Sri Lanka Wants JVs With Foreign Investors to Cater to Domestic Market!

Sri Lanka wants foreign investors to set up joint ventures where the output will be allowed to be sold to the domestic market, investment promotion minister Lakshman Abeywardena said, amid fears of new protectionism.

“We will indicate to a local investor or a local investor who forms a joint venture with a foreign investor what type of goods that can be produced in the next five years,” Abeywardena said.
“For example we will show how much cement will be needed. How much wires will be needed. Or how much equipment will be needed for hotels.

“How much metal, or timber or aluminum will be needed. Or sanitary ware, tiles or glass.”

Abeywardena said engineering division of the Board of Investment had estimated the needs of such material for upcoming large investments in the next 5 years.

“Based on these needs they can start investments in Sri Lanka,” Abeywardena said. “There is security then that when they produce a good it can be put to the local market.”

“So we can put in the investment agreement that they can sell to the local market.”

He said for example 6 million tonnes of cement would be needed.

“We have expanded the negative list (of imports in free trade agreements), so the amount of goods that can be brought has been limited,” Abeywardena said. “So all these items under the negative list can be produced here.

“So we will give facilities for investors to produce the goods locally.

“It they have difficulty in facing competition from the world, we can discuss and see what more tax benefits we can give.”

Abeywardena said the cabinet of ministers had this week already approved two such investments and a committee had been set up to examine the issue in depth.

Reporters told minister that in Sri Lanka, homeless people building houses already paid some of the highest prices in the world for basic materials including, steel, cables, tiles and sanitaryware due to import tax protection that took away their trade freedoms.

Import tax protected businesses engage in tax arbitrage (profits from the tax difference) and have no incentive to cut costs. They can also become uncompetitive in the export market while building large monopolies by selling over-priced goods to domestic customers.

At the moment only cement among key building materials is competitively produced and is under price control. The firms under price control happen to be owned by foreign and minority business interests.

Economists point out that in any so-called ‘capitalist’ society with free trade and competition income inequalities widen due to profits when masses choose to buy products from a business that competes against other businesses in price and quality to please them.

But when tax protection is given in a Mercantilist or nationalist society, the masses are forced to buy the products of the big business at high prices with competition and their essential trade freedoms being limited through the coercive power of the state.

Such firms can build large monopolies and earn unjust rents rather than free enterprise profits, by selling over-priced goods to customers without taking much effort to please customer under free competition.