15 August, 2020

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Import Controls – Out Of Control?

By Erandi de Silva –

Erandi de Silva

As the COVID-19 virus forced much of the world into lockdown, the scale of interdependence and reliance on trade across nations was apparent by the global urgency to re-open economies as soon as possible[1]. The shortage of goods and loss of income experienced due to the disruption of supply chains helped some nations realize that a country typically stands to lose more than it may gain by being shut out from the global market. Sri Lanka continually increasing import controls and locking itself out of trading networks then begs the question, why are we punishing ourselves? 

A common justification in people’s minds may be that difficult times call for difficult measures; curbing imports may seem inevitable amidst the current health crisis caused by a contagious virus and the financial threat of a depreciating currency. However, as elections are approaching, it appears these decisions are primarily driven by political and not economic motives. Given that Sri Lanka’s exchange rate became a key campaign topic in the last election, the current rise in import controls seems to be an attempt at artificially maintaining a “strong” currency prior to elections after the excessive money-printing in March this year[2]. 

Furthermore, such decisions should also be recognised as far more than precautionary policies due to the pandemic, and rather, a projection of the national tendency to revert to protectionism. The ban placed on maize imports in mid-January (prior to the when the first case of coronavirus was reported in Sri Lanka) indicates this predisposition[3]. Sri Lanka exhibits a recurrent desire – often fueled by nationalistic rhetoric – to boost domestic production or even become self sufficient across various sectors and industries, sometimes in complete ignorance of comparative advantage and practicalities. This is evidenced in the aftermath of importing 5,000 milk cows in order to boost local dairy production in 2017 which led to many farmers accruing debt whilst over 400 cows died due to poor living conditions[4]. Not only did it result in Sri Lanka still importing; this method was more expensive because now money had to be spent to feed and care for the cows in the absence of their natural habitat. Despite this result, the new Government again approved a proposal to import 2,500 cattle from Australia on the 1st of June this year in the hope of curbing milk product imports to Sri Lanka[5].

In the case of import controls and such protectionist actions, problems tend to manifest regardless of the intentions behind the implementation of such policies. For example, the maize embargo which was imposed with the intent of accelerating domestic production and protecting local farmers has led to several adversities – now including a shortage of supply[6]. It is important to note that the brunt of the outcome was faced by a vulnerable stakeholder that the Government aims to protect: small-scale poultry farmers. As the main consumers of maize (because it is needed for chicken feed), poultry farmers were initially forced to pay higher prices to obtain maize and were at the mercy of Sri Lanka’s oligopoly of grain collectors[7]. The problem was exacerbated as domestic stocks of maize withered away and suppliers could not import to fill the deficit. According to the Export Development Board, Sri Lanka imported 102,461.175 metric tonnes of maize in 2019[8] despite domestic production for the year being at 245,647 metric tonnes[9]. This clearly reflects that the local demand for maize is far greater than the domestic capacity for maize production. Another example of unintended consequences can be extracted from the confectionary industry which recently expressed concern regarding the inability to access imported raw materials that are necessary for cost-effective local production. The 340% special commodity levy on block fat and margarine imports which was introduced this month has led to significant strain and job-insecurity within the industry[10]. 

The new administration recently reiterated their pledge made under the ‘Saubhagya Dekma’ policy statement of turning Sri Lanka into a “people-centric production economy”[11]. Despite his claim that limiting imports has “paved the way” for a production economy it is necessary to understand that even most local businesses require imported materials in order to produce. The latest statistics from the World Bank indicate that 38.19% of our total merchandise imports are intermediate goods that are used locally as inputs for production[12]. Regardless of our ambitions, Sri Lanka’s economy requires imports for growth. Many of our consumables are imported and local businesses, including key exporters such as the textile industry, use imported raw materials[13]. Curbing imports will impede the ability of local businesses to cost-effectively grow.

If the Government fails to readjust its policy on import controls and continues down the path of increasing protectionism post Covid-19, Sri Lanka may continue to face economic instability and revenue loss within the sectors that are affected by these constraints. Ultimately, despite the rhetoric and propaganda of “saving local businesses” and creating a brand of “made in Sri Lanka” that enamours the public during political campaigns, it is often the most vulnerable within local businesses that stand to lose the most from the enactment of protectionist policies. As poultry farmers struggle to maintain their income and employees within the confectionery industry remain anxious about the status of their jobs, the question remains: why are we punishing ourselves?


[1] Raoul Leering and Timme Spakman, “Countries hit most by the coronavirus value chain shock,” April 2, 2020, https://think.ing.com/articles/countries-hurt-most-by-covid-19-global-value-chain-shock/ (accessed June 25th, 2020).

[2] “Sri Lanka excess liquidity soars to Rs223bn amid rupee fears,” EconomyNext, June 18, 2020, https://economynext.com/sri-lanka-excess-liquidity-soars-to-rs223bn-amid-rupee-fears-71185/  (accessed June 23rd, 2020).

[3] Tania Madies, “Sri Lanka bans maize and groundnut imports to protect farmers, trial new investments,” EconomyNext, January 6, 2020, https://economynext.com/sri-lanka-bans-maize-and-groundnut-imports-to-protect-farmers-trial-new-investments-38958/ (accessed June 23rd, 2020).

[4] “Sri Lanka dairy farmers in trouble after buying imported milch cows,” EconomyNext, March19, 2020, https://economynext.com/sri-lanka-dairy-farmers-in-trouble-after-buying-imported-milch-cows-13399/ (accessed June 24th, 2020).

[5] “Australian cows to be imported to Sri Lanka for inbreeding,” Colombo Gazette, June 1, 2020, https://colombogazette.com/2020/06/01/australian-cows-to-be-imported-to-sri-lanka-for-inbreeding/ (accessed June 23rd, 2020).

[6] Chanka Jayasinghe, “Sri Lanka chicken laying fewer eggs after Covid-19 disruptions, maize import controls,” EconomyNext, June 18, 2020, https://economynext.com/sri-lanka-chicken-laying-fewer-eggs-after-covid-19-disruptions-maize-import-controls-71195/ (accessed June 23rd, 2020).

[7] “Maize ‘mafia’ squeezes Sri Lanka poultry farmers with import bans, duties,” EconomyNext, January 13, 2020, https://economynext.com/maize-mafia-squeezes-sri-lanka-poultry-farmers-with-import-bans-duties-39972/ (accessed June 23rd, 2020).

[8] Government of Sri Lanka, Ministry of Industrial Export and Investment Promotion, Sri Lanka Export Development Board, Trade Statistics, https://stat.edb.gov.lk/ (accessed on June 20th June, 2020)

[9] Government of Sri Lanka, Ministry of National Policies and Economic Affairs, Department of Census and Statistics, Agricultural and Environment Statistics Division,  http://www.statistics.gov.lk/agriculture/hcrops/index.html (accessed June 25th, 2020).

[10] Charumini de Silva, “Confectionery industry troubled by increased import levies,” Daily FT, June 22, 2020, http://www.ft.lk/front-page/Confectionery-industry-troubled-by-increased-import-levies/44-702002 (accessed June 24th, 2020).

[11] “Imports restriction gives opportunity to boost production: President,” Daily FT, June 24, 2020, http://www.ft.lk/front-page/Imports-restriction-gives-opportunity-to-boost-production-President/44-702070 (accessed June 24th, 2020).

[12] “Sri Lanka Intermediate goods Imports By Country and Region 2017,” World Integrated Trade Solution, World Bank, January 3, 2017, https://wits.worldbank.org/CountryProfile/en/Country/LKA/Year/2017/TradeFlow/Import/Partner/all/Product/UNCTAD-SoP2 (accessed June 23rd, 2020).

[13] “Sri Lankan Apparel Exporters Face Raw Material Shortages,” FashionatingWorld, March 5, 2020, https://www.fashionatingworld.com/new1-2/sri-lankan-apparel-exporters-face-raw-material-shortages (accessed June 23rd, 2020). 

Erandi de Silva is a Research Intern at the Advocata Institute, and can be contacted at erandi.advocata@gmail.com and @randyyrando on twitter. Learn more about Advocata’s work at www.advocata.org. The opinions expressed are the author’s own views. They may not necessarily reflect the views of the Advocata Institute, or anyone affiliated with the institute. 

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Latest comments

  • 3
    0

    The author has touched upon an important aspect of government in Sri Lanka. It is correct to say that the net imbalance in trade is the root cause of the dwindling of the LKR as a currency. But is adopting the 1970-77 policies the answer to all this? One must carefully identify various sectors, such as food etc. and introduce careful and subtle techniques of management so that the net balance in trade is in Sri Lanka’s favor. It is further correct to say that the capacity to innovate as a nation now is better than the 1970 – 77 era. So make use of that feature to have local quality produce at a cheaper price than its imported variety. A control of the 70-77 type would flood the market with substandard local goods and encourage a lot of smuggling of all kinds. So much so that there would be flotillas in high sea with goodies and smugglers would bring them in small boats, akin to the supply of arms to LTTE.

    • 2
      0

      Dear Ms Erandi Silva,
      .
      What is not out of control today ?
      .
      Mahindananda – a bad mouth sports minister of the brutal regime of MaRa has the audacity to challenge national cricket heroes – while responsible authorities from INTERNTERNAL criicket body makes it very clear that Mahindanananda has not produ ced to any such documents proving his ” likely fabricated tale on match fixing in 2011″.
      .
      Where are the SO CALLED INVESTIGATIVE journalists that should clear the DOUBTs of the general public ?
      :
      Are these all POLITICAL GIMMICKS to gain votes by manipulating the voters ?

      Btw, what is not impossible when LAWLESSNESS is governing in a country ?

  • 1
    0

    The young author has produced a well-written and well-researched piece on a complicated subject.
    If import substitution is to succeed, the local products must in the end be price-competitive with the imported stuff. The chicken-feed situation is a good example cited by the author. An all-round increase in the price of chicken products is already noticeable.
    This sort of tariff imposition will on the one hand raise the cost of living, and on the other hand provide an incentive for smuggling from India as in the 70’s. Will we never learn?

    • 2
      0

      old codger

      “Will we never learn?”

      My Elders tell me this is a problem that was never solved by the weeping widow in the 1970 as most vacancies at ministry of finance and economic planning were filled by Pali, Sanskrit, and Sinhala graduates. The economic policies were in fact driven by parochial nationalism and not based on sound pragmatic simple progressive policies. As a result the entire country is paying the price.

      SJ must have been the only person who supported her who is still the cheerleader.
      Poor NM who didn’t know if he was coming or going when he enforced demonetization
      according to my Elders.

      Don’t you think it is better to lease the entire island to Japan, Qatar, Dalai Lama, Google Sundar Pichai, Norway Sovereign Fund Managers, ….. Ivan Boesky ….. than let it go complete bankrupt ….?

      I think it’s only fair we start blaming your generation.

      • 0
        0

        Native,
        “I think it’s only fair we start blaming your generation.”
        Was Sundar Pichai even born in 1972?

    • 0
      1

      A little hint to Erandi: Next time you write on CT, use a more serious looking photo, preferably wearing glasses. Being learned is not enough, one must look learned as well.

      • 0
        0

        I’m sorry but I completely disagree. The author has produced a very well researched and written piece of writing, and the image she chooses to represent herself in no way takes away from this. I think the author is being incredibly brave in her statements and her smile only adds emphasis.
        We do not judge a book by its cover, yes? Then please do not ask her to change her appearance to suit your archaic ideals. Her writing speaks volumes for her intellect, and that should be enough.
        She appears completely comfortable in what she has written and who she is! More authors should strive to be like her.
        Kudos to you Erandi!

        • 0
          0

          Fish,
          “The author has produced a very well researched and written piece of writing, “
          Exactly what I said. Do we detect a missing sense of humour?

  • 1
    0

    old codger

    “Will we never learn?”

    My Elders tell me this is a problem that was never solved by the weeping widow in the 1970 as most vacancies at ministry of finance and economic planning were filled by Pali, Sanskrit, and Sinhala graduates. The economic policies were in fact driven by parochial nationalism and not based on sound pragmatic simple progressive policies. As a result the entire country is paying the price.

    SJ must have been the only person who supported her who is still the cheerleader.
    Poor NM who didn’t know if he was coming or going when he enforced demonetization
    according to my Elders.

    Don’t you think it is better to lease the entire island to Japan, Qatar, Dalai Lama, Google Sundar Pichai, Norway Sovereign Fund Managers, ….. Ivan Boesky ….. than let it go complete bankrupt ….?

    I think it’s only fair we start blaming your generation.

  • 0
    0

    Dear Author

    Thank you. Nothing wrong with we analyse how we trying become self sufficient(it is a gradual journey indeed) and ramifications when industry/market place/government departments are not working together for this vision.

    What make me loose your argument is cynical view of the government intent when things are not going well……..there is an election etc.

    Please analyse further the things we can not see reasons as we SL have done this time and time again that is to blame elected governments for everything until next election and we elect someone else and do the same….is one of the reasons we have gone anywhere.

    The children who suppose to take us further in 1970’s from North and South taken the matter further even though we had exceptional economic policies to become self sufficient (public went through hardship) and reduce the borrowing/avoid putting the country into debt then……..then came the JR government in 1977 imported everything including Onions/Chillies to box of matches. We were eating half cooked breads when we can pay our hands on one and real shortage of sugar we manage with local products too.

    Please refrain from accusing the government for everything rather focus on the civilians who are traders/stock exchange people/importers/exporters/consumers/businessmen and their patriotic intiatives to be creative complementing government vision that is people-centric economic vision please.

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