111 510 510 libonline@riphah.edu.pk Contact

Resurrecting the obsolete

The Pakistan Merchant Marine Policy 2001 was the first-ever comprehensive marine policy of Pakistan. The policy aims to achieve growth linked with maritime economy. It provided a roadmap for a period of 20 years that include revival of Pakistan resident investment by means of Pakistani flagged vessels. The ministry of maritime affairs has recently extended the existing policy for the next 10 years with some amendments.

Pakistan’s seaborne trade is 89.9 million tonnes annually while the share of national carrier Pakistan National Shipping Corporation (PNSC) is 16%, averaging around 14 million tonnes per annum (FY2018). Consequently, this results in a colossal drain of foreign exchange in terms of freight bill which was about $2.3 billion in 2018.

To boost the investment by private sector and to bring Pakistan Resident-owned national flag vessels, the government has extended its support and unfolded opportunities. First and foremost is the provision of fiscal leverage. The exemption from federal tax also aims to support the Pakistan flag vessels. The reduction in tonnage tax for the first five years of shipping operation till 2030 is also a good policy measure. Pakistan flag vessels are also provided with berthing priority at all Pakistani ports. The government has also promised financial leverage. The shipping industry is a highly capital-intensive and requires sophisticated and expensive state of the art technology. Thus, the verbally communicated proposed policy rate of three percent markup and refinance facility for buying vessels and ships is a good initiative.

Policies in Pakistan usually lack implementation in true letter and spirit. The paradoxical problem of financial institutions is avoidance of long-term financing at such a low markup rates, beside avoiding credit to capital intensive and risk associated industry. To implement the desired objective of the policy and assure the credit at announced rate, the central bank should direct and allocate a proportion of bank’s loan portfolio for Pakistan-based flag vessel investments. The fiscal incentive requires amendment in relevant tax laws, that has already been done in the finance bill for the year 2020-21. However, to bring confidence in the policies, consistency is a must as in the past the incentives provided to the sector were taken back without any proper reasons, prior information, and consultation with all stakeholders.

However, taking into consideration all support and incentives in the new amended policy, no investor is likely to enter amidst a high capital intensive and risk associated environment without business surety. The Merchant Marine Policy 2001 has also failed to achieve the target of bringing the Pakistani resident-owned national flag vessels to the country. One of the major reasons behind this failure is the first right of refusal to PNSC for government-owned trades. If current extended policy continues with the same thrust it will crowd out private investment in a highly competitive international market. The amendment for no preference to PNSC in private sector cargo is somewhat irrational as it is already competitive and an open market mechanism.

As per the amended policy, the shipping industry is classified as ‘Strategic Industry’. However, this needs to be explained how this move benefits the shipping industry. In addition, it may also be incorporated in Pakistan Strategic Trade Policy Framework (2020-2025), which is still awaited.

Over the last two decades, there has been considerable change at national and international front. Twenty years are considered a far too long period for a policy to delineate a direction and stay effective in an environment characterized by fast and dynamic global trade in a technological era. From Pakistan’s perspective, new trade dynamics and GSP plus status, the CPEC and Gwadar port, were not the pivotal point while making policy in 2001. It is high time to revisit, realign the merchant marine policy with the objective to accrue maximum benefits out of it, rather than mere extension or amendments with bit cosmetic efforts.

In order to attain the potential in maritime sector due to changing dynamics and trade linkages, it is crucial to develop a well-focused direction-driven policy in consultation with all stakeholders. Beside this, a comprehensive legal framework, enforced through laws of parliament, is required for better implementation. In addition to providing level playing field for private sector, the modern qualitative and quantitative improvements in all spheres are critically needed. In specifics, development of port infrastructure, expansion of port facilities, efficient support services, competent dynamic work force along with predictable regulatory environment are some of the key elements.

Manzoor H. Memon, "Resurrecting the obsolete," Business Recorder. 2020-08-19.
Keywords: Economics , Marine Policy , Trade policy , Global trade , Central bank , Pakistan , PNSC , CPEC , GSP+

Leave a Reply

Your email address will not be published. Required fields are marked *