Local cable manufacturer feels liberalisation jitters
The domestic cable manufacturing industry appears to be disturbed by the present government’s penchant for liberalisation, displayed through recent attempts towards liberalising the country’s shipping and lubricant sectors.
A local cables manufacturer recently said their calls for continued protection of the industry from imports appear to be falling on deaf ears.
ACL Cables PLC Chairman U.G. Madanayake said since of late they had noticed a tendency towards the relaxation of the negative list with regard to certain free trade agreements with absolutely no justifiable reason. The domestic cable industry received protection from unfair trade practices and economies of scale of neighbouring manufacturing giants ever since its inception.
Cables have remained an item in the negative list of both the government and the Board of Investment (BOI).
“These acts may have a drastic impact not only on the cable industry but also on the safety of houses and people due to the importation of inferior cables,” Madanayake said in his annual review of the company’s performance to the shareholders.
During the year ended March 31, 2018, ACL Cables’ revenues slowed and profits declined due to a slew of domestic and international factors.
The group reported revenues of Rs.16.3 billion, up from Rs.14.7 billion, but the earnings fell to Rs.695.9 million or Rs.5.81 a share from Rs.1.1 billion or Rs.9.33 a share reported during the previous year.
In the domestic front, the political instability and the resultant slowdown in industrial activities— mainly construction sector activities—have reduced the demand for cables.
Meanwhile, higher metal and plastic prices have led to an increase in cost of sales and erosion of margins significantly at ACL Cables.
“Furthermore, increased metal and plastic prices resulted in an increase in the value of both the inventory and of debtors which coupled with high interest rates led to a substantial increase in financing costs of the entire group,” Madanayake said.
Double digit interest rates and the weakening rupee against the US dollar are also challenging the company’s cost structure.
Meanwhile, ACL Cables’ Managing Director, Suren Madanayake, echoing the sentiments of senior Madanayake said, the FTA’S with Singapore and China are threatening the status quo of the local cables industry.
“The cable industry has been lobbying the government to keep the cables in the negative list in case of all free trade agreements, and so far it has been successful to a certain level.”
“But the FTAS with China and Singapore are threatening the healthy situation we are in. However, we are lobbying the government to maintain the cables in the negative list since the industry has the potential for further expansion into the export market,” he noted.
ACL Cables currently exports its cables to a few overseas markets, and are expanding its capacity to cater more towards the international buyers while becoming more competitive.
The company’s export revenue grew 27 percent year-on-year (YOY) to Rs.2.3 billion during FY17, while local sales grew 8.6 percent YOY to Rs.14 billion.
Providing protection to certain industries is not essentially a sin which advocates of free markets portray. The supposed homes of free markets, the United Kingdom and the United States probably were the two of the most protectionist countries in the world when they were developing nations.
They provided unwavering protection to their infant industries and still are protecting some of the crucial industries, such as agriculture with higher import tariffs. These wealthy countries opened up their markets when they felt that their domestic players had built up scale and could compete in the international arena.
Specially, after the World War II, the rich countries and their multinational corporations rewrote global trade rules, and with the establishment of organizations such the World Bank, International Monetary Fund and the World Trade Organization, they started preaching to the developing nations ‘do as we say and not as we did’ because the ‘times have changed.’
Hence, it is important for countries like Sri Lanka not to get trapped in ideologies that riddle and come up with an economic model that develops its industrial base and serves the consumer, while reducing income inequality and delivering equitable growth.