Industrial Chambers and business personalities hail the positive measures incorporated in the 2018 Budget which augurs well for the small and medium scale enterprises which form the backbone of the economy.
The Chambers welcome the emphasis laid on entrepreneurship development and moves to support women entrepreneurs who play a pivotal role in the economy.
However, they note that overemphasis on liberalization and the removal of para tariffs could have adverse effects on local industries which provides livelihood to a large number of people and sustain the rural economy.
Sri Lanka Chamber of Small and Medium Industries President M. Cader said the Chamber welcomes the industrial sector reforms and entrepreneurship development with emphasis on women entrepreneurs and SME development in the 2018 Budget which proposes to set up a SME Development EXIM Bank.
While the removal of para-tariffs provides relief to certain consumer segments it could seriously affect the sustainability of some vital local and export industries, which are important thrust industries, supporting and integrating with rural, micro, small and medium sectors, which form the backbone of the economy, providing employment to over a third of the formal workforce, sustaining the vital export industrial base and contributing over 65 percent to the GDP.
The re-adjustment package promised for affected industries of which details are not clear, while addresses some of the fallouts from the government’s policy decision, will need to be supported with effective implementation of same, customs and excise reforms, anti-dumping and countervailing duty mechanisms on a fast track basis.
Any delays and cost of implementation of such measures are beyond the resources available to the SME sector, and can in itself deal a death blow to local industries.The measures taken for fiscal consolidation, simplifying taxation and the government debt management, are appreciated, but these may not yield the expected results, unless effective and efficient administrative mechanisms are in place and the tax base widened.
The debt repayment burden cannot be met by the new debit tax (loan repayment tax) alone, since the numbers based on the 2016 CBSL report do not synchronize. This may lead to the government borrowing through domestic and external sources, causing pressure on interest and exchange rates, pushing up inflation, besides crowding out the SME sector from domestic credit available.
Educational, higher education, vocational education, training and career development measures are in the right direction, to enable future generations to face global challenges. The targeted reforms and incentives offered to IT, tourism, healthcare, agriculture and agro-industry, marine sectors, agricultural insurance and environmentally sustainable development measures are most welcome. The Chamber also welcomes the ‘blue-green’ Budget and assures its fullest support for effective implementation.
Ceylon National Chamber of Industries (CNCI) Chairman Raja Hewabowala said budget has focused on the environment and the Small and Medium Enterprises (SME) sector.
The government has come up with a theme ‘Enterprise Sri Lanka’ to promote exports through SME sector facilitating entrepreneurship development and Information Technology (IT) industry.
The government has also proposed to allocate Rs.10 billion to set up an enterprise development bank with an EXIM window, to provide long term loans without collateral for entrepreneurs.
Inaccessibility to capital requirements due to collateral has been a long standing barrier to the emergence of innovative entrepreneurs and for expansion of existing SME business entities. The Chamber hails the efforts taken to introduce the ‘Enterprise Sri Lanka Credit Scheme’ combining the existing and proposed low interest credit schemes to boost SMEs. The Government will bear the interest subsidy on these schemes.
The government plans to introduce provisions of financial and non-financial assistance through the ‘Enterprise Sri Lanka Credit Scheme’ for the formation of certain companies which have at least 10 equity shareholders and each shareholder with an investment of at least Rs.10,000.
The credit scheme will provide credit facilities with an interest subsidy of at least 10% more to encourage women entrepreneurs. Also an ‘SME Guarantee Fund’ to be set up to expand the borrowing capacity of SMEs. University graduates with viable business ideas are eligible to utilize the ‘Erambuma’ credit facility with a minimum loan facility of Rs. 1.5 million per idea per person.
The interest is 100% subsidized with a government guarantee on repayment of loan. The government will bear 50% of investment cost incurred on equipment and machinery by SME polythene producers when converting from polythene to an environment-friendly alternative.
Citing on the budgetary provisions to facilitate trade and to create a shipping and logistics hub by removing restrictions on foreign ownership of ship agency and freight forwarding businesses, the move is aimed at encouraging international shipping and logistics companies to set up operations in Sri Lanka.
The government is also expected to amend the Sri Lanka Ports Authority law and Merchant Shipping Act to cater to the demands of modern day logistics and maritime industries. However, he stressed that the focus on more liberalization might adversely affect the local companies which operate in the same industry.
Hewabowala said there has to be measures to protect local industries from dumping and under invoicing and systems for waste disposal in the absence of sufficient incinerating facilities, and the inability to submit internationally accepted quality certifications.
NCCSL Past President Sunil G. Wijesinha said the theme of liberalization and reforms is welcome.
“We need to courageously take a stand and go through reforms such as the Customs Ordinance, Excise Ordinance and Rent Act. Similarly, those labour laws that act against competitiveness of our industries must be looked at without reducing the protection given to labour.
“Hopefully, the reforms of agriculture and agrarian development laws will permit farmers to make more productive use of the lands they own,” he said.
The theme of sustainable development and measures proposed are welcome. Environment protection measures are welcome but may need an in-depth study.
While this direction should be lauded we must endure that it will not cause unintended consequences such as pollution by disposal of used batteries, and heavy electricity consumption during peak periods.
The increase in duty on diesel three-wheelers will affect micro industrialists who use the larger capacity diesel three-wheeler to transport equipment and the small farmer who uses it for transporting a few bags of fertiliser and produce. In the absence of electric three-wheelers at present, this move will be a great blow to poor people. The minimum tax imposed on small trucks about a year ago was a huge blow to small farmers and micro entrepreneurs who would have benefited from a small trucks costing less than a million rupees.
Their hopes of developing to the next stage were shattered by these increases where the duty alone was equal to the earlier selling price, and were hoping for a substantial reduction with this budget. Therefore, it is important that policy makers understand the dynamics of rural farmers and micro enterprises before deciding on such policies.
While applauding the focus and strategies to develop the SME sector an urgent need is to have a mechanism or a ‘one-stop-shop’ institution to handle all assistance to the SME sector. There are many SMEs who cannot keep track of all the loan and assistance schemes announced by the Government. They may know a few of the institutions such as the IDB and EDB but need guidance on registering their logo, in getting their products tested and certified and even some technical know how which some Universities may have. A ‘one-stop-shop’ would be able to direct them to the appropriate institution and even assist them with legal and registration matters. The focus on improving the education is a sound move but it is necessary to produce a higher percentage of mathematics and science graduates. The modern economy needs more science based graduates who fit into the modern job roles of creativity, manufacturing, technical services and innovation.
There could be some retraining of Arts graduates with supplementary science and mathematics modules who would then be more employable.
The strengthening of the Industrial Technology Institute (ITI), Sri Lanka Standards Institution and similar Institutions are welcome but if Sri Lanka is to be synonymous with high quality a greater emphasis on a country-wide quality movement is essential. Productivity has not been given sufficient emphasis. Sri Lanka is the only APO (Asian Productivity Organisation) member country which does not have a separate institution to handle productivity.
The National Productivity Secretariat is a mere unit in a Ministry. Malaysia and Singapore have powerful legally constituted institutions with wide powers.
Candor Group CEO/Director Ravi Abeysuriya said the budget has proposed far-reaching reforms to protect the environment, liberalize trade and foreign ownership to unlock Sri Lanka’s location advantage and attract more foreign direct investment.
The SMEs have been recognized by proposing to set up a development bank, SME Guarantee Fund to expand the borrowing capacity and Government financial support for formation of companies. The removal of around 1,200 para tariffs on imports to liberalize trade whilst supporting the local industries and introducing strong anti-dumping and countervailing laws and consumer protection while is a positive move in the long term, help prevent corruption and undervaluation.
Further, the liberalization of shipping and logistics allowing major international shipping lines and logistics operators to base their operations in Sri Lanka, will facilitate Sri Lanka to establish to be a trade and commerce hub. The budget has proposed to a liberalise labour laws which prevent women from working in emerging service sectors such as the IT/BPM industry which is earning over USD 900 million today.
While the increase in licence costs (carbon tax) on old fossil fueled vehicles and plastic resin (polythene) is a good policy to protect the environment in the long run will have a short-term effect on the poorer segments of the society, who run their old cars occasionally or use plastic as they cannot afford the alternatives to plastic.
The ‘Debt Repayment Levy’ of 0.02% on cash transactions by banks and financial institutions as a temporary tax for three years with the proceeds to be used to repay government debt will generate a revenue of Rs. 20 bn (second highest revenue measure) to the government.
However, if the banks truly absorb this cost without passing it on to customers it would bring the profitability of the banking sector collectively down by Rs. 20 billion at a time they are required to implement Basel III capital rules by early 2019 and increase minimum core capital from the current Rs.10 billion to Rs.20 billion by December 31, 2020. The Finance Minister has pointed out the importance of building a vibrant capital market to provide lower cost funding to the economic activity of the country. For this purpose, it has been proposed that the two state banks, Bank of Ceylon and People’s bank evaluate options of tapping international capital markets without diluting the controlling ownership of the government as done by state banks in several countries such as India and China. An ‘SME Guarantee Fund’ will be set up to expand the borrowing capacity of SMEs.