17th February 2002

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Flour from coconut milk now

Research studies in the Philippines show that coconut flour and high quality oil could be extracted from coconut milk residue.

According to a recent bulletin of Sri Lanka's Coconut Research Institute (CRI), the raw material for the production of coconut flour is coconut residue which is a by-product of coconut milk. Usually 25-40% coconut residue could be obtained as a by-product, which is currently used as animal feed. The report said the new economic concept of recycling of by-products into a value added product or products would enhance the "very survival of the coconut industry."

Similar research is also being undertaken in Sri Lanka by the food section of the National Engineering and Research Development (NERD) Centre and the Agriculture Department. Production trials conducted at the PCA (Philippine Coconut Authority) pilot plant using coconut milk residue revealed that on the average 260 kg of coconut flour and 170 kg of high quality oil could be produced from every metric tonne of wet residue respectively.

The research and development of technology for the production of coconut flour and high quality oil from coconut residue is one of the viable and rational undertakings of the PCA product development. It answers directly to the coconut industry's utmost need to diversify and improve profitability by producing more high value products and minimising waste in order to become globally competitive, the report said.

No govt. action yet on holidays

By Hiran Senewiratne

The government is yet to take action to reduce the number of holidays enjoyed by Sri Lankans despite repeated requests from the business community which says too many holidays affect productivity.

"We have not received any notice from the government to curtail the number of holidays in the country,'' Secretary to the Ministry of Public Administration and Home Affairs, A.I. Wickrama said. All the business chambers were critical about the plethora of holidays enjoyed by workers and were pressing for a reduction, he said.

President of the National Chamber of Exporters (NCE), Patrick Amarasinghe, who is one of the most vocal advocates of the need to reduce holidays, said the unprecedented number of holidays, in Sri Lanka had made the country one of the lesser competitive nations in the world.

He suggested two ways to address the issue - either include Poya days and other religious holidays in the annual holiday package, excluding important religious holidays or to rationalise the ad hoc holidays during the week.

There are far too many holidays during the first half of the year, he said. The government could restrict the Sinhala and Tamil New year holidays to a maximum of one week while curtailing unnecessary holidays during the rest of the year.

"It is incumbent upon all political parties to be committed to curtailing the number of holidays in order to increase productivity while changing the attitude of the people," Amarasinghe added. "We need a uniform system of holidays in the coming years."

Director-General, Employers' Federation of Sri Lanka, Gotabaya Dasanayake said the issue required to be addressed from two angles. Firstly, from the point of view of the excessive number of holidays, and secondly from the point of view of the provisions in the different statutes applicable to the private sector.The provision for weekly holidays under the Shop and Office Employees' Act is sufficiently flexible with one-and-a-half days being granted on any day of a week enabling uninterrupted work, if required, on a roster basis, he said.

But the Wages Board Ordinance stipulates Sunday as the weekly holiday and Saturday as the short working day. This is too rigid and compels businesses to close factories on such days or employ workers on overtime at heavy additional cost, he added.

The flexibility permitted under the Shop and Office Employees' Act to grant the weekly holiday on any day of the week is a positive feature and is really of greater relevance and importance to factories, where employees have to be generally rostered on shift work round the clock, he said.

Financial reforms on the agenda

A review of financial reforms required to rid the economy of archaic controls will be undertaken at a conference of key stakeholders organised by the International Monetary Fund (IMF) and the private sector next month.

"The aim is to get people talking," said an official involved in the arrangements for the conference. "We want to bring the issue of reforms to people's minds. It will be the start of a process of creating awareness."

The conference is tentatively scheduled for mid-March. About 150 people from big banks, stockbrokers and financial institutions are expected to take part.

The official said a range of issues would be discussed such as financial regulations, the debt market, and macro-economic reforms required to liberalise the economy and make it more competitive.

Participants are expected to highlight issues such as existing red tape that prevent financial institutions from functioning efficiently and suggest ways of removing these bottlenecks. The final outcome of the conference would be a set of recommendations on the issues that need to be addressed which will be presented to the government for implementation.

The IMF has already said that further economic aid would be dependent on how the government moves to reform the economy. IMF officials said the lending institution has been pressing for action on the reform agenda rather than mere promises.

The release of funds under the $253 million Stand-by Facility that was signed last year for balance of payments support, has been held up because of the previous government's inability to meet the performance targets and subsequent political and economic instability. An initial tranche of $131 million was given last April and another tranche of $30 million in June to help shore up foreign reserves which fell to dangerously low levels.

An IMF review team was in the island last week and officials said they were pleased with the new government's pro-reform outlook and the moves to de-regulate the economy.

The next tranche is expected to be released after the government presents its first budget in March. IMF officials said international financial support would be available but that Sri Lanka had to get the right policies and action programmes in place before any commitments could be made.

Major setback from exports in 2001

By Dr. S.S. Colombage

Having adopted export oriented economic policies for nearly 25 years Sri Lanka is still struggling to overcome her foreign exchange problems. Export earnings are far below the import payments and as a result, the country has been experiencing large trade deficits continuously. The trade deficit in 2001 amounted to US$ 1,157 million, according to latest trade statistics. This is equivalent to about 8 percent of GDP. The trade deficit would have been even higher around US$ 2,200 million, if not for the substantial decline in imports last year. This shows the gravity of the foreign exchange problem that the country is facing now. The official foreign reserves, which hover around US$ 1,200 million, are barely sufficient to finance about two months' imports. The outstanding foreign debt has surged to US$ 6.7 billion.

Export earnings fell by 12.8 percent from US$ 5,522 million in 2000 to US$ 4,817 million in 2001. The realised export earnings in 2001 are much lower than the export target of US$ 5,977 million, as envisaged in the now defunct Standby Arrangement agreed with the IMF in April last year. As I predicted in this column earlier, export earnings did not exceed the level of US$ 5,000 million in 2001. Much of the export downfall came from a 15 percent decline in garment exports. According to the Central Bank, the fall in garment exports was largely attributable to lower demand from USA and European countries. But we should not forget the fact that domestic problems such as the power cuts, labour unrest, low productivity and high production costs too contributed to the crisis in the garments industry in a big way.

The garment industry, which is considered as the flagship industry of Sri Lanka, had experienced a slowdown even before the current world economic recession. This downfall has had a tremendous impact on the country's external finance, as garment exports account for half of the total export earnings. Reasons for the setback in the garments industry have been pointed out in various empirical studies. A major factor that has been observed is the limitation of economies of scale owing to the small size of most garment factories. There is hardly any investment in advanced technology in these factories. In comparison, large factories in countries such as India and China have the benefits of modern technology. The higher level of wage costs in Sri Lanka is another factor that leads to eroding industrial competitiveness. Multinational investors do not seem to consider Sri Lanka as a low-wage country any longer. With the high inflation that we are experiencing now, wages are likely to go up further. Labour costs in Bangladesh, China and India are much lower. It is also observed that factors such as inadequate training, wastage, frequent holidays and absenteeism also have contributed to falling productivity levels in the garment industry. Higher electricity tariffs in Sri Lanka, compared with the competing countries in Asia, have increased production costs further. Moreover, it is a well-known fact that frequent interruptions of power supply in recent times have adverse repercussions on industries.

A major threat to be faced by the garment industry is the abolition of the quotas by 2005. Garment industrialists have gained considerable benefits from these quotas as they have enjoyed protected markets for their products. With the abolition of quotas, local producers will have to compete with foreign suppliers. Given the low productivity and high production costs, this competition is going to be extremely tough. The garment industry should get ready now to face this challenge.

Other industrial exports like rubber based products, machinery and electrical equipment, travel goods, petroleum products and jewellery also plunged last year. Agricultural and mineral exports too fell aggravating the export crisis. Given the critical role of export enterprises in the economy, their current setback has considerable downward effects on production and income growth as well as on the country's dwindling foreign reserves. Problems relating to the power sector, other infrastructure facilities, business environment, productivity, financial needs and market access should be addressed in a meaningful way to revitalise the export sector.

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