While South Africa’s ship building and repair industry is at a “critical” stage in its development, the industry continues to be stifled by obsolete port infrastructure, protectionist government policy and monopoly pricing, driving the migration of these businesses to other ports in Africa.
Discussing the findings of her investigation into the local shipping repair industry, international ports consultant Dr Sheila Farrell said on Wednesday that domestic ship repairers had been “handicapped” by the shortage of drydock facilities in South Africa as well as Transnet National Ports Authority’s (TNPA’s) commitment to a “common user” principle to maintain control over the port.
“Private ship companies are willing to invest in these facilities themselves, but they can’t get permission from the TNPA, because of government’s commitment to the common user principle and the fact that they want to maintain control of access to port assets.
“This is a very different institutional model [than that of most international ports], which have large, vertically integrated shipyards that own or lease waterfront land and provide everything themselves. I believe the market could be substantially larger and more profitable if TNPA invested more, or allowed private companies to invest in drydock facilities,” she said at a Trade and Industrial Policy Strategies seminar, in Pretoria.
Farrell admitted that there was no international best practise model when it came to ship repair industry policy, as several countries with highly successful boat repair industries had adopted “very different” policies.
Brazil, for example, had adopted highly protectionist policies with cross-subsidies, and “heavy” taxes on freight rates, which were channelled to develop the ship building industry.
In contrast, Singapore’s shipbuilding and repair sector was characterised by low taxes, a business-friendly environment, little infrastructure development by the State and an emphasis on private investment.
“I don’t think that South Africa can choose between these, because each country has different characteristics and a policy [is needed] that fits South Africa and helps it move forward on its policy objectives,” Farrell said.
Meanwhile, TNPA’s “monopoly” pricing, she added, was based on an over-valuation of its assets and looked to recover the authority’s overhead costs and observe a high rate of return rather than being based on what the market could bear.
This reduced competitiveness and discouraged the efficient use of port assets.
In addition, Farrell noted that the ports authority did not want the ship repair and building sector to “interfere” with its core business of cargo handling.
“As a result, local ship-repair yards are moving out of South Africa into Ghana and Mozambique, which is a terrible indictment on South Africa,” she remarked.
While South Africa would “never” be able to compete with Asian countries in terms of volume-based shipbuilding and repair work, it could service a regional niche market for small vessels such as navy patrol boats, port craft, research and fishing vessels and workboats.
South Africa emerged as “around average” compared with the ship repair competitiveness of 74 countries, but remained the highest ranked country in Africa.
Some 130 000 ships a year called at South African ports, while a further 17 000 were in transit past the Cape, which Farrell said translated into a potential total repair market of between R30-billion and R40-billion a year, of which South Africa held a 5% market share.
Despite constraints, South African companies were performing well in these markets, with the local recreational boat building industry “flourishing”, generating large export volumes.
However, these businesses were suffering from a lack of launch facilities and moorings for boat completion.
“Building the boat is the easy bit, actually transporting it to the client is a challenge,” said Farrell.
Elaborating on what needed to be done to mitigate existing industry shortcomings, she called for “speedy” joint action between the public and private sectors to provide the private sector greater freedom to invest in shipbuilding facilities, led by a short-term investment plan.
This should be coupled with a national shipbuilding and repair strategy that took a long-term view in terms of introducing “soft” reforms to tackle issues associated with booking systems, pricing, land leases and procurement.
Farrell also recommended the appointment of a national ship repair manager who would develop a small, specialised team within the TNPA, increase awareness of the industry within Transnet and undertake joint initiatives with the private sector.
“[Simply continuing with] past policies will accelerate industry drift to neighbouring countries,” she cautioned.