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Monday, 27 November 2017 00:00 - - {{hitsCtrl.values.hits}}
Minister of Development Strategies and International Trade Malik Samarawickrama
The following is the speech made by Minister of Development Strategies and International Trade Malik Samarawickrama in Parliament on 20 November during the Committee Stage Budget discussion.
Progressive direction of Budget 2018
Hon. Deputy Chairman, first of all we must thank the Minister of Finance, the Hon. Mangala Samaraweera, for presenting a very progressive forward-looking Budget which has given a clear message. An outward-oriented economy is the path towards the prosperity of our people.
Sri Lanka from the times of the ancient kings has always benefited from an open and liberal global trading regime. So, any reversal of that will definitely hurt us as we have seen during the previous periods from 1970-1977 and during the last regime. Our Government is now firmly focused on making the country more open to the world and becoming an attractive place to do business.
I remember as a young professional in 1977 when I heard about the kind of new economic reforms and the opening up of the economy, I was excited and encouraged to become an entrepreneur. That is the kind of spirit that would be kindled in many young people, having heard the direction announced in the Budget 2018 speech.
The focus of our Government has shifted from a growth model that was heavily dependent on public infrastructure spending, to growth driven more by private enterprises, exports and Foreign Direct Investment. Yes, some jobs do get created by government infrastructure projects, but that is neither sustainable nor sufficient mainly for two reasons.
Firstly, our debt burden is too high to keep trying to drive the economy with government spending. We need the private sector to grow this economy. And when I mean the private sector, I am talking about every single Sri Lankan entrepreneur and enterprise, not just the bigger companies. According to the Economic Census, 99% of all establishments in this country are micro, small and medium enterprises.
Our economy is full of enterprising people, enterprising Sri Lankans and we must ensure that we create the best possible environment for them to thrive. Not only for those who are entrepreneurs today, but those who are aspiring to become entrepreneurs tomorrow and in the future.
Secondly, our domestic market is too small to keep trying to drive the economy with inward-looking policies. We have to trade with the world; we have to export to the world, we have to welcome the world to our shores. That is why my Ministry has taken concrete steps to strengthen this aspect of the economy, through a series of initiatives and programs – focusing on exports, FDI, ease of doing business, trade agreements, and bilateral economic cooperation.
Trade
The New Trade Policy (NTP) was approved by Cabinet in July 2017 to stimulate growth and job creation by improving the ability of firms to export and to compete for the domestic market through a modern, liberal, simple, transparent and predictable trade regime.
The NTP that we launched addresses four key elements:
Hon. Deputy Chairman, the most significant trade policy measures we are undertaking is the negotiation of bilateral partnership agreements. The FTA in goods with India is being deepened and it is being broadened to include services, investment, technology and training.
We have to recognise that India is expected to be the fastest-growing large economy in the world in the coming years, with a middle class consumer base that will be 10 times our own domestic market. Currently six rounds of negotiations of the ETCA have been successfully concluded and the seventh round is schedule to be held in December.
One key objective of the Economic and Technology Cooperation Agreement with India is to resolve the implementation issues of the existing ISFTA.
During the ETCA negotiation, India has agreed to implement an “early harvest” the day the ETCA comes into force to address outstanding non-tariff barriers in the Indian market as well as many of the existing procedural barriers and delays in Indian ports of entry.
This will particularly benefit exporters of perishable items such as fruits, vegetables and fish. Moreover, Sri Lanka is negotiating the removal of quotas on apparel, pepper and vanaspathi. An important new measure will be the establishment of a ‘Structured Grievance Redressal Mechanism’ to resolve problems faced by Sri Lanka exporters in a firm and time-bound manner.
A very clear decision has been taken not to include solely Mode 4-based Movement of Independent Professionals under this agreement. It will not be opened up.
Meanwhile, the China Sri Lanka Free Trade Agreement will generate nearly $ 700 million of trade and the apparel sector alone is set to gain $ 400 million in new trade. To date, six rounds of negotiations have concluded and the agreement contains nine chapters. During these six rounds, substantial progress has been made.
We are also nearing the completion of negotiations on the FTA with Singapore, having completed seven rounds of negotiations. We are particularly focused on encouraging Singaporean investment into Sri Lanka. The agreement is expected to be signed in January 2018.
Mr. Deputy Chairman, in addition, GSP plus has been restored providing preferential market access for 6,000+ items. If things proceed according to plan, it is possible the narrative will be that Sri Lanka has preferential access to a market of over 3 billon people - China, the EU, India, Pakistan and Singapore. In a world where over 190 countries are competing for FDI, this preferential market access can be a unique differentiator.
Mr. Deputy Chairman, as you know Sri Lanka ratified the WTO Trade Facilitation Agreement earlier this year. As a key component of this effective national coordination a National Trade Facilitation Committee has been established to drive the implementation of Sri Lanka’s TFA commitments.
On trade facilitation, a single electronic window is established to be in operation in the Customs Department shortly. These measures are intended to reduce the transaction costs of the cross-border movement of goods thereby enhancing the trade competitiveness of the economy.
All these measures are intended to improve the investment climate and trading environment for both domestic and foreign investors.
We are aware of the possible trade disruptions that can occur during the transition period. An Anti-Dumping and Countervailing Measures Bill and a Safeguard Measures Bill are being presented to Parliament soon. The bills are ready and I think this can be debated and approved in December or January.
This will protect domestic business from unfair competition. A trade adjustment package is being developed to improve the resilience of local businesses exposed to increased competition as a result of trade liberalisation, support for local industrialists to upgrade machinery and introduce new technology and to provide retraining for workers.
Foreign Direct Investment
Foreign Direct Investment into Sri Lanka had been performing poorly, but with efforts that my ministry is taking, this has begun to turn around. At the Board of Investment we now have leading private sector specialists leading the investment promotion and appraisals, to ensure we get the best of investors to our country, that we facilitate them well and tell other investors about the opportunities here.
The approvals and facilitation process for foreign investors is being completely streamlined, with decisions being taken quicker and more transparently than ever before. A One-Stop Shop (OSS) mechanism is being set up to address regulatory inefficiencies and interagency coordination.
An organisation structure of the OSS and a web solution for OSS approval process has been developed. The BOI has revised its goals and targets in its new Corporate Plan (2017-2020) with a view to playing a key role in contributing to the sustainable development of the country driven by FDI.
This new Corporate Plan presents a bold and new strategic approach to targeting and securing significantly higher levels of high quality FDI. To complement this, a Single Window Investment Approval Committee was established to facilitate granting of approvals within the shortest possible time.
An Investment Facilitation Committee is also in place to fast-track approvals of other line agencies. The flagship investment that we brought in 2017 is the new Logistics and Industrial Zone in Hambantota, with an initial FDI inflow of $ 1.12 billion and a further $ 500 million is expected within the next two to three years.
This zone is being developed with Chinese investment and we expect a lot of investors, not only from Chinese companies but from many other Asian countries, would be interested in this.
The next will be new industrial zones in Milleniya, Mawathagama, Bingiriya, and Weligama. The zone in Milleniya will bring in investment from the Rojana Corporation of Thailand which is operating seven industrial zones in Thailand mainly with Japanese investors.
The new Inland Revenue Act No. 24 of 2017 provides a predictability of incentives for new investment, and introduces a new incentives regime with effect from 1 April 2018, which is based on enhanced capital or investment allowances.
Ease of doing business
Mr. Chairman, our ministry is committed to leading the effort in improving the ease of doing business for Sri Lankan entrepreneurs and foreign investors.
With the technical assistance of the World Bank, we developed the ‘Roadmap for Investment Climate Reforms’, which was launched in July this year. In the last three months alone, eight teams of government officials representing public service delivery agencies have been working on eight high-priority ease of doing business sub-indicators: Starting a business, Dealing with construction permits, Registering a property, Getting credit, Trading across borders, Enforcing contracts, Resolving insolvency, and Protecting minority investors. Under the eight priority sub-indicators, 15 specific measures to be taken, and the timeframe, responsible agency, and outcomes have been identified and the work is progressing accordingly.
Outcomes for mid-2018 include providing a one-day service for company registration to reduce the time taken to register a company from the current 9 days to 1 day (under the Starting a business pillar); introducing a streamlined online system to reduce the number of days for construction permit issuance from current 115 days to 60 days; and introducing a searchable e-land registry to enable property registration in 5 days with 2 steps rather than the current 51 days with 9 steps.
The blueprint of the long-awaited National Single Window will be completed by June 2018 paving the way to establish a system that integrates more than 20 agencies dealing with various clearances and approvals in trading across borders.
Our ministry is continuously monitoring this reform process towards achieving the objective set out by the Prime Minister of moving up the DBI ranking to be within the top 70 economies by 2020.
These are some of the examples or just some of the many ongoing measures the Government is taking to improve the business climate in Sri Lanka – for domestic enterprises as well as foreign investors - through legal, regulatory and procedural improvements. While this is an ongoing process and benefits will take time to materialise, positive results are already being seen.
Internal reports suggest FDI in the first half of 2017 is up by around 80% versus last year. We expected FDIs over $ 1 billion - about $ 1.2 billion - this year and in the next year, I believe, it will go up to above $ 2.5 billion.
Innovation and diversification
With regard to innovation and diversification Mr. Chairman, we have identified that Sri Lanka needs to diversify its economy, and produce as well as export a range of new and innovative products and services.
With technical input from Harvard University’s Centre for International Development, the teams comprising officials from the BOI, EDB and Sri Lanka Tourism Development Authority have been working over the last year to improve our economic diversifications targeting foreign investors and identifying new export and investment sectors. This is being directly handled by the State Minister of International Trade, Hon. Sujeewa Senasinghe. We are also close to finalising a new ‘National Export Strategy’– NES - with a focus on competitiveness and innovation. The aim is to grow exports to $ 20 billion over the next five years in sectors ranging from high-value and high-quality food and beverages, to leisure boats, IT services, and electronic components.
The NES will be presented to Cabinet within the next two months. What was unique and valuable about this exercise is the close collaboration of the private sector. Every single section of the NES was developed through a participatory approach with over 450 industry leaders, SMEs and public sector officials being consulted. Another valuable part of this is the strong focus on actions - action plans have been developed for each sector and each trade support function. We want to make sure that implementation begins from January itself. I am happy to announce that several proposals made through the NES process have been included in the Budget 2018 by the Finance Minister. We also recognised the need to create an ecosystem that promotes innovative thinking and creates new products and services. We have embarked on producing a new framework for this – the Innovation and Entrepreneurship Strategy – with the technical input of the World Bank and co-leadership of the private sector. This will be implemented jointly with the Ministry of Science, Technology and Research and Ministry of Industry and Commerce. The strategy focuses on upgrading quality and technology of export-oriented SMEs, create the conditions for startups to emerge, and reorient and upgrade R&D institutions that matter for export growth.
Deepening strategic economic cooperation
Mr. Chairman, with Sri Lanka gaining the respect and recognition of the international community once more, we have been able to forge several economic cooperation agreements with key countries. These will help improve our trade performance, attract more and better FDI and create good job opportunities for our people.
We entered into a roadmap for further investment promotion between Japan and Sri Lanka, and it is a result of the Sri Lanka-Japan Economic Policy Dialogue following the visit of the Hon. Prime Minister to Japan in October 2015.
A Joint Working Group has been established to take this work forward and two high level meetings were held this year. We are embarking on a similar program with Korea, for both investment promotion as well as transfer of technology and know-how. The Economic Cooperation Agreement is due to be signed at the end of this month, during a visit of His Excellency the President to Korea.
During the recent visit of the Australian Prime Minister, we entered into a cooperation program with Australia, focused on trade and investment promotion.
We relaunched the EU-Sri Lanka Investor Dialogue in 2017, and up to now three rounds have been held this year to resolve trade and investment-related problems and grow the bilateral economic cooperation. These leverages nicely on the regaining of GSP Plus in May, which was a great achievement of the Government and was only possible because of the respect of the international community that the President and Prime Minister have regained for Sri Lanka.
Mr. Chairman, the people of this country are already seeing the benefits of regaining GSP Plus. Apparel exports to the EU in the first nine months of this year have increased by $ 1.67 billion. In the pre-GSP plus period, apparel was growing at just 2%, but in the few months of regaining GSP Plus, it has surged by 11.3%. Fisheries exports are up by 40% compared to the same period of last year.
The GSP Plus scheme is giving our exporters a renewed opportunity to succeed in the EU market in sectors like fresh and processed vegetables and fruits, coconut products, seafood, ceramics, footwear and of course apparel. It is also promoting backward integration, resulting in the setting up of new industries and creating new employment opportunities for the youth of our country.
The year ahead
With regard to the year ahead, sir, our Ministry will focus on expanding our trade and investment even further by bringing in good investors to Sri Lanka who will create good job opportunities, and who will help Sri Lanka plug into global value chains. We will focus very strongly on operationalising new investment zones and attracting investors into them – in Hambantota, Milleniya, Weligama, Bingiriya and so on and attracting investors into them.
We will focus strongly on implementing the National Export Strategy that will diversify our export base, boost the competitiveness of our exporters and win new consumers in new markets. Specifically, my Ministry welcomes the Budget proposal to launch an ‘Exporter Market Access Program’ that we will implement through the Export Development Board, and also the new IT initiative to take this emerging sector to new heights. Through strategic economic cooperation agreements with new countries, we will invite more partners to help Sri Lanka achieve its goals of prosperity and economic transformation. Through improvements to the ease of doing business as well as new initiatives to encourage innovation and entrepreneurship, we will create a new culture of enterprise in Sri Lanka.
To that end, the proposals on Enterprise Sri Lanka announced by the Finance Minister are extremely valuable and I look forward to working together to support these efforts, and achieve the Vision 2025 of this Government.
May I also invite, Sir, the Hon. Members of the Opposition to work together with us, leaving aside petty political differences to ensure that our young people have a great future.
