Media coverage on report launch: Price Controls in Sri Lanka

The Advocata Institute recently released their latest report, “Price Controls in Sri Lanka: Political Theatre”, which finds that consumer price controls lead to unintended outcomes including lower quality.

Advocata advocates abolishing price controls

"Politically-motivated price controls offer very little value to reduce costs and are detrimental to trade, industry and consumers asserts The Advocata Institute, launching its new report ‘Price Controls in Sri Lanka: Political Theater’ in Colombo on Tuesday." 

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Price controls on foodstuffs —a political gimmick?

"The price controls slapped on a number of foodstuffs are of limited value despite their popular rhetoric, given the low adherence of traders towards the administered prices and lax enforcement actions by authorities, a recent survey conducted in Colombo and a few of the suburbs, revealed. " 

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Do price controls reduce the cost of living?

“Last year, the Government imposed price controls on sixteen essential items, including dhal, sugar, potatoes, and imported onions. Has this reduced prices for consumers? Unfortunately not. A recent survey by Advocata found that the controlled prices are not being followed in most instances.”

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Price control - a political stunt

‘A report on competition by the Advocata Institute says that fostering competition and improving productivity are the best forms of price control. The report titled ‘Price Control in Sri Lanka: political theatre’ notes that price controls are of limited value in reducing prices of consumer goods. Such measures rather than benefiting consumers lead only to welfare losses, deterioration in product quality, reduction in investment and in the long term, higher prices.’

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Price control through taxation, self-defeating

‘The government’s price control practice  through taxation on essential items does not serve the purpose because it limits the value in reducing cost and damage markets by preventing the supply of products from rising to meet demand, a top market research company said.’

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Panel Discussion on Price Controls - Why should they be abolished?

Ravi Ratnasabapathy, Resident Fellow Advocata Institute; Travis Gomes, Product Head Frontier Research and Dilini Jayasuriya, Managing Director Breakthrough Business Intelligence, discuss Advocata's latest report “Price Controls in Sri Lanka: Political Theatre”, that finds that consumer price controls lead to unintended outcomes including lower quality.


“Price Controls in Sri Lanka: Political Theatre”, a new report by the Advocata Institute finds that consumer price controls lead to unintended outcomes including lower quality.

To read more on Price Controls and download full report: www.research.advocata.org/pricecontrol

A video documentary: https://youtu.be/zG5hV94G7Qc


Price controls dominate political debate but may not help consumers

A new report by The Advocata Institute, titled “Price Controls in Sri Lanka: Political Theatre” finds that consumer price controls lead to unintended outcomes including lower quality. Politicians have imposed price controls on a variety of items in the belief that capping prices will lower costs but our survey shows that they are of limited value in controlling the cost of goods.

According to a limited survey carried out by Advocata, a comparison of controlled prices (over a ten month period) against retail prices as per the open market weekly average retail prices, showed that of 13 basic groceries only one (milk powder) was being consistently sold at the controlled price throughout the entire period. No one, not even the Consumer Affairs Authority (CAA), possesses a comprehensive list of items subject to price control.

Price Controls.PNG

Serious enforcement seems confined to items produced by multinationals or large corporates (milk powder, cement, cooking gas) which are administratively easier to police. In contrast, there only appears to be token enforcement in the unorganised sector. Loose enforcement prevents the most obvious symptoms of price controls from manifesting but at the expense of consumer choice and quality. Where price controls are enforced (eg: cement, milk powder) it is done so in consultation with the industry, leading to a stickiness in prices. Retail prices are slow to rise when world market prices rise but are equally slow to fall when world market prices decline.

The report also highlights how the Government’s approach to prices is schizophrenic; taxes are imposed that raise costs but the same products are then subject to price controls, supposedly to lower prices. The survey seems to indicate that price controls are of limited value in reducing costs and damage markets by preventing the supply of products rising to meet demand. They can cause significant welfare losses, a deterioration in product quality, a reduction in investment and, in the long run, higher prices.

A survey of traders indicate that 67% of retailers and 46% of wholesalers react to raids by the CAA by temporarily adjusting prices. They later revert to business as usual. Traders even claimed that paying fines for non-adherence was more profitable than retailing products at controlled prices. This was particularly true in the case of small tea and hopper sellers.

Tea and Hopper shops were subject to an arbitrary price control in 2015, but it is rarely enforced. At best, the control is useless and at worst, it works against these small entrepreneurs legitimate business activity and opens up potential for clandestine business. Advocata strongly believes that this control should be abolished.

Key recommendations of the report:

  • Little serious attempt appears to be made to impose the price controls on basic foodstuffs, particularly in the public markets. The controls encourage sub-optimal behaviour including the sourcing of poor quality or substandard items. Abolishing the controls will have minimal impact on prices while improving choice.  

  • Taxes, specifically the Special Commodity Levy and CESS play a significant role in raising consumer prices. Creating the fiscal space for simplification of the system, moving to uniform rates and the lowering taxes of taxes should lead to lower prices.

Price controls, tend to have unintended consequences and product quality can suffer
— Ravi Ratnasabapathy, Resident Fellow of Advocata and co-author of the “Price Controls in Sri Lanka” report

This report highlights that price controls are of limited value in reducing costs. They can cause significant welfare losses, a deterioration in product quality, a reduction in investment and, in the long run, higher prices. Advocata strongly believes that fostering competition and improving productivity are the best form of price control in Sri Lanka.


“Price Controls in Sri Lanka: Political Theatre”, a new report by the Advocata Institute finds that consumer price controls lead to unintended outcomes including lower quality.

To read more on Price Controls and download full report: www.research.advocata.org/pricecontrol

A video documentary: https://youtu.be/zG5hV94G7Qc


The Government should rethink price controls on bottled water

In an extraordinary gazette notification released earlier this week, the Sri Lanka Consumer Affairs Authority (CAA) imposed price controls on bottled water, to be enforced starting today (Oct 5).

Advocata notes that this decision will introduce distortion into the market possibly resulting in lower quality or shortages. As more than 120 companies battle for a foothold in Sri Lanka’s competitive bottled drinking water market, worries over unsafe and low quality products is concerning.

The maximum retail prices enforced through this gazette are as follows:

Control Price.PNG

In principle, the action of setting maximum prices on goods and services is known as a “Price Ceiling”. These are meant to “protect” consumers from being exploited.  Yet the reality may be different. A publication slated to release next week by Advocata, “Price Controls in Sri Lanka; Political Theatre” reveal that for the items surveyed price controls do not serve the intended purpose. Coupled with loose enforcement, consumer price controls in Sri Lanka have skewed the market towards a preference for lower quality products. The Price controls on water bottles, will likely to do the same.

According to a basic survey carried out by Advocata, market prices of bottled water for a 500 ml bottle, prior to the enforcement of the price control was as follows:

Market Price.PNG

The bottled water industry has 120+ entrants in the market. This means that until today, consumers had the choice of purchasing a 500ml water bottle at Rs. 45, Rs. 50 or at Rs. 80. Consumers were given the choice to buy bottled water as per their personal preferences and budgetary constraints. This is no longer the case.

In Sri Lanka, bottled water is regulated by the Ministry of Health through the Food (Bottled or Packaged Water) Regulations, 2005 framed under the Food Act No. 26 of 1980. There had not been major health and quality related concerns until 2016, where a CAA directive indicated that plastic mineral water bottling standards were enforced starting September 1, 2016 following the authority detecting several brands using low quality plastic bottles.

The likely result of the introduction of this new price control -- limiting the sale of a 500ml water bottle to Rs.35 -- is that producers have to now cut down on production costs, to reduce the final cost per bottle. Low production cost lead to the sourcing of low quality raw materials, in this case; water and plastic.  It also unclear whether the price controls also apply to glass bottles, which may be priced out of the market.

“In responding to price controls, the usual case is that producers would resort to producing low quality products in order to remain within the vicinity of the controlled price” says Ravi Ratnasabapathy, Resident Advocata Fellow and co-author of “Price Controls in Sri Lanka” report.

Advocata urges the government to engage relevant stakeholders and reverse the decision to unnecessarily intervene in an already competitive market.  

Let's Talk Development: FB live with Tim O'Brien

The Advocata Institute hosted Timothy O'Brien from the Center for International Development at Harvard University on the 25th of September for a Facebook Live. 

The focus areas of the discussion were on Sri Lanka's growth trajectory, trade and development. 

Tim O’Brien joined CID in 2015 and has worked on both Growth Lab and Building State Capability projects.He has led growth diagnostic research in Albania and Sri Lanka. Tim’s research interests center on the challenges of economic transformation and adapting to climate change in developing countries and vulnerable communities.

Media coverage for Prof. Razeen Sally lecture on Asian Capitalism and what it means for Sri Lanka

Advocata Institute in partnership with Echelon Magazine hosted Prof. Razeen Sally for a talk on the state of Asian Capitalism and what it means for Sri Lanka. Following is a collection of press coverage on the lecture where Prof. Razeeb Sally spoke of the the three facets of Asian capitalism: economic, political, and global.

Daily FT: SL is running out of input-led ‘perspiration’ growth in changing Asia: Razeen Sally

"Shortages of labour, land and an ageing population mean that Sri Lanka’s opportunities for rapid catch-up growth are diminishing and institutional transformation is needed for innovation and output-led growth." 

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Sunday Times: Sri Lanka losing battle to increase productivity growth due to cronyism, lack of strong institutions

"Prof. Sally, who is also chairman of the Institute of Policy Studies, one of the leading economic-policy think tanks in the country, believes Sri Lanka’s crony patronage system between politicians and businessmen and the lack of strong institutions (legal, banking, public administration, etc) were an impediment to productivity growth."

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Sunday Observer: Sri Lanka has to get reform basics right - Sally 

"Addressing a recent lecture titled Capitalism in Asia: What it means for Sri Lanka, Associate Professor at the Lee Kuan Yew School of Public Policy at the National University of Singapore, Razeen Sally points out that the country which is transitioning towards an upper middle-income country should not be overly dependent on the kind of ‘catch-up growth’ it had in the past, but try to improve its institutional framework and focus on innovation."

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Daily Mirror: Sri Lanka sleepwalking into a Rajapaksa dynasty - Prof. Sally

"Delivering a public lecture last week on the topic ‘Capitalism in Asia and what it means for Sri Lanka’, organised by Advocata Institute – an open market advocacy – Prof. Sally said the present government is doing its best towards a Rajapaksa restoration."

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Daily Mirror: March corporate earnings defy overall negative sentiment

"Last week, Professor Razeen Sally, a renowned scholar and the Chairman of Institute of Policy Studies (IPS), Colombo, slammed the crony private sector in Sri Lanka and elsewhere in Asia that undermines the enterprise renaissance and effective capitalism."

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Prof. Robert Lawrence on Protectionism vs Free Trade: Video

Advocata Institute in partnership with Echelon Magazine, organized a public lecture by Ricardo Hausmann, from Harvard University's Centre for International Development. He spoke of Free Trade vs Protectionism 101 and its relation to Sri Lanka, and encouraged Sri Lanka to take on ambitious high skilled immigration reform to increase knowhow in the economy.

Prof. Razeen Sally on the state of Asian Capitalism and what it means for Sri Lanka: Video and Q&A

Prof. Razeen Sally, Associate Professor at the Lee Kuan Yew School of Public Policy at the National University of Singapore, spoke of the three facets of Asian capitalism and what it means for Sri Lanka at a public lecture organized by Advocata and the Echelon Magazine. 

Q&A Moderated by Eshini Ekanayake, an Economist at JB Securities focused on macroeconomic research and analysis on Sri Lanka.

A Public Lecture on Asian Capitalism and what it means for Sri Lanka

Advocata, along with Echelon Magazine with it's new event series Think! will host Prof Razeen Sally for a talk on the state of Asian Capitalism and what it means for Sri Lanka.

Prof Razeen Sally, Associate Professor at the Lee Kuan Yew School of Public Policy at the National University of Singapore. He is also Chairman of the Institute of Policy Studies, Sri Lanka. 

Eshini Ekanayake, Economist at JB Securities will moderate the Q&A.

Capitalism has had an astoundingly successful run since the 1950s, especially in East Asia. With China now at its centre, and, to a lesser extent, in South Asia, what will be Asian capitalism’s challenges in the next half-century? And what will it mean for Sri Lanka?

Prof. Sally will look at the three facets of Asian capitalism: economic, political, and global.

First, its economic face. So far Asia has had successful “catch-up” growth based on mobilising labour and capital, and imitating what the West has already done. Poor Asia (low-income and lower middle-income Asia) still has much room for catch-up growth. But Middle and Rich Asia (upper middle-income and upper-income Asia) have either exhausted catch-up growth or come close to exhausting it. Their challenge is to innovate, to move to more productivity-based growth. They need the “creative destruction” of “Schumpeterian” capitalism. So what are their innovation challenges?

Second, Asian capitalism’s political face. What are the varieties of institutions that underpin Asian capitalism? Are they equipped to move to Schumpeterian capitalism? What are the obstacles? Is Schumpeterian capitalism possible in a Chinese-style autocracy? Or does it need Western-style liberal democracy and “open societies”?

And third, Asian capitalism’s global face. Asian capitalism has been successful in a global and regional environment of stability and openness – the post-1945 Pax Americana. US leadership has provided geopolitical security and the maintenance of a liberal world economy. But these conditions seem to be changing, and faster than expected, with the US in seeming decline and retreat, and China ascendant and more assertive. So what are the relevant global and regional scenarios for Asian capitalism?

Find out more about the lecture and register to attend.

Media mention of Advocata regarding sanitary napkin taxes

Roar Media mentioned Advocata in a recent article on sanitary napkin taxation.

An excerpt from the article:

“Sanitary napkins and tampons in Sri Lanka are taxed at over 100% at their landed cost (the CIF value), the Advocata Institute, a public policy think tank, said. It doesn’t stop there—the price increases even more by the time the product reaches its retailers, as they add a markup to the already taxed item. “

The breakdown of taxes is as follows:

Sanitary Napkins Tax Breakdown

Ricardo Hausmann on Accessing know-how for Development : Video Lecture and Q&A

Prof Ricardo Hausmann of Harvard University's Centre for International development spoke about   the importance of immigration reform for Sri Lanka at a public lecture organized by Advocata and Echelon Magazine.  Prof Hausmann argues that know-how which immigration brings is essential to diversify Sri Lanka's exports and help the country grow faster.

Q&A moderated by Murtaza Jafferjee 

Press Coverage for Ricardo Hausmann Lecture

Advocata Institute in partnership with Echelon Magazine organized a public lecture by Ricardo Hausmann, from Harvard University's Centre for International Development.  Following is a collection of press coverage for the lecture that encouraged Sri Lanka to take on ambitious high skilled immigration reform to increase knowhow in the economy. 

From the Sunday Times :  "Sri Lanka must open doors to skilled experts"

"Economist and consultant to the government on improving the Board of Investment (BOI), Prof. Ricardo Haussmann said that the immigration policy is the “lowest hanging fruit” which must expand to encourage more foreign knowhow."

From the Sunday Observer: Liberalising migrant labour policies key to propel growth - Prof Hausmann

“With the talent you have, you have the country you have. But with the talent you have, you cannot create the country you want to have. To have the country you want to have, you have to compete for talent,” the Professor advocated."

From the Daily News :  Sri Lanka can create jobs, boost exports, by moving brains: Prof. Hausmann

“Only 18 percent were born in California, even though it has a population of 40 million, twice as big as Sri Lanka,” Hausmann said.” Silicon Valley would not exist if was based on locally grown talent.”

DailyFT  Editorial :  The immigration discourse

"Economies grow by adding new products and services to their production portfolio, and not by producing more of the same kinds of products. The key to such diversification is access to know-how, but know-how often has to come from abroad."

Immigration key catalyst for development

"Reforming immigration law to allow free movement of people through progressive laws could tackle Sri Lanka’s chronic economic challenges of narrow exports, low Foreign Direct Investment (FDI) and limited innovation, a top expert said yesterday, outlining many examples of countries that have experienced growth spurts by opening up their labour markets."

LankaDeepa Sinhala Daily
ශ්‍රී ලංකාව මුහුණ පා ඇති අපනයන සීමා වීම හා ඍජු විදේශ ආයෝජන මඳ බව යන ගැටලුවලින් මිදීමට ආගමන සීමාකරණ ඉවත් කිරීමේ දැඩි අවශ්‍යතාවක් පවතින බව හාවඞ් මහාචාර්ය හඋස්මාන් පෙන්වා දෙයි.

Articles also appeared on Ceylon Today and DailyMirror on their print versions.  An op-ed on the event by Advocata was published in all major English Dalies.

 

 

Advocata to host Prof Ricardo Hausmann for public lecture

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Prof Ricardo Hausmann, Harvard economist and renowned development expert to give a public lecture on “Accessing knowhow for Development” in Colombo.   More details are available here

Advocata Institute is organizing a Public lecture by Prof Ricardo Hausmann, the director of Centre for International Development  (CID) at Harvard University.  The event is to be held on Wednesday 16th May at the Lighthouse @ LKI.  24, Horton Place, Colombo 07.  5.30 PM to 7.45 PM 

Prof Hausmann is a leading expert on development economics and a practitioner on finding enablers for growth in developing countries.  He will speak on the topic of “Accessing knowhow for development”.

Economies grow by adding new products and services to their production portfolio , and not by producing more of the same kinds of products argues Prof. Hausmann. The key to such diversification is access to know-how, but know-how often has to come from abroad. This is because it is often easier to move brains to new countries than to move new know-how into brains. In the experience of Singapore, India, Vietnam and most other dynamic economies, three channels of know-how transfer stand out: FDI, immigration and diaspora networks.
 
In this lecture, Prof. Hausmann explores the relationship between economic development and the accumulation of know-how. He will in particular discuss how to tackle Sri Lanka’s limited export diversification.
 
Prof Hausmann and his team at CID has been conducting research on ehow to diversify sri lanka’s exports to compete globally, achieving dynamic growth and upgrading knowhow in the economy.  
 
Before joining the faculty at Harvard,  Prof. Hausmann was the Chief Economist of the Inter-American Development Bank (1994-2000), where he created the Research Department. He has served as Minister of Planning of Venezuela (1992-1993) and as a member of the Board of the Central Bank of Venezuela. He also served as Chair of the IMF-World Bank Development Committee. He holds a PhD in economics from Cornell University.
 
The lecture would be followed up Q&A moderated by Murtaza Jafferjee, CEO of JB Securities ltd. You can register here.
 
Advocata Institute is an independent free-market policy think tank based in Colombo.
 
 

Free market think tank that hopes to build a fairer society

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To own and live in your own house is the dream of most Sri Lankans. Sadly for over 2.5 million families it will only be just that, a dream. According to the housing needs assessment and data survey conducted by the Ministry of Housing and Construction, over 2.5 million families either live in temporary housing, on rent, in partially constructed housing, in cadjan roofed houses or are homeless and landless.

When Dhananath Fernando first saw the statistics he was taken aback. “This means that half the population, that’s ten million people, are in need of housing,” he says emphatically. Which is why for Dhananath, the high protectionism taxes placed on construction material is so problematic, with wall and floor tiles being levied 108% import tax and 90% on construction steel.

The high taxation on building material disproportionately affects those with lower income due to the regressive nature of indirect tax, and thus makes it far more difficult for the average Sri Lankan to own a house. This impact on the poor and vulnerable in society is what then motivated Dhananath, a policy researcher to find out where exactly this extra cost comes from.

Dhananath’s research study –‘Cost of construction and protectionism’ won the main award at the Asia Think Tank Shark Tank Championship held in Jakarta, Indonesia in February. The competition which was held during the Asia Liberty Forum pitted think tank professionals from across the region in front of a panel of thought leaders – the prize – a USD 10,000 grant for their project.

This year’s eminent panel included former Finance Minister of Indonesia and Ash Centre Senior Fellow at the Harvard Kennedy School, Harvard University Dr. Chatib Basri; Prof. Razeen Sally from the National University of Singapore; Chairperson at Atlas Network Linda Whetstone -; CEO and Co-founder of Free the People in the United States Terry Kibbe and Siegfried Herzog – Regional Director for East and Southeast Asia at the Friedrich Naumann Foundation for Freedom. Of the three finalists, Dhananath’s pitch was adjudged as creating the most impact on public policy for helping the economic prosperity of Asia.

This victory has meant that Advocata, the freemarket think tank founded by Dhananath, can go forward with his research study. He intends it to be a twofold one with the first part focusing on the regional comparison of construction and material cost within the South Asian region, for benchmarking purposes. The second part will be an industry analysis on the challenges faced by the industry as well as identifying the areas in which efficiency can be achieved. Dhananath intends the study to result in a policy brief for the consideration for the government and engagement with the local industry stakeholders. But the final objective for him is to help those he calls the most vulnerable, the poor consumer.

The issue of high protectionism taxes on construction material first came to his attention when reading a report published by a local conglomerate, the Jafferjee Brothers. Though such taxes are applied across several industries, what surprised Dhananath was the sheer scale of it especially when there is a dire need for housing, with even basic necessities such as sanitary fixtures being levied upto 70% in taxes. The argument for such protectionist measures is acceptable during the infancy stages of industries, however as Dhananath points out it has been decades since these industries have started up. With no publicly available plan by the state detailing a timeline for protectionist measures and the end of such measures, it appears that there are no plans to phase them out according to Dhananath. “A 108% tax rate shows that the local industry is very inefficient,” he says, questioning why the general consumer must bear their inefficiencies.

The high construction costs may even explain why Sri Lanka has failed to attract the level of FDI initially expected. Dhananath recounts speaking with developers and investors who’ve stated that it’s cheaper to build in other parts of the region rather than in Sri Lanka, which allows them to recover the cost of their investment faster.

An old boy of St. Sebastian’s College in Moratuwa, Dhananath became interested in public policies as a child through his involvement in the Liberal Youth Guild (LYG) and debating. But coming from a traditional background, he was steered towards the sciences and medicine. “My parents wanted their only child to become a doctor,” he says, as he recounts how he attempted to enter the Medical Faculty, but missed out and instead followed a bio-science degree at the University of Colombo. However due to a lack of funds to pursue further education, Dhananath ended up working in the fields of HR and Market Research. It was during this time that his passion for public policy was rekindled. He followed courses at Atlas Leadership Academy in the USA and the Centre for Policy Research in Kochi, India. Once armed with the practical experience in research, and backed by academic qualifications, Dhananath founded the free market thinktank Advocata with a small group of friends.

Established two years ago, Dhananath explains that Advocata aims to create public awareness on public policy issues, and help governments make policy decisions based on facts and research rather than just anecdotal evidence. They’ve attempted to do the former through various articles and videos in collaborations with popular media such as Yamu.lk. “The response has been humbling,” says Dhananath, especially from the young urban professionals.

For Dhananath, the goals of Advocata and free market ideals are very personal. “Liberalisation isn’t for the rich, it’s for the poor. It gives everyone the opportunity to succeed,” he says emphatically. Witnessing the hardships faced by the poor and vulnerable during his time with the charity organization CandleAid, furthered his resolve to change things. “Sri Lanka has not met its full potential. We’ve been doing the same thing for the last 70 years,” he says critically, noting that we’ve slid towards greater protectionism, that mostly benefits a few and not the public as a whole.

Coming from modest beginnings himself, he truly believes that everyone should be given an opportunity to succeed. “I wouldn’t say things were difficult, but rather that things weren’t easy,” he says, recounting how as a student he used to provide for his retired parents by conducting tuition classes. Learning English too was an obstacle having grown up without studying in the language. Which is why having presented his proposal to the eminent panel at the Asia Think Tank Shark Tank and winning the grant is also personally satisfying to him as it shows how far he has come.