Business
Has Sri Lanka’s crisis-driven import controls incentivised import substitution?
By Dr Asanka Wijesinghe and Nilupulee Rathnayake
In response to the economic crisis, Sri Lanka implemented import controls that expanded significantly by the end of 2022, accounting for approximately 30% of the country’s total import value (Figure 1). The controls affected various categories, including consumption goods (46%), intermediate goods (31%), and capital goods (24%). As Sri Lanka gradually eases these controls, questions arise about the necessity of this strategy and its impact on economic growth.
Was implementing import controls a necessary strategy or the easiest option available to the government?
Were import controls applied optimally to limit damaging effects on growth?
Did they distort incentives, thereby promoting domestic production of substitutable products?
To shed light on these concerns, a comprehensive analysis was conducted using a unique dataset comprising eight waves of import controls. These controls encompassed quantitative and price restrictions at a disaggregated product level using a range of Gazette notifications issued between April 2020 to September 2022.
Were Import Controls Necessary? Unravelling the Policy Objectives
The objective behind the successive rounds of controls remains unclear, with the government declaring different goals at different times. These ranged from reducing foreign currency outflows to promoting domestic production as import substitutes. As such, assessing their longer-term impacts in distorting the incentive structures is crucial. Interestingly, implementing import controls may have inadvertently encouraged import substitution, even without a protectionist intent. The complexity of the measures employed, including credit-based requirements, import licenses, suspensions, and bans, highlights the intricacies of controlling imports.
Several hypotheses prevail in determining the government’s import control preferences.
Sri Lanka’s heavy reliance on imported intermediate and capital goods for domestic consumption and export-oriented production means that these are more likely to be exempted from minimising adverse impacts on domestic production.
The large agricultural labour force has significant electoral importance, and to gain political support, the government may seize the opportunity to protect domestic food production.
If import substitution is the goal, the government will prioritise less complex products, which are easily substitutable given resource endowments and technical know-how. Thus, food items, for instance, are more likely to face import controls over highly complex products. It is worth noting that if subsequent rounds of import controls consistently include less complex food products without exemptions, it could indicate an underlying incentive structure that promotes import substitution.
Even without a protectionist motive, the import control design could inadvertently incentivise import substitution.
Our analysis revealed that the government’s import control policy preference favoured less complex products, consumer goods, and food items. This unintentionally created an incentive structure for import substitution, even without a protectionist intent. Persistent import controls on food products and low-tech manufacturing products like consumer electronics inflate domestic prices and create opportunities for higher profit margins. As these products are within the set of products that are easily substitutable for a country like Sri Lanka, which has a comparative advantage in low-tech manufacturing and a significant labour force in agriculture, import substitution might happen even without a policy intent.
The quantitative analysis identified eight waves of import controls, which tightened over time and increased in coverage. The government’s targeting of food products, consumption goods, and less complex items was not always successful, particularly in the later waves of import controls. This can be attributed to a shrinking choice set available as control measures progressed. In some import control waves, the government extended import controls to encompass more intermediate and capital goods.
The process of import substitution typically follows a sequential pattern, starting with substituting easily replaceable products before moving on to more complex ones. Therefore, irrespective of the policy objective, the distortions introduced to the incentive structure align with observations from import substitution scenarios seen in countries like Sri Lanka.
Recommendations for Prioritising Import Control Revisions
As Sri Lanka gradually eases the import controls implemented during the economic crisis, it becomes crucial to prioritise the revision process. The deciding factors may be influenced by lobbying from industries reliant on restricted imports and feedback from industry and consumers. Our analysis suggests that revisions appear to prioritise intermediate and exempted food products, reflecting a policy preference for exempting intermediate imports .
To foster innovation and enable participation in global value chains, it is economically sensible to phase out import controls on intermediate goods. However, revisions should also target consumption goods, including food. Import controls inflate domestic prices, leading to the production of less complex consumer goods and food items for domestic consumption. This diverts resources away from export industries, impeding the country’s growth in the vital export sector.
To be Continued
By Sanath Nanayakkare
Artificial intelligence and automation present serious challenges for workers – such as job consequences seen in docks and rail systems – and emphasises that workers cannot simply stop technological progress. By gathering young trade unionists in Sri Lanka, the ITF aims to establish key principles for engaging with technology, ensuring workers have a strong voice at the bargaining table, and encouraging constructive social dialogue with corporations and governments.
These compelling words from ITF General Secretary Stephen Cotton underscored the urgent reality facing modern labor as rapid technological advancements sweep across global industries.
Confronting this shifting landscape head-on, the International Transport Workers’ Federation (ITF), in partnership with the National Union of Seafarers of Sri Lanka (NUSS), convened a ground-breaking conference on artificial intelligence in Colombo from September 15–17.
As the ITF’s first-ever AI-focused global conference and the first of its kind hosted in Sri Lanka, the landmark event marked a critical milestone in balancing technological innovation with worker-centered safeguards.
Representing over 16.6 million transport workers worldwide, the ITF designed the gathering to tackle the multifaceted impacts of AI on safety, operations, workforce development, and governance. Rather than resisting progress, the conference focused on proactive engagement, establishing guiding principles to protect workers’ rights and privacy both at sea and on land.
Key discussions centred on sharing best practices for upskilling and reskilling transport personnel, ensuring that human oversight remains central to AI-driven logistics, routing, and maintenance.
Reflecting on the historic nature of the event, Boa Athu, CEO of National Union of Seafarers Asia Pacific, noted that the conference represented a monumental moment as AI emerges as a permanent fixture of contemporary life.
Highlighting NUSS’s pride in hosting the event in Colombo, Athu emphasised that AI offers transformative potential when guided by strong social dialogue, equitable access to training, and robust governance safeguards.
Ultimately, the Colombo conference demonstrated that the future of transport must be shaped by those who keep the world moving. By uniting international labour leaders, affiliates, port operators, and regulators, the event laid a vital foundation for inclusive policy frameworks that champion fair labour standards, securing a powerful voice for workers in an automated tomorrow.
By Sanath Nanayakkare
As Sri Lanka experiences a surge in visitors from its largest tourist market, India, a modern administrative hurdle has emerged at Bandaranaike International Airport (BIA).
While nations like India and Pakistan have successfully transitioned to fully digital driving licences and cashless ecosystems, Sri Lanka’s Department of Motor Traffic counter still requires a physical card to issue temporary local permits, The Island Financial Review learns.
This mismatch creates significant friction for independent travelers who rely entirely on smartphones and cloud-stored credentials. Tourists turned away at the airport – and sometimes redirected to the Werahera office in vain – find themselves unable to legally rent and drive vehicles. Consequently, this policy gap harms local car rental operators, causes tourist frustration, and deprives the government of valuable permit revenue.
The situation highlights a distinct irony: Sri Lankan motorists easily travel abroad using International Driving Permits that are readily accepted in India and Pakistan, yet local infrastructure cannot reciprocate due to outdated verification systems.
Recognizing the problem, Department of Motor Traffic officials have noted that upgrades and new equipment are currently in the works to integrate foreign digital platforms.
For a nation aggressively pursuing a national digitalisation drive, rapidly modernising these transport protocols is essential to keeping pace with global travelers and unlocking the full potential of its tourism economy.
Business
International Afro-Latin Dance Festival in Colombo to grow into a larger regional tourism draw
ALIF-SL, Sri Lanka’s first-ever international Afro-Latin dance festival, returns for its 4th edition from 25 to 27 September 2026 at the Galle Face Hotel, Colombo. The festival will bring together over 30 international and national artists and 175–200 participants from more than 20 countries, reaffirming its place as the region’s leading platform for Salsa, Bachata and Kizomba.
This year’s edition is headlined by Tropical Gem, the world’s No. 1 salsa team, travelling from Italy to perform and teach alongside a stellar international line-up. Attendees can also look forward to the ALIF Cup Sri Lanka Open, a keenly contested competition judged by an international panel, giving local dancers a rare opportunity to compete and connect with world-class talent.
“Every year, ALIF connects Sri Lanka to the world. With this year’s artist line-up and the ALIF Cup competition, we’re not just hosting a festival, we’re putting Sri Lanka on the map as a top destination for dance,” said JD Ruban, Founder and Director of ALIF-SL
Beyond the dance floor, ALIF-SL continues to support Sri Lanka’s tourism sector, drawing dancers, judges and enthusiasts from across the globe to Colombo and positioning the capital as an emerging regional hub for social dance. Organizers plan to grow the festival into a larger regional tourism draw, introduce new competition categories, and bring in even bigger headline acts in future editions.
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