brand logo

Sour festive season ahead?

19 Sep 2021

  • Prices of home appliances projected to rise
By Yakuta Dawood While everyone awaits a good year-end sale to purchase home appliances, the Central Bank of Sri Lanka (CBSL) came up with a new regulation imposing a 100% cash margin requirement against the importation of home appliances and telecommunication devices, among several others, deeming them as “non-essential” and “non-urgent” import items. Even though CBSL attempted to justify the reason behind this new move, the impact faced by local suppliers, consumers, and all stakeholders involved is severe, based on the comments and insights gained by The Sunday Morning Business. CBSL’s rationale behind the imposition According to CBSL’s official statement, the importation regulation applies to 623 selected goods that are imported under Letters of Credit (LCs) and documents against acceptance terms with licensed commercial banks (LCBs) and National Savings Bank (NSB). As such, certain goods in the categories of telecommunication devices; home appliances; clothing and accessories, such as baby garments, pyjamas, tracksuits, swimwear, t-shirts, underwear, footwear, watches; and certain fruits, beverages, cosmetics, and other non-food consumables such as musical instruments, tobacco products, toys, and stationery are subjected to this order. The two categories The Sunday Morning Business will be focusing on are telecommunication devices and home appliances that include items such as mobile phones, fixed telephones, fans, TVs, refrigerators, washing machines, digital cameras, hair clips, heaters, lamps, and ovens. As per CBSL statistics, Sri Lanka has spent $ 250.3 million on imports within the period of January-July 2021 in comparison to $ 268.4 million spent during 2020 for telecommunication devices. Under the home appliances category, Sri Lanka has already spent $ 160.6 million on imports within the period of January-July 2021 in comparison to $ 171.7 million spent on imports during 2020. The CBSL further said that LCBs are subjected to a few other conditions in terms of importing goods. Accordingly, it is necessary for the cash margin deposit requirements to be on the total value of the invoice, although the same invoice includes goods that are not covered by the directive issued by the CBSL. In a situation where existing LCs account for the importation of goods covered by the aforesaid order, increasing the value of LCs is not permitted by banks, with the exception of when such an increase is covered by the cash margin deposits as required. Moreover, banks are ordered not to grant any advances to customers in order to enable them to reach the minimum cash margin deposit requirement that has been in effect as per the order. However, banks can certify the particular invoice with the cash margin deposit that has been ordered above. The margin deposit is allowed to be released when the documentary evidence has been provided via both the banking channels and Sri Lanka Customs as imports have been cleared. Negative impact faced by local suppliers A senior official of a leading conglomerate in Sri Lanka told us that one of the grave concerns is the 100% cash margin requirement for the importation of said items, as suppliers now have to have 100% cash at the bank to get down goods required to be sold in the local market, which is not possible given the current economic situation of the country. Explaining further, the official noted that unlike bigger players in the market who will be able to manage this implementation, the aforementioned issue will result in an overall shortage of supply in Sri Lanka for telecommunication devices and home appliances, as smaller companies in the industry will be facing challenges in depositing 100% of the money before they get down the goods. The second challenge pertaining to this implementation is the upward shift in price levels due to the inconsistent depreciation of the Sri Lankan rupee (LKR) against the US dollar (USD), thereby significantly increasing the prices of these goods imported into the country, the official said. “Unlike all players in the industry, we too will have no choice but to increase the price levels of the goods sold, as the incoming shipments will be definitely costly given the exchange rate inconsistency. The purchasing power of consumers is already low due to the economic conditions. Sadly, with this implementation, this purchasing power will be further challenged,” the official highlighted. According to the official, another uprising challenge is the “panic buying” behaviour, where consumers have already begun to demand more items right now in fear of having to pay extra in the coming season. “Fortunately, we have the stocks required. Companies catering to this segment start to prepare their LCs by this time for the upcoming November-December sale season. However, it is sad to see that this could be dampened due to this measure,” the official added. Expressing similar views, Takas.lk Co-Founder Lahiru Pathmalal told The Sunday Morning Business that this decision will have a significant impact on the pricing levels, thereby causing a negative impact on companies in the industry and also the consumers. Explaining the concern further, Pathmalal said that international companies based in Sri Lanka which directly imports goods from China and other countries will now get a “stranglehold on Sri Lanka, which will be very damaging to local traders and businesses as we are smaller in comparison to them”. He emphasised that since there is a possibility of this move to directly impact the supply side of the company, the Government should implement a debt moratorium to support the players in the industry, as it is not possible to have a 100% cash margin requirement to import such goods. “We need policies which are in line with reality, and not do it for the sake of doing it because this decision can have a huge impact on local businesses and consumers in terms of daily cash flows,” Pathmalal said. We also got in touch with Canon Metropolitan, a leading camera company in Sri Lanka. A senior official, who wished to remain anonymous, stated that prior to this implementation, the company used to import with a credit repayment of 180 days to importers, adding that now, however, they will not be able to do so. “It is going to be challenging as we have to find funds right now. The prices of cameras are already high due to the exchange rate fluctuation and with this measure, there could be another upward revision,” the official added. Speaking to The Sunday Morning Business, Kapruka.com Founder and Chairman Dulith Herath also mentioned that the challenges are the same as those reflected by other players. “We also have the same challenges as many others have; there is nothing different to us just because we operate online,” Herath noted. Meanwhile, attempts to get through to Abans, Singer (Sri Lanka), and several small-scale businesses for comment proved futile. Will the EU reserve its right to take further action? Responding to a query made by The Sunday Morning Business, LIRNEasia Founding Chair Prof. Rohan Samarajiva stated that this current measure should not be looked at in isolation, as from 2020, various import restrictions have been imposed, some of which were clothed as “temporary suspensions”. He said that as the European Delegation to Sri Lanka has pointed out, WTO procedures have not been followed whilst raising these deviations at the WTO Committee on Trade in Goods in July 2021. “Margin deposit requirements have been imposed on various occasions in the past. But the scale of the application is broader this time. For example, only 44 HS Codes were affected in 2006. Now it’s 623. Then the deposit requirement was 50%, and now it is 100%. The deposit cannot be set off against the payment; banks are also prohibited from giving credit,” Prof. Samarajiva said, summarising the temporary ban situation between now and them. He highlighted that with the present implementation, the end result for small players will be that they will be forced to exit while only those with deep pockets will be able to play. “They will recover the cost of money tied up in non-interest earning deposits. Because they will now be in an oligopolistic position, thanks to the Government for chasing away the small, nimble competitors, they will now pass on those costs and also earn supernormal profits,” he explained. However, when inquired if the current measure will be effective, Prof. Samarajiva said: “The consumers will face higher prices and have less choice. Consumption will be reduced. The importers will make supernormal profits. The Government will see lower outflows because demand will contract. Most vendors have jacked up prices already because the perception has been created of future price increases and shortages.” Conclusion Sri Lanka Podujana Peramuna (SLPP) MP Geetha Kumarasinghe last week urged the Government and the Central Bank to consider amending the 100% cash deposit regulations on such items that need to be imported. Reminding people about the time when former Prime Minister Sirimavo Bandaranaike rationed food and clothing, and all imports were halted, Kumarasinghe stated that at the rate the country is moving, such a situation may be an outcome. She urged the authorities to have some compassion and to reconsider the decision, or, at most, exclude some of the items on the list so as to ease the pressure on the people of Sri Lanka who are currently in the midst of a pandemic. When inquired whether the negative externalities of CBSL’s decision will outweigh the positives, Prof. Samarajiva said that when a parent is unable to replace a fan because the Government has caused the prices to be jacked up, the child will probably suffer from a diminished ability to concentrate on remote learning, which is a direct effect and not an externality. “But completely independently of these measures, we estimate that at least 50% of all school children are not receiving any formal education, and even among that 50%, learning outcomes are negatively affected. Hence, one may assume that the higher prices on TVs, fans, smartphones, etc. will further reduce learning outcomes. The negative externalities of these effects in the education sector will, of course, impact all of society,” Prof. Samarajiva concluded.

Kapruka

Discover Kapruka, the leading online shopping platform in Sri Lanka, where you can conveniently send Gifts and Flowers to your loved ones for any event. Explore a wide range of popular Shopping Categories on Kapruka, including Toys, Groceries, Electronics, Birthday Cakes, Fruits, Chocolates, Automobile, Mother and Baby Products, Clothing, and Fashion. Additionally, Kapruka offers unique online services like Money Remittance, Astrology, Medicine Delivery, and access to over 700 Top Brands. Also If you’re interested in selling with Kapruka, Partner Central by Kapruka is the best solution to start with. Moreover, through Kapruka Global Shop, you can also enjoy the convenience of purchasing products from renowned platforms like Amazon and eBay and have them delivered to Sri Lanka.Send love straight to their heart this Valentine's with our thoughtful gifts!

Discover Kapruka, the leading online shopping platform in Sri Lanka, where you can conveniently send Gifts and Flowers to your loved ones for any event. Explore a wide range of popular Shopping Categories on Kapruka, including Toys, Groceries, Electronics, Birthday Cakes, Fruits, Chocolates, Automobile, Mother and Baby Products, Clothing, and Fashion. Additionally, Kapruka offers unique online services like Money Remittance, Astrology, Medicine Delivery, and access to over 700 Top Brands. Also If you’re interested in selling with Kapruka, Partner Central by Kapruka is the best solution to start with. Moreover, through Kapruka Global Shop, you can also enjoy the convenience of purchasing products from renowned platforms like Amazon and eBay and have them delivered to Sri Lanka.Send love straight to their heart this Valentine's with our thoughtful gifts!


More News..