By Shabiya Ali Ahlam
As the new government is in the midst of firming up contents of the much-awaited budget 2016, the local business sphere, investors and interest groups wait with bated breath to find out if
their concerns and proposals have been taken into account.
Uncertainty being the highlight of 2015 with a series of political events resulting in a slowdown in the economic environment, the business landscape expressed that it is looking forward to kicking off the new year with a clear set of policies, which would allow it to operate in a seamless manner.
With the announcement of the budget 2016 set for November 20, the National Chambers of Exporters (NCE), Ceylon Chamber of Commerce (CCC) and National Chamber of Commerce (NCC) shared with Mirror Business the proposals put forward to the Finance Ministry through the ‘Special Joint Chamber Task Force’.
SME development Export finance:
With regard to ‘export finance’ the need to provide assistance in the areas of investment in critical machinery and equipment was highlighted along with the need to expand and improve production capacities and working capital funding to process export orders.
As Sri Lanka does not have specialised development finance institutions, it was suggested to have in place a ‘Revolving Working Capital Fund’ under a suitable institution, such as the Export Development Board (EDB).
For the purpose of investment in critical machinery and equipment to increase the production capacities, it was suggested for special financial arrangements to be made in the short term.
Looking further, it was proposed to establish a specialized Export Import Bank (EXIM bank) to help provide a medium to long-term solution. It was recommended to commence the bank through a joint public-private partnership in which the private sector could be a stakeholder, and bring in the professional management expertise as well.
Establishment of a coordinated body for SME:
Observing there is a ‘fragmented approach’ towards small and medium enterprises (SMEs) with several agencies, such as Industry and Commerce Ministry, Economic Development, Finance and Planning, Traditional Industries and Small Enterprise Development, to name a few, having several direct and indirect interactions with
SMEs, the chambers pointed out the need
of setting up a coordinated body that would play a focused role in empowering and providing the necessary funding to uplift
this sector.
Urging the National Enterprise Development Authority (NEDA) to be given a greater role, it was proposed that more involvement of the NEDA for not only efforts in developing the required skills in the SME sector but to provide services in the area
of finding local and international markets for SME products, which is one of the critical success factors.
Export development Incentives schemes:
The government was urged to provide suitable incentives to manufacturers to increasingly resort to renewable energy sources to meet their energy requirements while providing other utility services at concessionary rates.
Furthermore, the chambers suggested in establishing an incentive scheme for exporters, which would be in line with the incentives provided by competing countries and concomitant incentives, to return Sri Lankan producers to a level playing field.
It was stated that the priorities in the government incentive scheme for export-oriented industries ought to include incentives for investments in new technology, investments in branding, patenting, overseas marketing, particularly for new emerging markets, which have hitherto not been on Sri Lanka’s export radar, and energy efficient technology.
Dismantle protectionist para-tariff:
The chambers stated they are of the view that the government should strive to dismantle the protectionist para-tariffs and adopt policies which are neutral between those goods produced for the export market and those that are produced for the domestic market. “Such policies will enable comparative advantage to assert itself and will help to reduce the bias against exports,” the institutions had justified in their proposal.
Export credit insurance:
Observing that many export-oriented enterprises do not use the services of the Sri Lanka Export Credit Insurance Corporation (SLESIC) to cover commercial risks, it was suggested that as a measure to encourage a larger number of export enterprises to obtain export credit, part of the additional cost of export insurance should be shared by the state through an ‘Export Development Fund’ for a trial period until the enterprises are able to establish firm business relationships with buyers.
Skill development Broader policy framework:
Bring about a broader policy framework that would enable diverting labour forces from agriculture area to exportable manufacturing and exportable services which can generate a significant increase in overall output per worker and therefore higher national income level.
Revive technical colleges:
The chambers highlighted it is time to attention was given to technical colleges such as Ceylon German Technical Training Institute of Ratmalana and Hardy Advanced Technological Institute in Ampara.
The chambers urged the government to relook at such institutions and to invite various foreign technical specialists armed with current technological developments to revive the same.
Recognized local certification system for technical skill:
The chambers stated it is now a dire requirement to have a well-recognized local certification system for technical skills, one that should be recognized by other countries and should explore all the possibilities to
mutually consider such local technical qualifications by internationally recognized institutions. The model that has been followed by the accounting and IT professionals was suggested to be used as an example towards achieving this objective.
Skill development fund:
As a number of export enterprises have embarked on their own in-house programmes to the best possible extent to meet their requirements of skills through training, it was proposed to establish 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.
FDI promotion Greater authority for BOI:
While in the recent past several issues adversely affected the investor sentiment, primarily due to the inability of the Board of Investment (BOI) to close decisions for investors, particularly large-scale investments, it was stated that the BOI requires greater authority in investment approval decisions, with minimal third party involvement.
Consistent policies:
The chambers emphasized that it is required not only to maintain consistency in government policies but to improve the perception in this regard among the prospective foreign investors to enhance their confidence level.
Furthermore, the agencies stated it is required to relax rigidness of regulations
on land allocations for foreigners, which would be a positive step towards building investor confidence.
It was also recommended that measures should be taken to avoid any delays in legal proceedings including contract enforcement, red-tape in licensing, dispute resolutions and others, which would help to improve the investor confidence.
Clear statement on economic policy required
While the government seems optimistic in the upcoming budget allowing the economy to reach its
next stage of development,
top economists in the country
stated that the policy direction remains largely unclear.
“During this year, the country
has undergone significant policy
and political change. There is still a lack of clarity on the policy direction of the government’s economic priorities. This budget provides an opportunity for the government to articulate its short-term (next year) and medium-term
(two to three years) policy direction and priorities,” said the Colombo-based think tank Verité Research
Opining on what the priorities should be for budget 2016, an economist who preferred anonymity said the foundation should be set for a sustained growth in government revenue with a view to ensuring a sustainable fiscal balance.
“This entails more effective use of MIS in the inland revenue department to reduce tax leakages. A rationalisation of tax holidays is also necessary.
Incentivisation of investment should be through reducing barriers to
doing business, simple and transparent investment procedure and prioritised infrastructure improvement rather
than using tax-based incentives,”
he noted.
It was suggested that in parallel, active steps need to be taken to rationalise government expenditure, particularly recurrent expenditure.
The government should treat this as an opportunity to shift away
from market distorting minimum/maximum and guaranteed prices - these result in an inefficient allocation of resources, he added.
With regard to capital expenditure, the young economist stressed it is necessary to use public-
private partnerships (PPP)
more effectively, which in turn warrants a robust, transparent
rule-based framework to encourage private participation in PPPs.
