Highlights of an Island's economy

Dr. Nimal Sanderatne's Economic Growth and Social Transformations - Five Lectures on Sri Lanka is far from being a tedious narration. On the contrary its contents are intensely readable and most interesting. They deal with the multi-faceted economic growth and social development of Sri Lanka in the nineteenth and twentieth centuries.

In these two centuries, Dr. Sanderatne says in Chapter 1 "we went through the profoundest economic transitions. These transitions consisted of dramatic changes from a peasant agricultural economy into an export-import economy which occurred in the mid nineteenth century". "In the twentieth century" the author points out, "the re-emergence of food crops, structural changes in the economy and the country passing through all three phases of the demographic transition were three of the most significant transitions.

Dr. Sanderatne contends that these economic transitions in our country were not isolated changes. They were part of the transitions in the international economy impacts of economic and technological changes which were occurring in Europe and which were also influenced by political and ideological changes in Europe.

These are important observations. They serve to remind us that we are not an island economy isolated from the rest of the world. More importantly they serve to confirm, as it were, the belief (if one may call it such) that in the twenty-first century we have to willy nilly participate in the globalization process.

Chapter 2 deals, in some detail, with the economic growth, structural change and economic transformations in the second half of the twentieth century. The third chapter discusses imperatives for economic growth. In this chapter Dr. Sanderatne points out that high growth was associated with high investment, mostly foreign, and with economic liberalization, freer trade and less foreign restrictions.

Chapter 4 discusses the demographic transition. The author says that before Independence our health standards were extremely poor. Cholera, dysentery, malaria, tuberculosis and typhus were prevalent in abundance. The advent of Independence brought about a development of our physical infrastructure for health. He gives important details.

The last chapter (chapter 5) discusses the social development process since Independence preceded by a short account of social development prior to Independence which, the author says, was the foundation of social development in post-Independence years. The author observes that "Sri Lanka is a celebrated case of high social attainments for a poor country."

With the grant of universal franchise and a measure of autonomy, brought about by the Donoughmore Constitution, the newly elected legislators were intent on improving the living conditions of the people. And so came about an expansion of public health facilities and an expansion of the school system to remote areas. These developments resulted in increasing life expectancy to 55 years and adult literacy reaching 58%.

The commitment to improve health and educational facilities gained further momentum after Independence. The expectation of life at birth increased from about 55 years to 63 years and the adult literacy rate rose from 58 percent in 1948 to 71.6 percent in 1960. But the 1960s saw severe economic strains that impacted on the country's capacity to maintain its widespread social welfare system. The declining terms of trade resulted in a severe balance of payments problem and a crunch in the public finances. These strains, the author contends, resulted in a tardy improvement of social indicators in the 1970s.

The chapter concludes with the author's observations on the structural adjustment policies pursued since 1977 with the change of Government bringing about a market-oriented, export-led liberalised economy, which had as its objective, the reduction, and ultimately the elimination of subsidies and a shift away from welfarism.

What struck me most in pressing Dr. Sanderatne's book was his lucidity of expression and his skillful presentation of the story of Sri Lanka's economic and social development over the years. His ability to traverse Sri Lanka's path of social and economic development in the last one and a half centuries with its manifold ups and downs and to make the reader's journey from cover to cover smooth and pleasant is to say the least most laudable. As a reviewer I did read Dr. Sanderatne's work with a critical eye and I am happy to say that I cannot fault him in regard to the contents of the book or its presentation.

The book is, indeed, required reading not only for economists but also for those who are interested in the vicissitudes of our economic fortunes. 

Dr. Sanderatne covers a vast period of our economic history and in doing so he does not resort to excessive detail, which would have bored the readers. He concentrates on the highlights of our economic and social development including certain drawbacks, which we had to face from time to time.

The writer is Former Senior Deputy Governor, Central Bank of Sri Lanka.

Employer, employee in love-hate relationship

By M. N. J. Jayaratne 

These changes in the socio economic system of the country have resulted in contradictions and conflicts in the sphere of industrial relations. With the emergence of the market economy and resultant competition, the achieving of the desired economic growth was the challenge for the government. 

At micro level, business corporations fought for their survival in a competitive environment. This situation has provided a new challenge to partners involved in industrial relations to look at their behaviours, approaches and the future prospects for a more rational approach to industrial relations which would be conducive towards a stable socio-economic environment.

Role of state/state intervention

Even though plethora of labour laws protects the employees, it has been a hindrance to the business activity. The business community has made several appeals to the Government to effect appropriate such changes in labour laws to meet the current environment. Such changes in the form of entrepreneurial labour laws are urgently required not only to meet the needs of the Sri Lankan economy, but also to facilitate the working population.

Being a developing country, it is natural that the state needs to protect certain less privileged class of the society from vagaries of the economic transformation. In addition, in a democratic country, the working class is a source of strength to political parties. In this context, the present People's Alliance Government formulated the Workers' Charter to safeguard the rights and privileges of the working people.

The salient features of the Charter:

a) the commitment to the principles of the Declaration of Philadelphia and the labour standards adopted by the ILO.

b) Recognition of trade Unions

c) Encouragement of Collective bargaining

d) Strengthening of existing laws to protect employees

e) Defining casual, temporary and others forms of non permanent employment

f) Bringing fourth a code of industrial harmony

Employers strongly felt that their views have not been duly considered and it was not the opportune item to bring forward this piece of legislation. The employers argued that the requirement was not for a Workers' Charter, but for an Employment Charter. Even though six years have lapsed, the government has still to bring in legislation for this purpose except an amendment to the Industrial Disputes Act providing recognition to Trade Unions and prevention unfair labout practices. The reluctance on the part of the government to provide legal enforcement to the Workers' Charter indicates that the government despite, an election pledge, has realized that such labour laws should not be allowed to restrain the development of a free market economy. S. R. De Silva states, "Labour law always presents the perennial problem of balancing the interests of capital and labour and at the same time protecting public interest. Again, more than any other branch of the law, labour laws reflects a government's or society's moral tone and attitude towards social issues."

Employer Organization

EFC has taken 50 years or more to reach the 200 mark in membership. However, since 1980, during the period of 20 years, the membership grew to over 500. The reasons for this growth besides the free market policies introduced in 1977, was the direct result of the need for industrial relations service. The lack of expertise within the workplaces to handle industrial relations prompted the employers to seek support and assistance of EFC.

It is also significant to note that since 1980, the EFC has made a fundamental change in their approach. It shifted from their emphasis of providing legal services to assist the employers in adopting better Human Resources Management practices in managing people at their workplaces.

The attitude 

a) being unaware of the significance of trade Unions in national and organizational context.

b) Lack of understanding in modern management techniques.

c) negative approach of Trade Unions

d) Lack of professional management in HR

e) Concealed hostility of the employers based on bounded rationality

However, the experience have made employers realize that such antagonistic approach would lead to unsatisfactory relationship, loss of work hours resulting in from industrial disputes thus affecting the productivity. With the emergence of market economy, this would adversely affect the ability of the enterprise to be competitive. In this context, many employers have begun to adopt an approach of understanding towards Trade Unions and also making concerted efforts to establish cordial relationship with the work force by adopting sound HR practices.

Role of trade Unions

However, since 1977, this situation has been subjected to gradual change. Firstly, the competition in the marketplace has prompted the trade unions to review their approach. The antagonistic approach would affect the business, which could result in loss in employment. Secondly, new generation of workers are more concerned about their welfare and personal interest rather than espousing political ideologies. This is amply demonstrated from the fact that the number of Trade Unions have decreased from 1636 in 1977 to 1428 in 1996 and the membership has been static at 1.6 million of 7 million of working population.

Tripartism

The structures of Tripartism have existed in diverse forms, but there has been little effort to coordinate and harmonize the interest and work of the social partners or to provide them with the role of active participation at national level.

* Minimum wages fixed for 40 trades by Wages Boards set up by the Labour Ministry under the Wages Boards Ordinance, are tripartite in character. These boards permit a consultative approach to the fixing of terms and conditions.

* A national Advisory Council was set up in 1989, with the objective of having a permanent consultative mechanism within the Ministry of Labour. The objectives of the Council were broadly to consult worker and employer interests on policy matters and implementation of proposed changes in Labour law.

* Employees Councils were made obligatory by the Employees' Council Act No. 32 of 1979, in public Corporations and government owned undertakings, to encourage participation of employees in the affairs of these organizations.

* In the Free Trade Zones administrated by the Board of Investment, companies are expected to set up Joint Employees Councils as a condition of licensing.

Tripartism cannot be strengthened or placed on a stronger base by passing legislation. If the desired results are to be achieved, the implementation of the laws must be monitored and enforced to some extent. Persuasion and educating the workers as well as employers on advantages of consultation and dialogue at all levels are considered desirable than enforcement of laws. It is imperative that the attitude of officials should change. They should be facilitators rather than policemen in promoting good industrial relations.

It has been observed that at national level, there seem to be a tendency for some unions to affiliate and also employers interested in working together to deal with problems on a common front. It also appears that more and more bipartism is exhibited at work places which is a good sign of collaboration by social partners which is bipartisan rather than tripartism.

EFC in 1989, suggested to ILO a strategy to build up a tripartite consultative process to be the joint responsibility of the EFC and the Trade Unions. The first phase was a join body on Safety and Health. This industrial Safety and Healtth Association (ISHA) brought the parties together in a spirit of co operation on Safety and Health. This led to a seething up of another mechanism called Labour Management Consultative Committee (LMCC).

Collective bargaining

Sri Lankan Corporate

The readership addressed by the author include the entrepreneur (seeking sources of funds of a medium to long term nature); the investor (looking for avenues to invest hard earned earnings); the business student, both at undergraduate and postgraduate level (gathering new knowledge on Corporate Finance); the bond market analyst (seeking up to date information and new skills with focus on career progress) and of course the general reader. The special feature observed is that the value addition to the reader takes place in the background of a vast database of Sri Lankan bond market information which is current, comprehensive and complete. Throughout the book the author draws from this database and presents an assortment of stimulating examples.

Sri Lankan Corporate Bond Market runs into six chapters, lucidly written and illustrated with carefully selected real life examples. The writer adopts a reader-friendly approach as he blends the text and the examples which tables and graphical/pictorial illustrations that makes reading both easy and interesting. The book is organized in such a way that it displays a cynergic effect as to the overall impact on the reader. The layout of pages and the neat print add to the readability of the book.

The first chapter covers the key definitions, characteristics, and terminology pertaining to bounds and debentures. It develops a general awareness about the bond market in Sri Lanka to be discussed at length in subsequent chapters. The second chapter traces the evolution and growth of the Sri Lankan bond market which culminates with a detailed listing of different forms, features and magnitudes of debt financing by the quoted companies as at end of 1999. The chapter closes with an appendix containing requirements for listing debt securities in the Colombo Stock Exchange.

The third chapter is an apt continuation of the second chapter as it gives a descriptive analysis of the different types of bonds available at present and provides the investor with guidelines for evaluating alternative investment opportunities in debt financing.

The risks associated with investments in bonds are also discussed briefly. And the chapter closes with an appendix containing a Databank of Trade Debentures which is a wealth of information to the business student and the bond market analyst.

The fourth chapter deals with how to determine the intrinsic value of bonds and specifies guidelines to find under/over/fairly-valued bonds. It covers the concept of accrued interest too. The technical nature of the preceding chapter is continued into the next chapter as it discussed diverse ways of measuring returns associated with investments in bonds. The concepts current yield, yield to maturity, yield spreads and yield curves are explained succinctly in relation to the Sri Lankan scenario.

The sixth chapter takes up Credit Rating that is a recent addition to the local financial market. Information pertaining to credit rating is limited and this chapter effectively addresses this knowledge gap. It identifies the role of a credit rating agency and goes on to describe the process and the methodol ogy adopted in a formal credit analysis. This chapter concludes with a credit analysis report prepared by Duff and Philips Credit Rating Lanka.

The Sri Lankan bond market shows signs of entering a growth phase from its present state of infancy. Though a late-starter in the local financial market, it has the potential to become a significant partner. A key constraint in this process seems to be a dearth of publications on the subject that serve as a vehicle of dissemination of knowledge among interested parties. It is in this respect that Dr. Samarakoon's work, which I presume, is the first book to be published on this topic, looms large as a positive contributor towards driving the Sri Lankan bond market to dynamism.

The Author: Dr. Lalith P. Samarakooon is a senior lecturer in finance at the University of Sri Jayewardenepura. He has published a number of research articles on the Sri Lanka stock and bond markets, and is a financial economist.

Yarn on show

India Cotton Textiles Show February 13-15

The show will highlight the suitability and availability of Indian Cotton Textiles to the Sri Lankan garment industry.

Leading manufacturers from India, such as Vardhaman Spinning & General Mills, Ruby Mills, Century Textiles and Industries, Mafatlal Industries, Premier Mills, Rainbow Denims, Pasupati Fabrics, Pacific Costpin, Dhar Textile Mills etc will be participating in the show exhibiting a wide range of cotton textiles namely cotton woven fabrics of twills, drills, denims, dobby, satins, poplins, fine count shirting, Madras checks, prints furnishing fabrics, home textiles, knit fabrics besides cotton yarn of various counts in Open End and Ring Spun.

The "India Cotton Textiles Show - 2001" will be a one stop source for all type of cotton textile requirements of the Sri Lanka's apparel industry which will facilitate the establishment of strategic linkages between the Indian manufacturers and Sri Lankan converters, the high commission said in a statement.

Benefit for Sri Lankan Apparel Industry

The geographical proximity and wide range of cotton textile products with a variety of cotton fabric, made-ups and yarn to meet different needs and tastes, India qualifies as a first and natural choice for apparel and textile industries in Sri Lanka.

There are several contributing factors for which importing countries including Sri Lanka continue to look towards India as a prime source of supply. Wide varieties of raw cotton availability along with low cost of production have made India extremely competitive in cotton dominated products both in quality and price.

With the operating experience of more than 150 years coupled with large pool of skilled man power have enabled the Indian cotton textile industry to supply the products which combined traditional art and contemporary design as well. 

Being the third largest producer of cotton and the consequence emergence of vibrant spinning industry with world standard spinning capacities based on state-of-the art technology and law conversion costs have generated the scope for the cotton industry to go for forward integration and create large capacities of cotton weaving. Incidentally, India is the largest exporter of cotton yearn having a share of 25% of the world market.

The operational flexibility and the diversified structure of the industry have positioned India as a supplier of small and big quantity simultaneously, a unique feature in the world textile trades.

Growth in apparel export from Sri Lanka

Apparel exports from Sri Lanka had grown by more than 300% over a period of eight years from Sri Lankan Rs. 50 Billion in the year 1992 to over Rs 155 Billion in 2000 with the apparel sector showing continued buoyancy in exports, there is a growing need of raw materials in the form of fabric and yarn, primarily cotton based, among the garment manufacturers in Sri Lanka, the statement said.

These developments prompted the Sri Lankan apparel industry to meet the rising demand of raw materials, mainly cotton fabrics and cotton yarn, through increased imports.

The Sri Lankan annual requirements of more than 60 million kgs of cotton fabric and 17 million kgs of cotton yarn is currently met through imports.

This creates an opportunity to develop a synergy for mutual benefit between the Indian suppliers and Sri Lankan buyers. This arrangement will open avenues for Sri Lankan apparel industry to look more positively at emerging Indian markets as well due to reduction of tariff and non-tariff barriers and access to vast retail network.

With the lifting of quota for certain categories garments from Sri Lanka to the European Union like trousers, shirts, blouses, etc. which will ultimately lead to much higher off take from Sri Lanka to Europe, the forthcoming Indian cotton Textiles Show will provide opportunities to the buyers here to interact with the Indian suppliers for their changing needs arising out of the new agreement between Sri Lanka and European Union. 

Return to Business Contents