Joint venture firms struggle without minor machinery components
Several joint venture manufacturers have been forced to shutdown their production plants and suspend expansion plans due to restrictions in the import of components and essential spares needed to run the machinery.
The government has indefinitely extended import restrictions introduced for three months from May 22 amidst the COVID-19 crisis and a foreign exchange shortage, according to a new set of guidelines issued by Presidential Secretary Dr. P.B. Jayasundera.
The Secretariat justifies the measures on the grounds it’s needed to tackle current account deficit and lack of foreign currency.
Essential raw material and machinery and components are allowed after strict scrutiny of import documents with less than 90 day credit terms from foreign buyers.
This has a side effect on foreign direct investments and new joint venture projects. Manufacturers including apparel factories were used to import spares and components for machinery and many small items such as clip pins and labels on open payment terms earlier, several industrialists said.
But under the new restrictions no such items can be imported and such consignments cannot be cleared from Customs unless those were on 90 day credit term, they complained.
No foreign supplier will agree for such payment terms, they said adding that banks are also prohibited in such transactions.
The notification also stipulates that when advance payments are required on goods to be imported that exceed the value of US$ 50,000, banks shall not effect full or partial payment unless presented with a bank guarantee, standby letter of credit, or the explicit approval of the Import and Export Control Department.
One of the victims of this directive is BOI-approved Trinity Steel Private Ltd which was in operation since 2017 at the Katunayake Export Processing Zone which had to suspend their expansion plan under this set up, informed industry sources revealed.
This company is now compelled to halt the setting up of their new production line for manufacturing threaded rods for export market.
It has ordered several components needed for the LPG Gas tank for installation at the factory. But due to import restrictions and the 90 day credit rule, the import of those items had to be put on hold.
This has resulted in the halting of factory operations.
The plant manufactures specialised steel products such as engineered fasteners, concrete accessories, coated wire and others catering industrial and construction sectors for markets in the US, Canada, UK, Australia, South Korea among others.