Jul 02, 2017

Indian Footwear Company invades Sri Lanka hitting local industry

Sri Lanka’s Board of Investment (BOI) has approved a local venture of a major Indian footwear manufacturer VKACY to set up a footwear factory in Negambo under section 16 of the BOI act, greatly affecting the local industry Footwear and leather products manufacturers’ association said.

In a statement the association noted that this Indian company will manufacture footwear for the local market with BOI approval without the endorsement of the Ministry of Industry and Leather products and Footwear Advisory Council.

According to section 16, an industry can step in to Sri Lankan market by just fulfilling very much negligible requirements in the present day’s investment on a new industry.

These projects are governed under Normal laws of the country and are subjected to Inland Revenue Laws, Custom Laws and exchange control regulations.

These approvals are granted; only to facilitate the entry of foreign investment, to setting up of a new company with foreign share holding or and for the purpose of transferring or issuance of new shares in an existing non-BOI company to foreign investors.

At present the minimum investment requirement to qualify for the section 16 projects is US$ 250,000. This can be either 100 percent foreign investment or a joint venture investment with a local collaboration. Foreigner has to remit a minimum of $ 1 million if they are to undertake trading activity

With this very minimum requirement the Indian company has received the opportunity to enter in to local market without any restriction, a leading member of the association said.

In addition entire profit from this venture will be repatriated to parent company. Possibility of transfer pricing cannot be ruled out, it said.

BOI without even briefing Ministry of Industry or the local business community and the Chambers had given approval to this company to set up its factory in Negambo.

This company is a major player in the Indian footwear industry with a capacity of more than 150,000 pairs per day. With the current operation in India this investor has already captured a sizable portion of the Indian Footwear market.

With this strength, they have an additional advantage over Sri Lankan industry on procurement of raw material, machinery , moulds etc due to their scale of operation they processed a high bargaining power in comparison to local Industrialists .

This advantage along will help them to kill the entire local footwear industry which has survived in Sri Lanka during the good and bad periods, he anticipated.

At present local footwear industry provides more than 250,000 direct employments and maintains fast developing SME sector and sub contractors with the assistance of Industrial Development Board.

Footwear Industry is currently responsible promoting and establishing a very good retail chain covering the whole island and creating another sizable employment.

In addition this investor has a hidden agenda of transferring used machinery and moulds from India that will create a massive disparity between local manufacturers and this proposed so called investment, the association alleged.

Furthermore the timing of this investment in Sri Lanka is very poorly thought about as local companies are just trying hard to reap the benefit the GSP + facility to enter EU market, the association said.

The Export Development Board has already launched a major project to upgrade the local footwear industry to move towards exports,