Liberalizing Shipping

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2017-11-21

Before President J. R. Jayewardene opened up the economy 40 years ago in 1977, the country had soaring double digit unemployment, corruption, cronyism, shortages, rationing and queues.

Whatever local industries that functioned, were essentially catering to the local market. They were not good enough to produce goods for export as the quality of their products was questionable.

Sri Lanka's exports then were led by the plantation sector, tea, rubber and coconut, which too was in the hands of the State after the estates were nationalized in 1972. Those exports were in the primary form, with little or no value addition. Opening up the economy to foreign capital, while simultaneously keeping the economy closed for imported goods, doesn't work.

The island's hotel and tourism services industry, its third largest foreign exchange (FX) earner, wouldn't have taken off if the economy was closed. That's also so in regard to Sri Lanka's 'newly found' ICT and ICT Enabled

Services (ICTES) exports, the island's fifth largest FX earner.

Liberalization of the economy brought with it a flood of cheap imports, some of which were of poor quality, nonetheless resulted in the consumer getting a better deal.

Inefficient local industries closed down because they couldn't match up both in quality and in price with a similar imported product. On the other hand, new industries and with it new employment opportunities also sprang up.

Sri Lanka had gargantuan double digit unemployment numbers, a legacy of the closed economy which Sri Lanka embraced in 1956. Today, 40 years after the opening up of the economy in 1977, unemployment has fallen to 4.5 per cent.

In respect of port services exports, State-run Sri Lanka Ports Authority (SLPA) which operates the Jaya Container Terminal (JCT) in Colombo, earned Rs 21.1 billion ( US$ 137 million*) in the first half of this year. This revenue was mainly led by trade (import-export) and transshipment business.

Whereas the payment for trade related shipping services are generally in rupees, in the case of transshipment business it's in US dollars. Two other port operators both private, one a Chinese firm and the other a local, also run Transshipment Container Terminals (TCTs) at the Colombo Port. Neither the locals nor the State had the capital to develop that TCT, now run by the Chinese. This is in respect of the South Port Terminal in the Colombo Port operated by CICT China which is at least providing much needed employment in the country, if not FX.

CICT came during the President Mahinda Rajapaksa era. As to how they came in, there may be a question mark, but overall, one cannot find fault with liberalization, if there were procedural anomalies or other areas of distortion in respect of the advent of CICT to the country.

Sri Lanka's shipping and logistics businesses, except in the case of two or three multinational corporations (MNCs), are mainly controlled by the domestic private sector, which run agency operations.

But by opening up the shipping and logistics business to foreign competition, as per Finance Minister Mangala
Samaraweera's Budget 2018 proposal made on 9 November, it levels the playing field, which, hitherto has been opened up to under a handful of MNCs. Nonetheless, these under a handful of MNCs provide employment, pay taxes and bring in much needed FX to the country.

Three things are needed to fix the economy. Those are tax revenue, FX and employment. Can those be enhanced by bringing in foreign capital? While the answer is 'yes', the case is in regard to the fate of existing local agents, be it in shipping or logistics? In the big picture, will they go out of business resulting in loss of employment, revenue and FX if the industry is liberalized?

While the loss of FX and tax revenue is unlikely to take place, there is a possibility of a loss in employment due to automation brought in by MNCs/foreign investors in the ship industry. Nonetheless, automation, like liberalization has come to stay.

If a country doesn't accept liberalization it's doomed. It's also so with automation. This Government, in its wisdom, has accepted both.

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