Chaos in imports

Chaos and disruptions. This was the view on Sri Lanka’s import crisis during a conversation with Pedris Appo, short for Appuhamy who is a retired agriculture expert who does farming, and Seeni Bola, my banker friend (so named after he once boasted that other banks were handling ‘seeni bola’ deposits compared to his bank).

We were meeting over coffee at a local coffee shop for a long-overdue ‘chat’, earlier restrained by COVID-19. We maintained the strict face-mask rule, pulling down and putting back the mask between sips of coffee which tasted really good this Thursday morning.

“There seems to be chaos in the import trade, I hear,” said Pedris Appo, adding “many people have lost their jobs.”

“I am told many businesses have collapsed due to restrictions on imports,” noted Seeni Bola.

“That’s right. I have also been gathering information on the import trade and what is coming out is a very complex and negative impact on the economy,” I said.

After a long discussion on economic issues, I returned home and as I walked into the garden, the trio of friends was under the margosa tree, discussing some issues relating to migrant workers.

“Aranchiyak thiyenawa paththaren, Kuwait ratata pitin wedata ena ayawa adu karanda yanawa kiyala (There is a news item that Kuwait is restricting the number of migrant workers),” said Kussi Amma Sera. “Eka barapathala prashnayak Lankawata (That will be a big blow to Sri Lanka),” said Mabel Rasthiyadu. “Wenath meda peradiga ratawal me vidihata weda karaida danne ne (I wonder whether other West Asian countries will follow this trend),” added a worried Serapina.

As I recall, according to Central Bank statistics, worker remittances had dropped by 5 per cent to US$ 3.7 billion in January-July 2020 when compared with the same period last year. It is most likely that 2020 will end up with less than what was remitted in 2019.

However, deviating from worker remittances, I sat down before my computer and put together a sequence of events from the time import controls were announced in April 2020, largely to save foreign exchange which was lost owing to fewer exports impacted by the pandemic.

The first gazette on import controls was issued on April 16 for three months up to July 16. It was then extended to December 31, 2020.

Six gazettes have been issued so far. The sixth one eased the restrictions but the bureaucracy made the process tedious and slow.

The first gazette was abrupt and sudden, rendering a devastating blow to the import trade in which thousands of people depended on, in terms of business, jobs and the entire supply chain to the import sector, not forgetting the raw material that is required in the manufacture of export products and consumption goods for the domestic market. A classic example was imported chemicals used in the manufacture of yoghurt which were suspended and later relaxed after appeals.

The April 16 gazette was decided without any rational thought or discussion with the business community on what was essential and what was not. The industry agreed that there were some items that were not essential like toys for example, but the gazette was a carte blanche move by the authorities to stop imports in a bid to save foreign exchange.

It created chaos and disruption in the economy and cost dearly to the people and also the government by way of tax revenue particularly in the import of motor vehicles and white goods – electrical items.

Nowhere in the world has a government resorted to such a drastic move arising out of the COVID-19 pandemic.

These import restrictions have shuttered many small businesses and cost the jobs of many including drivers, cleaners, shipping clerks and workers in establishments dealing with imports. Many were impacted by the move. It was a huge loss in terms of revenue with the net loser being the government.

The manner in which import controls were brought in has led to fears that this could happen in the future too, in an era where Sri Lanka has a free market economy. The restrictions were imposed under three categories – “temporary suspension”, “controlled” and “banned”.

In the present scenario, imports are allowed on a special licence issued by the Department of Import Control, a process which is bureaucratic, tedious and sometimes doesn’t work when the line ministry, whose approval has to be sought to import a particular item, refuses to give the nod. Another problem is that import licences are given on sixmonth credit terms which are not favourable to the overseas supplier and bring about an additional cost to the importer.

The department is not geared to cater to the large number of applications for import licences and thus the process is slow and doesn’t work. Often, officials are reluctant to take decisions causing further delays, with the private sector suffering due to a flawed process of import controls.

While the restrictions are up to December 31, 2020, in some cases the effective date of the restrictions has been listed as “indefinite”.

Efforts by importers individually and collectively to appeal to the authorities haven’t worked.

Another problem is that with Sri Lanka’s credit risk rising, overseas suppliers have been forced to take higher insurance premium on the supply of goods, a cost that is passed onto the importer and thereafter the consumer, resulting in the cost of goods rising.

According to official data, the year-on-year declining trend observed in expenditure on merchandise imports since March 2020 continued in July as well, recording a decline of 24.6 per cent, to $1,294 million.

Expenditure on all major import sectors declined in July. This reduction is partly attributed to the measures taken by the government to restrict the importation of selected non-essential goods, Central Bank data showed. The expenditure on personal vehicle imports declined considerably by 93.6 per cent in July, the lowest monthly outlay since December 2009.

As I wound up my column, Kussi Amma Sera brought in a mug of tea and departed with a smile, leaving me to reflect on the need for the government to seriously review import controls and foster a dialogue with the trade on how to move forward in a progressive manner and reduce the adverse impact on the economy, jobs and businesses.