Business

23rd December 2001

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Bridge budget deficit, Moragoda

By Hiran Senewiratne

The government will move immediately to bring down the budget deficit to a manageable level, Minister of Economic Reforms, Science and Technology, Milinda Moragoda said.

Moragoda said the government would not open the capital account or make the rupee fully convertible right now, despite election campaign promises to do so.

"We cannot to move to that immediately as our budget deficit is too big," he said in an interview last week. "In time to come, we might dollarise the economy as well." Moragoda said his ministry was created in order to "expedite economic development".

The government's main priorities are the economic reforms that are required to build the economy, he said. The government intends drafting a reform agenda or a "road map" to study what type of deregulation and restructuring is needed in the labour markets, banking and state corporations as well as the future privatisation programmes.

Asked how the government intends to overcome resistance to reforms and to change public opinion, Moragoda said: "To implement some of the urgent reforms, the first thing we will do is to convince the people on the need for these sensitive changes and build confidence in them. For this to happen it will take 12- 18 months. We will avoid mistakes made by the previous government."

Moragoda said there was a need for education reforms that produce youth to suit modern-day market needs.

"We have to create space for private sector involvement in shaping the system of education to create an environment that make our youth marketable in the job market," he said, adding that the government will produce a "white paper" on education reforms.

The Information Technology (IT) sector had also not made as much progress as it could have because of a lack of a clear vision, Moragoda said.

The government intends to first implement the reforms in the telecommunications sector that will clear the bottlenecks in the IT industry, he said.

"The ministry is drafting a road map to develop IT. This will make the telecommunication sector part and parcel of the IT sector," he added.

More private sector investment was required to develop the IT sector with the government acting as a catalyst to take IT to the people at the grassroots level and to ensure proper standards are developed and good teachers are available like in India, he said.

Sri Lanka has the basic raw material to succeed in this sector - its people, Moragoda said. What was required was to modernise the telecommunications infrastructure and develop IT training and improve literacy levels.

"I have plans initially to link up with India and later on with Singapore, Malaysia and Indonesia to develop the IT sector with a clear vision and a strategy," Moragoda said.


Link estate wages to productivity - Kiriella

The priority of the government in the plantations industry would be to deregulate the sector, Plantation Industries Minister Lakshman Kiriella said.

"The plantations industry is saddled with a lot of regulations," he said in an interview last week. "So deregulation is the top priority in the next six months or so. "We want to make government intervention less and encourage more private sector activity," he added. "This will help to attract more support from local and foreign investors and aid agencies."

Two key areas where deregulation would be effected would be the Colombo tea auctions and the research institutes. "We want to give producers the option of selling outside the auction," Kiriella said. The government wants to encourage producers of Ceylon tea to establish direct links with buyers, he said.

Research institutes such as the Tea Research Institute and Rubber Research Institute would be revamped to make their work more useful to the private sector, he said.

"The research institutes don't have enough links with the private sector," Kiriella said. "Their research is not geared to meet the needs of users such as the regional plantations companies. The private sector management wants certain forms of research."

The private sector has long complained that the work done by the state research organisations was too academic. Kiriella said his overall objective was to make the plantations industry "a more viable industry, more efficient and in a position to compete with other producers." Once deregulation has been set in motion, the government would look at other ways of improving the industry, such as encouraging the search for new markets, Kiriella said.

Sri Lanka also needs to move away from being an exporter of mainly bulk commodities to shipping more value-added products, he said. The growing labour shortage on estates is another matter that needs attention, he said. "There is a labour problem," he said. "Estate youths are moving away from traditional forms of employment in the plantations. Our aim is to make the tea industry more attractive to the sons and daughters of workers."

Asked about private sector complaints of government pressure in the past to give in to labour union demands for wage hikes, often without any increase in productivity, Kiriella said: "This government will treat all sectors fairly. I feel there should be a link between wages and productivity."


Euro currency could boost SL exports

With the move to a single currency in the European Union (EU) from next month, Sri Lankan exporters can look forward to the possibility of lower costs, easier access and increased sales in the member states of the common market.

However, some businesses had initially not been prepared for the transition to the euro from January 1 next year when individual currencies of EU members, known as legacy currencies, will stop being traded.

"Many Sri Lankan companies had begun signing contracts in euro over the last few months," said Roshan Lyman, executive director of the European Business Information Centre (EBIC).

The launch of the single currency will help to streamline the way people do business, he said. "People will be in a better position to compare prices," he said in an interview. "Exporters would be able to save on transaction costs and eliminate the exchange rate risks they face. This means prices will come down and products will become more competitive."

The EU is one of Sri Lanka's largest trading partners and the second biggest market for garments. Last year, EU countries imported 1.9 billion euros worth of goods from Sri Lanka and exported 1.6 billion worth of products to the island. The impact on business of the single currency could be visible by around the middle of next year.

Customs barriers were removed in the EU more than six months ago, making it easier for exporters to ship and distribute their goods, Lyman said. "Exporters to the EU need only one entry point," he said. "Goods can freely move within the Union."

Exporters would have to pay taxes only at one entry point unlike earlier where they were taxed at every border, he said.

Another advantage was the ability to achieve economies of scale by exporting large quantities and storing the products in bonded warehouse s in one country for distribution within the Union, he said.

Some export companies, such as those in rubber products, were already considering taking advantage of these opportunities, he added.

"The advantages are not only in terms of reduced costs but also in better delivery times," Lyman said. "When products are stored in a warehouse close to the market they can be delivered in 24 hours."

The euro is expected to strengthen when the physical currency comes into circulation, he said.

"Naturally, demand will increase, people will save in euro, so the currency will strengthen."

The euro, once it starts trading, could also be a potential reserve currency. "So the economic impact of a stronger euro would be that Europeans would find it cheaper to import," Lyman said. "This could lead to increased exports from Sri Lanka.

"A strong currency means a stronger economy," he added. "Companies will look at expanding. There could be a spillover effect - even investments may increase. Companies may look for new geographical locations to set up their businesses."

EBIC has been arranging a series of events in recent months in which the Union and the transition to a single currency had been explained, Lyman said.

"The transition phase in the EU has gone extremely well," he said. "Everything is on schedule." For example, sample kits have already been distributed to consumers in EU member states.

But some local businesses had not been prepared, he said. "Some people were not completely aware of the changes. Even some local banks had not taken necessary steps to change their accounting systems and financial software to accept transactions in euro."

European banks operating here had been better prepared. EBIC was also trying to encourage exporters to diversify their product range in doing business with the EU, Lyman said.

Right now textiles and clothing account for well over half of total exports to the Union.

"This is risky," he added. "People are already feeling it. The garments sector is doing badly." Orders fell after the LTTE attacks on the Bandaranaike International Airport which disrupted shipments and very badly damaged industry, he said.

Many exporters unable to deliver on time, and even those who could do so, lost orders when buyers turned to other suppliers because of fears of delayed delivery.

Furthermore, with EU countries in recession, they were importing less, he said.

"There are lots of opportunities to diversify," he said. "For example, certain EU countries such as Germany and Italy face shortages of IT professionals." Germany has even encouraged foreign IT professionals to live and work in the country.

There's also emerging potential for expanding exports of Ceylon tea to East European countries which are expected to join the EU in the next two years, he said.


EFC urges changes in overtime hours

The Employers' Federation of Ceylon (EFC) has urged the new government to quickly implement labour reforms, including measures to increase the amount of overtime allowed to female workers, EFC chairman Ratna Sivaratnam said.

The EFC is pressing for changes in legislation relating especially to industrial relations, termination of employment and the terms and conditions of employment that would give business enterprises more flexibility, he said.

In submissions made last week to Labour Minister, Mahinda Samarasinghe, the EFC pointed out that the island's labour laws were still largely unchanged from that which existed before the economy was opened up in 1977.

Sivaratnam said the labour laws were too rigid and not conducive to attracting private investment that would generate more employment. There was an urgent need to increase the amount of overtime allowed to female workers in the garment industry, which is now limited to 50 hours a year, he said.

Employers need to offer more overtime to workers to meet delivery schedules and employees were willing to work and earn more, he added. Right now the authorities turn a blind eye to the practice but the laws require to be changed to comply with legislation in the countries of buyers.

The United States, the main market for garments, allows female workers to do 80 hours of overtime a year.


Mind your Business

Thrift and taxation

There may be no budget immediately, but there will be a series of economic reforms announced shortly, whispers from the green camp indicate.

Since the boss made no grandiose promises during the campaign trail, there won't be any major concessions save for an already announced wage hike in the public sector.

Instead, there will be a series of changes in the personal and corporate tax structure and other stringent regulations governing public spending, we hear.

Price hikes Shell-ved

Now that there is competition, those who shell-shocked the people earlier are now re-thinking their strategy.

And the consensus is that getting into a shell by maintaining prices at previous levels will be detrimental in the long run.

Prices will therefore be reduced in the near future. As a forerunner, there will be special discounts on offer for limited periods to test the response.

Preening and pruning

The changes cannot be wrought overnight but the Bird of Paradise will be completely overhauled, we hear.

The proposed overhaul includes a good-bye to the desert managers, pruning of the fleet, staff and the network and a corporate plan to become viable within a few years.

And even if a premature termination of the management agreement is offered, the desert managers are unlikely to contest the issue, we hear.


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