis because banks generally won’t give him loans. Five to six companies that jumped on the shipbuilding bandwagon relying on bank loans are now unable to repay due to a lack of stable revenue streams.
“It created a negative impression among lenders,” he said.
Mr. Abdur Rashid, managing director of Karnaphuli Ship Builders Ltd, which manufactures both oceangoing and inland vessels, says the negative perception of Bangladesh among overseas buyers is hampering the industry.
According to Abdullahel Bari, president of the Association of Export-Oriented Shipbuilding Industry of Bangladesh (AEOSIB), exporters have lost capital. Later, the coronavirus pandemic exacerbated the situation.
“We have repeatedly asked the government for a guaranteed reserve fund of $500 million to provide capital to the shipbuilding industry. We have not received it. No one is paying attention to our requests.”
Ananda Shipyard and Slipways Ltd, of which Bari is chairman, is expected to send a ship to Germany with an export value of $7-8 million.
Uttam Ghosh, Deputy Managing Director of FMC Group of Companies, says the cost of building ships in Bangladesh is 15-20% higher than in other countries like China, Korea, Japan and India.
Taxes on imported spare parts further increased the cost of manufacturing ships.
Professor NM Golam Zakaria, Head of Department of Naval Architecture and Marine Engineering at Bangladesh University of Engineering and Technology, says the backhaul industry has not been developed in Bangladesh despite its enormous potential.
GETTING INTO INDEBTEDNESS WITH DEBTS
Due to the high interest rate of bank loans, the sector has been going through a serious financial crisis since 2010.
Shipbuilders borrowed Tk 1,500 crore at high interest rates. As a result, they are now saddled with interest and debt.
Shipbuilders were particularly hard hit by the global recession a decade ago. Some European buyers canceled several export orders, resulting in huge loss for entrepreneurs. As a result, some completed ships could not be exported.
As a result, they were unable to repay the loan and the debt has now reached around 5,500 crore taka, Bari said.
Ananda Shipyard saw the creation of forced loans of Tk 620 crore with a bank in 2008. Today, the company owes about Tk 1,400 crore to the bank.
Western Marine Shipyard said it borrowed Tk 350 crore from various banks and leasing companies between 2009 and 2014. It now owes Tk 1,600 to 1,700 crore to lenders.
WHAT THE GOVERNMENT PROMISED AND DID
In January, the cabinet approved the Shipbuilding Industry Development Policy 2020 to facilitate the growth of the labor-intensive sector and generate export earnings. The policy aims to recoup $4 billion from vessel exports by 2025.
Under the policy, benefits and loans are available to shipbuilders. It will also help create more jobs and reduce the country’s dependence on imports.
In order to implement this policy, it is planned to reduce taxes and VAT as well as to grant long-term loans to public and private shipbuilders.
Requesting anonymity, an official from the Ministry of Industry said: “We have met with the relevant stakeholders several times. But no dedicated fund has been formed yet. We are working on it and trying to find alternatives to solve the problem”.
Professor Zakaria says the government has adopted many plans for the industry. But the implementation is very slow.
He says that the model ship trials have started at Le Buet.
In early 2021, AEOSIB requested the Ministries of Finance and Trade to set up a refinancing fund of Tk 6,000 crore. However, no progress has been made in this regard yet, Bari said.
Recently, the central bank decided to unveil a Tk 2,000 crore refinancing scheme for the sector.
The case is in the final stages, said Md Sirajul Islam, chief executive and spokesperson of Bangladesh Bank, in April.
AEOSIB applied for the refinancing facility at an interest rate of 4%.
A building to carry out the testing of a model ship was constructed at Buet at a cost of around Tk 50 crore. The facility will help to see if a ship has been designed properly or not and find out how well the ship is performing, Professor Zakaria said.
He points out that the country’s infrastructure needs to be improved to attract orders for new vessels.
“Investment is needed in research and development to take the industry to the next level and build bigger ocean-going ships.”