KAMALIKA PIERIS

Revised      24.11.18

This essay lists several Yahapalana items which not included in the earlier essays. They are presented as discrete items and not as an essay.

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On Derana News 31.5.18 it was stated that Ranil Wickremasinghe had forwarded to the Cabinet on three separate occasions, a Cabinet paper to remove the state banks. This was confirmed by President Sirisena. A proposal was made to transfer all the funds in the state banks to private banks. I was against this proposal which was debated for three months. If the proposal was passed, the Bank of Ceylon, Peoples Bank, National Savings Bank and any state pawning outlets would have faced difficulties,” the President said.

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Prime Minister Ranil Wickremesinghe also wanted to bring Samurdhi Bank with assets worth Rs 200 billion under the Central Bank and the Finance Ministry. This could be considered part of a strategy to deny the poor access to their funds. The Samurdhi Bank funds belonged to the poorest segments of the society. The bank had been established to assist the poor and needed flexibility.”Why does such a bank need to be under the Central Bank and the Finance Ministry.

It was not possible for the government to place the Samurdhi Bank under the Central Bank and the Finance Ministry under existing law.  Article 35 of the Divineguma Act, No. 1 OF 2013  states that  the provisions of the Banking Act, No. 30 of 1988 and the Finance Business Act, No.42 of 2011 shall not apply in respect of banks and banking societies established under the provisions of this Act. If the government wants to bring the Samurdhi bank under the Central Bank, it will have to change the Act with a two-thirds majority in Parliament with the concurrent of Provincial Councils.”

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Many an eyebrow has been raised by a government move to set up a hybrid company as part of the controversial National Payment Platform (NPP) to facilitate ‘single button transactions’. This was decided by the  CCEM  headed by Prime Minister Ranil Wickremasinghe . The CCEM decided to recommend that the hybrid company be formed with the involvement of the Central Bank and the Information and Communication Technology Agency (ICTA). there was the danger of the private company gaining access to all banking information if it is allowed to be formed said experts.  they suspected a government move to bypass the banking system in clearing retail payments. In 2015, the then Finance Minister Ravi Karunanayake allocated from the national budget as much as Rs. 25 billion for the National Payment Platform. The project however did not get off the ground.

Central Bank Governor Dr. Indrajith Coomaraswamy has written to E. M. S. B. Ekanayake, Secretary to Prime Minister Ranil Wickremesinghe, that there is no need for setting up a separate hybrid company to handle clearing of retail payments. He has said the Central Bank of Sri Lanka (CBSL) owned national payment infrastructure provider, LankaClear (Pvt) Ltd. together with licensed commercial banks, is currently handling the task.

I would also like to emphasize that there exists only one organisation for handling clearing of retail payments in most countries. Therefore, in this context, it is not advisable to have hybrid companyin a country  with a population of only 21 million.   In the current context, LankaClear (Pvt.) Ltd. (LCPL) which is owned by CBSL and all Licensed Commercial Banks (LCBs) operating in Sri Lanka, handles retail payment and settlement system in the country.

Any new proposed payment platform will need to fulfill the criteria of Principles of Financial Market Infrastructure (PFMI), user confidence, security, ease of use and integration with other systems, etc. Further, failing to adhere to the PFMIs will curtail financial and technical assistance from various donor agencies to Sri Lanka and will have an adverse impact on the stability of financial system, market confidence, investor confidence, credit ratings of the country, etc.

Considering all the above, CBSL is of the opinion that a new hybrid company is not required and any functions regarding retail payment and settlement systems can be carried out by the existing national payment infrastructure provider i.e. LankaClear (Pvt) Ltd.

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In 2018, Island ran the headline, foreign investors wooed to invest in Sri Lanka, and take profits away. The news item continued, A New Zealand business delegation that arrived in Colombo was told that foreign exchange control has now   disappeared. That five-decade old Act has been repealed and has been replaced by a much more investor-friendly Foreign Exchange Management Act. It allows you to invest your money in your chosen ventures, make gains and take your profit away as and when you wish, without having to obtain any formal, regulatory approval from the authorities”.

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One of the main constraints indicated by French Small and Medium Enterprises  investments was that resident visas in Sri Lanka  are provided only for one year and a request has been made to extend this to five years which will enable a number of people to enter the restaurant and café business in Sri Lanka. France was keen on investing in the tourism sector with guest houses and restaurants.

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Yahapalana told   industrialists that new laws are being drafted to give investment guarantees to both local and foreign investors to safeguard them against any possible nationalization efforts in the future.

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Mangala Samaraweera said that if they cannot find   locals to fill vacancies in the new industries, ‘if our people refuse’,  they will be brought from abroad.

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India got permission for beverage factory on a 50 acre land in Gampaha importing fruit pulp and exporting juice. The only raw material from Sri Lanka is our ground water. About 50 million liters of ground water per annum. Residents were not successful when they went to courts about it.

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6,000 small and medium scale rice mills had closed and 100,000 thrown out of employment as a result of the tax on wheat being removed by the Yahapalana government in 2017. Previously 800, 0000 tonnes of wheat had been imported per year, it had now gone up to 1,700,000. When millers had told the Finance Minister not to reduce the tax on wheat because rice mills will have to close down, the minister had immediately said “Close the factories!”

The rice millers had pointed out that they can’t simply close down the factories because they had employees, bank loans and other commitments. Then the Minister had asked them whether they can’t convert the factories to some other use. You can’t make sausages or ice cream in rice mills, they replied.     A miller said that his own investment as a rice miller was worth Rs. 90 million and that his business was now closed.

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All stakeholders of the tea industry express their unmitigated and resolute opposition to the intention of the Ministry of Finance to appropriate the funds accumulated by the Sri Lanka Tea Board, which had been collected from the industry for global tea promotion,”

In 2010 the Tea Promotion Board had  levied a fee for to be used for tea promotion. The idea was to create a fund based on a percentage of tea export revenue and this fund was to be managed jointly by both the government and private sector stake holders. Rs. 7 billion had accumulated in the cess fund. . The Ministry of Finance intends to take this money, said the industry in 2016. The tourist cess and the tea cess were transferred to the Treasury despite protests.

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The present campaign to import cheap tea to bring down the cost of tea exported from Sri Lanka will immediately drive down the prices of local tea making it an unviable crop due to the high cost of production here. This will place the jobs of well over a million people directly or indirectly employed in the tea industry in jeopardy. The campaign to import tea with scant regard for the consequences in order to increase the profits of a few exporters is not sound policy, observed Chandraprema. However Tea Exporter’s Association officials explained that only 292 million kilos are produced locally and this amount is not sufficient and assured that the import of tea would not have a negative impact for the local industry.

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The Tea Exporter’s Association (TEA) has complained of the high taxes imposed on the sector. Exporters have to renew their license with the Sri  Lanka Tea Board  annually at a cost of Rs. 500,000 for large and medium tea companies and Rs. 50,000 for small companies in 2017.

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There are plans to take the Tourism Cess fund which has several millions of dollars intended for promotional purpose, under the Treasury. This is to be presented in Budget 2019.

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In 2015 Lanka Thriposha procured one million kilos of soya and three million of maize at the cost of Rs 271 million outside tender procedure from a single supplier, other players are left out.

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The country has been made to suffer losses running to billions of rupees owing to a government decision to suspend re-exporting karunka (dried areca nut). The money spinner now has gone to other countries. The country earned Rs 9.1 billion in 2015 by re-exporting karunka. The country initially received Rs 367 million by re-exporting karunka in 2008. Thereafter four companies engaged in the industry. It was the highest foreign exchange earner in 2015 when the suspension was imposed, .In 2015, Finance Minister Ravi Karunanayake decided to issue permits for several more companies. The old companies opposed the move. From Rs 9.1 billion in 2015 the income dropped to Rs. 4.9 billion in 2016.

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The prawn industry is in danger. Yahapalana government has  in 2018 permitted the entry of a new type of prawn  Pacific White Legged Shrimp (Litopenaeus Vannamei) into Sri Lanka . This species was imported by a private company.  According to the National Aquaculture Development Authority (NAQDA), the new species has been imported to Sri Lanka for a pilot project to be carried out by a private company in the Mannar. The matter has been discussed in the Economic Research Council , headed by  Prime Minister  Ranil Wickremasinghe and the Council instructed  NAQDA  to permit the importation of this shrimp species to  Sri  Lanka .

Local experts say this species carries infectious diseases  and will be either a competitor or a predator the local prawn species . The industry believed that the local prawn species Penaeus Mondon, widely bred in Sri Lanka, would be affected by possible diseases if the new species were introduced. Further, the importation of new shrimp species to Sri Lanka is illegal as proper legal procedure has not been followed. Approval of DWC had not been obtained, therefore, it was not clear how the Sri Lanka Customs had permitted the NAQDA to bring down the new shrimp species.

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The Colombo District Court yesterday issued an order directing the Public Trustee’s Department that 252 last wills pertaining to a  colossal amount of wealth which were under the Public Trustee’s supervision be opened.  The Public Trustee informed court that persons who bequeathed their last wills in the custody of the Public Trustee between 1932 and 1992 have to be opened to fulfill their wishes. The Office of the Public Trustee having made an application to court to open the last wills of 252 persons whose last wills had been lying in a safe for over 70 years, was granted permission to open them before the Registrar of the Colombo District Court in March this year. If there are no heirs living, then Yahapalana gets the loot.

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In 2017, Yahapalana introduced a Cellular Tower Levy of Rs. 200,000 per month per tower, payable by the mobile operators. This would have a severe negative impact to the mobile telecommunication industry, said critics. The proposed levy will increase the monthly operational cost from Rs 115,000 to Rs 315,000. (Increase of 174%).

For more than two decades Sri Lanka’s mobile industry had been a key contributor to the economy of Sri Lanka, delivering 100% population penetration of mobile services at some of the lowest tariffs in the world. The proposed levy would result in great losses to 3 major international investors, resulting in their possible exit from the market. Three out of the five mobile operators are running at a loss, especially because they are extending mobile services to under populated rural areas.

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Yahapalana had a deadly economic plan.  Yahapalana wanted to kill off local industries and hand over Sri Lanka’s economy to foreign firms. Yahapalana started by condemning the local industries. The local industries cannot compete with foreign goods, they have no future,    said Yahapalana . Sri Lankan SMEs are lagging behind in terms of technology, mechanization and automation,  Yahapalana continued. We still rely heavily on manual labor. Our industries are burdened with high energy, high labor, inflated raw material costs leading to high cost of production. The smaller the firm the lower the productivity. Imports are cheaper due to mechanization and economies of scale.

The most prosperous areas in Sri Lanka are those where self employment is lowest. And the most backward and poor regions are those with the most self employed, said Advocata magazine Echelon”.   Employment at large firms is steadier and better with inducements such as retirement benefits continued Echelon”.

The process of destroying local industries started under J,R. Jayewardene .There were quotas, licenses and tariffs to restrict the free flow of foreign goods to the country before the liberalization of the economy in 1977.  In 1977, the protective measures adopted prior to the introduction of the Open Economy to safeguard local industries were removed. Anyone could import raw material, machinery and finished products for the local market. As a result many small and medium scale industries collapsed,” said analysts.

Yahapalana wished to complete this process by removing tariff protection. Trade liberalization through removal of para-tariffs was a much needed and long overdue move. Sri Lanka must end its protectionist policies, said Yahapalana. Sri Lanka will abolish para tariffs in 1200 imports.  To start with, para tariffs for around 253 products were to be removed in 2017.   ‘Para tariff’ is an extra tax imposed on goods in addition to the usual duties.

This has led to alarm as to the future of    local industries. Phasing out the para tariffs,  will lead to the closure of our local industries. Yahapalana is out to kill the SME sector, said critics. Our local production base will be  destroyed.

Yahapalana also planned to remove the ‘export cess’ imposed currently on exports of certain basic raw materials, which encourages value addition domestically. Cess is a tax earmarked for a particular purpose such as  product promotion.

The National Chamber of Exporters of Sri Lanka has expressed dismay by apparent moves of government authorities to remove ‘cess’ on imported products hitherto imposed as a protective measure for local enterprises.  The local manufacturing industry survived, if at all, is because of tariffs and para tariffs.

These policy decisions will result in a massive elimination of local SMEs and exporting companies and a great increase in Indian companies, commodities and employees in the country.  They will give an enormous boost to substandard Indian business both directly and indirectly.

SMEs  need a certain amount of protection. Removing the cess will lead to their non-competitiveness and closing down, creating unemployment and adversely affecting the economy. Why do we need to remove para tariffs for salt, yoghurt and butter when there is ample production in the country, they asked.”

At least 162 SMEs have struggled over the past 2 and 3 years to survive. 62 have closed down, 100 on verge of collapse or facing bankruptcy, Appeals to Yahapalana went unheeded. SMEs have collapsed because they have mortgaged their prime assets as collateral to banks and cannot pay back the loan.

A record number of small business faced downsizing or closure in 2017 due to sluggish demand and rising costs.  Retail shops are badly affected and some are managing with only the owners without a single employee.

Yahapalana should give sufficient time to enable our industries to face the challenges arising. At least there should be a scheme to compensate such industries, who are forced to close-down, to diversify and sustain, or at least to pay off the debts and secure their invested capital. ( Continued)