A different airport
View(s):How can an airport be different, when every airport is built for the same purpose? There are planes landing in and taking off. There are air-travel passengers going out and coming in. There are offices, customs, shops, and amenities to meet the regulatory requirements and passenger needs.
However, we are not looking at the differences that exist in terms of efficiency and effectiveness of all these common features.
Shim Jungwook is from South Korea, and is serving in a Japanese University as a lecturer. He made an interesting comment about the international airport in Colombo. That day, I had delivered a guest lecture at his university. After the lecture, we – Shim and two more professors from Japan, and myself, were sitting at a dining table at the university restaurant, waiting for our lunch.
I had met Shim a couple of times in Sri Lanka as well as in Japan. He has been to Sri Lanka about three-four times. This time when I met him in Japan, he had just come from Sri Lanka a few weeks ago after his last visit. While we were waiting for our lunch, I encouraged Shim to reveal his experience in Sri Lanka.
I asked him, “What made you excited most in Sri Lanka this time?”
Exciting sight
He said: “I notice something very exciting to me every time I visited there, not one time: The Colombo airport is different from all other airports in the world – at least those which I have seen.”
It was a peculiar remark that would arouse anyone’s curiosity, and specially a Sri Lankan’s. As I was zealously waiting to know what that difference was, he continued:
“In all other airports, you would see duty-free shops selling a limited number of common stuffs like liquor, cigarettes, chocolates, perfumes etc. At the Colombo airport, apart from that you would also see televisions, refrigerators, washing machines, power washers, rice cookers and so on – all sort of electric and electronic household appliances.”
What an observation! I thought to myself that it is a significant difference that an average Sri Lankan would have never noticed. On the contrary, however, many foreigners must have noticed it, and must have been amazed by seeing it.
Shim added a further explanation to his comment: “I also noticed that these items are not the high-quality ones imported from the Western countries, Japan or the US; they are largely the ‘cheaper products’ coming from the East and Southeast Asian countries.”
He continued with his comment: “I also saw the arriving passengers, I believe they were Sri Lankans, going to buy these appliances; after getting down, they must be tired too, but they still go to buy and carry big luggage on trollies – refrigerators, televisions and washing machines”.
I could imagine what Shim was telling, because it has not been an unusual sight for me. But I knew that he must have been excited to see it.
Peculiar questions
I explained to Shim about the logic for the existence of such duty-free shops at the Colombo airport for selling household appliances. “It is an incentive to people who earn foreign exchange – an allowance that they are entitled to, to buy such household appliances at duty-free prices.” The longer the stay abroad, the higher the duty-free allowance. “
File pic of migrant workers at the airport.
I knew my answer was right, but not satisfactory because it wouldn’t show the complete picture. Therefore, I thought of myself taking more time to reflect upon the depth and the width of this peculiar question.
Why do we have airport shops selling household appliances? And what does it portray about the country, the people, and the government; or about prosperity or poverty or something else? I had a series of questions.
Even I couldn’t remember seeing such duty-free shops in any of the airports that I have visited in the world. I realised that too, only after Shim’s comment about it.
Duty-free prices
As I noticed the local market price of the household appliances rise significantly above their duty-free price due to high import duties, some times as high as over 80 per cent. Apparently, the big price difference is attracting the customers to buy the items at the airport rather than at the local market.
A washing machine that costs US$355 in the airport shop is sold at 74 per cent higher price at the local market, which is $618. A 32-inch television costs $195 at the airport shop, while its local market price $255 is almost 30 per cent higher. A fan with a stand is $38 at the airport, while its local market price of $56 is 47 per cent higher.
A refrigerator with a single door is sold at $187 at the airport shop; its local market price of $299 is about 60 per cent higher than that. Gas cooker with an oven is sold at $235 at the airport, while its local market price of $ 440 is about 87 per cent higher than that. A power washer is sold at $70 at the airport shop, while its local market price of $105 is over 50 per cent higher than that.
Perhaps, one important reason why such duty-free shops do not exist in most of the airports elsewhere is the lower import tax, which does not create a big price difference. In Sri Lanka, there are multiple taxes applied on imports (tariffs, para-tariffs, domestic taxes), which create significant price difference between duty-free and local market purchases; obviously, it attracts people to the duty-free prices.
Falling exchange rate
The customer perception on duty-free and local market price differences get acute in the face of exchange rate depreciation. Owing to the country’s sluggish export performance and poor foreign direct investment track record, Sri Lanka’s exchange rate has continued to depreciate constantly.
When the exchange rate was Rs. 150 per US dollar in January 2018, a commodity that was sold at $100 at the airport duty-free shop cost Rs. 15,000 in the local market, without adding any taxes. The domestic price of the same commodity has increased by Rs. 3,000 today, after 20 months only because of exchange depreciation at Rs. 180 per US dollar.
Imagine the increase in domestic prices of imported commodities over the past 40 years only due to the depreciation of the exchange rate from Rs. 16 per US dollar at the end of 1977 to Rs. 180 today!
Poverty and migrant workers
I believe that airport duty-free shops selling household appliances commenced in conjunction with Sri Lankans going to West Asian countries as migrant workers. It was natural that poor households desired to have modern household appliances when they could afford to buy them, and buy them at a duty-free price.
At initial stages of a poverty-stricken open economy, it is understandable that the members from poor families leave for work abroad. The main reason was that the economy was not big enough to absorb the excess labour in a country with high unemployment, and that even if some of them found jobs, the reward for work was poor too. When they return, there is demand for duty-free household appliances at the airport.
The tragedy is, however, even after 40 years the same trends continue to exist on the one hand. Besides, even the skilled-labour migration has started to thrive undermining the potential development of the country, on the other hand.
The driving forces of the demand for duty-free household appliances are all related ultimately to either a poor economy or poor management of economic affairs. Until and unless there is a major breakthrough in the country’s development drive, the current state-of-affairs is likely to continue.
(The writer is a Professor of Economics at the University of Colombo and can be reached at sirimal@econ.cmb.ac.lk).