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.