South africa: First Step in Attracting Foreign Vessels

The tonnage-tax proposal released by Government last Friday is a step forward in encouraging foreign operators and owners of vessels using our ports to consider registering their ships on South Africa’s ships’ register. However, it is only one of a raft of changes and issues that still need to be addressed in order to make it an attractive proposition.

The growing of a South African ships’ register is desirable as it will result in significant benefits to both the fiscus and the local shipping industry.

Gavin Fitzmaurice, a maritime law partner at leading corporate law firm Webber Wentzel, and Chairman of the Cape Chapter of the Maritime Law Association, says that until the rest of these issues are addressed, foreign vessel operators and owners are unlikely to shift the registration of their ships to South Africa.

“The lack of readily available ships’ finance for local vessels is a matter for concern. Foreign and local banks and financial institutions are reluctant to offer finance to South African ships. This is because while they are accustomed to being preferred creditors in respect of fixed property such as houses over which they register a mortgage, currently South African maritime law relegates banks behind several other categories of creditors in respect of a ship. For example, ship repairers and suppliers of goods and services to ships are accorded preferred creditor status, which means those claims would be settled ahead of a bank’s claim.”

Fitzmaurice adds it is obviously important to safeguard the interests of local industry, including ship repairers and suppliers, whilst at the same to balance these interests with those of banks and financial institutions – this is the challenge which Government now needs to address.

A draft bill called the Admiralty Regulation Jurisdiction Amendment Bill has been awaiting enactment since 2003, which addresses precisely these concerns and seeks to improve the security given to banks and other financial institutions. Fitzmaurice hopes the tonnage tax announcement may foreshadow Government giving due attention to this important piece of legislation.

There are also concerns around local labour legislation. The endgame - which commences with registration on the South African ship’s register - is the development of a South African merchant fleet, with vessels being crewed by South African seamen. It is the opinion of many in the international shipping fraternity however, that South African local labour laws present a hurdle to achieving this.