I cannot remember the last time “conflict” in the Middle East had such a devastating effect on the region’s people, infrastructure and economy. The humanitarian disaster is growing daily, causing a change in the world’s geopolitical landscape.
The world economy and South Africa’s economy are not immune from the consequences. Major commodity traders, logistics and shipping companies are the most affected. Normally, we would also expect crude oil prices to sharply increase, resulting in South Africans suffering more at the petrol pumps. Importantly for South Africa on the economic side, we expect the escalating conflict in the Middle East to lead to a further reduction in maritime traffic through the Suez Canal.
In mid-January Freight News reported that seaborne traffic across all shipping segments sailing around South Africa had risen a remarkable 53% in the previous three months, and there had been a significant drop in maritime traffic using the Suez Canal because of attacks on maritime vessels in the Red Sea.
The suspension of bunkering is a serious tax leakage. It is crucial and urgent that partners to the ocean economy, including Sars, urgently work together to secure and develop this new tax base
This would have been a boost for South Africa’s ocean economy if bunkering was promoted and encouraged to capitalise on the increase in traffic. Partners in the ocean economy include the departments of mineral resources & energy, agriculture, forestry & fisheries, the environmental affairs and public works; the South African Revenue Service (Sars); and the International Trade Administration Commission (Itac).
The ocean economy is ripe for growth as South Africa has eight major ports, including two globally ranked container ports and two of the world’s biggest dry bulk ports.
Is South Africa not losing an opportunity to fast-track growth of the ocean economy and losing billions in tax revenue by failing to cater to increased shipping traffic off its coast?
According to InvestSA, for resupply and general support to ships, South Africa has an excellent food industry, a world-class medical sector and experienced chandlery businesses. The country has two advantages regarding ship repairs and maintenance: we are positioned in a high-traffic location, and an estimated 60% of total repair costs are attributed to labour costs. South Africa also compares favourably with competing nations and regions; it possesses service sophistication and offers a wide range of repairs including hull cleaning, engine repair, servicing offshore oil and gas rigs, electronic system repairs and large vessel dry docking.
South Africa, with a coastline of about 2,798 km, has an exclusive economic zone (EEZ) of nearly 1.5-million km². Operation Phakisa aims to grow the ocean economy’s contribution to GDP to more than R177bn by 2030. So it is not surprising that the country is promoting ocean economy expansion to drive economic development and food and energy security.
Operation Phakisa is an ambitious project and according to its website, the purpose of its maritime component is to unlock the economic potential of South Africa’s oceans, positioning South Africa as an international maritime player by 2030 while increasing economic growth and jobs.
In September 2023, Sars detained a number of bunkering vessels belonging to some of the players in the maritime industry, bringing bunkering in Eastern Cape ports literally to a halt. The situation remains largely the same even now.
In March, Siya Mhlaluka, MD of Transnet National Ports Authority’s central region, was quoted by Freight News as saying that much of the recovery plan being implemented in the central region was focused on enabling the efficient utilisation of port infrastructure and improving operational efficiencies at the ports. Asked about the ongoing issue of bunkering services at the Eastern Cape ports, Mhlaluka said engagements with Sars were continuing. He said bunkering had been the lifeblood of the central region ports and the events of last year were unfortunate.
According to a Tralac blog post in February, the Maritime Business Chamber said Sars needed to rethink its actions and the effect that detentions will have on the maritime sector and related industries. The chamber said that by detaining vessels, the tax authority had tarnished South Africa’s reputation as a reliable bunkering hub, and it would lose out on millions of rand as ships sailed past to bunker elsewhere.
Offshore bunkering can create economic opportunities for nearby onshore towns. On long journeys, carriers may choose to stop for supplies when bunkering, swap out the crew with a replacement crew onshore, or make use of specialist maritime services such as waste disposal or oil-spill cleanup
Offshore bunkering can create economic opportunities for nearby onshore towns. On long journeys, carriers may choose to stop for supplies when bunkering, swap out the crew with a replacement crew onshore, or make use of specialist maritime services such as waste disposal or oil-spill cleanup. Demand for these services generates demand in other industries too: for example, if there is a spare crew, they will need to be put up in a hotel. Maritime service providers may also sub-contract out to other industries.
According to the National Treasury’s 2024 Budget Review, over the next three years South Africa’s economy is forecast to grow at an average of 1.6%. The Sars annual performance plan 2024-2025 said lacklustre economic performance characterised by high inflation and high interest rates posed a risk to revenue collection.
As mitigating actions, the revenue service would continue to “close tax gaps, stop tax leakage and discover new tax bases to recover revenue lost through the erosion of existing tax bases. Revenue collection and compliance levels will measure Sars’s success in closing tax gaps. Sars will identify new opportunities to increase revenue collection and increase the contribution of tax revenue to the government purse.”
The suspension of bunkering is a serious tax leakage. It is crucial and urgent that partners to the ocean economy, including Sars, urgently work together to secure and develop this new tax base which will surely increase revenue for the fiscus.
We only hope the revenue service will fast-track its engagements with the bunkering industry and ocean economy stakeholders with the aim of finalising the draft amendments to the rules relating to the regulation of the bunkering industry.
Under the new rules, South Africa should be able to utilise the increased shipping traffic resulting from the Red Sea crisis by growing the ioceans economy at an accelerated rate, which should result in more jobs and hopefully, billions more in tax revenue for the fiscus.
• Mofokeng is tax controversy leader at Deloitte Africa
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