Ill-judged ultimatums

Nationalism, like many controls on the economy, can be disastrous when applied the wrong way. Successive Governments have tinkered with nationalism with varying levels of success, and the latest one appears to be getting ready to do the same. 

Following a trail of adjustments to Budget 2016, the public sector can look forward to better pay in the New Year. However, this precedent has other sectors demanding salary hikes as well and the planation sector in particular is struggling to finance higher wages for their employees. In the midst of the quandary of how to finance these increases, United National Party (UNP) stalwart and Highways Minister Lakshman Kiriella has warned privately-owned plantation companies that they will be nationalised if workers are not given higher pay. 

Such statements, while made with good intent, can throw a very serious spanner in the works. The plantation industry is already seriously struggling. Many column lengths have been dedicated in the past few weeks to the dwindling prospects of the tea industry and increasing price shortfalls in the coming year. Political issues between Russia and Ukraine, turmoil in the Middle Eastern markets due to lower oil prices, drastic currency depreciations and economic sanctions imposed on key tea importers from Sri Lanka have taken a toll on the country’s tea industry in 2015. Consequently, tea prices, particularly in Colombo, which reached a record high in 2014, ended the year substantially weaker. 

In fact, the Colombo auction average for 2015 is approximately Rs.62, lower than the corresponding average in 2014.  So dire has the situation become that brokers have already warned the decline in US dollar terms would record an even sharper decline compared with 2014, following the devaluation of the Sri Lankan rupee against the US dollar during 2015. Currently, other than Japan, all other major tea importers among the top 10 importers rely on oil and gas for the stability of their economies.  Even though depreciation provides a silver lining for tea exporters, this is offset by lacklustre crude oil prices. 

The industry is also hampered by taxes that are often seen as complicated and regressive. Cess charged on plantation exports is supposed to be funnelled back into marketing, research and development for the industry, but often they are redirected to other Government expenses. Structural changes within the industry has also hampered increased income from exports. Rubber, coconut and tea planation companies have repeatedly acknowledged the need for more value addition and diversification of their product to tap high end markets that are steeped in competitiveness. 

Tea exporters are at the centre of this struggle. Internally, they are challenged to improve the quality of tea production, particularly from small holders who often lack the dedication and technical knowhow to improve their product to meet the standards demanded by buyers willing to pay top dollar. Many tea pundits have screamed themselves hoarse trying to make stakeholders understand the necessity of improving quality to tap into the top end of the markets. Others are struggling to open up the tea sector to make Sri Lanka a blending hub and reduce dependence on bulk exports. 

Nationalisation nearly broke the backbone of the plantation sector once. The Government has to be aware of economic realities and be willing to consider all sides before it throws about ill-judged ultimatums, for the results will be felt by all.