"Indians are intimidating, unmovable"–Dr.Bandula Perera CEPA to take 6 to 12 months, after more consultations - Rajabdeen

The Comprehensive Economic Partnership Agreement with India may be signed anywhere between six months to one year says the President of the Federation of Chambers of Commerce and Industries of Sri Lanka (FCCISL) Nawaz Rajabdeen. "There were a few who did not agree with the idea to sign CEPA during the SAARC Summit and it will only be finalized after more stake holder deliberations," Rajabdeen told the Island Financial Review. He said that it would take six to twelve months before CEPA is ready for signing by the two governments of India and Sri Lanka. "The government wants to make sure that Sri Lanka will benefit from CEPA and prevent India from taking undue benefits from what we had to offer." Rajabdeen said that Sri Lanka could not exploit the benefits of the FTA with India as many businesses are unaware of what India had to offer in terms of its negative lists. "The Indians had been well informed about what they can import from Sri Lanka and had been able to reap better dividends," he said. However, there had been instances where Indian companies had opened up manufacturing plants in Sri Lanka to take advantage of duty free exports. Vansapathis is just one example of how the Indians manipulated the FTA to their advantage. Dr Bandula Perera, Managing Director of Samson Rajarata Tiles (Pvt) Limited, who also served with the Board of Investments, last month said that many Indian companies had established vanaspathi plants here in Sri Lanka. The majority of these companies subsequently closed down when India restricted vanaspathi exports, directly violating the terms of the FTA. He said that the Indian companies that were set up on our soil had not even facilitated technology transfers because they brought 18th century industrial processes. "The Indians are intimidating and unmovable," Dr. Perera said about the non-tariff barriers which prevented Sri Lankan companies making full use of the FTA. Interestingly, an Indian tax specialist said that the Indian bureaucracy was a problem to Indian nationals themselves and not just to Sri Lankans. The FCCISL, together with the Ceylon Chamber of Commerce, came under fire from some industrialists for propagating the signing of CEPA at the SAARC Summit. They said that that the two chambers did not represent the entire industrial sector. However, Rajabdeed says that Sri Lanka stands to gain from CEPA. "The government will be looking at establishing technological transfers and creating more employment opportunities for our people," he said. Rajabdeen said that technology from the European region and America would cost more than from India which is established as an ICT hub. "It will only make sense to get the technological impetus to our economy from are closest neighbor." Rajabdeen says that the government will not allow the Indians to unduly exploit the conditions under CEPA. "The lessons of the FTA have been learned," he said. "More seminars and workshops will be carried out in the coming months so that CEPA will receive wider dissemination and industrialists who claimed no consultation took place now have the chance to engage the authorities." A four day SAARC Trade Fair will commence from 29 August at the BMICH and is expected to boost trade links not only with India but with the rest of the region.

THC dispute to end this week?

A dispute between exporters, importers and shippers lasting almost a decade may soon subside. The Sri Lanka Shippers’ Corporation (SLSC) made up of exporters and importers had been in conflict over terminal handling charges (THC) levied by shipping agents, represented by the Ceylon Association of Shipping Agents (CASA) for moving freight through the Colombo port. An official of CASA told the Island Financial Review that when the matter was taken up in courts, the Chief Justice had insisted that both parties come to a settlement through mediation. A mediation committee was duly appointed and according to the CASA official, this report is expected to be released this week with a recommendation to reduce the THC by US$ 7. However, this could not be confirmed. During its AGM last month SLSC said that authorities turned a blind eye to their problems despite years of complaining and campaigning to get the THC removed. SLSC said in its web site that THC was first introduced in the 80’s in the Far East as actual land based cost recovery and that the freight rates dropped by a similar amount. THC was first introduced in Sri Lanka in 1994 on import cargo and importers did not protest as the cost was passed down to the consumer. In 1997 a freight surcharge was introduced on export cargo by the Ceylon Association of Shipping Agents (CASA). This move was challenged and SLSC alleged that CASA then changed began to call it THC and unlike in the Far East freight rates were not dropped. SLSC points out that THC rates in Sri Lanka is the highest in the region at US$ 148 for a 20FT container and USD$ for 40FT (source SLSC website). "Up until 1994 THC was a part of freight charges but with falling rates shipping lines started losing money. Separating THC from the freight rate was one way for them to recover part of the losses as there is a profit element and over recovery," the SLSC says. SLSC says the THC has made exports uncompetitive and estimates the cost to the nation on imports and exports to be Rs. 4.4 billion as a result of the THC. The additional cost incurred by consumers on imports is estimated at Rs. 2.5 billion while the cost to the export industry is Rs. 1.9 billion. A member of CASA told the Island Financial Review that shipping lines insist on THC to recover costs which have escalated over the years. He said the contention of the exporters and importers was misplaced and had to do with increased freight costs of cargo handlers. The THC is charged as a Port of Origin THC and Destination Port THC which is levied in ports anywhere in the world. He said that CASA would convene a press conference this week after the expected report is released.

Could the Central Bank’s predictions come true?

Could the Central Bank’s predictions come true? The controversial new Colombo Consumers’ Price Index recorded a 26.6 percent point to point change in July 2008. The official inflation indicator recorded a 28.2 percent point to point change in June and the Central Bank said inflation would peak in July and begin to ease there onwards. A few may get carried away into thinking that this translates to a decrease in prices. But it is not the case. Prices continue to be high. It is just that the rate in which prices increase have declined. An official of the Census and Statistics Department said that the prices of goods in the CCPI basket had recorded insignificant increases over July, when compared to the previous months. This is because food prices have remained static for the most part while vegetables and rice price increases had declined according to expected seasonal trends. "This trend may continue in August as well with the Yala season and harvesting of other vegetable crops," he said. Since January, the monthly change of the index had hovered between a low of 1.6 percent (in May) and a high of 3.7 percent (in June). The monthly change in July was 0.2 percent. The new index, introduced this year, is based on expenditure survey of the Greater Colombo area in 2002. The basket of goods that cost Rs.100 then, costs Rs. 206.4 in July 2008 (Rs. 205.9 in May and Rs. 198.5 in April, 2008). In the new index, food items are given a weight of 46.71 percent, where as in the old index, food items consisted of 68.3 percent of total expenditure based on a survey in 1952 survey. The weights for the selected goods had been recommended by a technical committee appointed by the Treasury which prompted some analysts to call it a ‘cooked-up’ inflation index. Alcohol and tobacco are not included in the new index in keeping with government policy but analysts believe that by not doing so, the index failed to capture the spending patterns of working class people. When inflation peaked in June the Central Bank said the upward trend was due to escalating fuel, commodity and food prices across the globe. It said that inflation was expected to subside after reaching its peak in June and July based on the Central Bank’s analysis of the price increases of commodities in international markets which it said, was slowing down.

Central Bank does not prop up rupee: intervenes during extreme fluctuationsCB mops up US$ 329mn for exporters sake

"The Central Bank’s interventions in the market for this year have resulted in a net buying of dollars amounting to US$ 329 million," the Chief Economist of the Central Bank, Dr Nandalal Weerasinghe said. "And this has gone a long way to prevent the rupee from appreciating to as low as 103 to a dollar.’ Dr Weerasinghe said the exchange rate was not propped up as some exporters believed it to be but that market forces determined its rate. Exporters said that the exchange rate did not reflect the trade balance as foreign remittances, investments, grants and aid increased the supply of foreign currency thereby causing the rupee to appreciate. "It is not only trade that determines the exchange rate, but as economies become much more complex and integrated with other countries and regions, the above factors also determine the exchange rate," Dr. Weerasinghe told the Island Financial Review. "The exchange rate is determined by market forces and the Central Bank does not determine what the rate should be," he said. He said the Central Bank only intervenes to smoothen out extreme fluctuations. "The export sector is an extremely important component of our economy and it has to be nurtured and that is why the Central Bank has been buying more dollars from the market than selling because the trend has been for the rupee to appreciate." Depending on the demand and supply of dollars the exchange rate could fluctuate rapidly to either appreciate or depreciate. If the rupee is seen to be appreciating too fast, the Central Bank steps in to mop up the excessive dollars. It sells dollars if the rupee nose dives. Dr Weerasinghe said that although the Central Bank intervened when extreme fluctuations occurred, the bank was not mandated to control the trend in which way the exchange rate was being pushed by market forces. The acquisition of AMW shares by Al Futtaim Engineering LLC early this week had helped to create a situation in the market where dollars were in excess and during the last three days (Monday to Wednesday) the Central Bank brought up US$ 86.5 million. Al Futtaim acquired a 71.15 percent stake in AMW for Rs. 6.91 billion when it purchased 39.6 million shares at Rs. 174.5 a share. A mandatory offer was announced at Rs174.5 a share. Interest rates, inflation (28.2 percent in June), high energy costs and labour costs are other factors that squeeze margins and make our exports less competitive. The Central Bank is pursuing a tight monetary policy in a bid to curtail domestic credit growth and mitigate inflation’s upward trend, nearing 30 percent. The resulting high interest rates have increased financial costs. SMEs find it difficult to meet working capital requirements while larger companies see their bottom lines shrink. The private sector had been lobbying for a reduction in interest rates so as to facilitate growth, especially of the SME sector.

Propped up rupee causes deterioration of export environment – Vignaraja

A pioneer apparel industrialist said the rupee is highly over valued due to a strange mixture of ill-advised policies which has the whole economy of the country in a mess. "Inflation, at about 30 percent (28.2 percent), and bank interest rates, varying from 23 percent to 36 percent, is at record levels and the rupee has been made to appreciate about Rs. 7 to the US Dollar!" K. C. Vignarajah, said. The former President of the Ceylon National Chamber of Industries, Vignarajah, who is now a consultant for the apparel sector, said that countries where the economies depend on exports, value addition industries and services, fought to have undervalued currencies. He said that the Tiger Economies of the South Asian Region and Japan sought undervalued currencies. Even China after accumulating mountains of reserves, and under tremendous international pressure, only recently undervalued their currency. Ideally the exchange rate should be so geared that it becomes a rectifier of the trade balance in order to make industries and services competitive. The artificially appreciated rupee is the result of a distorted version of a floating exchange rate which augments the dollar supply through borrowings. "This is detrimental to the manufacturing, services and value added export, and import substitution sectors providing the bulk of the country’s employment," he said. "Taking into account the very high inflation and interest rates when compared to our competitors in the region, as well as those of our export markets, the propped up rupee gravely deteriorates the export environment." The Dollar bonds and borrowings again go to prop up the rupee and crash export industries and services. "What will happen when the time comes to repay them? We will continue to depend on those many who have to go abroad and work like slaves, so that a few politicians, political appointees and others can enjoy the high life here and globally," Vignarajah reminds us. The excessive dollars in the form of foreign commercial borrowings, new T-Bills & Bonds, aid, grants and remittances should be diverted in large measure to segments like capital expenditure, foreign loan repayments and to build foreign reserves. This should be achieved without using them to artificially jack up the rupee, which should remain fore mostly a correct measure of exchange value to balance trade. He said the first flush of excessive foreign currency was after the Tsunami. "The situation was not handled properly and led to the worst kind of corruption in the system, and which for the wrong reasons appreciated the value of the Rupee, which in turn reduced the proceeds to exporters and manufactures." Despite already having GSP+ concessions, which is now under serious threat due to Government Human Rights abuses record, the macro economic policies that had been adopted had dire results. "About 200 garment factories closed down in the past two years alone and their workers, mostly women, had been compelled to seek employment as maids in the Middle East." In order to keep workers happy, employers must be given the correct value for their exports. But this not being the case it had been necessary for workers to seek employment abroad, often in competing industries, thus strengthening our competitor countries in worldwide garment industry. He claimed that some women had been recruited to garment factories in countries such as Egypt, Bangladesh and Vietnam. "These suffering women send back their toiled earnings which props up the rupee even further and the vicious cycle of uncompetitive industry goes on. This is also true with the blue and white collar workers who leave our shores for greener pastures." "Even the foreign exchange earned by our migrant workers is fritted away on unnecessary luxury goods." "The country needs to decide whether it wants its families intact, with the people employed in the country, productively and export their products, or export the women and create disharmony in families and bring forth a rotten culture." "The ironic fact is that the government is flamboyantly promoting the brains and skills drain by encouraging our professional and skilled workers to leave the country and even have dedicated ministries for this purpose," he said. The wealth of this country is the human talent in all our multi ethnic communities. "We should have realised this years ago, and provided the basics for a happy contented environment without any discrimination whatsoever." So what does this veteran suggest we do? "SMEs will have to form area clusters and work hard at compatibility, or they will have to merge to form larger entities and create common facilities in the most efficient manner," he suggests. He warned that the conglomerates and larger companies will have to fight the temptation to take over SME factories, or to monopolise the industry through subcontracting without continuance of orders to the SMEs. "It will otherwise lead to grievous social backlash. There has already been some heartburn in the case of SMEs," he said alluding to how many SME apparel factories depend on their bigger counterparts for orders. "We should enhance the abilities of the small and medium industries in the country so that there would be equitable economic development and a liberal democratic polity where workers down to executives could have a better life here," he said.

AG’s Dept. probes apparel workers’ legal tangle

by Devan Daniel

Export Development and International Trade Minister Prof G. L. Peiris has instructed the Attorney General’s Department to look into a garment factory linked labour dispute that has the potential to turn sour at a time when much is being done to retain an extension of GSP+.

"Prof Peiris instructed me to look into this matter and we are in the process of reviewing this matter," the Attorney General, C. R. de Silva, told the Island Financial Review.

Meanwhile the Board of Investment, based on earlier verbal communications with the AG’s department, is waiting for written conformation from the Attorney General’s Department that 37 apparel workers belonging to GP Garments Pvt. Ltd. will not be indicted under the Prevention of Hostage Taking Act.

It is believed that the 37 garment workers, 33 of whom are women, will be indicted under the above Act for staging a stay-in strike demanding their bonus entitlements in April 2005.

"To charge them under this Act, where punishment is severe, is too harsh. We sought verbal clarification from the AG’s office. They said that workers will not be charged under the Prevention of Hostage Taking Act but under the general laws," an official of the BOI told the Island Financial Review.

Joint Secretary General of the Free Trade Zones and General Services Employees Union (FTZGSEU), Anton Marcus, said that he had received such an assurance from the BOI.

"However when I checked with the Gampaha High Court, I was told that the workers will be indicted under the Prevention of Hostage Taking Act," Marcus said.

Upon hearing this he had conveyed the news to the BOI.

"There is contradiction between what the AG’s Department told us and the High Court told Mr. Marcus. We are now trying to get a written conformation from the AG," the BOI official said.

The FTZGSEU has links with two labour union affiliated to the European Union and is mulling seeking their support if things go awry.

Earlier in the year, the Industrial Trade Union Confederation (ITC) and the International Textiles, Garments and Leather Workers Federation (ITGLF) of the EU had expressed their willingness to assist their Sri Lankan counterparts in the long drawn battle with the industrialists over labour violations.

But Anton Marcus said they were asked to hold back for the sake of GSP+ because had the alleged labour violations and disputes got too much attention in the EU it could be detrimental for the country’s GSP+ case.

The FTZGSEU alleges that over the years industrialists had been going to extremes of hiring lawyers propagating union busting, who maintain that the law of the country did not recognise the BOI manual on Labour Standards and Industrial Relations and came down hard on unions.

The BOI had adopted this manual when GSP+ scheme first came into effect where lLO conventions had to be implemented (among others) in order to enjoy the benefits of the European trade concessions.

In May this year, a member of the American Federation of Labour and Congress of Industrial Organizations (AFLCIO) was in the island to help labour unions here, particularly in the garment industry, to facilitate better cooperation with employers in a bid to strengthen Sri Lanka’s case for an extension of the GSP+ scheme.

Jeff Vogt, Global Economic Policy Specialist, Legal Department, AFLCIO, met members of government, the Joint Apparel Association Federation of Sri Lanka and officials of labour unions during his visit.

"I found that there are routine violations of international labour laws in some garment factories. Freedom of association is very important according to ILO labour laws and many workers complained that they could not form unions," Vogt told the Island Financial Review.

Even with GSP+ many garment factories find it difficult to survive with high production costs eating into margins and making Sri Lankan garment’s less and less competitive.

"About 200 garment factories have closed down in the past two years alone," a consultant to the industry, K. C. Vignarajah, said.

Earlier this year the industry, together with the BOI, launched a campaign to attract workers to the industry that had lost its attraction due to bad perceptions.

Ampara’s construction and apparel IT needs from the community

by Devan Daniel

A booming construction industry and steadily growing apparel industry are in need of IT personnel that cannot be filled from elsewhere in the country and have launched a programme to groom the youth of the district to fill these vacancies and for vacancies that will be created as development shifts gear.

The Ampara Chamber of Commerce, an affiliate to Business for Peace Alliance, said that many of the IT training centres that had cropped up in the district did not work with the business community.

Many international and national NGOs had set up various vocational training centres in the Ampara district in response to the humanitarian calls after the devastation caused by the tsunami and the rebel conflict.

"The construction industry is booming in Amapara and will expand at a rapid pace in the near future. This industry is in need of computer designers, webpage designers to help with in-house planning and designing of various construction projects," Prakash Peiris, Chief Operating Officer, BPA, said.

"Similarly, proprietors of several garment factories in the district are in need of IT-based designers."

Peiris said these vacancies cannot be filled because people think the East is not safe.

"On the other hand, the youth in the East think Colombo is unsafe because of the bus bombs," Peiris, who travels widely in the country, said with a tone of irony.

"So the vacancies in Ampara must be filled by the youth in Ampara."

A survey carried out by the chamber revealed that most of the IT training centres did not liaise with the business community in Ampara which resulted in a mismatch between the training the youth received and what was required by there prospective employers.

"A sample selected from the key businessmen in the district was used in this survey. There was much concern among them about the lack of communication between the vocational training centres and the business community, which is the cause of this gap," the chamber said.

"The students who graduate from these centres do not fit into the job market."

The Ampara business chamber also said that despite phenomenal support from both government and non-government institutions to develop livelihoods and infrastructure, little was done to equip business with the skills required to keep a breast with modern trends.

"This is one of the reasons why development is slow. Lack of IT and business communication skills are glaring inadequacies."

In response to this Business for Peace Alliance (BPA) and IDM Computer Studies Ltd have teamed up to set up two IT schools in the district.

Funded by Mercy Corps, in collaboration with the Ampara Chamber of Commerce, this programme is under the BPA’s ‘Regional Empowerment and Conflict Transformation through Skills Development of Tsunami Affected Business Community and Youth’ proramme.

"Many of the IT Centres we visited in Ampara are Playstations at best. Parents are happy that their children are going for computer classes. The children are happy that they get to play games. No one complains," Peiris said.

He said that BPA and Ampara Chambers of Commerce and Industry will monitor IDM’s programme to ensure that the IT capacities required in the construction and apparel sectors of the district are met.

"In the future, once development starts to grow at a more rapid pace we can introduce newer courses so that employable youth will drive the future of their own home towns," Peiris said.