The Sri Lankan labour market is showing signs of tightening rapidly, with shortages occurring in some sectors two decades after the economy was liberalised.
The latest Census Department survey shows that unemployment has fallen to 10.2 per cent by the second quarter of 1997 from 11.1 per cent at the end of 1996. Male unemployment has fallen to 7.2 per cent from 8.8 per cent and while female unemployment had risen marginally to 16.3 per cent from 16.2 per cent.
The Agro related sectors have been experiencing scarcity of labour during the last few years with shortages of cinnamon strippers, coir extractors and after privatisation, some plantation companies have also found themselves short of labour.
"There are severe labour shortages on the factory floor, most of our members are experiencing shortages," Federation of Chamber of Commerce and Industry President Patrick Amerasinghe said.
"I advertised for workers for my factory and I haven't got a single response so far. When I started the factory people used to queue up at the gate for jobs."
Board of Investment approved ventures are also experiencing the same problem.
"For the first time in my tenure as the head of this organisation in the last six months we have seen shortages of labour in certain areas of the country," BOI Chief Thilan Wijesinghe said recently.
An estimated 700,000 Sri Lankans were now employed abroad contributing to the overall fall in unemployment.
In addition there was an expectation gap among the youth.
"The types of employment opportunities available today do not necessarily meet the aspirations of the educated youth," Mr Wijesinghe said.
"Though Sri Lanka has had a protracted process of industrialisation we have barely moved from the first stage of industrialisation to the second stage."
Mr. Amerasinghe says there is a problem in attitude. "People must realise that they cannot start at the top. We cannot pay unskilled workers a very high salary."
Census Department statistics also show that more than 21 per cent of the Advanced Level or higher educated labour force were employed, while only 11 per cent of those who had received an education of between grade five and ten were unemployed. However in absolute terms they contribute most to the stock of unemployed at 45 per cent.
Though some economists warn that the tightening labour market and rising labour costs could be inflationary, they also indicate that the benefits of the market economy is finally trickling down to the ordinary man, expanding his disposable income. The trickle down effect was becoming evident during the previous government's two hundred garment factory programme, when city dwellers found that the supply of domestic servants from the provinces was drying up. Unlike factories where there are specific working hours and off days (whether or not there are trade unions) domestic servants had been exploited for years.
The strategy now is to go into new industries with high margins instead of low margin industries such as garments.
The BOI, for example, is trying to attract investment services, leveraging on the locational advantage of Sri Lanka.
"The future is in services," Mr. Wijesinghe said. This includes trade, transport, tourism and financial sectors.
The budget has also brought down the import duties of gems, jewellery, gold and textiles to push the country to be a trade centre. Meanwhile, the government is also attempting to bring private investment into to the Colombo Port despite stiff opposition from the trade unions who want the government's dwindling capital budget to be used on what is a commercial infrastructure unit, when hospitals, universities and roads desperately need to be built.
"Investors come here because of trade logistics which constitutes the core of our attraction," Deputy Finance Minister G. L. Peiris said last week.
Analysts say real labour costs have been moving up steadily, though official wage indices (based on workers under Wages Board) show that during the 12 months ended June 30, 97 wages in industrial commercial and service industries fell marginally while wages of workers in agriculture rose.
Deputy Treasury Secretary Dr. P. B. Jayasundera told a seminar last week that investors could no longer depend on Sri Lanka as a source of cheap labour.
"If investors want cheap labour they should go to countries like Vietnam,"he said.
The latest budget has also identified thrust industries in high technology, light and heavy engineering rubber and mineral based industry which will be capital intensive rather than labour intensive.
There is also a strategy to move industry to the provinces with special concessions to move into difficult areas. However Mr. Amerasinghe says even in the provinces there are shortages.
A special Customs committee is to expand the list of intermediate goods going into textile manufacturing to qualify for duty free import, Deputy Treasury Secretary Dr. P. B. Jayasundera said last week.
Textile manufacturers are also complaining that though the government has said intermediate inputs to the industry have been made duty free, only yarn is actually duty free.
One manufacturer who cleared a chemical and machinery spares four days after the budget, was told by customs that only yarn was an intermediate input which qualified for duty free clearing.
"I had to pay import duty of 10 per cent, turnover tax of 10 per cent and 0.5 per cent on the spares," Cliftex Industries Director Mukthar Anwer said.
Dr. Jayasundera told investors at a seminar that the government has decided to form an Investment Advisory Council within the Treasury to look into granting of concessions, under the budget proposals.
The Advisory Council will include representatives from the Board of Investment (BOI), the Treasury and the Customs.
"The council is not only for the textile and apparel sectors, but open to all investors. It will be a brainstorming session, where problems relating to various industries will be discussed, while we try to find a solution to them," an official said.
The Parliamentary Financial Consultative Committee which also included Finance Secretary B. C. Perera and Dr. Jayasudera, had considered granting 15 year loans, when it met last week, parliamentarian Mahinda Samarasinghe said. The loans may be given at 2 - 3 per cent interest a year.
Long-term loans at nominal rates, interest waivers on loans already granted are among the measures that is under consideration to assist the ailing textile industry, The Sunday Times Business learns.
Last week, the government requested each textile manufacturer to submit an evaluation of their individual companies.
At the time of writing, only 30 of about140 textile firms, have submitted their proposals.
Textile manufacturers say it is difficult to submit their company accounts and other details at short notice. Though there are around 140 manufacturers, only 70 are members of the Textile Manufacturers Association. The members of the association too, are unable to come to a general agreement as to what concessions and assistance they require from the government
However, government officials say some textile manufacturers are asking too much.
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