Financial Times

Hayleys slams state interference in business, rival copycats
The Hayleys conglomerate has come out strongly against inconsistent government policies that were hurting exporters like itself, labour laws that could scare away investors and competitors who copy its products.

The company's annual report, released last week, details some of the fiscal and government policy issues as well as unfair competition that it has to grapple with while giving an adequate return to its shareholders.

"Governments should refrain from trying to impose overriding increases in wages," Hayleys chairman Rajan Yatawara declared in his annual report, pointing out that several group firms have collective agreements with labour unions.

The terminal compensation for employees at any level, recently announced, and the attempt to mandate salary increases to all notwithstanding increments given already or collective agreements in force, will surely frighten away prospective investors, he warned.

Pointing out that not all can operate exclusively on an 'outsourcing' basis, Yatawara said that this contingent liability will be factored into feasibility studies and that banks will balk if compensation is afforded priority in use of proceeds when assets are liquidated.

Neighbouring countries with more liberal market-oriented laws will benefit. "If political considerations must also be taken into account, it is prudent to count the votes likely lost due to the absence of such legislation, versus those possibly gained in a vibrantly growing economy, with an abundance of employment opportunities for a far greater number, created by an investor friendly policy," Yatawara said. "In any event, like fiscal levies, it is the larger organized and responsible private sector that will comply, creating an unequal playing field, weighted in favour of businesses that don't." Yatawara also said that self-sufficiency in food and competitive high value-adding export industry were vital for building a sound economy.

"Towards this end some economists have opined even a devalued 'export favouring' rupee or an incentive in lieu is justifiable. Many countries adopting such policies pass WTO muster," he said. "This has not happened in Sri Lanka for the past 10 years. Worse, for long periods the rupee is held almost static for fear of exacerbating inflation."

Trader exporters are hardly exposed to inflation or pass down the increasing costs to suppliers. The highest value adding producers, whether for export or import substitution, have had to absorb most of the inflation in costs daily until a belated correction is made, Yatawara said, adding that the losses incurred are irrecoverable.

"If competition is priced lower, that is where the business goes. Productivity improvements have limits." The Hayleys chairman said that exchange rates, inflation and interest rates have to move in sympathy with one another all the time. He was also sharply critical of unfair competition.

"Both our carbon and fibre businesses continue to be harassed by local competition sharing common markets and limited raw material supply, but enjoying the tolerance of investors or banks holding equity or loan portfolios with no return, project proponents having recovered their outlay in the first year or two. It is a long haul then till 'parate' time, and in the interim, the country and we lose money."

Yatawara slammed certain small and medium enterprises which he said had stolen Hayleys product patents. "Some purloin our patents and know-how developed with substantial investments on R&D. Paradoxically, some even win accolades for originality in export, or entrepreneurship. The reality that one investor in an SME or 1,000 investors in a competing 'big' enterprise each expect the same rate of return appears to elude many. One is expected to have economies of scale but is burdened with higher fixed costs and obliged to conform to statutes; the other is not."

Exporters of significant value added goods compete on equal footing for limited Sri Lankan raw material, with converters to finished goods in the importing countries who benefit from captive domestic markets supported by indirect tariff barriers, Yatawara said.

"There should be penal duties on export of raw materials if there is surplus capacity for conversion to finished goods in Sri Lanka." Yatawara warned that state interference in plantations was threatening the viability of the industry.

"Despite privatization of plantations and the companies investing their own capital to restore a collapsed industry to profitability, continuing interference by local authorities and politicians in labour issues and disputes, imposing wage hikes of re-possession of lands, is causing frustration among management. There is an exodus of experienced manager as a result."

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