Bungling logistics hub policy!

Aspiring to be a logistics hub in Asia, Sri Lankan policymakers have once again made a huge blunder by bringing in laws to restrict much-needed foreign investment through the logistics industry and its international players.

Entangling the licensing of freight forwarders gazetted under the much-debated Shipping Licensing Act of Sri Lanka will no doubt take the industry back by a huge step and discourage international logistics companies that would have had potential to locate and invest in Sri Lanka and set up regional headquarters to service South Asia.

However, the new gazette will force them to rethink as it has even surprised the country’s investment body, the BOI, too, as per informed sources.

Gazette No. 1717/6 dated 2 August 2011 coming to effect from 1 January 2012 reflects the arrogance of policymakers, in coming up with this short-sighted gazette that imposes serious restrictions on Foreign Direct Investment to this country.

The logistics industry through the gazette has now been restricted to local parties having majority shares, while the foreign investors have been given a mere 40% as in the shipping agency business.

Logistics and freight forwarding is not an agency business; it is an active operational business with forward and backward linkages which would add a lot to the economy. It is going to be a pipedream to think that globally-renowned freight forwarders and logistics companies will come to Sri Lanka if they cannot operate with 100% ownership and the freedom to do business, which India and the region offers.

Sri Lanka is the only country in the region that has serious restrictions on the investments on the liner shipping agency business. While shipping itself is an oligopolistic industry, it is time to revisit this policy itself if we are to be a maritime centre in Asia. Leaving shipping alone, it is most surprising that policymakers bring in restrictions to global logistics companies for 100% ownership.

Global logistics companies are the most vital players which can generate regional business, value addition and create distribution centres and warehousing projects in Sri Lanka to increase greater volume of traffic through Sri Lanka. This is the way we could diversify our port activity and increase transhipment volume.

It is obvious that a few self-interested local businesses using associations such as SLFFA are trying to manipulate the laws to retain their own share of business at a great cost to the country. Fearing greater competition and transparency, they are trying to block valuable global investors from coming into Sri Lanka to give increased exposure to the country on a global platform, attract regional volumes and support the local industry with better services and more competitive prices.  It is a few years back under the leadership of then BOI Chairman that special incentives were created to attract global logistics providers such as DHL. However, this gazette has blocked and tied the hands of the BOI Investor Division to promote Sri Lanka as an investment centre for logistics operators.

Ironically this flouts the ‘Mahinda Chinthana – Idiri Dekma’ as the policymakers are walking in the opposite direction to the President’s view, which was also recently announced at the 2012 Budget with regard to policy changes to make the country a hub. This reflects that the policymakers are still living in the 18th century and are drafting draconian laws to push the country back to a confused situation.

This gazette is as bad a decision as the recently passed Takeover Bill and the Pension Bill. The reason behind introducing these weak policies that are detrimental to the country is that it is done by some officials who have little knowledge on the subject and at times have the arrogance to omit wider consultation to suit the needs of a few. Bad laws reflect the public service and its standards to the world. Whilst knowledge and information is freely available on the internet, it is sad that we are being dragged towards laws that should be in the museum.

At a time when our leaders and armed forces have won a battle that no one thought could be won and many in the armed forces sacrificed their lives and limbs to make our country a better and more prosperous nation, the reverse is happening in policy directions, discouraging economic expansion.

Before restructuring entities that have shown results in the past, it is important to restructure the nerve centre of logistics support service, which is Sri Lanka Customs. We hope that this will be the focus of the policy officials before imposing restrictions on FDI to satisfy a handful of local lobbyists.

The Government must take another look at the above gazette immediately and not implement its full contents as it will certainly give a wrong signal to the international investor community yet again. The policy of Sri Lanka, if it intends to be a maritime and logistics hub, should not encourage sector interest based on personal financial benefits but promote better competition and open up the channels for global supply chains to move through Sri Lanka with reasonable investments that would create employment and technology transfer.

Barriers to entry for the shipping and logistics industry are a great danger to the nation. Standards and regulatory environment should be certainly introduced, through a set of guidelines which are accepted internationally.

We call upon the dynamic Chairman of the Sri Lanka Ports Authority to take leadership on this matter, and explain to the President who is the Minister of Ports and Shipping to call upon industry leaders who have absolutely no vested interest to draft national policy along with public officials. We also request the support of the Central Bank Governor, who has an important role to play in the Licensing Act, to come forward with expertise from CBSL.

To be the ‘Miracle of Asia,’ we need 21st century modern laws in our country to attract global capital, knowledge, technology and increased competition! Otherwise we as a nation will have the location whilst the hub will be north of the Palk Strait.