Towards a new Indo-Colombian perspective in the shipbuilding sector

By Dr Soraya Caro Vargas, 

Colombia, the South American country classified as a medium income economy, achieved its entry into the OCDE group after complex adjustments and negotiations, in 2020. An upward growth of 3.3% at the end of 2019, the result of private consumption and higher investment flows, forecast inclusive development opportunities for its people that were delayed with the arrival of Covid-19. The slowdown in the global economy throughout 2020 meant the loss of thousands of Colombian SMEs and consequently of about 2.2 million jobs between March and September.

The positive indicators, related to the reduction of poverty by half during the last decade as well as fiscal and macroeconomic management, were not enough to compensate the low productivity growth, the lack of functional infrastructure and the absence of active and integration policies that help to reduce the concentration of exports in raw materials, thus increasing the economy’s exposure to price shocks. However, the World Bank estimates that Colombia will be one of the countries that will lead the economic recovery in 2021. According to the institution, the economy will overcome a contraction of -6.8% in 2020 and will grow 4.9% in 2021, with a better performance than the average for the region.

Slides Credit: ProColombia

Facing this difficult scenario, the Colombian government is working on the immediate reactivation of the economy. It is focusing efforts on industries that allow greater local and regional productive links, as well as the diversification of exports with added value. The attraction of intelligent investment is a priority, as is a nearshoring strategy aimed at multinationals with interests in the US and Latin American markets.

The country competes for investments that in the medium term can turn Colombia into a knowledge-based production node. In this context, the shipbuilding industry appears as one that generates greater linkages and opportunities for specialization. However, this requires public-private cooperation and strong flows of foreign direct investment. Also transfer of technology, necessary to fulfil the requirement of the regional demand.

According to the results of the first study carried out on the possibilities of attracting Indian investment to Colombia, with emphasis on sectors of greater specialization, the repair and construction of vessels, despite being an emerging industry in Colombia, appears as one of 12 sectors in which Indian investments could boost important advances for the re-industrialization process of the country. At the same time working with Colombian companies will represent an opportunity for their Indian counterparts looking to strengthen their presence in the shipyard sector in Latin America. The study carried out by the Externado de Colombia Universityand Procolombia in 2020, bases its statement on the following aspects:

Today Colombia has a State policy, a clear guideline that commits the institutions at the highest level to enhance the development and internationalization of this sector. Concrete actions have not taken long to materialize: aiming to generate 40 thousand jobs in the medium term, Colombian government, through a program called PROASTILLEROS (decree 1156/2020), decided to promote the construction of all kinds of Vessels in the country. The rule eliminates import tariffs on 395 goods and raw materials that are not produced in Colombia and that are intended to build vessels. Companies can import such merchandise without tax or exemption from customs duties, this right is extensive to suppliers included in the chain of production.

An additional variable becomes important in this venture. The lifting of the Jones Act, by virtue of which US-flagged vessels can only be repaired in shipyards in that country and in Colombia, thanks to the FTA, is a condition that opens a huge market in the Caribbean and that poses interesting challenges in quality and compliance for the country.

The proximity to the Panama Canal is a geographical fact that adds to its favour. As well as the presence of important shipping companies dedicated to the transportation of oil and other minerals along the Caribbean Basin in which countries close India are active producers like Trinidad and Tobago, Jamaica or Surinam. The cruise industry hit hard by the pandemic opens a new business line for shipyards in the region, those looking for refurbish.

Colombian industry works today through strategic alliances with its peers in European countries, mainly Spain. Some experiences of subcontracting the design and electronic systems for boats have been carried out in alliance with Indian companies, but there is no continuity in the relationship between both industries. In terms of supply, the sector in Colombia demands products from 14 branches of the manufacturing industry. According to Procolombia, producing a boat generates 1.9 million dollars in linkages.This supply of goods and services is guaranteed by the Colombian business fabric located in at least six regions of the country that are near to main ports.Colombia has 32 shipyards, 5of them accomplish international standards. Cotecmar in the military industry, Astivik, Ferroalquimar and Yumma are some potential counterparts of Indian Companies in Colombia.

In the short term, the industry seeks to position itself as a supplier of spare parts in Tier 3, and throughout strategic alliances with globally recognized manufacture companies such as L&T shipyard Ltd., and ABG Shipyard Ltd., the aim in the medium term is the supply of ready-made main parts with a multifocal productive presence and technological specialization that meets the demand for services in Central America and the Caribbean.

The government of Colombia together with ANDI- FEDEMETAL, the industrial chamber that gathers shipyard main companies, are advancing in the implementation of a policy that aims to turn the country into a “bioceanic power by 2030”. It is taking advantage of competitive variables such as the availability of trained human capital and the existence of clusters for the production of spare parts as well as the supply of specialized services.

The recent news published in Financial Express Online relating to the contract that the US Navy signed in March last year with Larsen & Toubro Shipyards for the construction of a specialized supply ship destined for the Chilean Navy, is within the framework of the military sales program abroad of the US government. This drew the attention of the academy as well as officials who promote investments in Colombia. The news validates the aspiration to build closer relations between Indian and Colombian companies,in order to achieve the nations’ supreme objectives of inclusive economic development. India is a regional industrial powerhouse, whose shipping and shipyard industries are increasingly recognized for their standards of quality, innovation and technological development in the engineering design and construction of complex naval platforms as well as the construction of state-of-the-art shipyards. Recent developments and incentives for the expansion of the sector in India seek to favour the development of the national industry, but also to meet a growing demand from the European Union and Asian countries. StrategicallyIndia should also look to the Caribbean and to Colombia as a new ally in the region.

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Other industrial sectors that the study referred to found as potentially attracting Indian FDI are: infrastructure for electric vehicles – taking into account the Colombian government’s aspiration to have 600.000 units running in 2030, the joint production of raw materials for pharmaceutical industries as well as generics to supply the US market, production of spare parts for tractors and the production of some pulses, for Colombian and Central American consumers, this taking into account the aspiration of Colombia to diversify agricultural production and make more efficient the use of the land available ending 50 years of conflicts.

(The author is Director Centre of Studies on Contemporary India CESICAM, Externado of Colombia University. She can be reached at soraya.caro@uexternado.edu.co Views expressed are personal and do not reflect the official position or policy of the Financial Express Online.)