SA-flagged vessels an impossible dream?

With transport minister Sibusiso Ndebele loudly promoting the strategic need to exploit the potential of the maritime industry and for SA-flagged vessels to carry a share of the country’s seaborne trade, industry moguls are questioning the practicality of these goals. Is the SA government living another impossible maritime dream, was question raised by maritime observers contacted by FTW. It would be stretching logic a little to suggest that SA-flagged vessels, which Ndebele seemed to concentrate on, would divert a major portion of the currently foreign-flagged vessels’ profits into the SA exchequer, they said. Not that there is any disagreement about the figures that Ndebele used to illustrate his argument, saying that the control of shipping was a key instrument in seeking economic emancipation. According to the SA Revenue Service (Sars), he said, all of the 200-million tonnes of SA’s trade in 2009 was carried by foreign flagged ships, costing the South African economy in excess of R37 billion per year. “Trade constitutes about 58% of the country’s wealth, measured as gross domestic product (GDP) – of which 98% of that trade by volume, or above 80% by value, is carried by ships, and that includes African trade,” he added. “Considering that SA is amongst the world’s top 15 shipping nations by tonne per mile measurement, these factors would normally lead to a country prioritising a sector so critical to the success of its entire economic and socio-political programme and future.” Ndebele said government would also need to prioritise the development of two key pillars of freight markets: SA-flagged tonnage (ships) and the commodity trading (exchange) facilities. These two pillars in freight market influence would assist in justifying the billions earmarked for infrastructure development mentioned in President Jacob Zuma’s State of the Nation address. “The lack of national tonnage denies the country the strategic options,” said Nedebele. “The state may have to give a strong lead on the transportation of strategic commodities such as oil, maybe iron ore as well, so as to ensure security and add value to the supply chain.” But SA-flagged vessels are not the answer, according to members of the shipping industry. Speaking as part of this voice, Andrew Thomas, CEO of Ocean Africa Container Lines (OACL) – the only SA-owned fleet at present – told FTW that registering ships on the SA flag would not automatically move that R37 bn into SA. It would also need beneficial ownership of the vessels in SA. And, for that to happen, we need to be competitive. And we’re not, according to Thomas. “Corporate tax, dividend tax and capital gains tax make us uncompetitive,” he said. Thomas also pointed to the proposed tonnage tax in SA as having been, when it was first proposed, one of the ways towards competitiveness. The proposed SA tonnage tax regime was to be an elective system, taxing shipping companies at fixed rates according to the size of their ships and days operated during an accounting period, and not according to the company’s business income results. Tonnage tax regimes have been successfully implemented in other countries such as Belgium, India, Ireland, the United Kingdom and the Netherlands. But, although Ndebele said that government was completing the development and revamping of the maritime industry and its shipping regulatory frameworks – including tonnage tax and related legislation – Thomas said: “This concept hasn’t gone anywhere.” And, he added, although it was competitive in the last century, it is no longer so. What was needed now was for SA to appear “best-inclass”. He cited the world’s best example of this as Singapore. “We must see how they promote shipping – including very preferential rates of tax and the ease of doing business in the island state. “But,” Thomas added, “this needs a very specialised sort of arrangement, and goes far beyond vessel registration.” Which rather puts a wakeup call on the government’s impossible dream.