MANZOOR H MEMON
PAKISTAN Merchant Marine Policy 2001 was the first ever comprehensive marine policy of Pakistan. The policy aims to achieve growth linked with maritime economy and provided 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%, averages around 14 million tonnes per annum (FY2018). Consequently, this results in a colossal drain of foreign exchange in terms of freight bill which recorded 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 advisor to minister also promised for 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 mark-up and refinance facility for buying vessels and ships is a good initiative.
Policies in Pakistan usually lacks implementation in true letter and spirit. The paradoxical problem of financial institutions is avoidance of long-term financing at such a low mark-up 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 on the policies, consistency is 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 with all supports and incentive in the new amended policy, without business surety, no investor is likely to enter amidst high capital intensive and risk associated avenue. The Merchant Marine Policy 2001 has also failed to achieve the target of bringing the Pakistani resident owned national flag vessels in the country. One of the major reasons behind is the first right of refusal to PNSC for government owned trades. The current extended policy continues with the same thrust, crowd-out private investment amidst 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. Amidst fast and dynamic global trade, and technological era, the 20 years are considered far too long for a policy to steer a direction and stay effective. From Pakistan’s perspective, new trade dynamics and GSP plus status, the CPEC and Gawadar 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.
—The writer is associated with Manzil Pakistan (www.manizlpakistan.org). Manzil Pakistan is a national non-profit think tank dedicated to developing and advocating public policy that contributes to the development of Pakistan.
