Local industries face higher costs, difficulties in sourcing raw materials and capital goods

• CNCI cites difficulties faced by industries to open and execute LCs
• Says some foreign banks demand third party guarantees for LCs
• Says exorbitant freight charges could make Lankan exports uncompetitive 
• Urges govt. intervention to support local industries 

By Nishel Fernando
Amid multiple rating downgrades by international rating agencies and growing fears on possible default on the country’s external debt, Sri Lanka’s industries face higher costs and difficulties in sourcing raw materials and capital goods from abroad, according to Ceylon National Chamber of Industries (CNCI).

“Few of our members want to buy machineries from other countries, but it has become extremely difficult as banks in these supplier countries tend not to accept Letters of Credit (LC) that we opened with our banks here. Whatever the bank, be it foreign or local bank or State-owned or private, if it’s from Sri Lanka, it’s extremely difficult,” CNCI Chairman Canisius Fernando told reporters in Colombo recently.

CNCI officials noted that some local banks were forced to delay fulfilling payments due to the current foreign currency shortage in the country. Accordingly, some banks in foreign countries are requiring importers in Sri Lanka to make necessary payments in advance. CNCI Treasurer A.N. Sugathapala also pointed out that local industries have to bear additional costs in securing required raw materials and capital goods for their industries. 

He noted that some foreign banks are now requiring Sri Lankan companies to obtain a third party guarantee for their LC facilities. According to him, the guarantee, which is provided by a third party bank, costs as much as four percent of the LC value.

In addition, CNCI, Deputy Chairman Kevin Edwards highlighted on additional costs arising from freight charges, which has risen over 250 percent due current issues in connection to global supply chains. 

He also noted that exporters are facing a shortage of containers to ship their goods and cautioned exorbitant freight charges could make Sri Lankan-made goods uncompetitive in foreign markets. CNCI Chairman Fernando also expressed concerns on direct and indirect impacts of the country’s rising inflation on industries. 

On one hand, he pointed out that increase in prices of goods such as cement has a direct impact on the industrial sector, while the increases in prices of essential goods directly impact industries as workers have started to demand wage hikes to cope up with rising inflation.

He stressed that most industries, which are yet to reach their pre-COVID operating levels, are not in a position to face these challenges. Therefore, he urged the government to set up a mechanism to support the country’s industries in a 
timely manner.