Challenges for the shipbuilding industry

Written by Panos Xenokostas*

At the starting point of the new global economic megacycle, with Industrial Revolution 4.0 in full swing and Industry 5.0 just around the corner, industrial strategy is placed at the core of the analysis but also of anxiety about the content of the rearrangement of the international distribution of power.

Recovering the competitiveness of European industry and focusing on its needs, strengthening innovation and accelerating the rate of “metabolism” of productive transformations, limiting dependence on raw material inputs and “circularity”, creating and exploiting economies scale are included in the “centerpiece” of a very broad and thorough Plan for economic and productive restructuring.

If the “mutualization” of the debt (issuance of common debt) and the “toolbox” of the proposed €750-800 billion annual investment boost activate and intensify a “traditional” internal confrontation of the EU, the attempted specialization of the Plan per member state and sector makes each country “confronted” with its own self, its timeless weaknesses, pathologies and distortions.

The dimension of “urgency” and the proposal for immediate decisions, which run throughout the Draghi Report, constitute the final warning for Europe’s largest economies and the danger signal for the smaller ones. Consensus and integration of megatrends cannot be achieved by procrastination, piecemeal approaches and micromanaging terms.

Draghi’s assumptions and proposals “meet” the Greek manufacturing sector in an idiosyncratic phase with major internal differences. The closure of large factories in traditional industrial branches reinforces concerns about a possible new cycle of deindustrialization, also reflecting a wider “problematic” condition that characterizes the operating environment of European industries. On the opposite bank, the renaissance of the shipbuilding and shipbuilding industry sector and the entire related ecosystem is being recorded, while opportunities are emerging, among others, on a smaller or larger scale in sectors such as munitions and floating offshore wind turbines.

In particular, for the sector of the shipbuilding and shipbuilding industry, our country is facing a big dilemma regarding its total restoration.

The dilemma in question is clear, straightforward and boils down to whether or not we want heavy industry. And if so, to what extent do we realize that in a globalized environment, with non-linear evolutionary time, speeds, requirements and choices are defined in the field of international competition and not through internal processes or experimentation?

Undeniably, in our critical times, the dignified living and well-being of those who live and work in our country require a set of coordinated actions and actions by government, state and industry with a time horizon of 18 months.

The conclusion of this “Industrial Contract” is projected as a structural condition for the new production model, so that Greece does not miss the “last train” of real and long-term sustainable development with extroversion and export orientation, exploitation of comparative advantages, reconnection with vital needs of the Greek economy and industrial production, from which an alarming “alienation” has been recorded in recent decades.

In the shipbuilding sector, therefore, from the industry point of view, as conditions and not announcements or wishes, the following may be defined, indicatively and not restrictively:

• Private investments in upgrades and equipment of over €100m in the last five years and a portfolio value of over €150m.
• Annual export growth rate of over 25% over the last five years.
• CSR programs of at least 1% of turnover.
• Plan
• Diffusion of more than 25% of turnover through industrial partnerships in SMEs in the Greek territory.
• Employment of more than 300 workers in each shipyard.
• ISO, Safety Plan, Waste and Waste Management Systems, use of media, such as e.g. trailers, in line with Greek and European legislation.

The 12 sentences

On the contrary, government and state are required to launch a coherent network of targeted institutional interventions. As the Association of Hellenic Shipyards (EEN), we have submitted relevant proposals to the relevant ministries and are at the consultation stage. More specifically:

• Avoidance and prevention of unfair competition in the equipment programs of the Ministry of National Defense, either directly or indirectly (e.g. MEKO, FMS programs, intergovernmental agreements, etc.). The selection of Shipyard Units for the execution of shipbuilding and works with the end user the Navy must be carried out with complete transparency by the Navy as well, regardless of the shipyard inside or outside Greek territory.
• In the context of the defense programs, new shipbuilding, upgrades and maintenance totaling several billion euros must be implemented entirely and vertically in the “yards” of our country, since any other option translates into a total undermining of the industry, the workers, the production fabric and of the national economy. The possibilities of building all kinds of ships, even frigates, are now in Greece equivalent to those of other European countries, and indeed at a reduced cost of 10-15%. It is worth noting that the Greek shipyards, which in the past took on large equipment contracts without carrying out exports and investments, eventually went bankrupt.
• Synergies of the shipyard defense industry with major domestic defense industries, such as those of weapon systems and ammunition. Horizontal synergies work multiplyingly in the measurable growth of the industrial footprint in the national economy and the sectoral labor market. Taking into account, therefore, the impact through transparent selection and “premium” procedures of the possibility of vertically integrated production must become a priority, while avoiding cases of state aid (illegal state aid and lack of integrity), which bring new burdens for the Greek taxpayer.
• A unified framework for institutional treatment of the country’s shipyards to avoid distortions and unfair competition practices. Overcoming bureaucratic obstacles and delays that create charges or losses of millions of euros.
• Institutional recognition of the shipbuilding industry as part of the “shipping chain” and homogenization of the status of shipyards with shipping. Shipyards are and must be seen as an independent space of imperfection with a series of ramifications in critical issues of procedures, VAT, labor law, permits and projects with a positive sign for workers, safety and environmental protection policies, added value in enhancing productivity and competitiveness of the industry.
• Formation of a special plan for the inclusion of domestic shipyards in the Large Industrial Investments Program (over €150 million), due to the possibility of effective absorption of “stagnant” funds, in order to accelerate the productive transformation and modernization of the sector.
• Establishment and preparation of a “Register of Shipyards” in order to create an evaluative system for allocating resources and undertaking equipment programs with simultaneous provision for the integration and construction of infrastructure projects, in order to achieve the maximum possible utilization of them through synergies with co-competent ministries and TEE.
• Approval of pending energy transition pilot programs through the development of floating offshore wind turbines in order to structure the domestic supply chain by verticalizing energy generation and storage.
• Domestic construction of tugboats and coastal vessels, for the necessary renewal of the fleet and the measurable contribution to the green transition by maximizing the benefit for workers and domestic employment, significant “returns” for the Greek State and the national economy with the involvement of private investments.
• Investment in technical vocational education and training with the ONEX – DYPA strategic partnership. Attracting and motivating students to study in the schools and specialties that have been established. Investigation of their evolution or the creation of an Academy of Technical Professions of Maritime and Shipbuilding Industry.
• Conversion of the country’s major shipyards into workforce “gateways” for training and employment, based on the diagnosis of relevant needs.
• Recognition of EEN as an equal social partner and institutional interlocutor of the Greek government for the issues of the shipbuilding industry. In an industry with intense international competition, the establishment of social dialogue structures and tools is a necessary condition for launching bold and innovative reforms, seizing opportunities and drastically limiting the loss of valuable time.

Creation of Secretariat

Given the complexity of the issues and the competence of various services and departments, it is deemed necessary to create a General or Special Secretariat for Shipyards and Shipbuilding Ecosystem Investments, which will include all the responsibilities.

All of the above are part of the “road map” of reforms and structural changes in the shipbuilding industry. The timely and full implementation of the proposed interventions and initiatives will transform the shipbuilding industry into a long-term sustainable growth engine with a strong participation in GDP (between 2-4%), creation of thousands of sustainable and well-paid jobs, significant upgrading of Greece’s power through supply self-sufficiency and the production of economic diplomacy surpluses.

The imperative need for institutional shielding of re-industrialization and productive reconstruction needs to be robust, coherent and dynamic, since in any other case the efforts of the Prime Minister and the then Minister of State, Mr. Georgiadis, will be lost in the “entanglements” of responsibilities, ideologies, micro-political expediencies or personal beliefs.

*Panos Xenokostas is the founder and owner of the ONEX Group, which has acquired, among others, the Syros and Elefsina Shipyards, implementing investments of over €120 million to date, through the Group’s own funds and raising funds from the American Government Organization ( DFC) without any funding or other type of subsidy from the Greek state. His total investment plan for the sector exceeds €500 million.