'Rs. 100 m. GST a month on apparel exports'
Asian devaluation hits export sector
by Shirajiv Sirimane

An incredible sum of Rs. 100 million moves in and out of Sri Lankan Customs every month as Goods and Services Tax (GST), said Mahesh Amalean, Chairman, Sri Lanka Apparel Exporters' Association.

Addressing a seminar on the impact of currency devaluation in South East Asia and Russia on local exports at the Ceylon Chamber of Commerce he said that this factor is a step back for the small exporters. "Since this money comes back to us next month, this is a useless cash flow," he said. He also suggested that the government must consider granting tax holidays for the garment industry as done when the 200 garment factories were set up by the previous government.

It was pointed out that the non textile and garment industrial sector grew at only 5.3% from USD 1104 million in 1996 to USD 1162 million in 1997. This same sector, except food, beverages, tobacco and petroleum products registered on negative growth rate of more than 119. In USD terms from January to June 1998.

Michael de Zoyza, Colombo Tea Traders' Association said that the financial crisis in Russia and South East Asia has had a negative impact on the tea industry. "We have three hundred thousand tea small holders and the trade is now on the down turn", he said. He also predicted that 50 or more tea factories are likely to close down.

He went on to explain that out of the 2600 kg million world tea market Sri Lanka supplies 275 million. "This is about 22% of the world market demand while China and India account for a major share of the world market." We went on to point out that due to the Russian crisis Sri Lanka is expected to lose a major share.

De Soyza also said that the BOI had been very unfair to them since their industry had to pay nearly 35% tax for machinery while BOI enjoys 15% "traditional exporters like us should get this BOI advantage."

W. T. Ellawala, Chairman, Colombo Rubber Traders Association said that though Sri Lankan Rubber export is a minor player in the world market it has a major impact on the Sri Lankan export sector. "Thailand, Malaysia and Indonesia has 72% of the world rubber market and currency crisis in those countries have brought down rubber prices drastically", he said.

Ellawala explained that due to this factor the local rubber industry which comprises 60% small holders are badly affected. "The growth rate of rubber exports was at minus 24% in 1997 and in the first quarter of 1998 it stands at minus 32.8%" he said.

Lyn Fernando, Chairman, Exporters Association of Sri Lanka said that due to the economic system adopted by the government the Lankan economy is still stable, despite the north-east war.

"According to the Annual Report of the Central Bank, total exports in 1997 grew by 13.3% from US$ 4095 Million to US$ 4639 million. Exports had increased by 18.6% in 1995 and 7.6% in 1996" he explained.

"The increase of 13.3% in exports in 1997 is mainly on account of tea, which grew at 16.9% and textiles and garments, which grew at 19.5%. The rest of the exports managed to increase only by 4.3% from % 1578 million in 1996 to $ 1646 in 1997' he said..

For the first time in several years the number of export firms in 1997 declined marginally to 4024 from 4151 in 1996. The decline is sharper among firms whose export performance was less than Rs. 10 million - 2942 in 1996 to 2758 in 1997. Incidentally firms whose export turnover is less than Rs. 10 million constitute 70% of the total number of export firms.

"The South East Asian financial and currency crisis, has made our competitor South East Asian countries super competitive due to the undervaluation of their currencies by as much as 50%. As expected, inflation in these countries has not eroded their competitiveness significantly, except in Indonesia. The expected reduction in the price of inputs imported to Sri Lanka from these countries has also not materialized in any significant way. Perhaps the only factor, that is holding back the super competitive South East Asian nations from undercutting export prices sharply in overseas markets is the scarcity of short-term financing. This situation would not last long as solutions are being found for this problem", he explained.

"However, this has not prevented the currencies in these countries from wreaking havoc with export growth and competitiveness in Sri Lanka; a sharp drop in profitability and competitiveness leading to loss of markets, employment and even of investments (due to closer of factories) is staring in the face of the export sector, except in the case of tea (which is only a commodity, that is subject to fluctuations in prices). If China also devalues the Yuan specially due to the depreciating Japanese Yen, there could be several more devastating rounds of competitive devaluations," he predicted.

The main reason for the unsatisfactory performance of the export sector has been declining competitiveness. An analysis of a dozen export oriented quoted companies reveals, the following.

i. The Return on Export Sales (ROS) was only 8.2% and 7.4% in 1995/96 and 1996/97.

ii. The Return on Investment (ROI) was only 5.2% and 6.5% in these two years; exporting being highly risky it is the general consensus that the ROS and ROI should be around 20% and 30% respectively.

iii. Their capital output ratio in 1996 and 1997 was only 1:0.6 and 1:0.8 respectively, whereas it should be 1:2 or more.

Fernando also said that the introduction of GST has increased the price of everything and increase of wages of all sectors is the need of the hour. He also suggested that it would be a good idea to pay wages weekly. He also pointed out that the pressure of trade unions have had a negative impact on productivity. "Sri Lankan employees working either in the Middle East or Maldives have a better productivity rate than of Sri Lankans working here.

"This is due to trade union pressure," he explained "Kelani Tyres was closed down due to trade union action. Later 1134 employees were given Rs. 100 million as compensation. Today it functions with 250 employees," he said.

He also appealed to the two Minister C. V. Goonaratne and Kingsley T. Wickramaratne to once again make representations to the President to cut down on Sri Lanka's national holidays.

A panel discussion with Anton O P de Beke (IMF representative), Dr. D. P. Jayasundara (Deputy Secretary to the Treasury) and many others followed.

21st Century IT solutions for marketers

A three day workshop on Information Technology for Marketers will be conducted by the Sri Lanka Institute of Marketing from 25th to 27th September at the Hotel Taj Samudra.

Designed for Senior Marketing and Sales Managers and Managers of Marketing Services, the workshop will adopt a practical approach to the complex and dynamic field of IT, emphasizing the marketing applications. Participants will acquire ''hands on'' skills through projects on Multimedia computers with live Internet demonstrations and communications, hardware and software demonstrations.

The workshop would expose participants to electronic commerce and share trading and train them to appreciate data based marketing and make effective computer-based presentations. Each day of the workshop will have a theme-Day 1 would be Global Marketing; Day 2 Personal Productivity and Day 3 on Data Power.

Among the topics to be covered at the Workshop are Cyber Marketing, Electronic Commerce and Share Trading, Mobile Computing, Solutions for a Wired World, Data-based Marketing and the Millennium Bug, Business Implications.

Resource persons for the Workshop would be led by Mr. Gihan Wanigasekera, BSc (Eng), Dip.M (UK) MBA (Brunei), C.Eng. MI Mech E; MIEF (UK) Mr. Wanigasekera is a consultant in IT, Project Management and Operations Management at PIM. Other resource persons include Mr. Suraj Wijeratne, ACA, ACMA, a Financial and IT Consultant and Mr. Priyanga Hapugalle, DIP M. MCIM (UK) DIP AP ICAM (UK), Managing Director PBM Direct.

The Central Bank's Spot Rates for transactions with Commercial Banks announced on the morning of September 23, 1998 were as follows:

The approximate middle exchange rates of following currencies calculated on the basis of cross rates quoted by Gulf International Bank, Bahrain as it appeared in Reuters Financial Information System on September 23, 1998 were as follows:

Average rates at which the following currencies were quoted by Commercial Banks in Colombo for Telegraphic Transfers at mid-day on September 23, 1998 were as follows:

Average Weighted Prime Lending Rate (AWRP) and Lowest Prime Rate (LPR)
The Average Weighted Prime Lending Rate (AWPR) during the week ended September 18th, 1998 was 14.9 per cent for all banks. The Lowest Prime Rate among banks during this week was 13.5 per cent.

Average Weighted Deposit Rate of Commercial Banks (AWDR)
The Average Weighted Deposit Rate (AWDR) of Commercial Banks for the month ended August 31st, 1998 was 9.6 percent.