Local retailers under threat by foreign invasion
Lankan retail trade leaders call for stringent regulations to check foreigners opening retail shops here
Sri Lanka's retail traders are voicing their anger over foreigners setting up retail shops here, as they see the space once exclusively available to them is being increasingly occupied by whom they call 'invaders'.
The National Business Front (NBF), an incipient group with around ten big time local retail traders, said that allowing foreigners to enter the retail sector posed a threat to the local retail businesses.
Pointing out that local businesses were unable to compete with foreign enterprises which were financially more strong, NBH president Kulatunga Rajapaksha called on the authorities to review the Foreign Exchange Control Act and Board of Investment Act which had permitted foreigners to enter the local retail market with a minimum investment of US$ 1 million.
He said that in the recent past, a number of foreign nationals had opened retail shops that sell gifts, shoes, grocery, floor tiles and other items. He said that if this trend continued, the local businesses would have to close shops sooner than later.
The local group has met President Maithripala Sirisena to seek redress through the repeal of the provision of the relevant law that permits foreigners to enter the local retail market with Board of Investment (BOI) status. But their efforts have not been fruitful.
Mr. Rajapaksha said the process was so easy that foreigners from China, India and Japan set up shops in Sri Lanka just as "we open bulath kades (betel leaf shops)."
"This should not be allowed. Can Sri Lankans open retail shops in other countries?" he asked.
Following talks with President Sirisena, Prime Minister Ranil Wickremesinghe in November last year gazetted regulations under the Foreign Exchange Control Act, raising the minimum investment to US$ 5 million.
The BOI guidelines published on its website say the the proposed foreign investment should be effected from funds remitted through a Securities Investment Account (SIA).
Lanka Tiles' Chief Executive Officer Mahendra Jayasekera, a member of NBF, said there should be stringent guidelines to regulate foreigners entering the local retail market.
"We can accept if it is a giant retail trade or flagship company. This could uplift retailing standards. The government should have specific criteria for foreigners to come here," he said, pointing out that countries like China and India had tough regulations to protect the local sector and discourage the entry of foreigners into the retail market.
Popular clothing store Lady J's Managing Director Anuruddha Wijeratne said foreign retail traders were investing small amounts of money and making big profits, he said, adding that “If their investment in stocks were taken into account, the total investment will be even meagre."Mr. Wijeratne said the local retail industry had been neglected for the last 60 years and that it was high time the govern- ment turned its focus on expanding local industries.He said that it appeared that the Government had not properly understood the importance of the local retail trade and the direct and indirect contributions it made to the economy by creating jobs, boosting local entrepreneurship and selling products at affordable prices.
He said that some 60 percent of the products sold in his retail shop were made by small and medium Sri Lankan companies.
"We sell several local products, including cane products from Wevelgama and wooden items from Matara. On the one hand, the government, in keeping with its policy of helping small-time local entrepreneurs offers loans, but on the other it allows foreigners to enter the local retail market to sell foreign goods. This has an overall negative impact," he said.
Mr. Wijeratne said foreign retail compa- nies had several advantages such as obtaining loans at low interest rates -- as low as 2 percent -- from their countries of origin, while Sri Lankan traders obtained loans at interest rates as high as 15 percent. "The uneven playing field created under the BOI Act is posing a big threat to us. Foreigners pay the same tax and duty that we pay and earn bigger profits than what we get," he said, adding that foreign retail shops operating only as a joint ventures with local partners could be a possible compromise.
Sri Lanka after the war ended became the most appealing destination for luxury retailers in Asia Pacific.
AT Kearney a United States global management consulting firm has ranked Sri Lanka 12th in its 2016 Global Retail Development Index.
Real Estate consulting firm Jones Lang Salle (JLL) has also identified Sri Lanka as one of the most appealing destination for luxury retailers. The reason given was that its people continue to have disposable income to spend on retail goods.
Most of these entrepreneurs are from Japan, China and India. They pay taxes and salary to workers and take away all the profits to their country.
Sri Lankan industries on the other hand reinvest their profits in the country itself.
Assistant Company Registrar Tharanga Panditha Sundara said the foreigner-owned retail businesses were legal and they were opening businesses under the Exchange Control Act Regulations. He said there were no provisions or legal requirement under any other law.
Local traders said in retail trade, foreign businesses do not bring any new expertise, knowledge or technology but only replicat- ing businesses that are already here. In addition, the profit outflow has a negative impact on the foreign exchange reserve.
Although the Gazette Extraordinary No.1232/14 of 19th April 2002 of Controller of Exchange requires foreign companies to remit a minimum of US$ 5 million, two Indian enterpreneurs have opened a service company by investing a meagre Rs. one million rupees. The Sunday Times learns that this is because there is a loophole in the law with regard to the service sector.
The company which is to start business from its Nawala office soon will issue medical certificates to Sri Lankans migrating to Qatar to take up jobs. This sector has been hitherto exclusively handled by local medical centres.
In terms of the registration, the company is also allowed to expand its operation enabling it to lease, establish, maintain, operate, run, manage or administer hospitals, medicare, health care, radiology and radiotherapy, nuclear medicine, diagnostic, health aids and research centres and to provide medical relief to the public in all branches of medical schemes.
The Association of Private Hospitals and Nursing Homes said that the setting up of foreigners-owned medical centres would adversely impact the local health care businesses which are sufficiently equipped to provide the same service.
President Prof Lal Chandrasena said that when permitting such health centres, the Government should ascertain whether the service provider confomrs to local guidelines. "We have to check whether the laboratories are accredited and safety regulations are followed in conducting the tests," he said.