ECONOMYNEXT – Sri Lanka’s import controls placed to boost import substitution has strengthened monopolies, prices of sanitary ware have soared over 300 percent, tile-masons were jobless amid shortages, while people dreaming of house were in trouble, opposition leader Sajith Premadasa said.
Sri Lanka has controlled imports of many items as money printing created foreign exchange shortages and foreign reserve losses, while import substitution business, now widely known as ‘cronies’ are minting millions selling goods at black market prices.
“Do you know that a toilet set that was 15,000 rupees is now 50,000?” opposition leader Sajith Premadasa questioned in parliament.
“There are shortages of tiles, and tile-layers are without jobs. People who are dreaming of building their house are suffering.
Premada’s father, Ranasinghe Premadasa ran program that provided hundreds of thousands of low cost houses for the homeless.
He questioned whether the government knew how much tile prices have gone up.
A person who put off repairing the toilet at his mother’s house due to Coronavirus crises said the toilet set that was 18,000 rupees last year was no longer available.
Some sets were now priced at 45,000 but only basins were available but no commodes, he said.
Tile prices have also soared.
“Sir, tile eketer ekak wedi wela, (prices have doubled)” one mason said.
Meanwhile Premadsa said construction sector and architects were in difficulties because the tile of the right patter and quality were no longer available.
“Because of the restriction architects, engineers, workers who are depending on daily wages are in danger of losing their jobs,” Premadasa said.
“More than 100,000 are depending directly and indirectly on the tile import industry.”
He said there over 300 businesses involved in supplying tiles to the construction industry which were hit.
Premadasa said most of the raw material for domestic tile production was also imported from abroad.
“Also 55 percent of raw materials needed for the locally produced tiles and other components are also imported, therefore a foreign exchange is also included in locally produced tiles,” he said.
Sri Lanka has printed hundreds of billions of rupees to control interest rates and finance the deficit, triggering unprecedented monetary instability and the prospect of sovereign default.
Instead of controlling the central bank, imports and have been controlled, due to a strong Mercantilist belief in the country that monetary instability did not come from monetary policy but trade.
There have been calls to re-build a currency board and close the soft-pegged central bank so that currency depreciation would end, and people would not see high inflation, falling real wages.
Premadasa said about 45 percent of the tiles were made in Sri Lanka and the balance was imported to the country at a high tax of around 100 percent.
He said there were estimates that it was around 12 billion rupees.
Premadasa asked how much taxes were lost due to import controls and whether the government was aware of the impact of the controls on the construction industry and people trying ot build and what would be done to solve the problems.
Import substitution firms and protected firm in general make profits by pocketing the difference in taxes and the actual cost of the product. Members of the public pay higher than world price for protected goods due to the import duty but the import duty does not go to the government.
Latin America, where import substitution was widespread amid bad central banks, has also seen sweeping defaults.
Protected firms make money by limiting blocking competition with the help of the coercive powers of the state and gouging consumers.
Mercantilism, trade controls with the help of the sovereign was key philosophy before Adam Smith wrote his treatise, The Wealth of Nations giving rise to economics.
“The interest of the dealers, however, in any particular branch of trade or manufactures, is always in some respects different from, and even opposite to, that of the public,” economist Adam Smith wrote.
“To widen the market and to narrow the competition is always the interest of the dealers.
“To widen the market may frequently be agreeable enough to the interest of the public; but to narrow the competition must always be against it, and can serve only to enable the dealers, by raising their profits above what they naturally would be, to levy, for their own benefit, an absurd tax upon the rest of their fellow-citizens.
“The proposal of any new law or regulation of commerce which comes from this order ought always to be listened to with great precaution, and ought never to be adopted till after having been long and carefully examined, not only with the most scrupulous, but with the most suspicious attention.
“It comes from an order of men whose interest is never exactly the same with that of the public, who have generally an interest to deceive and even to oppress the public, and who accordingly have, upon many occasions, both deceived and oppressed it.” (Colombo/Mar24/2021)