It was indeed unfortunate that three young people had to die when the army fired at protestors at the Colombo-Kandy road last week. The protest was over the alleged contamination of wells in the area with villagers targeting a rubber gloves factory belonging to Dipped Products Ltd (DPL). It was unfortunate that the situation got [...]

The Sundaytimes Sri Lanka

Investors and the rule of law


It was indeed unfortunate that three young people had to die when the army fired at protestors at the Colombo-Kandy road last week.
The protest was over the alleged contamination of wells in the area with villagers targeting a rubber gloves factory belonging to Dipped Products Ltd (DPL).

It was unfortunate that the situation got out of control so much so that the army had to be called in to handle what should have been a police issue. And there the Defence Ministry appears to have faulted in ordering army units led by, according to reports, a brash senior officer, to quell the protest. It turned very wrong, ugly and violent, with the army, some wearing face masks (why was there such secrecy to hide their faces?) attacking innocent bystanders and journalists.

The new army commander has ordered an inquiry to find the truth as to the August 1st clashes. This is not the most credible course of action – the army investigating its own people. Any report from this probe would be viewed with suspicion, even if the internal inquiring panel is independent and impartial. A non-military panel with independent experts needs to be appointed for this purpose.
So how did a local water issue trigger into a mass scale riot and a virtual bloodbath, drawing international condemnation? Over the week, officials from DPL, a subsidiary of conglomerate Hayleys, and people of the Nedungamuwa village were separately trying to sift through the pieces to assess how the crisis led to a full-blown mini war.

While that should be the focus of a separate independent investigation, the developments outside the DPL factory is not a good sign for prospective foreign investors.

Sri Lanka is desperately wooing foreign companies to invest in the country. Large doses of foreign investment are the medicine Sri Lanka needs to enhance its foreign exchange reserves instead of relying on borrowed foreign capital. But incidents of this nature where unruly elements threatened to set fire to the factory and harm staff, is sending a negative signal to investors and overseas buyers.
DPL management was scrambling over the past few days, responding to queries from buyers about delayed shipments and also facing the dim prospect of losing key buyers as customers.

DPL is one of the biggest success stories in the added value rubber sector. Its’ industrial and household gloves are of a high standard and attracts buyers from all over the world.

Apart from uncertainty as to when the factory would reopen, DPL’s biggest concern is over losing markets, which the company painstakingly built over the years. While Sri Lanka is no longer a cheap labour destination for foreign manufacturers, one of the pluses is the availability of a highly skilled, efficient and English language-literate workforce. While quality of the products is one of the hallmarks an equally important factor is delivering orders on schedule, which most other competing manufacturing centres are unable to match.

This is where Sri Lankan authorities need to worry about the events that happened at Nedungamuwa as it has spotlighted the very fact that timely delivery of export orders could be an issue with this kind of disturbances. At least a million pairs of gloves which were almost completed for export are stuck in the factory. Overseas buyers, themselves battling deadlines, are looking for other suppliers who can meet the orders that DPL is unable to fulfill. In the business world, once you lose the faith and trust of your buyer, that buyer goes somewhere else (or another country) to look for a more, reliable supplier.

Factory officials had in fact pleaded to allow three containers with half a million pairs of gloves to be transported to the port but were barred from doing so by the boisterous protestors outside the premises.

The crisis and what led to it needs to be examined by an independent panel at least as a measure to convince foreign investors that this was a stray/remote incident and that investors are normally assured the full protection of the law.

Or are they? This is a serious question the private sector has been asking since signals and policy pronouncements from the Government in the past two years have not been at all encouraging to foreign investments.

While DPL is a fully-owned Sri Lankan company, its buyers are all overseas and their concern would naturally be issues shared by foreign investors too – is Sri Lanka safe for investment; could Sri Lankan companies deliver orders on time, etc.Policies relating to foreign investment have been a case of shifting the goal posts when it suits sections of the Government. Take the November 2011 expropriation laws in which companies were taken over if they were non-performing or under-performing. A Singapore company owing the Sri Lankan Convention Centre in Fort was also a victim of this law.

Then there were laws barring foreigners from owning land which was, later, partly reversed. Procedures governing real estate and mixed development also have seen ad hoc policy formulation. First land was sold outright to foreign investors (Shangri-La) and then the decision reversed to a ‘lease only’ option resulting in at least one investor, who was promised outright purchase (CATIC-China), fuming over the change.

This and many other confusing policies relating to investments have convinced many foreign investors that the policy regime in Sri Lanka is inconsistent. How Sri Lankan authorities could entice investments in this backdrop remains to be seen.

In the DPL crisis, accusing fingers are pointing at disgruntled workers sacked over a dispute with the management; the union at the factory and Mervyn Silva, the cantankerous minister who for some reason is being protected by the Government despite the problems he has created over the years in Kelaniya – as being responsible for the crisis.

While an independent inquiry, which DPL says it’s open to … to assess whether they are the culprits in contaminating the water in the area, must be undertaken forthwith, the Government cannot evade its absolute responsibility of ensuring the rule of law prevails in protecting investors and their investments.

The DPL saga is another failure on the part of the Government to protect an economic asset which has provided billions of rupees in foreign exchange, created employment and helped sustain a chain of smallholder rubber producers.

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