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25th November 2001

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Features

  • Crisis stripping garment industry bare
  • Product sector growth will boost rubber
  • Forgetting history and then repeating it
  • Emirates' half-yearly profits soar
  • "Green" channel for 80 Indian items
  • Shell offers schols to British varsities
  • Killing the messengers the advertising crisis
  • Distorted versions of the state of our economy
  • Employment : Gone with the wind
  • Crisis stripping garment industry bare

    By Feizal Samath
    MORATUWA-Nine months ago, factories like Serendib Garments Ltd in this southern Sri Lanka town were short of staff and advertised walk-in job vacancies on notice boards outside.

    The roles have now been reversed. Factories, buckling under one of Sri Lanka's worst economic crises, are now laying-off staff while scores of young females are turning up at the doorstep, looking for work.

    "It is the worst crises faced by the industry in the past 20 years," says Cassian Fernando, Serendib's managing director and a past president of the Sri Lanka Chamber of Garment Exporters.

    Nihal Seneviratne, the chamber's general secretary and CEO at Nilano Garments which is located at an industrial estate at Ratmalana, agrees saying the garment industry is going through difficult times.

    "We may be forced to resort to lunch-time picketing and protests outside our factories urging some relief if the new regime does not provide us some relief," he said, speaking at his new high-tech factory built in June. Parliamentary polls are due on December 5.

    "I can't pay back my loans taken to build this factory. We are hoping the banks would help us to reschedule repayments," he said.

    At least 50 small and medium-scale factories have or are likely to close in the next few weeks due to lack of foreign orders. Some 200 factories out of a total of 800 factories across the island are either working at 50 percent or have shut down production in many of its production lines.

    Women are facing the brunt of the crisis as they represent the bulk of the one million odd workers in the industry. Women also form the bulk of the workforce in the tea industry and the migrant labour market, which together with garments are the driving force of the Sri Lankan economy.

    Garments are by far the country's biggest export with 54 percent of Sri Lanka's foreign revenue coming from here but growth has considerably slowed down this year. The industry's main markets are the United States and Europe, where consumer demand has been hit by a recession.

    The crisis in the industry goes back to many months before the bombings in the US in September, which further aggravated the problems of the industry.

    Chamber officials said the US recession had slowed down garment orders and then on top of that came the September attacks. "We also had the July attacks at our airport which has added to our headaches by way of increased war risk premiums." Fernando said, referring to the devastating LTTE attacks on the Colombo airport.

    At the Serendib factory at Moratuwa, Vajira Maduwathi is hopeful that there could be better times.

    The supervisor, who joined the factory seven years ago and moved up the ladder starting off as a helper, says the biggest problem is that there is no overtime (OT) work.

    "We can't blame the management for that. There is simply no OT. We use to get 50 hours a month OT some months back but we would be lucky to get a few hours per month now," she said, adding that the reduced income was affecting many workers, who normally make upto 5,000 rupees or more per month inclusive of the basic monthly wage of 3,500 rupees.

    "There is little we can do except hope that we keep our jobs and that the situation would improve," Maduwathi said, adding that she was not interested in going abroad like her sister who works in a garment factory in Dubai.

    Prashanthi Kumudini, a machine operator, echoes the same views, saying the salary sans overtime work is tough for her family of three children and a husband. "We need OT for a decent wage as living costs are very high. Bus fares and food costs have risen sharply," she added.

    Serendib's Fernando said that every week there are girls who call at the factories seeking work. "Earlier this year, there were plenty of vacancies and a shortage of labour. Our factories had notice boards advising vacancies with walk-in jobs," he said, whose workforce has reduced to 90 from 125 to 150 employees earlier.

    "I am somehow keeping experienced hands because I can't afford to lose them, even if it means running at a loss."

    Fernando said competitive prices offered by Sri Lanka's competitors in US and EU markets like Bangladesh, Pakistan and African countries are also affecting the industry.

    "US buyers are now prepared to pay US $ 6.50 per garment if it fetched $ 10 earlier. We are forced to undertake orders at any price or face closure while thousands will lose jobs."

    The chamber, in addition to seeking government support in the form of incentives to tide over the crisis, is also looking for approval from labour authorities to employ workers for half the month, or pay half-month wages without work.

    At Seneviratne's Nilano factory, two production lines are unused. "We moved into this factory in end June fully wired for 200 machines. But we are running with only 100 because I don't want to import another 100 given our current crisis and not knowing what the future is going to be," he said showing a Sunday Times team around the factory.

    The high-tech facility is spacious with tiled floors even in workers' bathrooms as, according to Keshini, a company director and Seneviratne's daughter, "buyers are very particular that there should be decent facilities for workers."

    "We have many advantages over other garment supplying countries like our excellent command of the English language which buyers find very comfortable with instead of dealing with some suppliers in other countries whose knowledge of English is limited," she said adding that with government support, Sri Lanka's garment industry could do very well.

    Small and medium scale manufacturers are pleading for financial backing from the government and a level-playing field. "We built this industry from small home-based units and after that the big players came into the market. The big manufacturers get all the benefits like BOI concessions, etc. while small manufacturers pay high prices and get no concessions for raw materials and other infrastructure," said Seneviratne, the CEO.

    The garment industry has grown from the textile, handloom and batik production periods in open, school-type buildings or home-based units in the 1970s. In the late 1970s/early 1980s, it was the Juki machine era, where small home units sprung up to meet local demand and slowly securing overseas orders.

    By mid-1980, the industry had flourished, attracting big players and multinationals.

    Representatives of the Sri Lanka Chamber of Garment Exporters, led by its chairman, Asitha Gunasekera, met BOI officials on November 16 and urged the state institution to extend the same benefits received by BOI factories, to non-BOI factories too.

    BOI officials have promised to make recommendations accordingly to the government but industrialists are not pinning any hopes on this "silver lining".

    "Politicians are too busy with elections to think of serious economic issues unless these issues affect the government's vote bank and then some handouts are offered ahead of the poll," said one industrialist, who declined to be named.


    Product sector growth will boost rubber

    The growth of the domestic rubber products manufacturing industry will stimulate the revitalisation of Sri Lanka's rubber plantation sector, a key industry leader has pointed out.

    Mr. V. Sekhar, Managing Director/CEO of CEAT-Kelani Associated Holdings, the country's major tyre manufacturing company, made this point during a presentation at a recent seminar marking 125 years of rubber in Sri Lanka.

    He said that Sri Lanka has a unique combination of core competencies to register a balanced growth of the rubber sector unlike countries such as India, Thailand, Malaysia and Indonesia. Elaborating, Sekhar said the Indian rubber scenario is totally 'inward looking' with the buoyant growth of the product manufacturing sector having lent an impetus to the growth of natural rubber, resulting in even smallholders imbibing in technology and achieving productivity of 1.600 kg per annum.

    The flip side of the scenario is, when the product manufacturing sector is under recession, the plantation sector suffers.

    He said that other major rubber producers of the world, however, are almost entirely dependent on external consumers led by the world tyre industry and are subjected to the vagaries of industrial demand in different parts of the world.

    On the contrary, Sri Lanka has its core competencies in three areas the predominantly export oriented latex-based products (which represents a 43 percent demand on the natural rubber plantation sector), a 22 percent demand by export-oriented solid tyres, and a 35 percent demand by the predominantly 'domestic consumption oriented' tyre sector consisting of new and retreaded tyres along with other dry rubber-based products.

    "The fact that these products are marketed in different market segments insulates the Sri Lankan plantation sector from the vagaries of any one market, lending the Sri Lankan rubber scene its distinctiveness," he said.

    Sekhar emphasized that since Sri Lanka has a unique combination of core competencies to register a balanced growth of the rubber sector, careful nurturing of these key sectors will give Sri Lankan rubber a tremendous impetus for growth.

    He also said that it is a widely accepted fact world over, that the tyre industry plays a leading role in the consumption of rubber. "It could be the case in Sri Lanka as well if the domestic manufacture of tyres is properly supported by policy measures," Sekhar stressed.

    He pointed out that several measures need to be taken to boost the local tyre industry. To increase the local consumption of rubber it is imperative that tyre imports are reduced and domestic manufacture of tyres is increased. He also said that every three container loads of tyres imported into the country represents the loss of employment potential for one Sri Lankan, and also affects the livelihood of 40 small growers who are sustained by the rubber industry.



    Looking Beyond : Recessionomics

    Forgetting history and then repeating it

    By Arjuna Mahendran
    The thoughtful chaps at the Ceylon Chamber of Commerce (CCC) have brought out a comprehensive proposal to help our ailing exporters while their markets dry up in the current recession. This marks a refreshing change to the previous pattern where the private sector comes up with half-baked proposals that only deal with their narrow interests and the government responds with policies that rarely tackle the underlying issue. So even though I differ with the CCC on the thrust of its proposal, I hope the post-Dec 5 government will accord the proposal the consideration it deserves.

    The proposal itself revolves around the earlier EDISS scheme set up by EDB in the late 70s. So, in order to evaluate it, we have to delve into a slice of recent economic history.

    One must remember that the conditions at that time were vastly different to that which prevails now. With the liberalisation of the economy in 1977 some incentives had to be given to new exporters who barely knew what their foreign markets looked like, let alone knowing who their competitors were. While most of East and South East Asia had clung on to western technology and the multinationals who brought in capital to the region through the 60s and 70s, Sri Lanka (along with her neighbours in the subcontinent) chose to shut them out. In doing so, we effectively shut ourselves out of the world market in these two decades.

    Thus, the reasons for needing an EDISS scheme were a hybrid of the infant industry argument, though it equally applied to new export areas like gherkin cultivation. After Sri Lanka had shut itself away from liberal access to imports and foreign technology and capital, our entrepreneurs arguably needed a crutch to help them penetrate export markets.

    The funding of EDISS was slightly iniquitous since it depended on a levy on imports to cross-subsidise exports. This was, in hindsight, probably a stop-gap funding device given the weak tax collection measures that prevailed then (and persist to this day!). But it distorted the pricing of imports by creating a surcharge (or cess) at a time when the country was hungry for imports of technology, capital goods and raw materials.

    The second problem with EDISS was that it was calculated on the value of exports and therefore conferred greater benefits to exporters of goods with high end-values, rather than those who added higher value within the country. The classic example was the diamond polishing factories which mushroomed in the late 80s as a result of the sizable grants they accrued on account of the high nominal value of their export product. The fact that the import value of the rough diamonds was also very high was not discounted from the value of the EDISS grant.

    It could perhaps be said that the EDISS scheme thereby resulted in the misallocation of investment resources by promoting industries which dealt in high value goods to the detriment of industries which brought high value-addition to Sri Lanka. To this day, the garment industry is yet to overtake value-added tea manufacture or the coloured gemstone and jewellery industry in terms of the value-added that accrues to the country from each dollar of export value. This is despite the fact that garments are our largest export category.

    It was for these reasons that EDISS was killed in the early 90s. And, accordingly, many diamond polishers closed shop or faded away. Even within the garment sector there was a shift towards higher value-added manufacture with lesser reliance on quotas and suchlike.

    What troubles me about the CCC proposal is that, firstly, it is similarly based on export value and not value-addition. I admit it is hideously difficult to come up with an easy method of calculating value-added, but we may end up funding dubious industries with these funds which really do not make much of a contribution to domestic production.

    Secondly, I do not think we need crutches for our exporters 24 years after they re-entered the world market. The presumption of these subsidies is that the current economic downturn is a cyclical as opposed to a structural downturn. We have to remember that structural factors are at play such as the abolition of garment quotas in 2004. Will we be propping up uncompetitive firms through such a subsidy?

    Finally, this proposal gives the government too much of a role in its execution. Why can't the CCC and other trade bodies float the bonds themselves and compete with the government in raising resources? If the bonds will be self-liquidating as the authors of the scheme contend, I am sure the market will price the risk accurately into the yield on these instruments.


    Emirates' half-yearly profits soar

    Emirates has proved once again its ability to buck the current trend affecting the airline industry, by posting half-yearly profits of Dhs 168.2 million (US$ 46 million).

    The results, for the half-year ending 30th September 2001, also compares well with the net profit of Dhs 164.2 million (US$ 45 million) during the same period last year. The figures are based on unaudited financial results, the company said in a statement.

    For the next six months, Emirates is employing various cost control measures, including a moratorium on staff recruitment. The airline continues to operate to all its destinations. Recent trimming of frequencies on some routes is currently being phased out in a return to normal scheduled services.

    Emirates' operating revenue was up 14 percent to Dhs 3.36 billion compared to Dhs 2.95 billion during the same period last year. Even though overall seat capacity increased by over 23.3 %, the seat factor was maintained at 74%, compared to 74.7 % last year.


    "Green" channel for 80 Indian items

    The Export Inspection Council of India (EIC) is working towards an "equivalence agreement" with its Sri Lankan counterpart to enable as many as 80 Indian export items to be given "green channel" entry status, a senior EIC official said last week.

    "An equivalence agreement will result in the recognition of EIC's export certification system for the 80-odd export items to Sri Lanka. Discussions have started and we are hopeful of concluding an agreement," Ms Shashi Sareen, Director EIC, told reporters in New Delhi on Tuesday.

    The recognition of EIC's export certification system would avoid duplication of inspection, sampling and tests at two levels - at the exporting and importing ends. It will also minimise and even eliminate rejection at the point of entry with the accompanying high costs of recall.

    Further, such an arrangement would also take care of variation in quality due to production by small farmers or enterprises, Sareen was quoted as saying according to Indian newspaper reports.


    Shell offers schols to British varsities

    The Shell Company recently launched the Shell Centenary Scholarship (SCS) fund for the academic year 2002/2003 at an event held in Colombo, offering scholarships in British universities.

    Information packs containing application details were presented to vice-chancellors and career guidance departments of local universities.

    Officials said students from local universities who have obtained the equivalent of a first-class honours degree and who demonstrate their keenness towards making a contribution to the country's development have been encouraged to apply.

    Three Sri Lankan graduates have been awarded SCS's to study in the UK in recent years. This year, Nisha Berugoda, a graduate from the Colombo University was awarded the SCS to study her Masters in Law at University College, London.

    The SCS fund was established in 1997 to mark the 100th anniversary of Shell Transport and Trading Company. An endowment of 10 million sterling pounds was made to fund 50 or more post-graduate scholarships a year for students from developing countries in the UK.

    The scheme is being implemented in partnership with the Oxford, Cambridge, Durham and Edinburgh universities as well as the Imperial College of Science and Technology and Medicine and the University College in London. 


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