Why demonising imports is bad

By S. Ranaweera

It would be premature to label the economic policy of the present government of President Gotabaya Rajapaksa’s since it hasn’t been even one full year since his election. But what is clear as of now is; it is very different to the neo-liberal, open market economic policy of the previous Yahapalana government.

Since Gotabaya Rajapaksa assumed duties as the President eight months ago, it became clear that the State would play the main role in the country’s economic activities. A number of inward-looking policies have been adopted and priority has been given to domestic manufacturing. 

Certain imports have been banned and para-tariffs – which were identified as a key obstacle to trade, have been strengthened. Some have expressed their fears of Sri Lanka going back to the closed economy pre-1977. 

Although such fears seem largely unfounded, it is important for the government to clear the air and pronounce its economic policy so that the country’s private sector – which is considered the engine of growth, to operate in a predictable environment. Since of late, bashing of imports has become the fashion. A lot of baseless discussion is going on to portray imports as evil. 

The government also appears to be endorsing the mercantilist way of thinking that imports are bad and exports are good. What we have to understand is that imports and exports are intertwined and they are inseparable in the current world context. By banning imports, an economy may gain short-term gains. But it will neither guarantee long-term benefits nor shared prosperity from open trade.

Unfortunately, since the present government came into power; a number of imports have been banned or restricted in the name of protecting local industries and farmers. The latest is the ban on batik and handloom textile imports. The President’s office said it was to boost the local textile industry. 

Though the intention of this ban can be good, the unintended consequence of it could kill the competition in the textile market given the absence of imported textiles and thereby lower the quality of the products. Finally, the end consumer will have to pay a relatively higher price for a substandard product produced in a protected market place.

Another case in point is the government’s ethanol ban. The government banned all ethanol imports from 1 January with the pretext that local production of ethanol is adequate for production of alcohol, which is far from the truth. 

With the ban, the government is also trying to create an ethanol monopoly by directing alcohol producers in the country to purchase ethanol from the State-owned sugar companies. However, with the absence of competition due to ban on ethanol imports, the ethanol produced in Sri Lanka is said to be of lower quality, according a several leading alcohol manufacturers in the country. 

They say use of local ethanol in their production process could change the taste and result in the increase of harmful chemicals of their end product. Besides, charges have been leveled against the country’s Excise Department for forcing alcohol manufacturers to purchase ethanol from State-owned sugar companies, which is against the basic principles of private enterprise. 

Exports certainly contribute to the economic growth of a country. But imports are no less important for an economy. If a government regards imports as evil, there is little hope in the current economic order, which is largely based on free trade. 

After all it would be extremely ironic if policies formulated to boost a country’s economy and domestic industries ended up in harming the wellbeing of its own citizens. 

The writer is a retired private sector executive. He can be reached through [email protected]