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Apparel exporters have called for textiles manufacture and import to be made a 100 per cent duty free industry where competitive local producers could sell their produce to the domestic market duty free, as well as export and service the growing export oriented appararel industry.
"Though tax concessions are available to local textile manufacturers, we need more assistance to attract big players into the market," says Sri Lanka Apparel Exporters' Association President, Ashroff Omar.
Allowing local producers sell in the domestic market without prohibitive taxes would help make invetment in the business attractive, he said.
Last year, Sri Lanka spent Rs. 44 billion on the import of textiles, Rs. 1.4 billion on tulle and gauze and Rs. 1.3 billion on woven pile & terry towelling.
Textile imports to the domestic market are subject to import duty to protect local manufacturers.
Smugglers were riding on the tariff barrier, making profits at the expense of the government and the local consumer.
There were also leakages from garment factories despite efforts by BOI to monitor supplies to factories scattered across Sri Lanka.
According to Central Bank data, there were 140 textile manufacturing firms in 1996, with 10 large firms accounting for most of the output.
On the other hand, there were 845 garment factories employing a phenomenal 251,537 persons, raising questions on the desirability of continuing tariff protection to local textile manufacturers with antiquated technology, at the expense of the domestic consumer.
Central Bank noted in its annual report that export oriented textile firms had performed well in 1996, underlying the capabilities of the local producers to compete in world markets when backed by appropriate technology.
The present demand for textiles could not be met by the existing export oriented textile mills in Sri Lanka, though they provide fabrics of high quality, Association officials said.
There was also scope for local manufacture of accessories to service the apparel export trade.
"At present, there is a dearth of manufacturers of accessories in Sri Lanka," Mr. Omar said.
Last year Rs. 1.55 billion was spent on importing elastic, Rs. 1.42 billion on zippers, Rs. 1.25 billion on buttons and Rs. 1.2 billion on wadding.
The Apparel industry has become the flag bearer of the country's industrial exports. The industry has grown steadily during the last twenty years. In 1995 the industry recorded exports to the value of Rs. 84.8 billion which rose to Rs. 93.8 billion in 1996 growing by 10.5%.
The Association claims that value addition within the industry had risen to 40%, though the Central Bank data says it is still at 30.6%.
The Association says small and medium industries can make accessories like elastic, buttons and zips, which account for Rs. 4.1 billion in imports, by investing as little as Rs 2 to Rs 3 million in the industry.
"Accessories like buttons don't need much capital investment nor space to manufacture, said one exporter.
"We have suppliers from Singapore and Bangkok who manufacture them at home, sometimes in their own garage. We could start it as a cottage industry."
With the phasing out of the Multi Fibre Agreement, the existing quota system was due to end in year 2005.
The industry needed to develop backward integration to remain competitive in the world market.
"If we can develop our accessories industry, we can offer short lead times to foreign buyers," says Lynn Fernando a former President of the Apparel Exporters Association.
So far, what exists in Sri Lanka is a natural growth in the accessories sector. The Association would like many suppliers to exploit the market potential at present.
Few apparel exporters (like Hidramani Garments and Tri Star Apparels) have begun to manufacture some of the accessories in house.
But the Association says that accessories is a specialised industry, for which most apparel industries do not have the time to spend. Some exporters have gone into foreign collaboration to meet the needs or to attract foreign suppliers to Sri Lanka.
Bogala Graphite Ltd., which had undergone a turnaround under new top management, is likely to reduce its capital as part of its restructuring effort.
The company may lose around 40 per cent of the capital under a plan now under consideration, The Sunday Times Business learns.
When the company was listed in the stock market in 1993 it was capitalized at Rs 273 mn. Excess capital over its tangible assets were entered into its balance sheets as goodwill.
"Our share has been overvalued," the company's Chairman U. N. Jinasena said. "The matter is now before the Attorney General."
After the listing company went downhill and it share price plummeted to Rs 1.75. A new Board had been appointed in 1994.
Unaudited accounts for the year 1995/96, showed turnover had risen to Rs 156 mn and profit after tax to Rs 35 mn Mr. Jinasena said.
Production and sales had nearly doubled. The company however still remained cash strapped.
The company was hoping to move into value added graphite products. A mica project was also in the pipeline.
The mine also had a pure water spout for which could be bottled and exported.
The company had won the second prize in the national productivity awards for productivity gains recorded under the new management.
The importance of involving the stock exchange in the government's privatisation drive was stressed by the former Colombo Stock Exchange (CSE) chairman, Ajith Jayaratne. This view appeared in its Annual report released recenyly.
To fail to do so would result in the concentration of wealth in the hands of a few and a failure to ensure the spread of wealth across our people. Regrettably the privatisation process undertaken by the Government has not made the fullest use of the Exchange and its objectives, states Mr. Jayaratne.
The listing rules are currently being subjected to an overall review. It is expected that in the future, Companies that do not have its ordinary shares listed will be able to list debentures or similar interest bearing securities or preference shares.
The report also highlights the increased rights issue activity in 1996 which added up to Rs. 5.23 billion compared to the 1995 figure of Rs. 1.17 billion. However, new issue activity has come down from Rs. 2.43 billion in 1995 to Rs. 1.57 billion in 1996.
The market in corporate debentures, that the Exchange has been promoting, has also received a severe setback with the increase in the stamp duty payable on the value of debentures issued, increasing from 1 per cent to 2 per cent . The stock market has appealed to the Government to remove in toto the stamp duty on the issue of debentures and debt instruments as a matter of urgency but have as yet not been successful in its efforts. The Stock Market has also requested that limited foreign investment in listed corporate Debentures be permitted.
The Annual report also states that the CSE is continuing its discussion with the Central Bank to explore the possibilities of introducing the trading of Treasury Bills and other Government Bonds in the Stock Market for the benefit of the small retail investor.
During the year the USAID Funded Financial Markets Project commissioned a study to set up a commodities futures market in Sri Lanka. The Exchange was involved in this study and is of the firm view that the opportunities for a financial futures market are attractive in the near term. The Exchange continues to research this area and is investing money and effort in this initiative.
The number of quoted companies rose from 226 in 1995 to 235 in 1996. The central depository accounts also increased from 186,000 in '95 to 192,000 in '96.
The annual turnover was also down compared to '95 when the figure stood at Rs. 11.2 billion while the '96 figure was 7.4 billion. These figures are only Fractional compared to the '94 turnover of 34.5 billion.
The domestic turnover was Rs. 3.3 billion in '96 compared to the '95 figure of Rs. 5.8 billion. The '94 figure again proves the downturn of the market standing at Rs 20.6 billion.
Sri Lanka is poised to become a middle income developing country, with per capita income exceeding the last threshold set by the World Bank, the Central Bank of Sri Lanka has said.
Last year per capita nominal Gross Domestic Product based on a mid year population estimate of 18.3 mn had risen to Rs 41,984 or US $ 760, with GDP at market prices growing by 15.1 per cent to Rs 768 bn.
In The World Development Report 1996, the World Bank has taken US $ 725 as the cut-off per capital income level in 1994 to classify a country as a middle income developing country.
"In terms of per capita GDP Sri Lanka has reached the threshold to becoming a middle income developing country," the Central Bank's 1996 Annual Report said.
This would serve as an early warning not to depend on concessional aid for future development.
"This calls for early preparation for a gradual reduction in the access to extremely concessional assistance from the donor community, which implies that Sri Lanka would have to rely on other sources including international financial markets to finance its future investment," the report added.
Economy wide inflation indicated by the GDP deflator was 12.1 per cent up from 8.4 per cent the year before.
Real GDP had grown by 3.8 per cent compared to 5.5 per cent on 1995 and 5.6 per cent in 1994, with the economy weighed down by the effects of a drought and power cuts.
Real Gross National Product which includes net factor income from abroad had grown by only 3.1 per cent down from 6 per cent in 1995 and 5.3 per cent in 1994.
Net factor income from abroad had deteriorated significantly in 1996 due to a reduction in investment income receipts and increase in interest payments in foreign debt.
"This reduction in investment receipts was a result of the drop in international reserves due to balance of payment deficits in 1995 and 1996 and lower international interest rates," the Central Bank said.
Agriculture forestry and fishing contributed 18.8 per cent to output down from 20.3 per cent last year.
Paddy production was hard hit by drought falling 27 per cent.
Real value added in the sector declined by 4.6 per cent compared to an average growth rate of 2.4 per cent from 1991 to 1995. This was the poorest performance in the sector since 1987 when output fell by 5.8 per cent pushing economic growth down to 1.5 per cent.
"The economic performance in 1996 reflected the resilience of the of the Sri Lankan economy," the Central Bank said.
Manufacturing sector which overtook agriculture sector last year contributed 44 per cent to growth and accounted for 21.4 per cent of total output compared to 20.7 per cent in 1995.
"There is a strong linkage between the manufacturing sector and the agriculture sector," the Central Bank commented, though the relative share of these activities were declining with the growth of other sectors of the economy.
"The performance of the processing industry of tea, rubber and coconut is determined by the output of plantation crops."
The industrial sub sector of food beverages and tobacco for example depended on the agriculture sector for its raw materials.
"Therefore expansion in the agriculture sector facilitates the growth process in the manufacturing sector," the report said.
Central Bank said the declining share of the agricultural sector is a mater of concern. Measures should be explored to improve productivity in agriculture particularly of non-plantations, and to make the sector more dynamic.
The Central Bank called for the increased market orientation of non-plantations agriculture and reduced government intervention. Instead, the government should play a supportive role. It recommended the scrapping of the Paddy Marketing Board and cautioned against further expansion of the CWE as a state institution.
The services sector also grew boosted by the sub-sectors of wholesale and retail trade, transport, storage and communication, banking and insurance.
The telecommunications sector in particular had performed well.
Domestic savings had grown marginally to 15.5 per cent of GDP. Gross domestic capital formation was down to 24.3 per cent of GDP down from 25.7 per cent.
"The decline in investment was larger in the private sector due to a tendency to delay investment owing to uncertainty," the report said.
Foreign direct investment however had increased.
The economy was estimated to have generated employment opportunities of 75,000. Though the unemployment rate was unlikely to grow if the economy produces around 90,000 new job opportunities, the absolute number of unemployed could rise to about 780,000 by 2001.
To bring the unemployment rate down to about 6 per cent by the economy will have to produce about 158,000 growing by 7 per cent a year.
Trade deficit fell to 9.5 per cent of GDP, while the services account recorded a deficit for the first time since 1992.
Overall balance of payments was in deficit for the second successive year.
Though the country had benefited from past reforms there was need to continue the process.
Central Bank cautioned against giving monopoly rights to Air Lanka after privatization and recommended improving the commercial viability of the two state banks which were causing lending rates to remain high due to very high intermediation costs.
"Monetary policy instruments, particularly interest rate policy become less effective when interest rates exhibit downward rigidity due to such structural weaknesses," Central Bank said.
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