The National Chamber of Exporters of Sri Lanka (NCE) expresses views on the Budget Proposals for 2017 related to exports.
The National Chamber of Exporters of Sri Lanka (NCE) says , the 2017 Budget proposals have many positive features which encourage the export sector to effectively contribute to the achievement of the economic development targets of the Government in the medium term.
The Chamber is particularly pleased regarding the allocation of Rs. 10 billion as Capital contribution of the Government to implement the setting up of an Export Import Bank (EXIM Bank).
The Chamber has been advocating for the setting up of an EXIM Bank, consistently, which was included in the Budget proposals for last year.
However, implementation of the relevant Budget proposal was constrained, apparently due to lack of clarity on the resource allocation for the purpose. In this context, the move to allocate Rs. 10 Billion by the Government as Capital infusion is seen to be a positive move to set up the Bank in 2017.
The Chamber strongly feels that the establishment of an EXIM Bank will pave the way to providing innovative financing of export oriented ventures, to increase capacity in the relevant product sectors, and be more competitive in the International market place, since inadequate export capacity is a major constraint to expand exports from Sri Lanka.
The establishment of the EXIM Bank will hopefully fill the void of the lack of Development Banking Institutions including Venture Capital providers in Sri Lanka. Although it is not clear whether the Bank will be established in the form of a Public Private Partnership or otherwise, the Chamber hopes the Bank will be set up as soon as possible within the year, with the infusion of Professional Management, on the lines of the more relevant models in Asian countries, particularly India.
Views of the Chamber related to specific sectors :
Agriculture sector:
The proposal to commercialize agricultural exports by providing a minimum extent of 1,000 hectares on lease to investors is seen as a positive move to expand production of potential Agricultural exports to be competitive in economies of scale and reduced costs, due to the ability to use mechanization, and hi-tech irrigation etc. It will encourage entrepreneurs to move into agro processing and value addition to specific fruits and vegetables and other agricultural items which have an export demand.
Tea sector:
Several positive moves have been made to encourage value addition and increase competitiveness. Among these is the proposal to allow the importation of CTC Teas for re-export with value addition, to exploit the Global Market for CTC Teas. The ban on the export of “Refuse Tea” will enable the removal of the negative impact hitherto experienced on the image of “Ceylon Tea”. Several other proposals have been made to either abolish or remove several charges related to the Tea sector.
Rubber sector: The allocation of Rs. 50M to establish a state-of -the-art “Finite Element Analysis Stimulation Center” at the Plastic and Rubber Institute of Sri Lanka, and the allocation of Rs. 900M for replanting of rubber. Introducing high yielding plants, and rain guard technology will boost the Rubber sector and other value added rubber products.
Motor vehicle components for exports, toys and allied products sector:
The positive focus on the Rubber sector would have a direct impact on the manufacture of rubber toys as well, since they are marketed worldwide as a natural and sustainable product.
Also, the intention to provide support to participate in Trade fairs is welcome since the industry spends a substantial amount to participate in Trade Fairs.
Coconut sector:
Since there is high potential for the Coconut Processing Industry through value addition, allowing the import of raw coconut oil products for re-export after value addition is a welcome move.
Fisheries sector:
The significant potential to increase exports from the sector by at least five times in the next 3 – 5 years including value addition through canning and processing has been recognized. The allocation of Rs. 500M to encourage the introduction of new technology to multi day boats will improve operational efficiency and reduce post-harvest losses.
Floriculture and ornamental fish sector:
The proposal to encourage the establishment of 2,000 nurseries with a 50% subsidy of the interest incurred on capital will enable expansion of production capacity with significant potential for the expansion of the out grower system as well.
Skills development:
The shortage of specific skills in many export sectors is a constraint highlighted by entrepreneurs in many sectors to develop their businesses, targeting exports. In this context the support provided through the previous budget to the Cinnamon Industry for the establishment of a Cinnamon Trading Academy is welcome. Similarly, the urgent requirement of skilled labour in the Apparel, Hospitality, and Construction Industry etc., has been addressed in the current budget by encouraging the private sector to provide training for youth, with the Government providing a stipend for each trainee of Rs. 10,000/- for three months.
Assistance to SME entrepreneurs:
Although SMEs account for nearly 50% of the economy, and is a vital contributor for export growth, their expansion and growth is severely affected due to limited access to financing. To address this, the proposal to allocate Rs. 500M as ‘seed capital’ for an SME credit guarantee scheme is a welcome move. It will be further strengthened by the move to direct the banks to allocate at least 10% of their loan portfolio to the SME sector.
Encouragement for investments:
The decision to establish the “Agency for Development” under the Ministry of Development Strategies and International Trade to facilitate investments will hopefully boost expansion of investments for capacity enhancement. In this regard, the proposal to remove the Cess of 25% applicable to pre-fabricated structures will encourage investments. The move to provide capital allowances related to investments, and the grant of 5% of the investment at the end of the 2nd year of operations for large scale investments with more than 40% value addition and employment generation for 500 and above, is an additional incentive to encourage investments.
Assistance for science, technology and innovations for development:
Several measures have been introduced to financially support the Science, Technology and Innovation requirements of development.
The proposal to establish a Bio-Technology Innovation Park, and the allocation of Rs. 100M, as well as the allocation of additional funds to the University of Moratuwa for the Center for Advanced Electronic Designs, and Rs. 250M to the Sri Lanka Institute of Nano-Technology (SLINTEC), will facilitate the development of technologically advanced products.
Simplification of the corporate tax structure:
The proposal to simplify the multiplicity of rates applied to corporate income tax to a three tier rates schedule is considered a progressive move and the grant of a 75% tax rebate on 15% or more revenue increase based profit and 75% waiver of PAL on Hi-tech machinery is a positive measure. However, increase of the corporate tax rate from 12% to 14% for exporters who need to be encouraged, is considered a regressive measure.
Overall, the Chamber is of the view that the focus of the Budget Proposals has been to boost investments, and the production of value added products, as well as to make export products more competitive in the international market place.
However, the Chamber asserts that the crucial element will be the proper implementation of the proposals with minimum delay to reap the envisaged benefits, if the country is to make significant and visible progress for the sustainability and growth of the economy, to enable the people of Sri Lanka to improve their livelihoods.
The Chamber will conduct a post budget Forum on 16 November, with the participation of the Minister of Finance, and eminent Resource Persons who will make analytical presentations on the budget proposals, and thereafter engage in a panel discussion to highlight and clarify issues of concern to exporters.