As the Sri Lankan economy continues to navigate through challenging times it is crucial for decision makers to carefully consider the impact of lifting the import restrictions on the local tile industry. Traditionally, Sri Lanka has been dependent on imports, but it must transform and cultivate a competitive and superior quality domestic industry. The habit of taking the easy route of borrowing money, importing goods, and accumulating debt has hindered us from reaching our potential and embracing an export driven mindset.

For years, the Sri Lanka Tile Industry has made significant strides, saving over $200 million in foreign exchange outflows annually. This achievement has been made possible through the concerted efforts of local manufacturers, including Macktiles Lanka, who have diligently worked towards establishing a self-sufficient manufacturing ecosystem within the country within a short span of just two years

Historically, the local tile industry faced limitations due to capacity constraints. In 2019, annual tile demand in Sri Lanka reached approximately 30 million square meters, with imports accounting for 57% of this demand due to the lack of capacity of local manufacturers. However, with continuous investments and advancements in a short time period, the annual local tile production capacity has significantly increased to 31 million square meters in 2022. Recent expansion in state of the art fully automated Italian plant Macktiles Lanka alone has contributed 16 million square meters to this capacity, transforming Sri Lanka from a tile importing nation to a tile manufacturing and tile exporting nation establishing Sri Lanka as self-sufficient in manufacturing tiles.

The expansion of local tile production capacity has not only eliminated reliance on imports but has also led to efficiency gains, resulting in significant price reductions. The prices of tiles have dropped from 2500rs per 2x2 tile to 1400rs – 1500rs per 2x2 tile, a 40% reduction. This price reduction trend is set to continue, positioning local manufacturers to compete effectively. Additionally, the enhanced capacity allows local manufacturers to offer OEM/custom tiles for importers, ensuring business continuity while substituting foreign manufacturers with local ones.

Furthermore, the local tile manufacturers have showcased their capabilities by manufacturing a variety of specialized tiles, including polished, PGVT, and homogeneous tiles in sizes up to 4x2 ft. This versatility enables them to cater to the upmarket segment and offer diverse choices to consumers.

It is worth noting that the local tile industry heavily relies on local sourcing, with 90% of materials used in manufacturing being sourced locally. This not only strengthens the domestic supply chain but also fosters the growth of rural raw material processing industries, providing employment opportunities for over 10,000 individuals directly and 100,000 individuals indirectly.

However, amidst the current economic conditions, construction activity has experienced a significant decline, resulting in reduced demand and low factory capacity utilization. Even Macktiles Lanka, operating at 50% capacity, has witnessed a drop in demand and accumulating stocks. Under these circumstances, allowing imports during a period of low demand would lead to increased foreign outflows without corresponding benefits, potentially reversing the efforts made by the government to stabilize the currency.

Looking ahead, if liquefied natural gas (LNG) becomes available for industries and renewable energy is widely adopted similar to India, it will further strengthen the industry's competitiveness, reduce prices, and open avenues for export opportunities.

To gain more insights into the challenges and opportunities facing the tile industry in Sri Lanka, we spoke to Mr. Ahmed Shafee, the CEO of Macktiles Lanka, one of the leading tile manufacturers in the country. Here is what he had to say:

Q: How much production capacity have you increased in the last few years?

A: We have made a remarkable leap in our production capacity by adding 30,000 square meters, which required a massive investment of 12 billion rupees. This has effectively enabled our country to achieve self-reliance in tile manufacturing and thus meet the country’s entire domestic demand, all within a span of just 2 years. If you compare 2019 to 2023, we have increased production by 200%

Q: How will you be affected if tile imports are relaxed?

A: Relaxing tile imports would be detrimental to our local industries’ survival as we would face unfair competition from sub-standard imported tiles that enjoy low CESS and import duties. Moreover, due to under-valuation, imported tiles are priced lower than their actual value, making it impossible for us to compete with them on price, despite us having ample capacity, superior quality and exotic designs. By protecting our domestic market from such imports, we can save our hard-earned dollars and invest them in improving our production and innovation. A dollar saved is as good as a dollar earned.

Q: How well can you cater to the Sri Lankan demand?

A: We can meet the varied and refined needs of the Sri Lankan market by making all kinds of tiles such as porcelain, ceramic, homogeneous, nano polished tiles that meet European standards. We can also provide to all BOI and Non-BOI construction projects according to their requirements and tailor our tiles to their preferences. In addition, customers can choose from five factories that produce tiles in our country. These factories serve different market segments while successfully making quality tiles that are far superior, and outshine the imported tiles.

Q: How is the supply and demand for tiles in the SL market currently?

A: Currently, there is an oversupply of tiles in the market as the construction industry has slowed down due to the economic downturn. Our stocks are accumulating, the offtake is minimal and we are baffled by the importers' insistence on importing tiles when we are offering them attractive discounts and incentives. Ever since tile imports were restricted, we have been manufacturing custom design tiles for importers under their own brand. We are also open for more OEM orders and willing to increase our collaboration with them, we can manufacture any custom design they require. Some people claim that construction activities have halted due to a shortage of tiles, but this is completely false and baseless as we can clearly see the rapid accumulation of tiles in all tile manufacturers’ warehouses due to oversupply.

Q: How well are Indian tile manufacturers protected by the Indian government?

A: Indian tile manufacturers benefit from decades of protection from their government, which has been providing them with subsidized LNG/coal supply and imposing high duties on imported tiles. This long-standing high level of protection in the form of energy subsidies has enabled the Indian tile manufacturers to achieve significant efficiency gains and consolidate a formidable competitive edge over other tile manufacturers in the region.

Q: What is the impact of mining activity on the environment?

A: Mining activity is carried out by small and medium scale suppliers who adhere to the conditions set by Geological Survey & Mines Bureau (GSMB). They have to comply with strict environmental guidelines and obtain necessary approvals from relevant authorities. We are committed to minimizing the environmental impact of our operations and ensuring sustainability. Different countries have different rules and practices for preserving and conserving their landmass, extracting rich minerals, and restoring these areas with fertile soil for agricultural use.

We regret to hear that some of our tile importers have resorted to fear-mongering and have tried to create a false impression to policy makers that this industry is harmful to the environment. This is not true. Hundreds of small-time miners have benefited from the development of the local industry, which follows proper rules and regulations and preservation principles. This process is monitored regularly by the Central Environmental Authority, the Pradeshiya Sabha, GSMB, the Environmental Police and many connected authoritative bodies. We believe that industries that contribute to the economy should be supported and encouraged.

Q: Why should the tile industry be protected in SL?

A: The temporary suspension of imports has allowed us to embark on an expansion of the local tile industry as we consider the tile industry to be a strategic industry for Sri Lanka. Our country is blessed with high quality raw materials such as Feldspar, Ball Clay, Kaolin, Silica Sand, Quartz, Calcium Carbonate and Dolomite for which there are sufficient reserves for the next hundreds of years and it is vital for everyone to realize that minerals that can add sustainable value to the economy should be encouraged. The mining industry consists of over 500 small to medium scale entrepreneurs, many of whom have entered the industry within the last two years due to our expansion. We only import less than 10% of materials such as glazes from Spain and Italy. With these rich resources available locally, and our ability to manufacture tiles easily in Sri Lanka, it makes no economic sense to import tiles that can be manufactured in our country.

Major economies such as Europe and USA are facing an economic crisis as well, this has led to our existing exports coming down which is evident especially in the apparel sector. Therefore, it is vital to conserve the outflow of USD, especially for products like tiles that can be manufactured locally.

Our next step is to be the major contributor to transform Sri Lanka from a tile importing nation to a tile exporting nation.

Today, through our collective effort a self-sufficient industry that offers a wide range of choices and quality to consumers. It also saves foreign exchange, creates employment and supports rural industries. With European and American countries facing economic challenges due to the looming recession, our exports are struggling and we need to protect our local industries from external threats.

Q: How are current tile prices and accessibility in Sri Lanka?

A: We offer our tiles at very competitive and affordable prices. Compared to last year, when the demand was high and the market prices were 2500rs per 2x2 tile, this has drastically come down to 1400 - 1500rs per 2x2 tile, which is a 40% reduction. This reflects our efficiency gains and cost savings that we have passed on to our customers. For example, our lowest priced 2x2 tile is available at all our showrooms for 1100rs + VAT, which per square foot translates to the same price as a loaf of bread. We also offer good discounts to over 700 dealers island wide and special prices to our OEM customers as well. We have 26 showrooms across the country, providing convenience and accessibility to our customers. We also collaborate with world class designers to offer the best quality and trending designs to suit different tastes and preferences. Our tiles are made with the highest standards of material and technology, ensuring durability and elegance.

Q: Are you a monopoly in Sri Lanka?

A: Once again, this is a myth and false misconception. Sri Lanka has five tile plants at the moment and three of them are public quoted; therefore, there is an opportunity for every citizen of our country to be able to invest in this industry. The fifth unit by an entrepreneur is underway and has been held up due to non-clarity in terms of the support the government is willing to offer in order to grow this industry; especially since it is a big risk to invest multi-billion-rupee investment in the tile sector. New manufacturers should be encouraged to enter the local tile industry, and it is important to note that there are more entrepreneurs who have already started manufacturing sanitaryware in our country. Similarly with time and proper support, we believe that many Sri Lankan entrepreneurs will join this industry in the future.

Conclusion:

In conclusion, the Sri Lankan tile industry would like to dispel some of the myths in the industry, such as construction activity being disrupted due the lack of readily available tiles, or the limited variety of tiles produced by local manufacturers. These are unfounded accusations. The truth is that the local tile industry is one of the few success stories of our country, achieving self-sufficiency in tile manufacturing within a short period of just 2 years. The Sri Lankan tile industry has the capacity and the capability to produce all kinds of tiles, and we currently having an oversupply of tiles in the market which is evident in the ample stocks at our warehouses. The Sri Lankan tile industry should be proud of it transforming Sri Lanka from a being a tile importer to a tile self-reliant country. The tile industry’s next goal is to become a major tile exporter in the region, earning valuable foreign exchange and supporting Sri Lanka’s economic recovery. The Sri Lankan tile industry hopes that its example will motivate other industries to follow suit and strive for self-sufficiency.

The Sri Lankan tile industry should be regarded as a national asset of our country. This sector deserves nurturing and support in order to thrive and protect Sri Lanka from indebtedness ensuring stability and prosperity for all.

The Sri Lankan tile industry appeals to the policy makers and the public to support the local tile industries, which is a vital sector for our economic stability and growth. We cannot afford to let vested interests sabotage our achievements and our potential. We have to stand united and protect our local industries for the sake of our country’s future.