Home appliance prices set to rise

By Yakuta Dawood

While everyone waits for a good year-end sale to buy household appliances, the Central Bank of Sri Lanka (CBSL) has proposed a new regulation imposing a 100% cash margin requirement against importation of household appliances and telecommunications equipment, among others, considering them to be “non-essential” and “non-urgent” import items.

Even though CBSL has attempted to justify the reason for this new decision, the impact faced by local suppliers, consumers and all stakeholders involved is severe, based on the feedback and insights obtained by Sunday morning business.

CBSL’s rationale behind the imposition

According to the official statement of CBSL, the import regulations apply to 623 selected goods which are imported under letters of credit (LC) and documents against conditions of acceptance from authorized commercial banks (LCB) and the National Savings Bank (NSB).

As such, certain products of the categories of telecommunications devices; Appliances; clothing and accessories, such as baby clothes, pajamas, tracksuits, swimwear, t-shirts, underwear, shoes, watches; and certain fruits, beverages, cosmetics and other non-food consumables such as musical instruments, tobacco products, toys and stationery are subject to this ordinance.

The two categories that The Sunday Morning Business will focus on are telecommunication devices and home appliances which include items such as cell phones, landline phones, fans, televisions, refrigerators, washing machines, appliances. digital photos, hair clips, heaters, lamps and ovens.

According to CBSL statistics, Sri Lanka spent $ 250.3 million on imports during the period January-July 2021, compared to $ 268.4 million spent in 2020 on telecommunications devices. In the household appliances category, Sri Lanka has already spent $ 160.6 million on imports during the period January-July 2021, compared to $ 171.7 million spent on imports in 2020.

The CBSL added that LCBs are subject to a few other conditions in terms of importing goods. As a result, it is necessary that the cash margin deposit requirements be on the full invoice value, although the same invoice includes goods that are not covered by the directive issued by the CBSL.

In a situation where the existing LCs represent the import of goods covered by the aforementioned decree, the increase in the value of LCs is not allowed by banks, except when such an increase is covered by margin deposits. cash required.

In addition, banks are ordered not to grant any advances to customers in order to enable them to meet the minimum cash margin deposit that was in effect in accordance with the ordinance.

However, banks can certify the particular invoice with the cash margin deposit that was ordered above. The security deposit is allowed to be released when documentary evidence has been provided through Sri Lankan banking channels and customs with imports cleared.

Negative impact encountered by local suppliers

A senior official from a leading conglomerate in Sri Lanka told us that one of the serious concerns was the 100% cash margin requirement for importing said items, as suppliers must now have 100% cash in the bank to bring down the goods needed to be sold on the local market, which is not possible given the current economic situation in the country.

Explaining further, the official noted that unlike the larger market players who will be able to handle this implementation, the aforementioned issue will result in an overall shortage of supply in Sri Lanka for telecommunication devices and home appliances, as Small businesses in the industry face challenges in depositing 100% of the money before dropping off the merchandise.

The second challenge associated with this implementation is the upward change 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, according to the mentioned.

“Unlike everyone else in the industry, we will also have no choice but to increase the price levels of the goods sold, as inbound shipments will certainly be costly given the inconsistency of the rates. exchange. The purchasing power of consumers is already low due to economic conditions. Unfortunately, with this implementation, this purchasing power will be even more called into question ”, underlined the person in charge.

Another challenge, according to the manager, is the ‘panic buying’ behavior, where consumers have already started demanding more items now for fear of having to pay extra in the coming season. .

“Fortunately, we have the necessary stocks. Companies dealing with this segment begin to prepare their LCs at this time for the next sales season from November to December. However, it is sad to see that this could be mitigated due to this measure, ”added the official.

Expressing similar views, Takas.lk co-founder Lahiru Pathmalal said Sunday morning business that this decision will have a significant impact on price levels, thus causing a negative impact on companies in the industry as well as on consumers.

Explaining further the concern, Pathmalal said that Sri Lanka-based international companies that directly import goods from China and other countries will now have “a stranglehold on Sri Lanka, which will be very damaging to traders and businesses. local because we are smaller compared to them “.

He stressed that, since it is possible that this decision will have a direct impact on the company’s supply, the government should put in place a debt moratorium to support industry players, as it does not is not possible to have a 100% cash margin requirement to import these goods.

“We need policies that reflect reality, and not for the sake of it, as this decision can have a huge impact on local businesses and consumers in terms of daily cash flow,” Pathmalal said.

We also contacted Canon Metropolitan, one of the leading camera companies in Sri Lanka. A senior official, who wished to remain anonymous, said that prior to this implementation, the company imported with a 180-day credit refund to importers, adding that now, however, they will no longer be able to do so.

“It’s going to be difficult because we have to find funds at the moment. The prices of the cameras are already high due to the fluctuation of the exchange rate and with this measure there could be another upward revision, ”added the official.

Talk to Sunday morning business, Kapruka.com founder and president 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; there is nothing different for us just because we operate online, ”Herath noted.

Meanwhile, attempts to reach Abans, Singer (Sri Lanka) and several small businesses for comment have been unsuccessful.

Will the EU reserve the right to take further action?

Respond to a request made by Sunday morning business, LIRNEasia’s founding president, Prof Rohan Samarajiva, said this current measure should not be viewed in isolation, as from 2020 various import restrictions were imposed, some of which were dressed as “temporary suspensions” . He said that, as pointed out by the European delegation to Sri Lanka, WTO procedures were not followed while raising these discrepancies at the WTO Committee on Trade in Goods in July 2021.

“Security deposit requirements have been imposed several times in the past. But the scale of the application is wider this time. For example, only 44 HS codes were affected in 2006. It is now 623. Back then, the filing requirement was 50%, and now it is 100%. The deposit is not opposable to payment; banks are also prohibited from granting credit, ”said Professor Samarajiva, summing up the situation of temporary prohibition from here to them.

He stressed that with the current implementation, the end result for smaller players will be that they will be forced to quit while only those with deep pockets will be able to play.

“They will recoup the cost of money tied up in non-interest bearing deposits. Because they will now be in an oligopolistic position, thanks to the government having driven out the small agile competitors, they will now pass on these costs and also realize supernatural benefits, ”he explained.

However, when asked if the current measure would be effective, Prof Samarajiva said: “Consumers will face higher prices and have less choice. Consumption will be reduced. Importers will make supernatural profits. The government will see lower outputs because demand will contract. Most suppliers have already raised their prices because the perception has been created of future price increases and shortages. “

Conclusion

Sri Lankan Podujana Peramuna (SLPP) MP Geetha Kumarasinghe last week urged the government and the Central Bank to consider changing the rules for 100% cash deposit on items that need to be imported.

Reminding people of the time when former Prime Minister Sirimavo Bandaranaike rationed food and clothing, and all imports were halted, Kumarasinghe said that at the rate the country is changing, such a situation could be a result.

She urged authorities to be compassionate and reconsider the decision, or at the most to exclude some of the items from the list in order to ease the pressure on the people of Sri Lanka who are currently in the midst of the pandemic.

When asked if the negative externalities of CBSL’s decision would outweigh the positives, Prof Samarajiva said that when a parent is unable to replace a fan because the government has raised prices, l The child is likely to suffer from a reduced ability to focus on distance learning, which is a direct effect and not an externality.

“But quite apart from these measures, we estimate that at least 50% of all schoolchildren do not receive any formal education, and even among those 50%, learning outcomes are negatively affected. Therefore, it can be assumed that the higher prices of TVs, fans, smartphones, etc. will further reduce learning outcomes. The negative externalities of these effects in the education sector will of course have an impact on the whole of society ”, concluded Professor Samarajiva.

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