YAHAPALANA AND THE ECONOMY Part 9
Posted on September 1st, 2018

KAMALIKA PIERIS

Revised 21.8.18

This essay looks at the fate of some local industries and small businesses under Yahapalana government. Employees of approximately 11 safety matches manufacturing companies, numbering nearly 5000, launched a protest in July 2018, in Kandy. It was a strong, angry protest, with large placards.    We saw this on television news. The march caused severe traffic congestion in Kandy.

The protestors complained that, for almost 3 months, the government has failed to import gunpowder and other necessary chemicals required for manufacturing safety matches. They had informed the relevant authorities, but the authorities did not respond to their request. .They think that the authorities were conspiring to shut down the safety matches industry in preparation for the importation of foreign made safety matches.

They   demonstrated at George E de Silva park  for one hour, then marched towards the Kandy District Secretariat, and a delegation was permitted to enter and voice their woes, after a clash with police.   the discussion with the officials was unsuccessful  but DIG police met them promised to get the chemicals down in tow weeks. however,  spokesman told Derana they cannot do this in two weeks.

Daily News said local matchstick factories have had  to close down for the last three months due to a shortage of potassium chloride and red phosphorus needed as raw material for matchstick production. The reason, said a spokesman, was thye went for a new system. which internaitnl standard demanded without looking to see whether there were sufficient stockcs.

The firecracker makers had similar complaints. Imported crackers were invading the local markets and affecting their business. There was also a shortage of chemicals. The government, specifically the Defense Ministry, which regulates the use of explosives, had failed to provide the potassium nitrate on time.  Yahapalana government, it appears had bungled the purchase of chemicals. The usual supplier, Israel-based Haifa Chemicals Ltd, had closed down, giving its customers several years notice. Chemical bought from other countries, such as a consignment from Thailand, were found to be unsatisfactory. The local officials had not tested the consignment sufficiently. Part of it had, however, already gone into fireworks by then.

Traditional small-time firecracker manufacturers, who mostly work in small, highly dangerous premises, face being snuffed out by tightened licensing procedures that favor the bigger manufacturers, said critics in April 2018. When small-scale cracker makers go to the authorities to obtain a license they are presented with a long list of criteria that they cannot meet  such as required space, equipment and other criteria needed for certification as legal manufacturers. Therefore thousands of firecracker makers are unlicensed,

The entire village of Kimbulapitiya, for instance, specializes in fireworks manufacture but only about 176 people had licenses to buy the components needed for their products. The government has restricted issuing the chemicals needed to manufacture firecrackers, via five dealers, to only these 176 makers who have licenses for the trade.

Many of the small-scale firecracker producers had their shops shut down in 2018, by police for operating illegally but they are back at work secretly despite fear of arrest. One small-scale fireworks maker in Kimbulapitiya, Perera” who has been in the business for 23 years, said he had been arrested more than 50 times and produced in court twice for operating without a license.

These illegal firecracker makers, work mostly out of their homes. Initially there were only about 400 traditional fireworks producers, in Kimbulapitiya but afterwards the number had increased to about 4,000 as their children and villagers from other areas who worked in fireworks factories bought land and started their own businesses. Numbers increased further when the large-scale producers started selling their excess chemicals to the small manufacturers.

Generations have grown up in these family businesses. Perera” said, before me, my mother ran the business.  The whole village of   Kimbulapitiya, around 15,000 families, depend on this occupation. It was passed down through generations but now we are considered criminals and taken to the police station.”  This year, because of the license restrictions, they were unable to purchase all the chemicals they needed, as well.

Explosives Regulator of Gampaha District said too many operators had entered the fireworks production industry. They were not taking the necessary safety measures. A fireworks manufacturing plant should be on at least 40 perches of land and have separate storage areas. .Katana police confirmed they were taking action against people who make crackers illegally.

Major polythene bag makers who turned to the production of biodegradable polythene bags and compostable lunch sheets following the government’s ban on high-density products say they are losing money while smaller businesses flout the rules and grab their business.

When the ban was proposed the industries had advocated going for oxo-biodegradable polythene, which needed only an addition of a chemical to the polythene mixture to make it environmentally acceptable. The government, however, insisted on hydro-biodegradable low-density polythene. This forced the industry to change their machines at great cost. The Polythene Manufacturers and Recyclers Association (PMRA) said its members had changed their machines and equipment to produce hydro-biodegradable polythene bags/wrappers and compostable lunch sheets. Millions of rupees had been spent on the machinery changeover.

Yahapalana government promised to reimburse 50 per cent of the cost up to Rs. 200,000, a machine but have not done so. The government had also not abided by its promise to grant tax concessions on the raw materials. Now we pay around Rs.120,000 tax on one metric tonne of raw material, and our end product is priced high. If we get our tax concession we can offer lunch sheets at Rs.1.25 per sheet. Right now, the sheets cost up to Rs. 2.50,” manufacturers  said.

At the beginning of the year, there was a good demand for our products as people thought the government was serious about the ban but now  cottage industries are openly defying the law,” he said. Now, to their dismay, the major companies find it hard to sell their products as customers were buying the cheaper, illegal alternatives. While errant cottage industries are having a field day, genuine stocks lay unpurchased in stores, We spent Rs.700 for a kilo of raw material. Around 500 metric tons of raw materials are still lying unused in factories. There are no sales and we are going slow on production. I have almost 16 tons remaining out of 32 tons imported in February this year. Over the past four months, only 16 tons have been used,” said one producer.

Central Environment Authority (CEA) has failed to police  backyard polythene cottage industries. CEA cannot implement the law  as it lacks the equipment to gauge the thickness of suspect polythene products and  miscreants get away easily with passing off their products as legal.  Legal polythene should be 20 microns or more.  Lacking the needed equipment during raids, CEA is using a chemical to test whether polythene bags are bio-degradable as claimed . Miscreants are slipping through the net”  . CEA  had made  insufficient preparations before bringing in the ban, polythene producers charged.

Exploiting the situation, small traders have jacked up the price of non-compostable lunch sheets to around Rs.1 a sheet in retail shops. Before the ban, it was sold at .30 to .50 cents a sheet. The CEA has inspected some 2,500 establishments – manufacturers, traders and users (restaurants and eateries) in the past five months and found 139 of them making, selling or using high-density lunch sheets and bags. Legal action has been instituted against 125 of these establishments.

In  2018   the National Gem and Jewellery Authority (NGJA)  imposed a levy of Rs. 25,000 per 100 carat on gem export sales or contracts and increased the license fee to half a million rupees from only Rs. 35,000. Sri Lanka Gem and Jewellery Association complained that NGJA is stifling the industry by levying  such charge on the value of exports.” This has resulted in a huge drop in gem and jewellery revenue in exports, they  said.

The entire industry including the Sri Lanka Gem and Jewellery Association, Lanka Gem Dealers and Miners Association from Ratnapura and the China Fort Gem & Jewellery Traders Association from Beruwela have vehemently opposed these new measures and charges. “With these transaction costs we will never be able to promote locally produced value added jewellery in the international markets,” the industry said.”Due to this tight regime most of lepidiaries have moved out of the business putting the entire industry in jeopardy. The online gem stone and jewellery sales market is becoming very large and a multi-billion dollar market in the world, but  current export procedures and changes  make it impossible to carry out an on-line business.

“It is widely felt across the industry that the NGJA’s role in the export process is redundant and is a big bottleneck to the development of export revenues,” said one gem industrialist..’Sri Lanka should aggressively promote gem and jewellery exports as they can be turned into a US$ one billion industry soon. Currently export revenue is around US$ 250 million.” Sri Lankan Blue sapphire is very much in demand in the world and its brand image alone can drive the local industry to new high. This industry has been a huge foreign exchange spinner.

The industry has been enjoying income tax exemption since 1979, but the new Inland Revenue policy has removed this exemption,  despite   representations made to the government to reinstate this relief. Due to the new tax policy of 2018, supplies from Africa which  comprise up to 70 per cent of the gems  that are imported and re-exported from Sri Lanka, were also affected. Officials point out that in order to facilitate good gem stone supplies and re-export quality products, good gem stones should be supplied to the gem cutting sector. Following  the  concerns raised by the Sri Lanka Gem and Jewellery Association (SLGJA)  President Sirisena  had  ordered the removal of crippling levies on the gem and jewellery trade.

In 2018 Yahapalana  had also placed  a  15 per cent tax on gold imports in 2018. This was done to prevent imported gold being smuggled in and  out of the country without any added value such as the production of jewellery. But the Gem and Jewellery Authority said exporters of gold jewellery have  also been affected. The government should have consulted the stakeholders before taking this decision.  The tax is too high .we  cannot export items at a competitive price.. The government should immediately facilitate gold bullion at competitive rates to the legitimate jewellery manufacturers, exporters and retailers,”

Jewellers have  also been hit with a drastic drop in sales due to  this heavy tax on gold . Sales have dropped by more than 70 per cent, those in the trade said.. There were fewer customers seen browsing through the jewellery shops in Sea Street, Pettah and goldsmiths appeared to be idle when we visited the area  reported the media in May  2018..

The industry is being forced to lay off workers. Some 25,000 workers are employed in more than 1,000 shops registered to carry out gold and jewellery trading in the Colombo city limits.  There are more than 12,000 goldsmiths in the city limits. Before the tax, over a month I used to work on jewellery worth a volume of 25 sovereigns. Now, I do not get one sovereign’s worth a week,” said a goldsmith from Batticaloa, who has been in the trade for the past 32 years. We have a little silverwork now. If this trend continues, we’ll be forced to return to our village and take a labouring job to maintain the family,” he said.

President of the Cosmetics Manufacturers’ Association of Sri Lanka (CMAS) said that Yahapalana government had, soon after coming to power, replaced the Cosmetics Drugs and Devices Authority with National Medicines Regulatory Authority. (NMRA) .The Cosmetics, Drugs and Devices Authority, the body regulating the marketing of cosmetics in Sri Lanka, was repealed in 2015 and replaced with the NMRA. The  NMRA then became the sole regulatory body for cosmetics, empowered to regulate both local and imported cosmetics. As the NMRA had a heavy workload, a separate body was to be appointed to monitor the import and sale of cosmetics, but  this has been delayed.

The change from CDDA to NMRA had resulted in the market being opened for many cosmetic imports sans any regulation. There are loopholes in the law. Anyone could bring in any type of cosmetics and sell they them as they wished. Unscrupulous traders are bringing in huge amounts of substandard or fake cosmetics from India, China and Pakistan and selling them at low prices in Sri Lanka.

Local Cosmetic manufacturers, expressed concerns over the quality, efficacy and safety of the hundreds of cosmetic products being marketed and actively promoted. Among the untested and sub-standard products being actively promoted and bought by thousands of people are whitening creams, lipsticks and shampoos. These whitening creams for sale at beauty parlours and shops contained mercury amounts very harmful to the users and the environment.

“There is one cream which has 10,000 times more mercury than the permitted amount. There is no specific importer or distributor and the brand is not even registered here. It is a brand which has been banned by European Commission. There are two more banned creams. Neither of them is registered. The beauty parlours use them as their price is very low.

Samantha Kumarasinghe , Past President of the CMAS said: said “We call upon consumers not to use any cosmetic which does not have details of producer, importer and distributor printed on those items. Those who purchase such items would have none to raise their complaints or grievances.”

“We have raised this issue with the Consumer Affairs Authority (CAA), continued Kumarasinghe. Consumer Affairs Authority  said  the replacing of the CDDA with NMRA had  removed the legal provisions CAA  earlier had, giving them powers to conduct raids or making arrests of those cosmetic products. Therefore, we took the issue to the Attorney General who understood the problem and issued a directive to the Secretary to the Ministry of Health on March 09 2017 to issue a gazette banning such cosmetics.

Yahapalana government    said that the NMRA would begin its monitoring of cosmetics after consultation with stakeholders such as Export Development Board, the local cosmetic industries and the Ministry of Commerce. The regulations would be strictly implemented within a few months, said Yahapalana in December 2017.

Yahapalana has also meddled in the poultry trade. There are around 6,000 poultry farmers and 450,000 persons employed directly and indirectly in Sri Lanka . Sri Lankan farms are producing an excess of eggs. Sri Lanka produces around 8 million eggs a day with the demand being only 6.5 million a day. The surplus  was due to the imports of excess parent chickens in 2017. in 2017, the Livestock Ministry imported 200,000 parent chicks when we needed only 75,000 chicks and this has led to the excess production of eggs,’’ said one supplier.

Despite this,  six container loads comprising 2.8 million eggs were to arrive from abroad  in March 2018, on instructions of Minister of Trade and Commerce. The eggs were to be sold via the CWE and Sathosa outlets during the Sinhala and Tamil New Year.  The exporter, Raj Exim, a Dubai owned company in Tamil Nadu, had made arrangements to ship eggs via  Kerala. The Egg Producers Association President, who obtained a copy of the L/C of the shipment, said that the eggs had been purchased and were ready for shipment . Each egg, he said, cost Rs. 3.70 in Indian currency and eventually would have cost Rs. 9.70 each.

Local poultry farmers said they will be driven to suicide if government continues to import eggs from India when the country already had egg stocks exceeding the local demand,.  Local poultry farmers are ready to sell eggs at a cheaper price, even at Rs 9 to the Sathosa because of the glut. We will give a credit line of 10 days for the payments during which time they can check the eggs for quality. We can even supply up to 5 million eggs,’’ he said.

The Department of Animal Production and Health had said that there is no need for importation of eggs since the local production of eggs is exceeding the requirement and this egg import was eventually stopped. Yahapalana had stopped the arrival of the eggs .

In March 2018  President Sirisena  stopped a proposed protest organized by local industrialists and retail shop owners, who are up in arms against foreign-owned retail shops and joint ventures flooding the local market. The local businessmen were to meet at the Sugathadasa Stadium to protest against the setting up of Chinese-run retail shops. The recent sudden increase of Chinese run retail shops in Colombo and Kandy were posing a threat to the local market. The group had made representation to the President that they were affected by the existing government policy regarding investments by foreigners without proper regulations and the absence of checks and balances.

Sri Lanka’s retail traders are voicing their anger over foreigners setting up retail shops here, reported the media. The space once exclusively available to them is being increasingly occupied by ‘invaders’. Most are from Japan, China and India.  A number of foreign nationals have opened retail shops that sell gifts, shoes, grocery, floor tiles and other items. If this trend continued, the local businesses would have to close  down.

Though the Government claimed it had increased the minimum requirement to five million US dollars for foreign investors, local retail traders said that most of these foreign-owned or joint ventures were set up with minimum capital investment, bypassing government regulations. Once such retail shops were set up, they brought items from China directly posing a threat to local importers and retail shop owners.

Retail shops are  coming in two ways, organized and individual retail shops. They are posing a threat to Small and Medium Business (SME) outlets. They come with massive purchasing power and with small market like ours, it would be difficult for us to compete with them in the long run,” they said.

There is provision in the BOI Law for foreigners to enter the local retail market with Board of Investment (BOI) status. Local retailers have tried to get this law repealed, but failed. The process was so easy that foreigners from China, India and Japan set up shops in Sri Lanka like opening bulath kades.  This should not be allowed. Can Sri Lankans open retail shops in other countries?” Countries like China and India had tough regulations to protect the local sector and discourage the entry of foreigners into the retail market. foreign retail companies had several  other advantages such as obtaining loans at low interest rates — as low as 2 percent — from their countries of origin, while Sri Lankan traders obtained loans at interest rates as high as 15 percent.

The retail market should be in the hands of Sri Lankans. There are no legitimate reasons to allow foreigners to engage in the retail market.  We can accept if it is a giant retail trade or flagship company. This could uplift retailing standards. Foreign retail shops operating only as joint ventures with local partners could be a possible compromise. But instead  foreign retail traders were investing small amounts of money and making big profits,

Foreign businesses do not bring any new expertise, knowledge or technology in retail trade, but only replicating businesses that are already here. Foreigners pay the same tax and duty that we pay and earn bigger profits than what we get.” They repatriate their profits. This would affect foreign exchange reserve. Sri Lankans on the other hand reinvest their profits in the country itself.

Foreigners who enter the local retail market  sell foreign goods. One local retailer said that some 60 percent of the products sold in his retail shop were made by small and medium Sri Lankan companies.We sell several local products, including cane products from Wevelgama and wooden items from Matara. The local retail industry had been neglected for decades, the retailers said.

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