Budget 2016 - Views of Business Chambers:

Have realistic exchange rate - CNCI

by Lalin Fernandopulle

Business Chambers in their proposals for the 2016 Budget have called upon the government to formulate national policies to protect and develop local industries particularly small and medium scale enterprises which are more prone to internal and external shocks.

President, Ceylon National Chamber of Industries (CNCI), Gamini Gunasekera said the exchange rate should be determined by market forces and added that the present interest rate should be reduced further or at least maintained at the current level.

He said there should be a realistic exchange rate and low interest rate to support export growth and local industries. Import duty and cess should be imposed to protect local industries.

The existing import duty and cess should be retained to safeguard local manufacturers.

A large number of imported products flood the local market due to the lapses or loopholes in laws. The non-existence of anti-dumping regulations, under-invoicing by importers, duty free entry of products from India and Pakistan, under the provisions of Free Trade Agreements in operation, lack of labelling regulations and inadequate national standards for products, encourage more imports.

The high salaries, stringent labour regulations and other costs such as electricity, make it difficult for Sri Lankan manufacturers to compete effectively with products that are imported from India, Pakistan, China, Vietnam, Thailand and Indonesia. Some of these countries even use child labour to reduce their production costs, Gunasekera said.

The tariffs on imported finished products should not be less than the tariff on raw materials imported by local manufacturers.

To optimize benefits from free trade agreements comprehensive negotiations should be carried out taking into consideration high value-added products such as products made out of natural rubber to be included in the positive list.

Sri Lanka produces 24% of world’s requirement of solid tyres and there are 10 solid tyre manufacturing companies in Sri Lanka.

These companies export to 45 countries and they maintain high standards. Unfortunately there is no provision in the ISFTA implemented in 2000 to export solid tyres under preferential tariffs which have 60-70% value addition.

Focus on skilled labour - NCCSL

President, National Chamber of Commerce of Sri Lanka (NCCSL), Tilak Godamanna said the new Government has impressive plans for the development of the economy. The National Chamber believes that the Government would pay special attention to skilled labour development.

He said according to a survey conducted by the National Chamber, a primary concern of our membership has been the scarcity of skilled labour.

Such scarcity would be a major impediment to the expected growth trajectory of the economy.

With regard to the promotion of foreign direct investments, Sri Lanka’s business climate remains constrained in areas such as contract enforcement (legal delays), red tape in licensing (inability to process licensing at a single point of contact – such as BOI), rigidities in the labour market (particularly cost), access to land and cost of utilities.

The inability to maintain consistency in Government policies which have been subject to ad-hoc changes in certain cases and propagated by local and foreign media would contribute to the negative sentiments of foreign investors.

Small and medium scale enterprises play a major role economic growth in the country. Around 75 percent of the enterprises are SMEs and they account for around 45 percent of the employment opportunities in the country.

Many SMEs do not use modern technology and have limited access to finance. SMEs are not directly linked to the export market. The chamber expects the new government to focus on SME development, Godamanna said.

The export-import gap is high, reflecting a negative figure. This is mainly due to the huge outlay on fuel imports. It is the private remittances that reduce the gravity of the situation which is not a sound way of addressing the issue. It is important to take measures to develop exports.

The judicial system in the country needs improvement, especially with regard to long delays in settling cases and passing judgments especially land disputes. There are many cases that have been dragging on for years. It is important that the system is improved.

Financial assistance for SMEs - NCE

President, National Chamber of Exporters (NCE), Sarada de Silva said over 75 percent of export- oriented enterprises in Sri Lanka consist of SMEs.

However, they contribute only four percent to exports, although many have the potential to make a higher contribution, if they obtain financial support to expand production capacity, improve quality and productivity and international marketing.

The problem is compounded by the fact that many such enterprises are averse to risk taking as they are mostly family-based enterprises and do not have adequate resources to offer commercial financing institutions as collateral.

The Chamber seeks assistance for SMEs in investing in critical machinery and equipment to expand and improve production capacity and working capital funding to process export orders.

Many export-oriented SMEs operate on ‘Open Account’ basis which is the modern trend demanded by buyers as opposed to ‘Letters of Credit’ and other financial instruments which are more secure but adds to the cost of goods.

In these circumstances they obtain not more than one-third of the value of export orders as an advance. Therefore, they are unable to finance the balance of their working capital, to process orders as they are unable to provide the collateral needed by banks.The NCE proposes to set up a Revolving Working Capital Fund under a suitable institution (such as the EDB) to provide the remaining working capital needs to process export orders, based on an objective evaluation of buyers, and the ability of the enterprise to process the order.

To reduce the risk, it could be a condition for financing, that the remaining payment for the export order by the buyer should be channelled to the exporter through the financing institution to enable recovery of the funds that are advanced which could be then used on a revolving basis to assist others.

In the medium to long-term set up, a specialized Export-Import Bank (EXIM bank) on the lines of the EXIM bank of the India to provide the financial needs of export enterprises through innovative schemes should be set up.

Since substantial capital is needed to launch such a bank it could perhaps be implemented as a joint public-private partnership in which the private sector could be a stakeholder and bring in professional management expertise as well.

With regard to skills development the Chamber proposes setting up a ‘Skills Development Fund’ to support the specific in-house activities implemented by export enterprises, based on suitable criteria to evaluate the costs and benefits of activities that need to be supported by the State.

It is reported that many export-oriented enterprises do not use the services of the Sri Lanka Export Credit Insurance Corporation (SLESIC) to cover commercial risks. The reason apparently is due to the increase in their cost of production.

The premia charged by the SLESIC is also relatively high at present.

Therefore, there appears to be a need to encourage more export enterprises to obtain Export Credit Insurance when exporting products and services.

As a measure to encourage a larger number of export enterprises to obtain export credit insurance when processing export orders it is proposed that part of the additional cost of export insurance be shared by the State through an ‘Export Development Fund’ for a trial period until the enterprises that are assisted can establish firm business relationships, de Silva said.

One authority to address SME issues - SLCSI

President, Sri Lanka Chamber of Small Industry (SLCSI), Mohideen Cader said that the Chamber had submitted proposals for the Budgets in the past to develop the small and medium enterprises.

The government that came to power this year, made a concerted effort through the Ministries of Economic Affairs and Finance to focus on the issues of SMEs in the country.“We look forward to a one-stop-shop being created through the National Enterprise Development Authority to address all issues of small and medium-scale enterprises. We also hope the new government will take steps to set up a bank to cater only to SME development,” Cader said.The Ministry of Finance has called upon the public and the private sector to submit proposals for the 2016 Budget.

Building the economy, fighting corruption, ensuring freedom, developing infrastructure and investment and developing education are the five-point development plan of the new government.

Reform the public sector - CCC

Secretary-General, Ceylon Chamber of Commerce (CCC), Mangala Yapa said the Chamber presented its proposals to the 2016 Budget focusing on promotion of exports, FDI and investment since Sri Lanka has become a less FDI and export-oriented economy severely constraining its potential to achieve inclusive growth for its citizens. He said the education system does not produce students with skills needed by employers. There seems to be a significant gap in the available and needed level of skill in the economy. The Chamber proposals also included public sector reforms such the simplification of bureaucratic processes, broadening the tax base and the collection to be made effective and efficient through reduction of incentives.

It also made sectoral proposals on agriculture, bio-technology, dairy sector and IT/BPO sectors.

The Ceylon Chamber of Commerce is also actively contributing to the formulation of a Joint Chamber Submission for the Budget 2016, through the representation in a Special Joint Chamber task force set by the Ministry of Finance and Planning.

In that both sectoral proposals and cross cutting issues that has significant relevance to the economy are proposed.