Protectionist policies in construction sector challenge urban affordable housing: Advocata

Dr. Roshan Perera

• Advocata study finds nexus between trade policy and anti-competitive practices in construction industry

By Shabiya Ali Ahlam
An uneven playing field prevails in the local construction sector, due to an array of protectionist policies, all of which make it increasingly challenging for the urban population to have access to affordable housing, Advocata Institute said. 
“We found that there was a nexus between trade policy and anti-competitive practices in the construction industry and these trade practices or event competitive practices have affected consumers through higher prices of construction materials and lack of availability of construction inputs,” said Advocata Institute Senior Research Fellow Dr. Roshan Perera. 
She made these comments at an event with the theme ‘Housing For All: The Role of Competition Policy In Construction’, organised by the think tank in partnership with the Templeton Foundation in Colombo, recently.  

One of the key issues observed in the local construction industry is market structure and competition.  
The domestic market for construction materials such as tiles, cement and aluminium, exhibits a high degree of concentration in terms of the number of players operating in the sector. This concentration can be attributed to various factors, including economies of scale, barriers to entry and established market dominance.
The limited number of players in the cement, aluminum and tile industries has constrained the level of competition that the domestic players encounter. 
“This lack of competition limits the scope for competitive pricing as each firm has significant control over the market. Competition from international players is also limited due to import restrictions and high import tariffs,” Dr. Perera said. 
Another key issue is higher tariffs and trade restrictions, given that several import restrictions and tariff increases have been imposed on construction materials from time to time.  
These tariff increases include the use of para-tariffs like the cess and Port and Airport Development Levy, which have raised the cumulative tariff rates.  
For instance, in the case of domestically produced cement, the cumulative tariff on the raw material used in production, clinkers, ranged between 16 percent and 25 percent from 2014 to 2021. 
By contrast, the importers of bulk and bag cement, the direct competitors to domestic manufacturers, faced an additional para tariff (cess) of between 08 percent and 14 percent during the same period.  
“This difference creates an uneven playing field, giving the domestic manufacturers a distorted advantage over importers,” said Dr. Perera. 
Similarly, in the tile market, where the total tariff rate on imported tiles ranged between 79-89.5 percent from 2013 to 2021, the domestic manufacturers do not face any tariffs other than Value Added Tax for the raw materials and other inputs that go into the making of a tile.  
Meanwhile, Dr. Perera pointed out that another significant part of the problem is also the Consumer Affairs Authority, as it suffers from a lack of independence and capacity in terms of taking action against malpractices. 
The agency is authorised to regulate the price of any good or service considered essential to the community through a gazette notification by the ministers. 
However, Advocata noted that it remains unclear whether any rational process is used to identify which goods and services qualify as ‘essential’ or if it is determined at the discretion of the minister in charge.