Shipbuilders: geese with the golden eggs?

The country’s shipbuilding entrepreneurs could well prove to be the ‘geese with the golden eggs’. In early 2008, orders worth more than $400 million were in the pipeline and although this amount is not significant against the contribution made by remittances and garment exports, it should be borne in mind here that compared to all the
other export-oriented industries, this sector can be assumed to have been endowed with a certain level of technology that allows it to participate in higher value production, write Hasanuzzaman and Asif Anwar
IN THE backdrop of an enduring global financial crisis, the title may bemuse many readers. More than the backdrop, the reason could be that the country’s shipbuilding sector was hardly conceived to hold any significance for the economy. However, given the prevailing pessimism over the global economic outlook for 2009 (and also for the next two to three years to come), a country like Bangladesh, that has witnessed an intense structural transformation in terms of her economy being aid dependent turning into trade reliant, is poised at a critical balance where she stands to either benefit from these apprehensions, or get drowned in them.
   With the failure of capitalism on one hand and the potential of protectionist policies on the other, however, the scope of those benefits accruing to trade-reliant developing countries has been narrowed down. The World Economic Forum, which concluded in Davos on the first day of this month, dedicated a session on addressing the issue of protectionism, ‘The Fight against Protectionism’. During the session, it was said that concluding the Doha Round of trade negotiations, under the World Trade Organisation, can prove to be the single most valuable step that the global leaders could take in order to keep the current economic tornado from triggering a destructive protectionist backlash. This would also help ensure that the gains derived from the process of globalisation are not entirely reversed. It may be highlighted here that the WTO director general, Pascal Lamy, has indicated that there are encouraging signals from G-20 leaders regarding their commitments to the Doha agenda.
   Then again, it will be extremely difficult in the political sense to seek further trade liberalisation at a time of escalating unemployment in the developed countries. Likewise, development on the domestic fronts can undermine the prevailing multilateral order. In this unfavourable backdrop, the newly elected government may have to look for alternatives rather than solely relying on the garments sector and remittances in order to maintain the high GDP growth that has been attained in recent years. In this regard, it is worth underlining here that traditional shipbuilding countries are becoming reluctant to build small ships (weighing less than 2,500 DWT – deadweight tonne) and as a result, a new window of export opportunity has opened up for Bangladesh, which has already witnessed an influx of orders from European buyers. The category of ships that Bangladesh has built has a market size worth over $106 billion globally which means that even if she were to secure one per cent share of this market, it would increase annual exports by more than a billion dollars.
   Now that the economic tornado is taking shape in various forms around the globe, it is imperative to explore other areas where there is potential for reviving the economic status quo. The first and foremost is technology. As a matter of fact, advancement in technology was a key driver of economic recovery in many parts of the world (especially, in the aftermath of the collapse of the Berlin Wall in 1989). Indeed, the country’s shipbuilding entrepreneurs could well prove to be the ‘geese with the golden eggs’. In early 2008, orders worth more than $400 million were in the pipeline and although this amount is not significant against the contribution made by remittances and garment exports, it should be borne in mind here that compared to all the other export-oriented industries, this sector can be assumed to have been endowed with a certain level of technology that allows it to participate in higher value production. Taking this cue, it can be safely deduced that while it took around 25 years for the country’s garment industry to flourish and play a key role in foreign earnings, shipbuilding can do that in less time (in about 10 years) with higher local value addition assuming proper facilities are provided towards the development of backward linkage industries.
   In spite of the depressing global economic outlook, the caretaker government had received $830 million worth of assistance during the first half of the current fiscal, which was $8 million higher than that of the corresponding period of the previous fiscal (2007-08). Recently, a $2 million grant has been approved by the Asian Development Bank to aid the development of the micro insurance sector. It is expected that around 20,000 people in Bangladesh will directly benefit from the grant, which is provided by the ADB’s Japan Fund for Poverty Reduction, funded by the Japanese government.
   Nevertheless, post-September 2008 scenario was not so inspiring when ocean freight rates declined by as much as 90 per cent. With giants like Singapore and Korea having hard time remaining afloat, it will be a nightmare for Bangladesh’s potential manufacturers even to consider entering this business. With the global shipping industries faltering, it is yet to be seen how Bangladeshi shipbuilders respond and whether the local commercial banks will finance such a risky venture or align themselves with the international financial institutions also remains uncertain. For now, it can only be hoped that our country’s policymakers (especially technocrats) craft policies that aspire to accommodate the rapidly darkening economic landscape, and subsequently, identify new areas to generate employment and keep the economy growing at a stable level. To what extent the golden egg will be able to galvanise our economic activities and subsequently spill over into other areas, is yet to be seen.