Cash strapped Government’s ill-planned import ban introducing a licence scheme for importers to protect Sri Lankan foreign reserves is negatively impacting the economy, commodity importers association complained..

Sri Lanka requires import licenses for more than 400 items at the six-digit level of the Harmonized Tariff Schedule to restrict non essential imports into the country.

Approval of these licences is at the discretion of the regulators; no standard practices are followed, and requirements can vary.

Regulators entrusted with evaluating products to be imported often lack the capacity to make scientific determinations, and a zero-risk policy is followed in lieu of scientific rationale.

Import of telecommunication equipment requires approval from the Telecommunications Regulatory Authority and a license issued by the import controller. Some items which are under Import Control License (ICL) are temporarily banned under the April 2020 import restrictions.

The government has introduced a licencing system to traders who imported goods and for the issue of direct user licenses for essential commodity import for the disbursement of forex subject to the overall direction of the Finance Ministry and Controller of Imports and Exports, a Finance Ministry official said.

The amount of exchange on each import control licence was totally inadequate to meet the demand of essential commodities at present and therefore it will be very difficult to issue new permits for non essential items as stipulated by the Finance Ministry at present, he explained.

This will create shortage of practically every essential item; the shortage will also lead to the non-availability of food items for tourists and other essentials.

He added that this latest decision of the government will hit the tourism industry which is on the verge of recovering from the COVID -19 pandemic set back.

With the scarcity of forex, the Government resorted to seek Indian lines of credit but aid for commodity imports was not forthcoming he disclosed adding that in one instance aid was given, on an Indian Line of credit, for the import of fuel only.

Sri Lanka is facing a shortage of essential commodities such as rice, sugar, dhall, chickpeas, coriander etc as imported stocks are stuck in the Port of Colombo (as far back as November 2021), not being able to clear it in the current foreign exchange crisis, commodity importers complained.

They noted that port rent and container demurrages are accumulating on a daily basis (in some instances the cost per kg was Rs. 35-40), they pointed out.

Members of the Essential Food Commodities Importers and Traders Association have also imported and distributed food items such as dhall and rice on “Suppliers Credit” (DA terms) which are overdue for settlement and some suppliers are requesting payment.

This issue has been brought to the notice of the President in a letter dated March 1, 2022, P.M. Abeysekera, Consultant of Essential Food Commodities Importers and Traders Association told the Business Times.

He added that there was a serious threat for food security in the country as most suppliers are reluctant to ship goods to Sri Lanka unless paid in advance.

As the Sinhala and Tamil New Year is fast approaching, the association has urged the President to intervene in this matter of clearing these food items from the port to avoid price hike due to short supply.

The Central Bank has told banks not to request dollars from the banking regulator’s depleted foreign currency reserves, and instead find it in the cash-short market as the country faces a major scarcity of dollars in the forex market.

This has resulted in several private banks being unable to open Letters of Credit (LCs) to importers even for essential items such as pharmaceutical products.

According to a Central Bank directive, commercial banks dealing in the inter-bank foreign exchange market have been restricted in maintaining foreign currency reserves and managing foreign exchange liquidity within the banking system.

This has created a shortage of dollars in the country for transactions involving individual or institutional customers, Finance Ministry sources confirmed.

This situation has worsened unexpectedly due to the devaluation of the rupee, a leading importer said, adding that though importers are willing to buy at higher rates, dealers are reluctant to place orders.

Sri Lanka importers have been badly hit by a foreign currency scarcity as the banks are now refusing to open Letters of Credit even for the importation of essential commodities; Mr. Abeysekera said adding that the Central Bank should take the responsibility for this situation.

Sri Lanka’s construction sector has collapsed as a result of  the sky rocketing of prices s of building materials, including cement and steel, in recent months has compelled the government to pay 20 percent extra to contractors who have undertaken its mega projects.

The National Construction Association of Sri Lanka (NCASL) disclosed that more than 600,000 workers have lost their livelihoods due to the collapse of the construction industry caused by the rise in prices of cement and other raw materials.

NCASL Chairman Susantha Liyanaarachchi said: “More than 1.2 million workers belonging to the lowest economic strata of society are employed in the construction industry. However, with the collapse of the construction industry by 50% due to the crisis situation, more than 600,000 of them have lost their livelihoods.”

He noted that the construction work of small and medium scale building contractors and workers will come to a standstill  by next week  due to shortage of building material an dat present 50 percent of their work has already beeen halted.  

The construction sector is also facing a severe crisis due to the rising prices of construction material including cement.

 “A tonne of steel which was Rs. 288,000 has now risen to Rs. 300,000. Even the steel that had previously been paid for has to be bought at new prices now. 

In addition, cement prices rose by Rs. 100 in January, Rs. 125 in February, and Rs. 350 this month. Accordingly, the new price of a bag of cement is Rs. 1,900. When the raw material prices are going up in this manner, how can we afford to buy them?” he asked. .

He also said that despite a huge publicity given to open a new cement factory in Hambantota, not a single bag of cement has been released to the market from the said factory so far. 

Liyanaarachchi further claimed that the main reason for the collapse of the construction industry at a time of great economic crisis in the country was the lack of management by the relevant authorities.

The Chairman of All Ceylon Masonry Association, Nuwan Sumeda stated that currently, the country is facing a very serious breakdown in the field, because the price of cement is increasing daily along with the prices of other material.

He said that in his company almost 15-20 employees used to work, but now there are less than 5 masons employed, adding that similar situations are experienced across the country.

However, currently, a bag of cement has gone up to Rs.1900/-, he alleged, noting that the current market operates like a mafia.

Projects awarded by the government during the three months before December 6, 2021 will qualify for a 20% increase or the compensation due to price variations of materials.

In terms of the procurement guidelines under the Construction Industry Development Act, the Finance Ministry has sent out a letter to ministries, instruction them to grant the compensation due to price adjustments

However, industry sources expressed dissatisfaction over the concession, saying that the relief had come too little too late.

They said that the industry was overburdened with price volatility of materials, especially cement.    The steep hike in cement prices and the scarcity of cement and other material has made the concession meaningless.

The industry has been crippled by the non-availability of cement in the market and the curbs on imports due to the deepening foreign exchange crisis.

The Association’s President, Susantha Liyanarchchi, said that although the government had added 17 more importers to its list of importers as a mitigatory measure to address the problem, the shortage of cement continues.

With less than 50 percent of the country’s requirement available in the market the price of a 50 kg bag of cement, which was about Rs. 1000 in October last year is now sold at Rs. 1375. In the black market, the bag of cement is sold at prices varying from Rs. 1750 to Rs. 2000.

    The country needs around 7 million metric tonnes of cement a year. About 70 percent of the demand is met by imports.   .

An estimated 8000 hardware shops depend on the construction industry and without cement, no other building material sells, an industry source said.