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Harsha responds to marketers questions

Comments / {{hitsCtrl.values.hits}} Views / Tuesday, 24 February 2015 00:26

Following are excerpts of the Question and Answer session with Policy Planning and Economic Development Deputy Minister Dr. Harsha de Silva at the CEOs Forum organised by CIM Sri Lanka   Q: We need to engage the bottom of the pyramid and you mentioned about creating efficient markets. Is it correct to say that the fundamental pillars of growth are to create consumer confidence and export growth for the economy to kick start? A: Consumer confidence is a sum of many things and that confidence does not come from just economic policy, it comes from how people feel about the future and that future is not just dependent on rupees and cents. And of course, exports I did not talk about. We want to maintain the ratio of exports to GDP more than 100% and that’s where we want to go. Ten years ago, the export to GDP was 34%, now it is 15%, and now we want it to be more that 100%. So, it is going to be mainly focused on exports. The second question was on the pricing mechanism. No, we don’t want to have price controls and things because that’s not where we want to go with this. We do need to have guaranteed prices for farmers for grains, for paddy and various other things. While we do that, the objective is to make the markets work, which means the market should determine the prices as much as possible.                       If you look at the fuel prices you already see that we are moving in that direction. We will give the authority the Public Utilities Commission of Sri Lanka (PUCSL) is suppose to have to regulate it, but you will have some fluctuations in the local pump price and the meter tariff based on global energy prices. If the global energy prices are down, there’s no need for you to think that the Government will vacuum with a massive tax to take the money to the Treasury — that won’t happen! We want to pass on the benefits to the consumer and if the global prices goes up then you will be have to be a part in making that adjustment as well. Then you said about the bottom of the pyramid, whether this is household income – certainly it is. You also said that you saw value growth. I believe that value growth can happen when more affluent people are going to the supermarkets. If you now connect what I said a little while ago that the top 50% of the income growth was above the average, that mean there’s more opportunity for more affluent people to purchase value. So what we are trying to see is, while value growth is happening, we want to push volume growth up. Now, imagine if the average per capita household income is only Rs. 11,900 (including wages and non-wages), what is your spending power?   The other day when I was going in Kotte, in one the shops it had a board saying ‘Keells karal’. You guys are marketing people; you should know what a ‘Keells karala’ is. They sell loose sausages, did you know that? You can buy one loose sausage, so it has come to that level. If our game plan works and if you help us to make this work, what happens is that the value growth will continue to happen. But volume growth will also pick up as we want to give money to the people. If income growth on an annual basis for the last six years was only 0.5% in real terms, you know that your income grew much more than that. What that means is, what about the lower incomes? It didn’t grow! There was a negative growth in their income.     Q: There is an external commercial borrowing scheme by which a company can borrow up to $ 10 million from overseas. This expires on 31 December. Will that be extended going forward or will that be curtailed at the present expiry date? Secondly, what would be the exchange rate trend for the next six months? A: I will give you a very diplomatic answer to that one. It has to be at your strength to borrow dollars. If you feel confident that your assets and liabilities are aligned well, then why should be there a problem? Why should the Government try to restrict an individual company’s ability to borrow at lower rates than they would otherwise be able to borrow locally? However, you have to be very cautious. I don’t think that we as a Government will push you to borrow dollars. We will tell you go ahead and borrow, it’s good for us. That enhances our external reserves and provide extra cushion to our economy. Don’t forget what happened in Thailand or the Asian crisis. The Thai Government pushed businesses to borrow dollars, with the hope that the part would stay at that level. They defended it till the bitter end, but what happened?  Everything crashed and burnt. It was not just Thailand, but a bunch of other countries along with it. As long as you are prudent, I don’t see why we should come and tell you why you shouldn’t do that. I don’t think that this Government would be restrictive. I must also appreciate some of the things that Cabraal did in the past, in that opening up and liberalising the markets so that you can do these things you are doing. I don’t think that there is any reason why we need to reverse any of these things. On the exchange rate, I will leave it to Arjuna to reply that because I don’t want to politicise the Central Bank.     Q: There are major issues in BoI projects of national importance such as preference for locally-manufactured not being implemented; Indian and Chinese labour are taking away the jobs; Indian and Chinese smaller companies do not pay contractors operating in Sri Lanka. What’s your opinion? A: This is a complex question to answer and I see two sides of it. I empathise with you, as you seem to be complaining about being negatively impacted because those guys are not following the rules and you have to follow rules. At the end of the day you are being made to feel less competitive. That is really why we need to formalise some of these joint agreements. For instance the Comprehensive Economic Partnership Agreement (CEPA) with India has been stuck for the last so many years. I will not fear to say that was because of the lack of interest of some people, that the former President didn’t do it. But I think we have to look beyond. We have a market of over 1.5 billion in India. Let us not get too scared about it. Look at companies that have expanded to India and beyond. It is possible for us to do it. Now what’s happening is that we are getting bullied and we can’t do anything about it. But if we have a bilateral agreement in place, then we know what our terms and conditions are. I believe that it is in our best interest to have an equitable but asymmetric agreement, where we benefit more than them. We are going to be moving in that direction and we are not going to back off from CEPA. We are going to try to work with India to have a CEPA where it is going to asymmetrically benefit Sri Lanka. If you have specific issues, please don’t hesitate to write to us because we will look into those specific issues.     Q: Will you allow goods and services which don’t pay Sri Lankan taxes to operate here on BoI concessions? Will you also allow foreign labour which doesn’t pay EPF, ETF and taxes in Sri Lanka? A: That sounds a bit weird; they have to pay EPF and ETF whether it is foreign-owned or locally-owned. If there are companies that are not paying EPF and ETF, let me know; we will send a team to catch them. You know, we are Sri Lankans. Don’t forget that Sri Lanka comes first! We want local companies to play on the global stage. We want companies to go out and work because Sri Lanka is now already exhausted. We will do more but we wasted so many opportunities opening up in Africa and so many other places. We must seize the opportunities and our Government will fully support it. When I say that our policy on exports is going to be different, I mean it. Ten years ago our exports were 34% of GDP, now we export 15% of GDP, but what we want to export more than 100% of our GDP. Now, somebody might ask ‘how the hell can you export more than what you produce?’ GDP takes the net figure (the difference between exports and imports). So if you really want to be a hub, you can always import and export. You can add value. Hong Kong exports 300% of the GDP, Singapore is also like that and Sri Lanka can be like that. We have a port that is not being used, we can create industries that add value and re-export. We have to look at both goods and services to exports and we will lay emphasis on that. I used to ask the former President, ‘Sir, what is your strategy on exports because the exports are falling?’ Then some official would tell me at the Parliament committee, ‘Honourable MP, exports is not the only thing!’ That is the attitudinal change that we have to create. Sure, exports is not the only thing, but for a small country like Sri Lanka exports must be the main source of income generation.     Q: With regards to the Free Trade Agreement (FTA) with China, is it going to proceed or you are pushing it back? A: No, no! We are not pushing it back; we will proceed with it, but there are multiple views. A private research agency has done a very interesting study on all FTAs that China has got into and they have done a comparison. We want to look at it and see how we need to manage it over a period of time. We won’t rush it, but we are moving in that direction.     Q: In the new Cabinet, there’s no Science Minister. As a country if we are to grow, we must invest in R&D disproportionately, not what we can afford. What are your views? A: Well... unless we are going to innovate, we are going to be stuck here. If you look at all the companies and countries that grew, their key to success was innovation. The Prime Minister is very keen on that. It’s true that we don’t have a science and technology minister because our Cabinet has only 30 ministers compared to the previous Government which had over 100 ministers. In fact, we have been talking to Prof. Tissa Vitarana the other day about bringing in all the science and technology institutes together and that has come under our Ministry. Look at companies like Sri Lanka Institute of Nanotechnology (SLINTEC), they are doing a good job and I think that private-public partnership is positive. Sometimes Government research is not what you are looking for, private sector research and if tax concessions are given and various other incentives are given, there’s cutting edge research that is taking place; we are committed to encourage that. Sri Lanka should be a highly-competitive social market economy. The two words have been put there not because we thought about it last night, but a lot of thought has gone in. Our policies would favour and we will in the next several months have inclusive discussions with the public and private sector to ensure the right policies, thereby when the next budget is presented, we will have a long-term vision embedded in that document.     Q: When you were in the Opposition, you always talked about the dependency or the reliability of the data that we have. As you know, not only marketers, every corporate body depends on reliability because the use of incorrect data on one levels kills national credibility outside the country and at the second level we take wrong decisions based on information that’s incorrect. What steps would you take from the Government to deal with this? A: We have already taken steps on that and we are setting up a National Data Committee, headed by Anila Dias Bandaranaike. She’s one of the most respected data people in this part of the world. She has prepared a long note already, which the Prime Minister and I went through and we were very happy with the TOR. We will bring some people with unquestioned credibility into the data committee and over the next year we will hopefully get this right and we will again have credible data going out. I’ve had people come and tell me that they had to walk into the National Data office and change numbers. Wanasinghe, the guy they fired, came to my office with a six-inch thick file and explained how they did it for years. You’re right; you go wrong if you make decisions with wrong data. Don’t blame yourself if your forecast didn’t work out since you were benchmarking against an imaginary figure.     Q: What’s your view on the interest rates? A: No comment. Q: How would you be able to overcome the 100 days? Will there be a Key Performance Indicator (KPI)? How do you know you’re progressing satisfactory?    A: I’m the guy who’s supposed to talk about it to the media and Prime Minister told me that I have to face the press every week. We will tell this country exactly what we have achieved in the 100 days as opposed to our plan. We are very happy with the progress. I’m a fighter, I gave up a very lucrative job to get into politics in the Opposition because it comes from the heart. I’ve been give a task and I’m going to do it with all my heart. Go ahead and believe what I’m saying, because we are certain of victory!

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