‘Son of the Soil’ shoots himself in the foot

By Analyst

I am glad that as analysts we don’t have to be frogs in a well, we do not see with tunnel vision. Fortunately, it must be mentioned that the Prime Minister has known liberalisation since 1977 and knows what should and could be liberalised as time passes. 

That would be the reason that last week he mentioned that he would make Sri Lanka the most liberal market in South Asia to achieve its real potential.

One thing is for sure, ’The Son of the Soil’ (See yesterday Daily FT Page 14) seems to have accepted that they are not industrialists as the Minister claimed, but agents of a foreign business.

It seems that ‘Son of the Soil’ would not have hesitated to go and get an agency when the Ceylon Shipping Corporation (CSC) was liberalised. There were no national feelings or protests by these protectionists at that time as it helped to fill their pockets and get agencies from the ‘Suddas’ who they now hate as principals. What an irony one must say.

The officials of the Treasury, including the previous Government’s Secretary to the Treasury, knew what was liberalised and what was not. They also know that the money is in the non-capital-intensive cargo and its commissions that the middleman takes and that is the big story the protectionists are hiding from the public. 

All at the Ministry of Policy and Economic Affairs and the Finance Ministry know the role of an agency. No one needs to get a description of an intermediary (brokers), we all know their role.

We also know that a ship-owner can build a terminal or an international logistics company can build a warehouse, and that they can own 100% of it depending on Government policy. 

However, the beauty of it is after investing he becomes a minority in controlling the cargo that flows through it.  He must hold hands with a local agent to run his operation. That is not liberalisation. Liberalisation is a man who puts money, assets, time and knowledge must have freedom of operations, such as outsourcing or working with subsidiaries or for that matter appointing agents and subagents. That is how Foreign Direct Investment comes in. A maritime hub cannot be built by agents and subagents who are only doing a service on a request of their master.

These agents must be dreaming

In this country, not only are owners restricted on equity, where the business matters, even tariffs are governed by law to deal with agents! When the owners are kept as a minority for them to keep on investing, these “sons of the soil” must be daydreaming. 

Sadly, shipping lines are now getting a mouthful from their own appointed agents who enjoy money through a free ride.

The public must know why it is a free ride for the protectionist. The reason is because they have gone and hidden behind the Government and told the owners what to pay the agent through a tariff called CASA tariff. It’s absolutely disgraceful incompetency that they can’t compete with the market forces for the service they give. That is why, Minister Mangala Samaraweera said: “There is no more a nanny economy.” 

The rest of the arguments about 100% liberalisation are left to the reader and the intelligent people of this country. 

The best advice we can give now is to get the ship-owners at the highest level to come to the country and have meetings with the Prime Minister and the Finance Minister and the Shipping Minister who misfired the gun so that they understand both sides of the story. As an analyst, I’m saying this because already many major shipping lines have welcomed this move (‘Suddas’). Probably these patriotic “sons of the soil” forgot to educate themselves on what 100% liberalisation is. Then this problem would have vanished into thin air.

On the maritime hub, my only request to the ‘Son of the Soil’ is to read the articles of Lloyds and other top British analysts on how maritime cities and countries are identified. As they have brought up the Dubai issue it is my duty to inform the readers that the Dubai system, or for that matter the Middle Eastern system where most countries are governed by rulers not by democratic institutions, has opened its doors where a foreign company only needs a sponsor who is paid an annual sum; in professional language this is called a sleeping partner. 

In Dubai most business happens in the Jebel Ali free zone where no such arrangements are even needed. Again, the choice is with the owner.

Scare tactics

The paranoid self-interested ‘Son of the Soil’ is using scare tactics with a very educated set of Treasury officials (who are by the way not advisors), saying that there is no benefit. I can only say that this ‘Son of the Soil’ must be thinking Lee Kuan Yew was mad, Narendra Modi, who not only has allowed shipping but aviation and retail to be opened, is insane, the Pakistan Government has gone crazy, Indonesians and Malaysians, who are keeping on opening, have gone out of their mind and the Bangladeshis too, who are trying to attract these global giants through incentivisation with 100% liberalisation, are blinded by the best model of Sri Lanka. 

As of the Revenue Bill last week, the association of agents said that the revenue was $ 500 million. By yesterday it had climbed to $ 800 million. I recommend the association to apply for the presidential award for this growth. As no Central Bank report shows such numbers, including the employment figures published from thin air, to get the sympathy of the unknown and the gullible. 

Interestingly, they mentioned that there are 750 agencies at one point. Now it has dropped to 500. Some shipping agents have registered subsidiaries as agents to avoid tax and they are also counted. Actually, there are about two-three major players another two-three controlling the market. The Government is aware of how cost centres are created. They know what transfer pricing is and they know where the taxes and the dollars are hidden. 

In addition, as of today there are foreigners working for these agents where it matters. In fact, the existing labour laws, and future labour laws proposed by the Government, have secured this employment mode as any Government would do so.

With reference to ship numbers, Singapore attracts that number in a month, so get your owners to come and reveal how it is done to the Government. Don’t hide the owners from the Government as you claim you should have the guts to do that at least.

Interestingly we are told of a presidential commission in maritime development. It is very interesting to see the list of people who have gotten themselves nominated to these committees. In a majority they are the protectionist agents. What can you expect of such a report? We hope the current national policy which is written under the leadership of a so-called professional will not fall to the same fate! Looks like the cat is out of the bag and this small group of people are throwing millions of dollars to retain the status quo. As Minister Samaraweera said on TV yesterday, even the Buddhist priests are being used for a commercial matter. I must tell the ‘Son of the Soil’, it’s a disgrace. When you meet the Minister this evening, please ask him why he said so. As analysts we would like to know the correlation of this SAITM method.

In my final analysis the ‘Son of the Soil’ seems to just be the son of a thief.