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Playing cheap politics in liberalising shipping and logistics

Comments / {{hitsCtrl.values.hits}} Views / Friday, 8 December 2017 00:48

  • Simple logic 1: Owners and investors will never be happy with minority stake holding in any business
  • Simple logic 2: No agency house can make hub of anything in any country

Being an open market driven fee economy, the country’s future and its prosperity depend on right policies adopted to benefit the masses and not by protecting an absolute minority. Last week’s parliamentary sessions have brought up the ugly divisions of party politics inside the unity government for reasons unknown. The speakers, including the Shipping Minister who spoke against the policy of liberalisation, made weak statements without seriously understanding why the island nation of Sri Lanka should be attracting global players and global capital to build the service sector that can truly transform the country over the next decade. 

The country’s businessmen who are having agencies have no competitive or comparative advantage to make Sri Lanka the Indian ocean hub as they are not global players/owners in the shipping and logistics industry but just third parties serving business owners. As said in newspapers, $ 800 million was their business value they could have saved Hambantota without any problem as the Government was finding it difficult to pay the loans. That’s why this number seems to be made out of thin air. Hence, the opposing factors must understand, the critical mass for shipping and logistics can be built only with opening the sector to international partners, who are going to use and operate business out of Colombo, Hambantota and in future Trincomalee. No practical entrepreneur or a businessman will invest capital and assets and be a minority stake holder where the business is generated for that investment. It is hoped that the majority in the industry and CASA members will understand the value of their principal and they are the people who can support growth and be better partners. Hope cabinet ministers from both sides too will understand the middle man’s role!

UNP-SLFP success of sector liberalisation

As shipping being a global business, it needs scale to be profitable to ship owners and unit cots matters to call a port. Late President Ranasinghe Premadasa, during the late 80s/ early 90s realised the next phase of economic transformation after 1977 that the country needed. He abolished the freight booking system at the Central Freight Bureau (CFB) and the monopoly of the Ceylon Shipping Corporation (CSC), which restricted the shippers’ (exporters and importers) ability to negotiate freight. 

By partially liberalising the freight industry in the 90s, the freight rates dropped by more than 50% as many shipping lines competed for the cargo which supported the local export/import industry and transshipment increased via Colombo (realistically freight from $ 1,800 for a TEU to Europe dropped down to $ 300 at one stage). Premadasa then went on to re-structure the Greater Colombo Economic Commission (GCEC) to be the Board of Investment (BOI) together with the current Prime Minister Ranil Wickramasighe who was then the Minster of Industries. 

This was all done to boost exports. Even with terrorism around the country progressed towards economic development and at that time, Sri Lanka was identified to be a country that could achieve NIC (Newly Industrialised Country) status. The agency system was created at that time as the national carrier was broken up for private sector to compete. This is how the gazette no: 684/9 - 1991 was created as it was a transition and a reform of the sector 25 years ago and one of the first in south Asia. This was the first stage of liberalising of the shipping sector. 

Now it seems the present Minister wants to hold to the same status core as he has been probably advised by some agents that the world of shipping and logistics has not changed over 25 years.

Liberalising ports, Sri Lanka benefited

In 1997, Dr. P.B. Jayasundara Secretary to the Treasury of the then Chandrika Kumaranatunge led Government, took the bold decision to liberalise the terminal business as well as later the bunkering industry. The success of South Asia Gateway Terminals (SAGT) of 1999 which came under the liberalisation of terminals made Sri Lanka an attractive investment location for foreign ship owners and terminal operators. Sri Lankan private sector and international partners managed SAGT which forced the JAYA container terminal to become more competitive and efficient by which more volumes were attracted to the port of Colombo. Interestingly SLPA had only 15% stake at SAGT and none of these nationalistic agents complained as they were not affected.

If global players were given a majority stake prudently in the shipping and logistics industry for the cargo they service, they would have by now made Sri Lanka a bigger shipping and a logistics hub as they could have controlled the now exaggerated costs due to forcibly enforced tariffs and some unproductive agencies making “The Sri Lanka unit cost” distorted. It may be even a little too late to get the full benefit now as other countries have realised the importance of the presence of owners and operators in shipping and logistics and have fully opened the doors way before Sri Lanka. The readers must understand who are the real decision makers and employment creators. It is the business owner and not his agent!

If someone was to argue that liberalising of terminals was wrong, it would be the same argument in terms of shipping and logistics industry today.

It was Sri Lanka that benefited out of liberalising ports and probably not the SLPA.

SLFP vs UNP liberalisation

The current proposal of liberalisation has been sadly politicised by the Minister as a UNP proposal as facts and reports say so. This looks like the work of the cat’s paw. For the information of the Minister, the process of liberalisation of the sector was discussed by the previous SLFP government where the logistics sector was fully liberalised for a brief period by the then Secretary to the Treasury which immediately attracted Sri Lanka’s biggest ever logistics FDI of nearly $ 100 million. Former Secretary to the Treasury, Dr. P.B. Jayasundara was on the verge of liberalising the shipping sector too, but due to the strong lobby and an upcoming election in 2015, the process was haltered, and the logistics liberalisation too was reversed. 

But the SLFP led government further liberalised the terminal business in 2013 by giving 85% control to China through CICT where as SAGT had SLPA and JKH as partners. Therefore, the Minister of Ports and Shipping without understanding the past making allegations to disturb the coalition government is not only making a mockery of himself but putting the country’s future at stake without having an educated dialogue with the Policy Ministry and the Finance Ministry of the country. He should not be sending wrong signals to the international community at a stage where Sri Lanka is now well recognised as a nation that is progressing.

Nobody expected Mahinda Samarasinghe and MP Rohitha Abeygunawardena of the Joint Opposition to be of the same page and calibre and criticise a policy decision that has sent massive positive signals internationally. The President, Prime Minister and the Cabinet of Ministers should carefully understand the motives behind a few companies who are holding many agencies, monopolising the trade and at the same time making life difficult to their own principals and to terminal operators in Sri Lanka to successfully transform the transshipment business to a maritime hub. The lobby is clearly using the card of party politics and cooked up numbers as tools to scare and divide UNP-SLFP and to achieve disruption to protect their motives. As an ex-government official, I request the Ports and Shipping Minster to re consider and understand why Sri Lanka should open to get the full benefit of our location and help the wider public than a few individuals.

(The writer is an Ex-Treasury Official.)

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