Improvements in HR to be highlighted to EU

The country’s human rights record will be scrutinised when the European Union processes Sri Lanka’s application for an extension of the concessions of GSP+ later this year. GSP+ is obviously very important and the government is doing all it can to make the EU understand the present human rights situation in the country, said the Minister of Disaster Management and Human Rights, Mahinda Samarasinghe. Speaking to the Island Financial Review, Samarasinghe said that his ministry had produced a report containing in detail the current human rights environment of the country. This report will be used by the Ministry of Export Development and International Trade to formulate a consolidated report, to be submitted to the EU. "We hope the EU will see where we really stand despite the complex environment we are in. The report will give a detailed explanation of the current situation and will show the improvements we have made," Samarasinghe said. Sri Lanka has ratified all international conventions on human rights and labour, but recent developments, or deteriorations, of human rights issues have industrialists of the apparel sector growing ever so anxious. The industrialists say that while the apparel industry is in full compliance with all EU requirements, the human rights issue was beyond their control and that it is now up to the government to convince the EU that the country’s human rights record was compliant with international human rights conventions. "From what we heard last, the government has not been able to convince them," an apparel industrialist told the Island Financial Review, complaining that the industry, especially the SME sector, was in the dark with regard to the progress of the ongoing campaign of the government to promote, salvage Sri Lanka’s claims for an extension of GSP+.

3 mn pieces of garments at zero duty to India

India will allow three million pieces of garments to be imported from Sri Lanka at zero duty and restrictions on ports of entry have been lifted, the Department of Commerce announced yesterday. "As a result of ongoing negotiations under the Comprehensive Economic Partnership Agreement (CEPA) between Sri Lanka and India, India has removed restrictions on entry ports and sourcing of fabrics for three million pieces of apparel products for Sri Lanka to India at zero duty," a release from the department said. Under the Indo-Lanka Free Trade Agreement, India had allowed Sri Lanka to send eight million pieces of apparel products manufactured using fabrics made in India. The balance five million pieces will be allowed to enter India at zero duty or Margin of Preference of 75 percent depending on the product category. Port restrictions will be removed for these five million pieces as well, however, restrictions on sourcing of fabrics will remain. The government of India issued a customs notification on 22 April giving immediate effect to these arrangements, the Department of Commerce said. India had earlier granted zero duty concessions on 2,818 tariff lines under the Indo-Lanka Free Trade Agreement.

IT jobs through PPS fast track on English

The government has launched a programme with a short term goal of enhancing the job oriented English language skills of rural youth in a bid to have 50,000 persons ready to take up jobs in the IT based services sector, particularly in BPOs, within the next three years. The strategic framework and fast track activity plan of this programme, ‘English as a Life Skill’, was released yesterday and is an initiative of the Presidential Secretariat and the Board of Investment (BOI). By the end of the month, the English and Foreign Languages University of Hyderabad (EFLU), India, will set up a Centre for English Language Training (CELT) in Colombo funded by the Indian government with infrastructure provided by the Sri Lankan government.EFLU, which specialises in job oriented English language training, has set up CELTs in Cambodia, Laos, Myanmar and Vietnam as well. Thirty one English teachers will be selected to undergo training at the CELT and they in turn will be responsible in taking the new modules and methods of teaching English as a skill required to secure jobs to the 21,000 English teachers posted in government schools, said the Coordinator and Convenor of the Presidential Task Force on English as a Life Skill, Advisor to the President, Sunimal Fernando. This will be a part of the long term plans which will also retrain English teachers from around the island. The plan points out that various incentive schemes and salary increments have to be offered in order to encourage teachers to adopt modern training methods, which the government will have to formulate with the help of the Indian English language training institutes. And still ahead, the plan proposes to conduct English medium streams at all levels in schools which will push students to improve their English language skills.Representatives of over 1,600 private educational institutes teaching English from around the country, from Ampara, Anuradhapura, Batticaloa, Hambantota and Monaragala, attended the launch of this programme yesterday. They had the opportunity of meeting representatives of 12 institutes from India specialising in English language training. The programme seeks to create private partnerships and joint ventures between the institutes so as to disseminate English language skills to rural areas under the BOI banner. These partnerships and joint ventures will be given tax holidays ranging from 5 to 12 years depending on the number of students trained every year and the 100 percent transfer tax on land purchases will be exempt for investments over US$ 2 million. The programme will also take steps to attract Indian BPO companies to invest in Sri Lanka. The strategic framework and fast track activity plan says that the second largest Indian BPO company, WIPRO, has agreed to invest in Sri Lanka if a minimum of 500 vacancies requiring English communication skills can be filled. Chairman of the BOI, Dhammika Perera, said that there was a bottle neck in the development of the BPO sector because although the country had a literacy rate of 90 percent the standard of English was not up to the required levels expected by BPO companies. Lalith Weeratunga, Secretary to the President, said that never in country’s history had the G.C.E. Ordinary Level pass rate tipped the 50 percent mark. "The performance of the education system is dismal. Only 54 percent of the teachers employed in the government sector can read and understand a document written in English," he said. The Country Director of Ma Foi Management Consultants Lanka Private Ltd, Raj Gopal, said that the Indian based HR consultancy firm, specialising in recruitment for BPOs, said that in India, one out of five got through the first interview while in Sri Lanka it was one out of 15. He said that skills in communicating in English made the difference. The policy document of this Presidential Task Force says that business chambers will be encouraged to establish links with BPO companies from India and other countries to invest in Sri Lanka, parallel to the progress made by the training programmes under as a Life Skill’ programme.

Coconut oil producers still enjoy advantages from palm oil import levies

The reduction in the import duty rate for edible palm oils will not threaten the local coconut oil industry, said the President of the Coconut Products Exporters’ Association. "The price of refined palm oil in the world market is about Rs 150 per kilogram. The landed cost works out to around Rs. 195 with the addition of the import duty and other levies. Locally manufactured coconut oil always demands a premium of about Rs 10 to 15 per kilogram over imported palm oil so this means that the price of coconut oil will not decline below Rs. 210 per kilogram," the association’s President, Tharaka Dadagamuwa, said. "Therefore it is impossible for the farm gate price of coconuts to fall below Rs 22 or 23 per nut. The Chairman of the Coconut Cultivation Board mentioned at a recent forum that the cost of production is about Rs. 12 per nut. "Prior to the reduction in tariff, consumers were buying coconuts for about Rs 45 and coconut oil for Rs 315 per kilogram and these prices were the highest compared to all other coconut producing countries," he pointed out. He said that although the import tax had been reduced to five percent that cess, VAT, surcharge and other levies add to over 30 percent for palm oil imports, which means that the local coconut oil industry still has protection and the industry will continue to function viably and that the coconut oil producers’ fears were unfounded. "Palm oil is the cheapest edible oil available in the world market and it is fair that the consumers be given a choice between palm oil and coconut oil, or even other edible oils," Dadagamuwa said. However, he pointed out that the tariff protection still given to the coconut oil industry will continue to assist the millers to be in production as they are still in an advantageous position to pay higher prices for coconuts. He said that for the past three months coconut based export industries virtually shut down resulting in layoffs. "The foreign exchange loss for the past three months alone amounts to Rs 2 billion. Thanks to the revision in the tariff rate on palm oil imports, the industries could be revived and employees will get their jobs back again.

Doom or boom for coconut and coconut related industries? Consumers gain: coconut prices down soon

The Coconut Development Authority (CDA) said that the government’ s decision to slash the import duty rate for edible palm oil from 28 percent to five percent was a timely and appropriate move as the consumers will soon enjoy price reductions in coconuts and coconut oil. "It is a good move. It will greatly benefit the consumer as coconuts are a key factor in their basket of goods. We expect coconut prices to stabilise around Rs.32 by the end of the month and a bottle of coconut oil should be about Rs.180. Farmers should be able to sell a coconut at Rs.22," said the CDA Chairman, D. J. U. Purasinghe. He said that the escalation in coconut prices was due to poor productivity levels of the coconut plantations. He said the Coconut Cultivation Board should be held responsible for maintaining high levels of productivity while the Coconut research Institute should be responsible for the mite and other pest issues that plague the palms. He pointed out that growers and coconut oil millers are exaggerating their positions and that the farm gate price of Rs.22 is a reasonable return for the growers, while the government should also look into importing copra in order to sustain the coconut oil industry. The import duty reduction on palm oil will also give the desiccated coconut and other coconut based export industries much needed relief. "The government’s policy should be balanced. The CDA sees this move as a balanced move as everybody, most importantly the consumer, will get a fair deal," Purasinghe said. People have suffered long enough with rising food prices. The poor and underprivileged have suffered the most, with many not being able to afford a whole coconut but had to resort to buying halves. However, the Coconut Growers Association said that the government’s decision to slash the palm oil import duty was done in an ad hoc manner and jeopardised the livelihoods of over 500,000 people and their dependents to satisfy a few business tycoons and the 1,500 strong workforce of the desiccated coconut industry. "Palm oil importers have a strong voice and the situation in the country is such that their demands are being met at the expense of killing off the coconut industry," an official of the association said. Poor coconut yields resulted in the various industries supported by coconuts contesting for the limited number of coconuts available. The 28 percent import duty acted as a deterrent to palm oil imports and so the coconut oil producers had no competition and could offer high prices for coconuts and recover the costs from coconut oil sales as the consumer, as always in this country, was the price taker. While several industries, and the consumer, were almost chocked by the high coconut prices as a result of coconut oil producers forcing up coconut prices, for coconut growers it was a breath of fresh air. The association had said earlier that the government should not be too hasty to drastically bring down coconut prices because coconut cultivation was undergoing a re-emergence. "We don’t want the consumer to be burdened with high prices neither do we want the growers to get a price too low. All we want is consistent prices so the government should be careful about making ad-hoc decisions," Nalin Samarakkody, President of the Coconut Growers’ Association told the Island Financial Review earlier this month and today the association believes the government had done exactly that; taken an ad-hoc decision. He said that intervention to reduce the prices to benefit the consumer and other industries was a good thing but palm oil importers are a threat to the local coconut oil industry with several coconut oil mills on the verge of closing down, a view shared by the Chairman of the Coconut Cultivation Board, Jayantha Gunathilaka, who also said that around 500,000 growers are on the verge of losing their livelihoods. The CDA said that while coconut growers had received gains from the high coconut prices, production levels had dropped. "The government cannot take care of the growers’ needs alone. All this time they had received good returns for their crops but what has happened to productivity?" Purasinghe asked. Meanwhile, the Coconut Products Exporters’ Association said that this move will help revive the industry and open up operations that had been suspended. "The government’s move will bring down coconut prices and it will create a level playing field for all industries dependent on coconuts. But the biggest challenge exporters will now have to face will be to regain lost markets for desiccated coconuts, coconut milk powder and cream," said Tharaka Dadagamuwa, Chairman, Coconut Products Exporters’ Association. He also stressed that it was unlikely that the farm-gate price for a coconut would go below Rs.22 and that growers still enjoyed a reasonable return because demand for coconut oil will not come down drastically as the coconut oil millers fear it would because coconut oil still enjoys a few advantages over palm oil. "Even though the import duty on palm oil has been reduced to five percent from 28 percent, when you add VAT and cess the effective tax on palm oil imports will be about 30 percent. "With the world increasingly moving towards bio fuels as substitute for crude oil, world palm oil prices will also tend to move up, so coconut oil can still be sold at the best possible price," Dadagamuwa said in response to claims that coconut oil producers may be forced to abandon production altogether. The middle-man issue is another curse that had really "cropped up" at the various forums organised by the "business" stakeholders, be they the growers or manufacturers of coconut based products. A coconut small holder from Kurunegala told the Island Financial Review that if the government could eliminate the middle man and oversee distribution directly, they would be able to get much better returns and that the consumers too will not be forced to take such exuberant prices. Several industry analysts are of the view that Rs.22 per nut is a good deal for the coconut growers. But then the middle-man…. While each sector understandably routes for its own cause, the CDA Chairman said that a solution should not seem to have favourites and that the consumer, the people, should be the first to be treated fairly. "We are still waiting for the Attorney General to advice us on how the CDA could resurrect its regulatory authority as vested in the Coconut Development Act No.46 of 1971 and in a subsequent gazette notification on 31 December, 1979. We have written to the AG and are still holding bilateral talks because so many bi-laws have to be created to over ride existing bi-laws," Purasinghe said. He said that once the CDA received its statutory authority steps will be taken to protect the consumer and related industries while creating a brand image for Sri Lankan coconut based products in the world market.

Locally produced ethanol to replace petrol?

Sri Lanka has the capability to produce sufficient bio fuel locally to meet the entire demand of petrol driven vehicles in the country and thus bring about massive foreign exchange savings as the need to import petrol will be almost unnecessary. According to a proposal submitted by Pelwatte Sugar Industries Ltd (PSIL) the country can be self-sufficient in bio fuel as a substitute for petrol, by cultivating 65,000 hectares of sugarcane, which will be used to produce Ethanol. "Brazil is using sugarcane ethanol to run almost 100 percent of its vehicles. Sri Lanka too has the capacity and capability to do the same. The President has already been appraised about the uses of ethanol as a substitute for petrol and we have even presented him with an ethanol sample we had produced. He expressed a keenness about the project but as usual the policy makers a dragging their feet," said A. Wickramanayake, Director, PSIL. He pointed out that India had saved almost 20 percent on its annual expenditure on petrol because the country runs its vehicles on a bio fuel petrol mixture. "Why should we as a country spend so much on imported oil when we can produce our own fuel?" he said. Wickramanayake said that ethanol can either be mixed with petrol or can be used on its own without having to modify the vehicles. But this cannot be used for vehicles running on diesel. PSIL has proposed two possible scenarios, and each has been further analysed on the impact a fertiliser subsidy and an incentive scheme for farmers will have on the proposals. The first is to produce 520,000 MT of sugar for consumption from 5.2 million MT of sugarcane from 65,000 hectares. This will create 234,000 MT of molasses which can be used to produce about 74 million litres of ethanol. This will save the government almost Rs.33 billion a year. Under this proposal, even if the government was to provide fertiliser subsidies it would amount to only 8 percent of the above savings and the net saving would be Rs. 30.5 billion. PSIL proposes that if farmers were given an incentive Rs.100,000 per hectare instead, it would cost the government 24.56 percent of Rs.33 billion and will save Rs.26.5 billion. Under the second proposal, PSIL suggests that if all the sugarcane produced in the 65,000 hectares was to go for the production of ethanol alone, it would result in about 374 million litres of ethanol and save the government almost Rs.41 billion a year. A fertiliser subsidy is calculated to cost the government 6.45 percent of the savings resulting in a net saving of Rs.38.2 billion while an incentive of Rs.100,000 per hectare to farmers will result in a net saving of Rs. 34.1 billion. The above proposals also accounts for a saving of Rs.4.3 billion on diesel because PSIL points out that 150 MW of electricity can be produced in the process as well. PSIL presently produces about 10 million litres of ethanol a year for the local alcohol industry and in the process its plants provide their own electricity which has cut costs by almost 30 percent. "We are heavily taxed by the government. PSIL generates around Rs.7 billion in revenue to the government by way of excise duty every year. If these proposals are to be implemented, and they should be, the government will have to consider handing out incentives to attract farmers to cultivate sugarcane. "Sixty percent of our teas come from smallholders, likewise, if we are to grow sugarcane to the extent that is required, which is about 65,000 hectares then the government will have to think of ways to attract smallholders and others to establish sugarcane plantations. "And then they could generate their own electricity and should be made to contribute 25 percent or so to the national grid," Wickramanayake said. Wickramanayake believes that there is enough land available in uncultivated paddy fields, marginal lands and unused state land to be put to good use. The PSIL proposal said that that the 374 million litres of ethanol which can be produced from 65,000 hectares of sugarcane is adequate to cover the country’s demand for petrol and an official of the Ceylon Petroleum Corporation said that although the country’s petrol requirement is about 1.5 million litres a day, which amounts to about 548 million litres a year, the PSIL estimate is close to the actual requirement as the refineries do not operate every day of the year and are subject to closures for maintenance. What ever the figures may be, however, a saving is a saving. And a saving of Rs.26 to 34 billion is a worthwhile saving indeed. Senior Lecturer and former Head of the Mechanical Engineering Department, University of Moratuwa, said that now was the right time for Sri Lanka to explore ways in which bio fuels can be used as a substitute to fossil fuels. "The world is moving into bio fuels and the use of ethanol as a substitute for petrol has been proved in many parts of the world, like in Brazil. But we have to be mindful of considering the local context before embarking in any large scale changes," said Dr. A. G. T. Sugathapala. "Ethanol can be used, as proven, but the vehicles will have to undergo minor adjustments. We will need competent mechanics to handle this procedure and to take care of maintenance and repairs, "The water content of ethanol is too high to be used as fuel, so refineries will have to be established to dehydrate ethanol. This will be a substantial cost and it must be noted that the refined ethanol must be consistent in quality. Distribution will have to be looked into as well," he said. Dr. Sugathapala said the problem with bio fuels is that it conflicts with the interest of keeping food prices within reasonable and fair limits. World food prices have soared because bio fuel has emerged as a substitute for fossil fuels. But the PSIL proposal does not bring this conflict to Sri Lanka. "We will not only be able to produce the sugar we need, but produce bio fuel and electricity as well," Wickramanayake said. He pointed out that the proposals were based on estimates of the sugarcane yield from 65,000 hectares and an increase in that the number of hectares needed to be cultivated can depend on what the requirement would be.

Observer status in the Organisation of Oil Importing CountriesArab League invites SL Economic Development Plan

by Devan Daniel

The Arab League called for an Economic Development Plan from Sri Lanka to be submitted to the Arab League so that assistance could be given in crucial areas, Foreign Affairs Minister Rohitha Bogollagama said after meeting with Amre Moussa, Secretary General of the Arab League today.

Moussa had also said that he would push for Sri Lanka’s observer status in the OIC (Organisation of Oil Importing Countries).

The Arab League is particularly pleased with Sri Lanka’s stand on the Palestinian issue and Moussa had praised Sri Lanka’s open and committed support to the Palestinian cause, he said.

Later, the Egyptian Trade and Commerce Minister wanted Sri Lankan and Egyptian private sector businesses to take the lead in expanding trade between the two countries.

"Are position is clear. We will push our private sector to drive economic growth and add value to the economy," Rashid Mohammed Rashid, Minister of Trade and Commerce, said when he met Bogollagama and members of the Sri Lankan business delegation.

He said that Egypt will send a business delegation of its own to Sri Lanka in order to establish and strengthen private sector links between the two countries.

Bogollagama said that Egypt can consider investing in areas of Agriculture and fertilizer.

"We need greater production in agriculture and Egyptian companies can invest in generating high yield crops. Fertilizer is another area well worth investing in," he said, extending an invitation to set up fertilizer factories in Sri Lanka.

He also drew the Egyptian Minister’s attention to Sri Lanka’s US $600 million jewellery export industry.

Yesterday, the private sector took the initiative to sign a MoU to establish Sri Lanka-Egypt Joint Chamber Councils in the two countries.

While the Sri Lankan delegation had the FTAs with India and Pakistan and the GSP+ scheme to attract Egyptian investors with access to the sub continent and European markets, the Egyptians had the Qualified Industrial Zone Agreement with duty free access to the US market to ask for Sri Lankan investment.

"The private sector of Sri Lanka will have to establish contacts; they will need accessibility and will have to explore opportunities in Egypt. My ministry is prepared to do what ever it takes to facilitate the private sector of Sri Lanka in this regards,"Rashid said, adding that the Trade and Commerce Ministry would explore the opportunities of the two counties working together on fertilizer production.

Tea used to be one of the major exports to Egypt but had a decline in recent years, one reason being that Egypt being a member of the African Federation, had access to cheaper tea from Kenya.

A decision by the Egyptian government to cut taxes on food imports into Egypt has now paved the way for Ceylon Tea to make a comeback.

"We are aware of the fact that Sri Lanka had been losing its market share for tea in Egypt and our government is clear on competition and have removed all obstacles and Sri Lankan tea traders will have to work harder to regain their market share," Rashid said.

Bogollagama said that Sri Lanka will have to aggressively market and position Ceylon Tea in order to regain lost markets in Egypt.

The decision to cut import tariffs on food items, beneficial to Sri Lanka’s tea exports, was a move to halt the escalating food prices here in Egypt which have already sparked riots over the past few weeks with general strikes being called by doctors, lawyers and journalists, calling for the removal of the Egyptian government.

Arab League promises to back Lanka’s bid at UN Human Rights Council

By Devan Daniel

Egypt April 8- Member states of the Arab League made a commitment to support Sri Lanka’s candidacy to the United Nations Human Rights Council when voting takes place in May this year, Rohitha Bogollagama, Foreign Affairs Minister, said after meeting with Amre Moussa, Secretary General of the Arab League, today.

Bogollagama said that Sri Lanka’s submissions to join the Organisation of Oil Importing Countries as an observer will be given special consideration and a commendation from the Arab League.

Moussa had told Bogollagama that Sri Lanka should submit a Development Plan so that the Arab League could give development assistance in identified crucial areas.

The Egyptian Foreign Minister, Aboul Gheit, who met Bogollagama last evening for bilateral talks had also pledged Egypt’s support for Sri Lanka’s candidacy to the UN Human Rights Council.

Gheit had also called for a collective effort on counter terrorism and invited Sri Lanka’s participation for a conference on anti terrorism to be organized by Egypt later this year, an initiative that had come out of the Ministerial Asia-Middle East Dialogue (AMED) meeting in Sharm El Shiekh, attended by 50 foreign ministers, last week.

Bogollagama said that the Egyptian Foreign Minister had condemned the atrocities committed by the LTTE and had expressed his admiration of Sri Lanka as a country and pledged Egypt’s support to combat terrorism.

After meeting with Moussa, Bogollagama delivered a lecture at the Centre for Asian Studies of the Cairo University where he said that the government would deal with LTTE the way a terrorist organization had to be dealt with, by combating it in all its manifestations and forms, while the political process was left open to integrate them into the political mainstream and away from violence.

He made reference to the 13th amendment and how it would devolve power to the people themselves, thereby bringing about a lasting solution, without isolating communities.

"A terrorist must be identified with his organization and not the community he belongs to. The world should realize that a terrorist may come from a certain community, but that the community is not a terrorist community, it is time the world made this distinction clear without labeling certain communities," he said in reply to a question that expressed popular, although misguided and biased, sentiment that Islam was a violent religion.

Last weekend, Bogollagama took the opportunity of holding bilateral talks with his counterparts from Brunei, Egypt, Palestine, Malaysia, Morocco the Philippines, and Saudi Arabia for their pledges to support Sri Lanka’s candidacy to the UN Human Rights Council.

The life of Rizana, on death-row in Saudi Arabia for the death of an Infant, was given priority when Foreign Minister Rohitha Bogollagama met his counterpart of the Saudi Arabian Foreign Ministry.

Rizana, who entered Saudi Arabia two years ago on a passport that falsified her age, was accused and sentenced for being responsible for the death of an infant in her care.

"Our Deputy Foreign Minister had visited the country several times to try make the parents of the infant grant Rizana clemency but while the father seems to have softened, the mother is not moving," Bogollagama told Prince Torky Al Kabir, Undersecretary of Multilateral Affairs, Ministry of Foreign Affairs of Saudi Arabia.

"The problem we have is that she may not have understood the confession, other legal documents and the proceedings because the translator was from India and the dialect is different to what is spoken (in Tamil) in Sri Lanka," he said.

Kabir said that he would do all he can to resolve the matter but intimated that it would depend on the parents’ willingness to grant Rizana clemency.

Rizana had initially confessed to being responsible for the infant’s death but had later reneged on her statement and the Foreign Ministry said that her confession was the result of the confusion caused by the translation.

The Philippines had wanted Sri Lanka’s pledge to support the country’s nomination to the top seat of the International Court of Justice while Morocco requested Sri Lanka to support its claim to regions in the Sahara over that of Algeria.

"We propose autonomy to these regions and will like to know where Sri Lanka stands in this regard," Ahmed Lekharief, Minister of Foreign Affairs, Jordan, asked.

Bogollagama replied that Sri Lanka would not support anything outside the parameters of the UN, a reason why Sri Lanka does not acknowledge Kosovo’s statehood.

As reported earlier, talks with Malaysia centred around terrorism with Sri Lanka looking for the two countries sharing intelligence on terrorist financing originating from Malaysia.

Spin off from US agreement with Egypt, Jordan and Israel A new opportunity for Sri Lanka apparel

by Devan Daniel reporting from Egypt

Sri Lanka can make use of an agreement between Egypt, Jordan, Israel and the US to gain access into the US ready-made apparels market, the Federation of Egyptian Chambers of Commerce (FECC) said today.

"The Qualified Industrial Zone Agreement between the US, Israel, Jordan and us (Egypt) was mooted by the US and created to promote peace in the Middle East by building bridges between the Arab world and Israel.

"According to the agreement, Egypt can export apparels to the US which will be exempt from duty provided that nine percent of production inputs come from Israel," Mohamed El Masry, Chairman, FECC said.

He said that this is important for Sri Lanka as the country could have access to the US, the biggest market for ready made apparels, through Egypt and urged that both Sri Lanka and Egypt should take tangible steps to establish the Sri Lanka-Egypt Joint Chamber Council (SLEJCC).

The Memorandum of Understanding to establish the SLECC was signed by El Masry and Prema Cooray, CEO, Ceylon Chamber of Commerce (CCC), today, in the presence of Foreign Affairs Minister, Rohitha Bogollagama.

Prema Cooray said that it would be worthwhile for Sri Lankan apparel manufacturers to explore the facilities of entering into Egypt in order to benefit from the Qualified Industrial Zone Agreement.

"We have been lobbying to enter the US market with little success, so this might be an interesting opportunity," Cooray said.

Cooray said that trade between the two countries was insignificant but since signing a MoU in 2003 to improve trade, exports had increased by almost 100 percent to US $19 million with tea, dessicated coconuts and rubber being the major contributors while imports from Egypt had increased by almost 300 percent to US $11million, the bulk of which is fertilizer, over the past five years.

The specific purpose of this MoU was to drive more trade between the two countries.

"Membership to the SLECC will not be limited to the CCC but any business wishing to establish trade links with Egypt may join the SLECC," Cooray said.

Cooray said that Egypt had a growing affluent middle-class market which can attract Sri Lankan exports while access to the Sues Canal will provide connectivity to the Middle East and European markets.

Establishing tourism links is another area both Egypt and Sri Lanka could benefit from but said that Egypt needed to provide better air connectivity.

El Masry stressed that both sides had to ensure that each side will only appoint those businesses who are genuinely interested in trade between the two countries to the SLECC so that that the joint council will have a speedy implementation and effective existence.

He was confident of Sri Lanka’s commitment to the joint council because the MoU was signed in the presence of the Foreign Affairs Minister, he said.

Bogollagama is in Egypt with a business delegation in a bid to strengthening political, economic and trade ties with the Mid-East region.

Dr. Sicille Kotelawala, Deputy Chairperson, Ceylinco Consolidated, and Dr. Chris Nonis, Chairman, Mackwoods Ltd met with members of the FECC at the occasion.

Sri Lanka reminds Malaysia of its request on LTTE

by Devan Daniel

05 April, Sharm El Shiekh, Egypt; The Foreign Ministry followed up on a request it made to Malaysia last year to share intelligence on LTTE funding activities, but the Malaysians were not ready with an answer.

Foreign Minister Rohitha Bogollagama met his Malaysian counterpart Dr. Rayes Yatim for bilateral talks at the Asia-Middle East Ministerial Summit, held here over the weekend, where he reminded him of Sri Lanka’s request.

"We have reason to believe that the LTTE are raising and channeling these funds to procure arms through Malaysia’s banking system. In the UK we found that the LTTE had been extorting money from the Tamil Diaspora to the tune of five million sterling pounds a month while in France it amounted to seven million sterling pounds. In addition to this, the outfit’s narcotics, human trafficking and smuggling operations generated up to US $ 300 million" Bogollagama said.

He said that the LTTE collected taxes amounting to 1000 sterling pounds on wedding receptions while salaries were taxed 2000-3000 sterling pounds in the UK.

Foreign Minister Yatim’s response was that he would look into the matter.

Later in the day, Malaysia’s Deputy Secretary General of the Foreign Ministry, Dato Haniff, in a panel discussion titled, ‘A Comprehensive Approach for Combating Terrorism in Asia and the Middle East’, said that Malaysia had introduced anti-money laundering and anti-terrorist financing legislation and had the ability to seize assets and freeze funds of suspected terrorist activists.

Sri Lanka in Asia-Middle East Dialogue

by Devan Daniel

Sharm El Shiekh, Egypt; Sri Lanka was a part of the Asia-Middle East Dialogue (AMED) for the first time since after it was created in 2005 in Singapore.

The Second Ministerial AMED Meeting held here, brought together 50 Foreign Ministers to discuss ways in which to build political, economic and social, educational, cultural, technological and media partnerships for growth and stability in the two regions.

"Sea routes and over land routes, the silk route, linked the two regions in the past and today, with the global economy turning toward Asia, there is a need to builds on AMED and this could open the door for unprecedented opportunities to transform this corporation into a sustainable and operational level that could unleash the huge potentials of the two regions and transform them into mutual achievements and benefits," Ahmed Aboul Gheit, Minister of Foreign Affairs, Egypt said.

At the Singapore meeting AMED established three working groups. The Foreign Minister of Singapore, George Yeo, highlighted two significant achievements of two projects started by two of the working groups.

"The Economic working group is working on the standardization of halal food certification across the two regions which will felicitate trade and investment in an industry worth billions of dollars.

"The Social, Educational, Scientific, Cultural, Environmental and Media (SESCEM) working group has established two regional training centers in Amman and Doha focusing on vocational training and public administration. These are simple but practical projects which bring immediate benefits to our people," he said.

Yeo said that with the reemergence of China and India on the global stage, Asia had become the fastest growing region in the world.

"Asia’s energy needs have raised the price of oil and gas ushering in a new era of peace for hydrocarbon-rich countries. Direct and portfolio investments by countries in the Middle East have grown in recent years including those by sovereign wealth funds. Islamic finance and banking have become more important in Kuala Lumpur, Singapore and Hong Kong.

"The Middle East has also become a huge opportunity for Asian companies. Trillions of dollars are being spent on infrastructure creating an unprecedented construction boom."

Yeo said AMED can serve as a platform for the regions to share knowledge about each other’s development experiences and bring about new areas of partnerships and use these partnerships to overcome trans-boundary challenges like energy, security, climate change, religious conflict, international terrorism and maritime security.

China’s Foreign Minister, Wang Yi said that the two regions face new opportunities as the world moved towards multi-polarity, economic globalization and regional integration.

"Countries in the two regions have achieved economic take-off and fast growth while a number of emerging economies show a strong growth momentum.

"But fierce competition brought about by economic globalization has led to a greater imbalance between different regions and countries. The souring consumption of energy and resources caused growing tension between environment and development," Yi said.

Yi said that without stability the regions will not achieve anything in terms of economic development, with many of the hotspots located in the region.

"We should place domestic stability high on the agenda of our governments, remove destabilizing factors such as poverty and under development and promote social harmony.

And therefore the two regions should enhance their solidarity and expand exchange between leaders, political parties, legislatures and people; we should deepen friendship between government and people," he said.

He pointed out that development of the two regions is not high and well below the world average.

"We should stick to development paths which suit our national conditions. China’s progress attributes to continued reforms over a span of thirty years.

Foreign Minister Rohitha Bogollagama said that Sri Lanka’s vibrant business community not only made the economy resilient ion to the ongoing conflict in the country but showed that the government was trying its best to adopt efficient policies in governance.

"A sign of good governance is to have a vibrant private sector," Bogollagama said on a panel discussion on Efficient Governance and Political and Economic Transformations.

"Our private sector contributes 80 percent to GDP and this has made life very easy for policy makers. In the face of the conflict and other external shocks, our economy did not collapse because of them," he said.

He said that stability is a precondition for development and that government was treating the LTTE for what it is.

With the East liberated, he said that the political rights of the people are being restored to them with the advent of the provincial council elections.

"Devolution is the way forward and our constitution allows for devolution through the provincial councils according to the 13the Amendment," Bogollagama said.

The kind of trade between some of the developed Asian countries with the Middle East could no doubt encourage developing countries to take steps to build stronger economic ties with each other.

Bilateral trade between China and the Middle East increased rapidly over the years, Yi said, and reached US $ 123.8 billion in 2007, while China provided 412 million yuan of aid to the region.

Yeo said that Singapore’s trade increased by 50 percent from 2004 to 2007.

Last year it reached US $ 35 billion and is expected to get a boost when the recently negotiated free trade agreement between Singapore and the region comes into effect later this year.

Combating terrorism through cultural dialogue

by Devan Daniel

April 5, Sharm El Shiekh, Egypt; The Second Ministerial Asia-Middle East Dialogue meeting of 50 foreign ministers of the two regions addressed the issue of terrorism with a strong consensus emerging amongst the delegates that culture was the ultimate weapon against terrorism and religious conflict and that AMED should come up with practical mechanisms to establish cultural links that will grow and consolidate the regions in firm solidarity with each other.

Egypt’s foreign minister, Farouk Hosny, said any talk of culture was not far removed from policies, economy or any kind of cooperation for the development of the AMED countries.

"Culture is, in the final analysis, the common denominator and the product of human dialogue. It is the means whereby a humane consensus might be reached, transcending narrow minded interests.

"Solutions to problems could only be found through culture. The world suffers from fanaticism, violence and pollution of natural resources. Military supremacy, rather than our common humanity, has had the upper hand in many parts of the world today and this is why we suffer today. AMED needs to bring about a revival of human values and to put the potentials and technologies of the age in the service of human end. Our souls need to be re-illuminated and glean the fruits of wisdom accruing from contact of peoples and races," Hosny said.

Foreign Minister George Yeo of Singapore said that religious conflict and international terrorism were issues that could not be handled by a single country or region.

"We must give some priority to interfaith understanding. King Abdullah of Saudi Arabia recently proposed a new interfaith dialogue that will bring together Islam, Christianity and Judaism. The agreement between Muslim leaders led by Prince Ghazi of Jordan and the Vatican to establish a permanent forum for Muslim-Catholic dialogue is another positive development. The first meeting will be held in Rome this year the next, in a Muslim country, in 2010," Yeo said.

Both Asia and the Middle East were important regions in the world that followed similar courses of history. They had been the birthplaces of ancient civilisations and the major religions. Together they made huge contributions to the progress of mankind, China’s Foreign Minister, Wang Yi, said.

Terrorism and religious conflict were on the rise in both regions and the hotspots of the world were concentrated here.

"Terrorism has to be deterred and suppressed by all means. However, we cannot eliminate terrorism by force alone. We have to address the root causes of terrorism which are poverty, the rapid population growth, increased unemployment, social instability, the deepening gap between rich and poor, lack of political freedom and an increased sense of injustice," Takaya Suto, Japan’s Ambassador to Egypt said.

Dato Haniff, Deputy Secretary General, Malaysian Foreign Ministry said that biggest mistake was resorting to blind violence after 9/11 to combat terrorism.

"It was a big mistake to resort to violence without examining the fundamental causes of terrorism. The violence has only led to more violence and it’s a vicious cycle and the world is polarising. And the recent issue in the Netherlands of using freedom of expression to insult Islam only increased tensions and fundamentalists and extremists are given the chance to take advantage of the situation and wreak havoc," he said.

Prince Torky Al Kabir, Undersecretary of Multilateral Affairs, Ministry of Foreign Affairs, Saudi Arabia said that AMED had to be more objective as regards the welfare of humanity and that conflicts, particularly the Israeli-Palestinian conflict which was given much attention at the summit, had to be resolved peacefully, with justice and mutual trust.

SL economy—more positives than negatives – Dr. Saman Kelegama

by Devan Daniel

The present state of the economy is a confusing picture. Confusing to a layman that is, and not for an economist. A detailed economic analysis shows that there are more positives than negatives, an economist said.

Dr. Saman Kelegama told the Island Financial Review that the challenge is to strengthen the positive side and rectify the negative side of the economy and move ahead.

"There are more positive things in our economy than people really think there is," he said.

An Executive Director at the Institute of Policy Studies, Dr. Kelegama highlighted several positive signs and negative signs of the economy.

He began a presentation on Macroeconomic Performance and Public Debt Issues of Sri Lanka, when the UN Economic and Social Commission for Asia and the Pacific launched its Economic and Social Survey of the region for 2008, a few days before speaking to the Island Financial Review, by saying that the economy had a confusing outlook.

"Those who want to criticise the economy can do so and those who want to praise the economy can do so too," he said to highlight the confusion that can result in people looking at different aspects of the economy.

Being Positive

Dr. Kelegama pointed that economic growth for the past three years was over 6 percent (2005-6 percent, 2006-7.4 percent and 2007-6.8 percent), was a positive aspect of the economy.

The Balance of Payments is a surplus of US$ 531 million and gross official reserves amount to US $ 3,063 million with foreign reserves adequate to fund imports for four months, together with unemployment declining (at 5.5 percent) and many infrastructure projects moving forward, Dr. Kelegama said that these gave the economy a positive outlook.

Sri Lanka’s economy continues to grow because the global economy is growing and trickles down to Sri Lanka a 70 percent trade dependent economy. Exports grew by 12 percent.

Foreign aid was satisfactory, Dr. Kelegama pointed out, with China, Iran and India offering up to US$ 800 million. Remittances amounted to US$ 2.7 billion, FDIs US$ 734 million and commercial borrowings amounted to around US$ 500 million.

The services sector and industry sector have kept their growth momentum above 7 percent in 2007, making a major contribution to the 6.8 percent growth in GDP, Dr. Kelegama pointed out. Credit to the private sector grew by 20 percent.

Negative signs

On the negative side Dr. Kelegama pointed out the following:

Domestic demand was created partly by government borrowing which resulted in more money supply than the supply of goods, leading to a high rate of inflation above 20 percent. International oil and food prices had contributed to the rise in inflation as well.

Dr. Kelegama said that the large public borrowing is reflected in the budget deficit of 7.5 to 8.5 percent of GDP. The imbalance is a major contributor to disturbing the stability of prices, interest rates (over 18 percent) and exchange rates.

However this does not reflect in the external balance sheet because of the overall Balance of Payments is in surplus.

While domestic borrowing can further escalate inflation the government had resorted to international commercial borrowing (US$ 500 million last year and US $ 300 million soon to follow) with rates in excess of 8 percent. These have reduced the pressure on the rupee from further depreciation to a certain extent.

"Public debt per GDP has been brought down to 88 percent (from about 90 percent in 2006) and still remains high. If we generate high growth in the next five years and bring down the budget deficit it will not be a problem to manage our debt with increasing commercial borrowings as long term debt is at a manageable level," he said.

Public debt is on a declining path. Public debt to GDP was almost 105 percent in 2002 to 2004, about 95 percent in 2005, 93 percent in 2006 and 88 percent in 2008. About 90 percent of total external debts mature after 10 years.

Challenges for government

Dr. Kelegama said that the government should bring down the budget deficit by reducing government subsidies and wastage. The following institutions recorded these losses for 2007; Ceylon Petroleum Corporation—Rs. 3 billion, Ceylon Electricity Board—Rs. 15 billion, Ceylon Transport Board—Rs. 4 billion, Ceylon Railways Department—Rs. 4.3 billion, Postal Department—Rs. 4.5 billion, National Water Supply and Drainage Board—Rs. 1.2 billion.

Kelegama said that the government can reform these institutions through public-private sector partnerships and by activating the Public Utilities Commission.

He said that reducing government expenditure on subsidies will induce more fiscal discipline and make monetary policy more effective in bringing down inflation which in turn will give the government space to reduce interest rates and give more stability to exchange rates.

"Retaining export momentum is important and GSP-Plus will be a crucial factor if the apparel sector, accounting for 40 percent of total export earnings, is to face the post safeguard challenge from China after 2008.

"We need to put energy conservation programmes into effect and provide incentives for export diversification while maintaining competitiveness by raising productivity," Dr. Kelegama said.

While laymen continue to argue amongst themselves as to whether economy is heading for disaster or prosperity, are the policy makers doing the same?

"The people who really matter are aware of the state of our economy, the positives and the negatives," Kelegama said.

Who are the people who really matter? Kelegama said it was the policy makers.

So depending on which side they sit at parliament, policy makers and their appointees will continue to want the people to see the side they want them to see.

While the positives must be appreciated by the people, the ones who really matter, the negatives must and should be continued to be given more coverage, not to topple governments, but to force the necessary changes for the country’s sake.

High public debt, inflation serious problems

by Devan Daniel

High public debt is becoming a problem that could have serious social consequences if nothing is done to address the issue, an official of the UN Economic and Social Commission for Asia and the Pacific (ESCAP) said.

"Public debt is very high in Sri Lanka and it’s a serious problem (for Sri Lanka). Domestic public debt is a larger component of total public debt and it carries macroeconomic risks that can hinder economic and social development," said the Economic Affairs Officer, Poverty and Development Division ESCAP, Dr. M Hussain Malik.

Speaking at the launch of the Economic and Social Survey of Asia and the Pacific 2008, Dr. Malik said that according to an IMF Debt Sensitivity Analysis, if GDB growth and primary balances continued at the averages of the last decade, public debt to GDP, which is already high, will continue to increase which could put the country in a debt trap.

Because Sri Lanka is no longer classified as a lower-income country, it no longer receives financial aid and the government has to rely on loans, sovereign bond issues and domestic debt instruments such as bonds and treasury bills to cover high fiscal deficits.

Dr. Malik said that Sri Lanka’s public debt was 93 percent of GDP and said that it continues to be high and that domestic debt is a larger proportion of total debt.

This leads to an increase in interest rates as domestic debt instruments have to carry high rates in order to attract public money.

Banks and other financial institutions in turn have to increase their rates over and above the Treasury bill rates in order to attract depositors and this in turn increases the lending rates.

Dr. Malik said that the government had spent 90 percent of its revenue for debt servicing in 2006.

"So the problem of having a high debt to GDP ratio is that it crowds out private sector investment and the government too cannot allocate adequate funds to essential services.

"The IMF study showed that should the government reduce the debt to GDP ratio by 20 percent within the next five years, the resources allocated to service debts could be used in other areas of the economy.

"Development expenditure can increase by as much as 50 percent, or expenditure on health by 152 percent, or even education expenditure can increase by as much as 114 percent," Dr. Malik said.

He said that high interest rates leads to high inflation.

"High inflation is a global phenomenon in the Asian region.But the worrying aspect is that it is driven by increasing food prices and since the poor spend most on food this trend is not good for the regions prospects."

In 2007 the annual average for inflation rose to 15.8 percent from 10 percent in 2006.

An IMF research paper released last week said that inflation increased mainly due to domestic causes such as an expansionary fiscal policy and a monetary policy that was not tight enough.

External shocks (the increases in fuel price and other imports) accounted for only 25 percent of the variation in consumer prices and about 32 percent in the variation in core inflation, the IMF said.

However, the UN ESCAP said that Sri Lanka’s GDP growth for 2008 is forecasted to be 7 percent with productivity improvements expected in the agricultural, industrial and services sector.

Dr. Malik said that while Sri Lanka’s tax rates remained high, as is with the rest of Asia, although Sri Lanka’s tax to GDP is the highest in the region at 15 percent, corruption and inefficiency of the administration was not helping the state raise the full revenue potential from taxes.

"The solution is to bring down the debt to GDP ratio, continue in the same economic growth momentum, discontinue wasteful expenditure and focus on development, health and education. The (government) knows what needs to be done but the problem is in the implementation," Dr. Malik said.

Development, conservation of environment inseparable - G. L. Peiris

There is no choice. Development and conservation of the environment have to go hand in hand Minister of Export Development and International Trade G. L. Peiris said at the awards ceremony for Sustainability Reporting organised by ACCA Sri Lanka recently. "The per capita income of our country has increased to US$ 1,650 but economic development should not be at the expense, degradation of the environment. It’s not a question of deciding which is more important. There is no choice to be made between economic development and conserving the environment. We need to do both," he said. Peiris said that development should not take place at the expense of the environment and that the country should have a properly structured, step by step approach to development which will ensure that environment is not over run by the engines of growth. "When public spirited people took the industrialists of Agra, in India, to courts because their factories emitted gases which made the white marbled structure of the Taj Mahal turn yellow, the industrialists argued that if they were to cease functioning retrenchment and unemployment will follow close behind because investment on conservation was too costly. "But the court rejected the industrialists’ argument and ruled that they had to take a step by step approach by applying structured investments and adopting sustainable policies over a period of seven years," Peiris related. He said the government of Sri Lanka was in the process of compiling a list of the country’s flora and fauna in an effort to amalgamate economic development and conservation through eco tourism. "The government is taking steps to develop whale watching into a major tourist attraction," Peiris said while pointing out that the country has so much to preserve in terms of its rich bio-diversity. The Association of Chartered Certified Accountants (ACCA) Sri Lanka Sustainability Reporting Awards was launched four years ago to promote triple bottom line reporting in the country and reward businesses who had given equal importance to environment, social and financial reporting. Holcim Lanka and Union Assurance won the ACCA Sri Lanka Sustainability Award in the large and medium scale categories respectively while Sampath Bank won a commendation award for Innovative Projects while Ceylon Tobacco Company Ltd received a commendation award for Continuous and Consistent Focus on Sustainability. The awards received endorsement from the Ministry of Environment. "Environmental issues have taken over as the number one priority in Sustainability Reporting overtaking CSR and ethical reporting," Dilshan Rodrigo, President ACCA Sri Lanka, said. The annual reports of 22 companies were judged on criteria implemented by ACCA UK based on Global Reporting Initiative guidelines. While the number of companies participating increased by about 50 percent the SME sector, which has a category slotted for it, failed to participate, with many of the initiatives been taken by the bigger companies, Rodrigo said. "Sustainable initiatives will assist in slashing energy costs, reducing waste, improving quality and productivity all of which positively impacts bottomline irrespective of size of business. "Sustainability Initiatives is not about giving away money to charities," he said, "The Challenge is to identify the biggest environmental and social challenges of today and turn them into viable and profitable business opportunities." Rodrigo said that companies should find new approaches to develop products and services with minimal environmental pollution and optimal efficiency. "Toyota did this with the Toyota Prius, the first car to run on hydrogen and water. Opportunities exist for new paths to be developed in organic farming, cleaner water, vaccinations, electrical appliances powered by alternative fuel sources such as solar and wind. "Today there are amazing incentives for companies that adopt these approaches. "I was surprised to learn recently from a consultant friend that many manufacturing companies in Sri Lanka are not even aware of the Carbon Credit programme where multilateral agencies financially reward companies for low carbon emissions," Rodrigo said.