The country's booming shipbuilding industry is facing hurdles in securing overseas orders as the local enterprises are finding it difficult to arrange third party guarantee from internationally recognised banks as per demand of the foreign buyers, sector insiders said Sunday.
They said arranging guarantee from an internationally recognised bank is compulsory for the local shipbuilders as they are yet to achieve the required confidence of the international stakeholders in terms of proven capability to build quality ships and deliver on time.
Bangladesh Shipbuilders' Association said its members, who received export orders worth Tk 20 billion in the just concluded fiscal year, have been finding it difficult to manage guarantees from internationally recognised banks.
"Since foreign banks refuse to provide us guarantee directly we need to approach them through local banks," president of the association K.M Mahmood Ur Rahman told the FE.
Mr. Rahman also managing director of Highspeed said: "We need to pay around 7.0 per cent per annum as commission to obtain a guarantee on the total export value."
He said it is really difficult for a local ship builder to remain competitive in global market after paying such a high commission for guarantee purpose.
The ship buyers from Europe emphasise on two crucial factors to remain competitive, one is strict maintenance of delivery time to avoid liquidated damages and the other is cost effectiveness.
Sector insiders said the rising labour cost in China, India, and Vietnam will create an opportunity for Bangladesh to remain competitive beyond 2016, if Bangladesh can gain a foothold now.
Unlike RMG, they said shipbuilding for export is a highly capital-intensive and high-risk industry for any developing economy, where profit margin usually hovers between 7-10 percent only, and any marginal deviation will eat away into the profit.
The ministry of commerce said it has already formed a committee headed by a director general of Export Promotion Bureau (EPB) to recommend means for making the sector globally competitive by removing hurdles.
"We have started working to find out a ways to help the shipbuilders remain competitive and resolve the third party bank guarantee issue," Md Khalilur Rahman, director general of EPB said.
He said a ship is made from thousands of individual elements, and shipbuilding will not only generate employment opportunities but will also help establish many subsidiary outsourcing/backward linkage engineering industries.
The domestic value addition in shipbuilding for export will eventually rise to 45-50 percent from the current 25-30 percent by providing the right kind of support, he added.
A sector insider said the Philippines government, following the example of Vietnam, has been successful in developing its shipbuilding capability and even attracted foreign direct investments in this sector from Norway and Korea, with a package of government sponsored incentives.
India has taken a master plan to bring the country to the level of China in terms of shipbuilding gross tonnage capacity by the year 2015, he said.
The sector insider said the government has to take a long hard look at the other Asian countries and take note how these governments have helped their shipbuilding industry in their infancy to blossom astronomically within years, creating jobs, revenues, and technical skill which no other sector singularly provided.
