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Prospects of foreign investment in shipping.

The paper was presented at International Seminar on Ports & Shipping in the change Economic Environment. The Seminar was jointly held by FPCC&I and Master's Mariners Society of Pakistan recently.

The shipping industry has attracted investment from entrepreneurs over the years, whenever they have identified realistic prospects for attaining a reasonable rate of return on their investment in ships. The average rate of return on investment made in shipping operations is under 10 per cent per annum and its own shipping operations be it liner, bulk or tanker operations do not yield a sufficient rate of return over a sustained period, to entice the prospective entrepreneur to invest his capital in shipping. Seasoned shipowner's of Hong Kong, Greece and Norway with special business acumen have, however, indeed made a fortune by investing in shipping. They specialize in the art of ship-valuation and have excelled in their sense of timing for making purchase and sale at the opportune time to maximize their profits. They have established special long term business relations with various shipyards in Japan, Korea, Taiwan, China and Germany and have placed repeated orders for new vessels at a time when ship-building has been depressed. The traditional ship-building countries have assisted some of these entrepreneur shipowner's by providing with long and medium term ship-building credit facilities at concessional interest rates which has induced large scale orders.

In the eighties, many of the major international banks embarked upon the ship financing bandwagon and went overboard in providing large scale financing to speculative owners. The result was a serious over tonnage of vessels of all types and an eventual disaster in the shipping market leading to the collapse and demise of many an established shipowner. Well known companies like the United States Line of USA, Sanko Steamship of Japan, Hansa Line of Germany, Heuing lines of Greece and many others went down due to over-speculation and imprudent investments. Having burnt their fingers and learnt an expensive lesson in the late eighties, international banks have steered clear of ship-financing and have looked at ship-owning and shipping operations with considerable suspicion. The nineties have, therefore, seen a definite and understandable caution on the part of financiers to fund shipping companies and this has produced the desirable check on speculative ship-building.

Memories are short and despite the sad experience of the eighties, once again, the environment is now right for experienced shipowner's with professional expertise to obtain ship-finance on reasonable terms.

Though 90% of Pakistan's international trade is transported by sea less than 10% of this is carried on merchant vessels flying the Pakistan flag. With the declared policy of privatization and deregulation in the ports and shipping sector now being implemented by the Government of Pakistan, there is indeed a vast scope for sound investment in the shipping industry. It has been reported that the Government has already issued licences to 39 shipping companies to operate in the private sector. We understand that a decision has been taken to privatize PNSC/NTC and the two state-owned shipping companies are expected to be handed over to private sector owners within the next few months. The required infrastructure and equipment for handling ocean freight efficiently at the ports and for inland transportation to the various parts of Pakistan is sadly inadequate and there is a clear opportunity for profitable investment in this area.

The Government of Pakistan is making strenuous efforts to encourage foreign investment in Pakistan and attractive incentives are being offered to overseas investors. If the Government delivers on these then there is no doubt that foreign investors will seriously consider investing in Pakistan-based ship-owning and shipping operations. The investment incentives however, have to be sufficiently attractive and the working environment must be free of bureaucratic controls. Deregulation of ports and shipping must therefore, proceed with the utmost speed. Pakistan has a substantial reservoir of trained seamen and experienced professional executives to man a large fleet and operate it profitably on a worldwide basis. The mortgage laws of Pakistan moreover need to be amended to provide necessary security to international financiers who provide funds for Pakistan registered merchant vessel. The list of incentives demanded by the Pakistani prospective shipowner's and said to have been sanctioned by the Federal Government are well known by now. These need to be implemented through the prompt issuance of relevant SRO's in clear terms.

We must remember that there is a long and glorious tradition of seafaring in Islamic history. The Arabs and Turks built ships that sailed to the farthest corners of the known world. They achieved pioneering discoveries in navigation, seamanship and commerce. Trade was the lifeblood of the Arab Empire. Today too, our prosperity and growth depends on creating the right conditions for the development of Commerce. I am sure ladies and gentlemen there is no need to remind ourselves of the vast potential and opportunities offered by the developments in Central Asia. Our shipping sector should have been in a position to exploit this. Our ports in Sindh together with the smaller facilities in Balochistan are ideally placed to benefit from these developments.

We must, however, ensure that this opportunity is not lost, the prize is too great, the stakes too high for us to falter. I would conclude by stating that there is indeed a reasonable potential for attracting substantial foreign investment in the shipping sector in Pakistan, provided the necessary legal framework, physical infrastructure and administrative support is forthcoming.

M. Younas Khan President of OICCI and General Manager of Deutsche Bank AG-Pakistan, has a solid educational qualification and work experience in the banking sector. He obtained Masters Degree in Commerce in 1962 and did his Chartered Accountancy from Institute of Chartered Accountants in England.
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Author:Khan, M. Younas
Publication:Economic Review
Article Type:Industry Overview
Date:Jan 1, 1993
Words:952
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