ECONOMYNEXT – Liberalization of Sri Lanka’s shipping industry to end current protectionism in agency business, other countries are now trying to take the lead, say two shippers’ representatives the official said.
Liberalizing countries saw more holistic business, including SMEs. But protections and restrictions may hamper Sri Lanka’s potential to become a maritime hub beyond transshipment.
“The only beneficiaries of such a policy were those who owned the major shipping companies and agents,” said the president of the Global Shippers Forum and Apparel of the Joint Apparel Association Forum (JAAF) in Sri Lanka. In a statement, Sean Vandot, chairman of the logistics subcommittee, said:
“However, the harsh economic realities we are currently facing as a nation have made it impossible to justify sacrificing the interests of the nation and the competitiveness of its exporters.
“I think policymakers are starting to understand this fact, based on what the president and other key officials have said in the run-up to the 2022 budget.
“Throughout Sri Lanka’s post-independence development, all governments have expressed their ambition to transform our country into a regional maritime hub.
“But except for the bold efforts of the late Mr. Mangala Samaraweera, no government has ever been willing to pursue the liberalization policies necessary to facilitate such a transformation.”
Reaping the benefits of an open and liberalized economy starts with shipping
From a global perspective, Sri Lanka’s reluctance to reform risks undermining the overall competitiveness of the entire logistics sector, said Rohan Masakorala, founder of Shippers Academy International.
“Across Asia, and especially in the Indian Ocean, Sri Lanka is the only country that maintains a protectionist policy towards shipping companies,” he said.
“By contrast, countries recognized as global leaders in maritime logistics, such as Singapore and the United Arab Emirates, recognize 100% ownership of shipping and freight forwarders, while countries like Malaysia is more than 70% open.
“Recently, the Philippines and Vietnam have also announced plans to liberalize their domestic industries, while Europe, the US and even China are allowing foreign shipowners to open local offices.
“If we do not commit to a similar reform path, we risk further underdevelopment and eventually being completely left behind. Either reform and adapt or perish. There is no other choice.”
Opening up foreign investment and ownership will force the entire sector to become more competitive and eliminate hidden inefficiencies, he said.
It would have been a mistake to assume that openings would reduce overall opportunities for local businesses, as evidenced by a country like Singapore with its overall growth.
Singapore’s logistics sector is home to 140 global shipping companies, leaving room for over 5,000 local shipping agents.
“On the one hand, the transfer of investment, knowledge and technology by foreign capital will expand economies of scale across Sri Lanka’s logistics sector, creating new niches for smaller players and increasing access to export markets for Sri Lankan SMEs. ,” said Masakorara.
Opponents of liberalization said the shipping industry was already liberalized, with the exception of the “trivial” business of local shipping agents, which are now protected from foreign ownership.
Opponents of liberalization also argue that fully or partially opening domestic shipping agencies to foreign investment would lose domestic participation in this lucrative business without securing significant returns for the country. He said there is a risk.
Proponents of liberalization argue that such policies would only protect the interests of local shipping agents, discourage global shipping companies from engaging in domestic markets, and increase private sector overseas access to critical infrastructure. They have insisted on blocking direct investment.
Both sides have been in a stalemate for decades, but Sri Lanka’s unprecedented economic crisis and urgent need for foreign currency inflows have reinvigorated the argument in favor of liberalization.
Sri Lanka also restricts freight traffic for foreign investments.
The success of ExpoLanka in temporarily lifting restrictions to allow foreign investment showed that potential, Van Dort said.
“Foreign ownership brings a lot of very valuable benefits. You don’t have to look to the success of Expolanka or any of the other logistics hubs Sri Lanka competes with to see the evidence,” he said. said.
“By lifting ownership restrictions, we encourage international ship owners to get involved and invest in Sri Lanka, making proper use of our location and linking them with their global networks.
“Instead, we are now treated as a pure cost center supplying competing ports in the region that actively encourage ownership from global shipping lines. We will treat such ports as profit centers.”
However, countries like Singapore and Dubai have currency stability that allows for stable economic conditions.
However, Sri Lanka has adopted a flexible exchange rate, causing currency crises, permanent currency depreciation and social unrest. Instability worsened after so-called flexible inflation targeting, which seeks to target inflation without a floating exchange rate. (Colombo/Jan04/2022)