Wednesday Column - Croatia Business 3: Shipbuilding Part One
Croatia has a long history of shipbuilding, much of it with Russia as its most important trading partner. The major part of the industry is state owned and that’s the area we’ll be looking at this week. Next week we’ll take a look at the growing private sector.
Background To The State Sector
The shipbuilding industry is very important to Croatia, accounting for some 15% of exports and about 1.6% of a global market that is dominated by China, Japan and Korea. However, the industry is still very heavily supported by the state, with subsidies accounting for a massive 10% of any ship’s contract price. Only one of the shipyards is solvent and accumulated losses to date, for all the yards, are in excess of €719 million. The industry is scheduled for privatisation over the next 5 years, and will need to make some radical changes to meet EU entry criteria.
Competition is fierce, but not always fair, with many governments, like Croatia, continuing to subsidise their national industry. Technology is an increasingly key factor in competitiveness, and the European Industry has also suffered from the appreciation of the euro against the dollar and, to a lesser extent, against the Japanese yen and Korean won.
On the positive side, the Croatian order book is looking good, the workforce is highly skilled and the industry prides itself on “tailor made” projects. If it can strengthen its position in this niche, take advantage of latest technology, become generally more productive, and move away from the intensely competitive tanker sector, there is a good chance of achieving greater profitability. The private sector may well encourage the industry as a whole to sharpen up its act, as it puts Croatia on the map in other areas and competes in an open market.
In 1997, the controlling organisation for the state owned ship building industry became known as Hrvatska Brodogradnja – Jadranbrod, loosely translated as the Croatian Shipbuilding Corporation. This was a result of a merger between Hrvatska Brodogradnja d.o.o. (Croatian Shipbuilding Company Ltd) and Jadranbrod (Association of Croatian Shipbuilding Industry). Although the main shipyards were established in the mid nineteenth and early twentieth century, Hrvatska Brodogradnja d.o.o, had only existed, in that form, since 1994 though Jadranbrod had been established for over 45 years as a professional association co-ordinating and assisting individual shipyards to present a stronger and more competitive national industry. Membership was “more or less compulsory” for the state owned yards.
There are five major shipyards within the new organisation:
Uljanik Shipyard in Pula
3. May Shipyard in Rijeka
Kraljevica Shipyard in Kraljevica
Brodosplit Shipyard in Split
Brodotrogir Shipyard in Trogir
There is a sixth shipyard, V Lenac in Rijeka, which is currently going through bankruptcy proceedings.
Croatia has been a member of the Association of European Shipbuilders and Repairers (AWES) since 2002, and is an observer (but not a member) of the Organisation of Economic Development’s Council Working Party on Shipbuilding, which aims to reduce the competitive distortion in the industry caused by government aid.
Some More Statistics
The European Shipbuilding Industry, of which Croatia is a part, is responsible for around 20% of the world’s capacity.
AWES includes 14 countries – Croatia, Denmark, Finland, France, Germany, Greece, Italy, Netherlands, Norway, Poland, Portugal Romania, Spain and the United Kingdom. The annual report for 2003/2004 suggests the following:-
Croatia’s order book is booming and, despite the size of the country, Croatia is 4th highest of the group with 1,515,688 gross tons of orders out of a total of nearly 10,000,000 tons.
Again, on a tonnage basis, completions in 2003 placed Croatia 7th on the list.
Of a total Croatian shipbuilding workforce of 11,883, new builds accounted for 9,702 workers.
Looking at the national picture, Croatia has delivered some 1,000 ships to 70 different countries in the nearly 50 years that the industry has been properly established. 20% of these ships have been delivered to Russia.
Although the industry itself only employs 12,000 people, it is estimated that a further 35,000 jobs are directly linked to the industry.
Anecdotal evidence suggests that the workforce is skilled but technology may be lagging behind some competitors. There have also been suggestions in the media that the industry is over manned though this may not be something that a minority government wants to tackle whilst fighting an 18% unemployment rate. Similarly I’d guess that, in the immediate future, privatisation is a difficult option. However, the EU is quite clear about what reforms are necessary to meet their criteria – effectively state support is allowed in areas such as research, innovation and environmental protection, in order to get the industry fit for fair and unsubsidised competition, but not direct subsidy. This could be one of the most difficult areas of EU negotiation for Croatia so we’ll be watching progress with interest.
AWES 2004-2004 Annual Report
The state shipbuilding industry is an important and complex area which I'm sure we'll be returning to in future postings. Next week, in part two of the shipbuilding industry, we'll be having a look at some of the private shipyards including Heli Yacht (see photo), Nauta Lamjana, Betina and NCP Sibenik.