Dr Abdullahel Bari :
Shipbuilding, which dates back to the pre-historic era, was financed by the community, not in terms of money but in resources and in labour. It progressed in different regions in varying ways but always under the auspices of authorities, be a ruler, a dynasty chief or a king. The best recorded public finance of shipbuilding was in Imperial China during different dynasties. However, the most notable one was during the Ming dynasty over 1368 to 1644 when shipbuilding was primarily undertaken by the government and with state funds. Benefits of trades, such as, of treasure voyages were added to the state exchequer.
Indeed shipbuilding developed through constructing battle ships. Many conflicts and naval battles occurred resulting in destruction and demise of habitats, rise and fall of powers, and creation of kingdoms and empires. Those naval battles demanded robust construction of battle ships and at the same time speed and manoeuvrability. Accordingly, thrust for improvement of design and construction grew. Faster and ahead acquisition of shipbuilding skills bestowed regions, nations and particular people’s domination on the sea and lucrative trade routes. Shipbuilding had therefore been more or less always under public funding.
In Britain and in other European maritime nations, shipbuilding in the eighteen century was privately financed and investments in shipbuilding and shipping were very lucrative. Colonies and colonisation were left to private companies and maritime trading also was an alluring prospect. On the other, flawless financial system were developed and adopted by large gradually developed corporates. Further, Lloyds Register of Shipping came into being ensuring quality shipbuilding. Therefore, private financing in shipbuilding and shipping became the norm of the day. Private financing in a style of a single ship company of an individual, or of a few individuals in a loosely formed partnership was adopted as far back as in the 13th century in Germany and it was found existing even in 2013.
Aggressive financing on shipbuilding was observed in Japan over the period of 1950-1955 when investments were made in the replacing and modernisation of shipyards. Funds were pumped in shipping to carry very rapidly growing volumes of raw materials for feeding fast growing industries. The scope for building those domestic owners’ ships was the boost for Japanese shipbuilding. Once again aggressive financing was noticed in Japan during 1972-1976 when Japan surpassed the total aggregate remaining world of shipbuilding. Over the period of 1983-1986 shipbuilding was seen to be very vibrant mainly due to the investments in Japan and in South Korea. The 1990s experienced fierce competition among banks keenly interested to finance ships and shipbuilding. Japan tried to maintain its supremacy, Europe to re-enter, South Korea considered shipbuilding as a strategic industry and China got on the platform Such finances and wild speculations led private partnering companies and public offering to appearing and disappearing in successions resulting in many shipyards emerging and fading over the years.
During the last credit crunch when shipping and shipbuilding had been continuously sliding down with free falling freight and charter rates, Islamic banks extended finances in shipping and shipbuilding in the form of Musharaka i.e, profit and loss sharing, Ijara i.e, leasing out a ready ship to a newly formed single purpose company (SPC), a bank’s agent managing the SPC fixing a periodic rent payment at covenants, and Sukur or Sukuk Al Ijara i.e, forming a special purpose vehicle (SPV), a trust of investors holding certificates of a face value granted by the bank. Islamic banking may evolve as a financing source of global shipping and shipbuilding. However, keeping in view the volume of finance of some USD 470.00 billion in the shipbuilding market, it may not supply more than 1% of the required finances in the foreseeable future.
Bangladesh is a new and the latest entrant in global shipbuilding arena. It entered in 2008, exported 30,000 gross tonnage of ships, exported more than 40 ships and vessels to four different continents, earned more than USD 180 million and made Bangladesh known as a shipbuilding nation. The sector offered the country lighterage vessels to keep the economy flourishing, tankers for keeping the power plant running, dredgers to keep waterways navigable as well as to preserve the water and the environment. It saved more than USD 300 million by import substitutions. Government patronises the sector and the Shipbuilding Policy 2020 may now be approved by the Cabinet any day.
However, shipbuilding faces at present the most difficult hurdles among all industries in the country. It needs nearly double the financing than the value of the job under execution and the execution cycle is very long which no body recognises. It is to provide immovable security of nearly double the value of any loan in funded or non funded form. It pays very high money cost, nearly 22% of the project value annually. The sector has been severely affected by world recession, global political unrests and presently by the Pandemic COVID-19, however, it is still vibrant, resilient and progressing.
(Dr Abdullahel Bari is Chairman, Ananda Group & President, Association of Export Oriented Shipbuilding Industries of Bangladesh)
