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Industry on wheels crashing towards skid row 

18 Feb 2021

  • Light at the end of the tunnel in vehicle importers’ horror story 

  Despite the climbing number of Covid-19 cases, the Sri Lankan Government permitted the resumption of businesses and also the basic day-to-day activities of the public, in a bid to save the pandemic-hit country from an economic collapse. Most other countries have done the same, as learning to live with the pandemic – which is now known as the ‘new normal’ – is the most sensible decision to take, as no country can know when it will end.  Even though most of the businesses have resumed their operations, some businesses such as the vehicle import industry, event industry and the tourism industry, are still wondering when their businesses will return to normalcy.  In particular, Sri Lanka’s vehicle industry, one of the largest tax-paying sectors, is left with no plans for their future even though the Government has started many programmes to revive the industries affected by the Covid-19 pandemic.  Last year, in light of the Covid-19 pandemic, Sri Lanka imposed a ban on vehicle imports. Even though this move was meant to be a short-term measure, later it was announced that the ban was extended. The Government said that this step was taken in a bid to revive the country’s economy affected by the Covid-19 pandemic by curtailing the foreign currency outflow.  According to statistics issued by the Central Bank of Sri Lanka (CBSL), in 2020, Sri Lanka had spent $ 282.9 million on vehicle imports. Compared to 2019, when Sri Lanka spent $ 815.7 million, it is a decline of 65.3%. In 2018, Sri Lanka had spent $ 1.5 billion on vehicle imports. In August last year, the CBSL said that expenditure on motor vehicle imports declined by 80.9% due to the import ban imposed by the Government and the CBSL.  To discuss the present situation in this regard, The Morning spoke to several vehicle importers and sellers.  Government’s indecisiveness  According to several vehicle importers, who are also sellers of imported vehicles in most cases, the import ban on vehicles has affected them in a number of ways, and they have as a result been rendered unable to take a decision about the future of their businesses.  One vehicle importer/seller told The Morning that the vehicle import industry, as an industry that provides various direct and indirect employment opportunities to a large number of persons, has come to a standstill, raising concerns about the future and job safety of their employees.  Expressing agreement with this statement, another vehicle seller said that the vehicle leasing and vehicle insurance industries have also been severely affected due to the indefinite ban on vehicle imports.  Last year, in light of Covid-19-related restrictions and the economic difficulties faced by the public, the Government granted a grace period of six months for the payment of leasing installments for three- wheeler owners. In a related development, President Gotabaya Rajapaksa also said that the methods adopted by the leasing companies to seize the vehicles of those who had failed to pay the leasing installments was unlawful, and instructed the Police to take steps to address such incidents.  Vehicle importers also raised concerns about the Government’s indecisiveness regarding the import ban on vehicles, and said that the Government should decide on some future course of action in this connection, to keep the industry afloat.  They added that even though the need to impose an import ban on vehicles in the face of the Covid-19 pandemic is understandable, at least a temporary solution is necessary.  A vehicle seller also raised concerns about the prices of used vehicles in the local market, adding that their prices have climbed drastically, posing a threat to those who import used vehicles. When contacted in this regard, an importer/seller of used vehicles said that even though it is true that there is a high demand for used vehicles for a higher price, due to the import ban on vehicles, it is not possible to seize that opportunity.  In addition, several vehicle importers told The Morning that the vehicle stocks have run out, leaving their businesses in a difficult situation, even though the Government claims that the country has adequate vehicle stocks for the time being. They also added that the Government holding discussions with small-scale vehicle importers in addition to large-scale importers and associations is extremely important as their businesses are not as stable as large-scale businesses.  Talks next week  Meanwhile, the Vehicle Importers’ Association of Sri Lanka (VIASL), a leading collective of vehicle importers, recently said that they are scheduled to meet topmost Government officials including Prime Minister Mahinda Rajapaksa next week. Speaking to The Morning, VIASL President, S.K. Gamage said that even though the said meeting was scheduled to be held this week, it was postponed to next week. Gamage said that the VIASL, on behalf of vehicle importers, is prepared to discuss any proposal the Government, especially the Ministry of Finance, puts forward, expressing hope that the Government has a plan to address their issues. He added that the importers are ready to consider the Government’s proposals, in a bid to arrive at a collective agreement. He also said that their concerns have been conveyed to President Gotabaya Rajapaksa as well.  Gamage further said that the importers’ demands are not confined to a resumption of vehicle imports, but rather, any solution that might help save the vehicle import industry, which he said was collapsing. He also noted that they are not necessarily seeking permission to import expensive vehicles, and that allowing the import of at least inexpensive vehicles could be beneficial, as customers are currently left with no vehicles to purchase.  Commenting on the plight of vehicle importers, he emphasised that an immediate, concrete solution is necessary, as hundreds of thousands of people working in the vehicle import industry are on the brink of losing their jobs.  “Due to this situation, around 50% of traders have been forced to close down their businesses, and those that are still open, have run out of vehicle stocks. This situation affects large-scale importers as well,” he stressed.  A myriad of issues  The VIASL further explained that a number of issues arise due to the complete ban on vehicle imports, and that they are likely to negatively affect the country’s economy. They also said that the lack of vehicle stocks has discouraged up and coming entrepreneurs.  The VIASL told The Morning that there is a significant supply chain depending on the country’s vehicle import industry, including cleaners, mechanics and service centre operators.  “If the ban is to continue further, around 100,000 Sri Lankans will lose their jobs and livelihoods, and this would mean that around 350,000-400,000 dependents of these employers would be facing severe financial difficulties,” the VIASL said in a statement.  The VIASL also said that various public officials and doctors are facing severe difficulties due to the vehicles they have ordered legally (with a Letter of Credit) not being released by the authorities.  “Even though most of these vehicles have already reached the Colombo Port, they have not been given an opportunity to clear these vehicles citing various circulars issued. They need to be provided with the opportunity to clear their vehicles. It should also be noted that all circulars regarding the clearing of imported vehicles from Sri Lankan ports were published on a retrospective basis, and that there are therefore several permit holders who are struggling to import or clear the vehicles they have ordered and confirmed legally,” the VIASL added.  One of the vehicle importers The Morning spoke to also levelled the same allegation, and claimed that the Government should look into releasing the vehicles parked at the Port.  Even though The Morning attempted to contact the Media Spokesman of the Sri Lanka Customs to inquire about these vehicles, he was unavailable for comment.  The VIASL, however, expressed opposition to expensive vehicles being imported for Government officials, alleging that the Government issuing tax-free permits to import expensive vehicles has significantly increased the foreign currency outflow in the past few years, and that this scheme has reduced the Government’s tax revenue. They also claimed that this is a main reason for the high foreign currency outflow, which the Government says is a reason for the ban on vehicle imports.  Speaking of the issues pertaining to vehicle manufacturing in Sri Lanka, the VIASL said that local manufacturing/assembling is not the solution for these issues, adding that this process does not add any value to the country’s economy and is merely designed for tax evasion and higher profit margins for a handful of companies. It was also said that the main objective of local manufacturing should be for export purposes, and that due to this, the Government is losing a high amount of taxes.  “Car manufacturing is a highly automated process, and if the Government’s objective of banning the importation of vehicles is to provide employment through this process, there would be a conflict of objectives with global manufacturing standards and practices. The loss of revenue does not justify the minimal number of employment opportunities offered by vehicle assembling companies. This process would not benefit the public and will only benefit a handful of assembling companies, and it will lead to the production of low-quality Indian and Chinese vehicles,” the VIASL added.  However, The Morning yesterday (17) reported that the State Ministry of Vehicle Regulation, Bus Transport Services and Train Compartments and Motor Car Industry has already started looking into the feasibility of manufacturing motorcycles and three-wheelers in Sri Lanka.  According to the Secretary to the State Ministry, S.M.D.L.K. De Alwis, the State Ministry has held discussions with large companies such as Yamaha and Honda in this connection, and that a committee has also been appointed to come up with standard operating procedures (SOPs). He also said that the preparation of guidelines for this initiative would take about two months.  Even though The Morning attempted to contact State Minister for Vehicle Regulation, Bus Transport Services and Train Compartments and Motor Car Industry, Dilum Amunugama, to learn of his stance regarding the importers’ allegations regarding vehicle manufacturing and assembling in Sri Lanka, he was not reachable.  “The local assembling companies mainly import an almost finished product and add minimal value to it. Hence the Cost, Freight and Insurance (CIF) value or the amount of foreign currency sent out of the country is perhaps more than the CIF value of a good quality Japanese or European vehicle, due to the economies of scale and lean production mechanisms used in large scale manufacturing. However, the import tax paid for a locally assembled vehicle is far less compared to the import tax paid for a high quality complete vehicle,” the VIASL further said.  The VIASL further said that the ultimate victims of this situation are none other than the public who is deprived of the opportunity to purchase a high quality vehicle as they are left with limited options such as purchasing a low quality Chinese or Indian product at an inflated price.  The vehicle import industry is one of the largest industries Sri Lanka depends on, and the number of people depending on the industry is astronomical. On top of that, those wishing to purchase a vehicle are also in a difficult situation due to the lack of vehicle stocks.  Now that the Government has stated that it is ready to hold discussions with the importers and the importers have expressed willingness to agree on a collective agreement with the Government, Sri Lanka’s vehicle importers may be finally on the cusp of a solution to this nearly one year long issue.


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