Lynda Loxton
Despite South Africa’s 3 000km coastline, few black South Africans are seafarers while few cargo ships bear the South African flag — but all this is about to change.
Several initiatives are in hand not only to make young South Africans more aware of potential careers in shipping instead of commerce, agriculture or mining, but also to encourage more shipowners to register their ships in South Africa.
Partly the result of colonisation and then years of apartheid-inspired isolation, South Africa’s untapped potential as a seafaring nation is being harnessed in several quarters.
Firstly, sanctions have been lifted and South Africa is beginning to trade with more countries. Most of this trade is conducted by sea and it makes sense if more of the ships carrying this trade are South African. But they are not and few of those that are South African-owned fly the national flag. By the latest count, only four of the 68 South African owned cargo carriers are registered in South Africa.
Secondly, the development of the maritime industry and associated support services offers major employment-creating opportunities at a time when job creation is a major priority.
But shipowners have preferred to register their ships in the places such as the Isle of Man, Cyprus or Panama — and not only because of South Africa’s pariah status under apartheid.
Safmarine legal consultant Peter Mannion said ship owners still tended to steer clear of South African registration because of ship registration procedures, mortgage ranking that is out of line with global practice, the fiscal environment and the lack of local crews.
The procedures for registering ships should be modified and made more flexible “without compromising standards. They must be attractive without falling into the flag of convenience problem” usually associated with poor standards and an absence of a genuine link between a vessel and a flag state.
This has been backed up by Griffin Shipping Holdings Limited managing director Michael Meehan, who pointed out in a conference paper earlier this year that shipowning internationally “thrives in circumstances of non-interference and non-taxation” under which they can provide maximum returns both to themselves and their national economies.
Mannion said the Department of Transport was aware of the need to change legislation covering registration and mortgages and discussion documents on new draft legislation were being distributed in the industry.
The problem with mortgages is that present legislation does not provide enough security to foreign banks providing loans to buy ships. An added complication is that South Africa’s international credit rating is still so low that shipowners have to pay a premium for any loans.
On South Africa’s high tax levels, Mannion said an option may be to change, not abolish, taxes for shipowners. The planned lifting of foreign exchange controls could also entice shipowners to South Africa as it would further cut down the bureaucracy of doing business in South Africa.
If South Africa wanted to attract shipowners, it would also have to be able to ensure a steady supply of local quality crew for local and international ships. Although the industry does train crew, margins are so tight because of falling freight rates that they only train crew as and when they need them and there is no pool of skilled people for new local or international shipowners from which to draw.
In anticipation of possible changes, Safmarine has set aside R200 000 a year for the next three years to support a pilot formal maritime education programme at Simonstown High School to introduce youngsters to a possible career path of shipping.
Pinelands High School headmaster and maritime author Brian Ingpen would like to see more initiatives of this kind. He bemoans the fact that there is widespread ignorance about maritime affairs in general in South Africa due to what one former Chief of the Navy called the country’s “agricultural mentality”.
While there had been a few efforts to introduce the nation to the sea, much of this had been ill directed. For example, he said, “maritime festivals” had “done little to educate young people in maritime matters; rather they have merely created opportunities for older members of the family to consume more beer.” Mannion believes there is great scope for South Africa to change this and become a nation of seafarers, but admits that it could not be done overnight or cheaply.
Safmarine is negotiating with the Norwegian Shipping Academy to explore new upfront training methods. He estimates that, given the right resources, the shipping industry could be training about 500 crewmen a year for its own use and another 500 a year for international shipowners.
Japan bends aid rule
Compromise leads to R100-million loan from Japan, reports Karen Harverson
The Department of Water Affairs and Forestry (DWAF) is about to sign an agreement with Japan to loan more than R100-million for its latest water
The KwaNdebele Augmentation project is one of three projects to be financed by Japan through its $300-million official development assistance (ODA) to South Africa. The other two projects include a commuter train project and soft loans to the Development Bank of Southern Africa for community
The ODA, together with a $500-million government loan, and export investment guarantees to Japanese companies investing in South Africa, make up a total Japanese aid package of $1,3-billion which is available to South Africa for a period of two
The loan facility has been difficult to access in the past because of certain conditions tied to its use but both sides have now compromised to allow the loan to go through.
The Japanese have relaxed the condition that the project must allow international competitive bidding for the construction contract as this is contrary to the objectives of the Reconstruction and Development Programme (RDP) which aims to make use of black contractors and labour-intensive
“These methods may not be the most competitive but they’re vital development and job creation tools and central to the RDP,” says Mike Muller, deputy director general:community water supply and
South Africa, in turn, has dropped the local preference provision for suppliers which gave a 10 percent price preference to local suppliers tendering for contracts as it was unlikely to cause a significant difference in the import component of the contract.
“Instead, it emerged that the major problem with international competitive bidding is not the 10 percent preference but Iscor’s pricing policy in relation to domestic consumers which could undermine their competitiveness,” says Muller.
One of South Africa’s major pipe manufacturers has confirmed that the company is unable to buy steel from Iscor at the same price that an international company pays Iscor for it.
“On major contracts — international firms can afford to come to South Africa and supply pipes cheaper than we can — sometimes they can sell the product per ton cheaper than we can buy the steel per ton,” he comments.
Group Five Pipe director Johnny van Nieuwenhuizen disagrees. “I can’t see how an international pipe manufacturer can buy the steel here, transport it to their factories, make the pipes and export the product back to South Africa cheaper than a local manufacturer can supply the pipes.”
Iscor says while it does operate a two tier pricing system where steel is sold locally at market-related prices and exports at the best possible international price, it has been its policy to negotiate price rebates with secondary manufacturers such as pipe manufacturers for them to be internationally competitive and to prevent
“Some local pipe manufacturers who buy steel from Iscor have for years successfully tendered and won contracts to supply pipes to international projects,” says group manager public relations Piet
Pepkor’s prospects considered promising
Lynda Loxton
South African manufacturers were becoming increasingly aware of the need to restructure their operations and become more competitive if they were to survive, Pepkor chairman Christo Wiese said this
Speaking after the release of strong half-year results, Wiese said most manufacturers realised that this would not be a painless process but “we are now part and parcel of the whole world and we have to do it”.
Many companies, he said, were taking up the offer of loans from the Industrial Development Corporation to help them restructure and introduce state-of-the-art technology.
Pepkor is dealing with the challenge by sourcing more and more of its inputs from low-cost producing countries and concentrating operations in South Africa on the value-added, higher end of the
He said this did not mean that Pepkor planned to shut down any of its existing factories as “that is not the answer” in South Africa, where job creation, not job losses for the sake of getting a competitive edge, were the main priorities.
“That would be shooting ourselves in both feet as we are retailers and these people (the workers) are our customers…we have to look for niches where we can compete,” Wiese said.
But it did not make sense to manufacture items, or buy them from local sources, when they could be imported more cheaply.
Like other retailers, Wiese is concerned about the flood of illegal clothing imports and said that although it was difficult to measure the impact of these imports on business, it was clear that the customs department was “not doing enough”.
Pepkor announced that net profit had risen 21 percent to R85-million rand and earnings per share by 15 percent to 40,4 cents. An interim dividend of 11,5 cents was declared.
Wiese said that with the exception of Cashbuild, which was affected by the slow pace in getting Reconstruction and Development Programme (RDP) projects off the ground, all operating divisions had delivered acceptable to good results.
“Once again, Shoprite showed the strongest growth although it was achieved from a reasonably low base,” he said.
Pep remained the most important contributor to growth thanks to aggressive marketing, cost control and improved information systems in Pep Stores.
For the first time, Pep’s Scottish subsidiary, Your More Store, showed a profit of more than R1- million. It has been financed from its own resources for the last three years.
Wiese said that in the light of the present positive economic climate, the group was optimistic about prospects for the next six months, traditionally the busiest period.