Harsha enlightens Singapore Summit with historic lessons of ‘Parakum Yugayak’, potential to regain

Deputy Foreign Minister Dr. Harsha de Silva during his opening remarks at the session on ‘Sri Lanka today’ at the Finance Asia-organised Sri Lanka Summit in Singapore recalled the rich era of King Parakum and the country’s potential to regain the lost glory.

He said that Sri Lanka’s business model has always been its ability to trade with the world and the strategic geographic location needs to be maximised to once again achieve desired high socio-economic growth.

Apart from Deputy Minister de Silva, the panel on ‘Sri Lanka Today’ featured Brandix Sri Lanka CFO Hasitha Premaratne, Sri Lanka Representative at DEG Geeth Balasuriya, and DFCC Bank CEO Arjun Fernando. This session was moderated by Ceylon Chamber Chief Economist Anushka Wijesinha. Following are excerpts of the session:

Deputy Foreign Minister Harsha de Silva: I want to change the title a bit. Uncovering opportunities in Asia’s rising Gem to say it is rediscovering. Around 1150s AD Sri Lanka declared war against Burma. This was against the Burmese king who used to sell elephants at 30 silver coins to the King of Ceylon Prakramabhahu. The Burmese king said he would sell to 1,000 silver coins and Prakramabahu declared war. When we go on political rallies we say ‘Parakum yugayak nevathath arabaw nijabumbi thale Lanka’. What that means is let us all get together and create the great Sri Lanka we had during the reign of the King Great Parakramabahu between 1153 and 1186. 

At that time Sri Lanka was one of the greatest trading countries on the planet according to chronicles. We discovered coins from China, Burma, Egypt and Greece. How did that happen? It happened only because Ceylon at that time used to trade with those countries. Sri Lanka was a Singapore of the 12th Century like what Singapore or Hong Kong or Dubai is today. Sri Lanka’s business model is based on its ability to trade with the world.

Like Minister Karunanayake said, we had some difficulties because we made some friends not so friends during the past few years. My job and that of the Government of President Maithripala Sirisena and Prime Minister Ranil Wickremesinghe is economic diplomacy. How do we calibrate Sri Lanka with the rest of the world? In that context I am extremely pleased to reveal that we are in the process of doing that. We have strengthened relationship with old traditional friends in the West, brought India-Sri Lanka relationship to something we haven’t seen, the China-Sri Lanka relationship is growing. So Sri Lanka is back in the global business platform. Therefore Singaporeans should consider investing in Sri Lanka as we are once again going to be a significant player in global trade business. 

DFCC Bank CEO Arjun Fernando: The country has two macro level challenges – fiscal deficit and pressure on balance of payments. The Government is taking positive actions to address those including support from IMF and RBI. Upward revision in duties on import of vehicles is a step in the right direction. Though the Government revenue has declined, the Government has managed consumer prices well. 

Another encouraging development is regulatory provisions on capital markets which in medium term will augur well for Sri Lanka. On the financial sector, banks are well capitalised, margins are reducing and profits are at acceptable level. One can argue that lower interest margins are good for the real economy and make banks more efficient and productive.

Brandi Lanka CFO Hasitha Premaratne: Peace that we have and the commitment the Government and political parties have to ensure sustainable peace is quite encouraging. This is because we had 30 years of war and from 2009-2015 we had no war situation. Today we have a commitment towards sustainable peace which is visible from all angles. This gives confidence to private sector and investors because having no war is one thing but having commitment to sustainable peace is another thing. 

Citing an example from Brandix, we were among the first to invest in the East after the Government took control. We started a small factory in Punani employing 100 people. Then subsequently after the war ended, in 2010 we leased a factory in Batticaloa. With commitment to sustainable peace, we laid the foundation on 1 March 2016 to put up a $ 10 million factory employing 3,000 people in Eastern province. So from no war to sustainable peace is a big positive, momentum and trend in Sri Lanka. All major apparel companies are taking a similar view and approach. 

Furthermore foreign relations are at their best with efforts for new FTAs and expansion of existing arrangements, economic benefits of stronger foreign relations will be seen in the future. Any other country in South Asia will have political issues but in Sri Lanka we have a stable government though top parties are still learning how to work together. I am confident it will work out for the betterment of the country.

DEG Sri Lanka Representative Geeth Balasuriya:  DEG has been investing in Sri Lanka since 1970s. Since end of the war in 2009, our activity levels have considerably increased. Today Sri Lanka is one of the promising investment countries for DEG and we currently have a portfolio of $ 200 million in Sri Lanka. We do business in some of the most difficult parts of the world and so why Sri Lanka? One critical reason is peace and when you compare some of the developing countries, Sri Lanka is one of the safest places. Secondly the quality of businesses in Sri Lanka is impressive when compared to other developing economies in region. Transparency, governance, reporting and compliances are also very positive. We are overall bullish on Sri Lanka.

Questions from moderator

Question to Arjun Fernando: Where do you see the financial sector heading in Sri Lanka?

A: I see opportunities in the international trade with positive developments to lift the fishery export ban, regaining GSP+, relaxation of sanctions to Iran. Tourism is another sector we see lot of interests. 

Chinese investments is a positive step as well as the Western Megapolis will offer opportunities for financial sector. I am also a strong believer in financial sector consolidation. We led the way in merging the development finance operations with commercial banking with support from all stakeholders. 

Relaxation of exchange control rules is another step in the right direction. We have seen lot of interests from foreign investors and businesses.

Question to Deputy Minister de Silva: You spoke of economic diplomacy and rebalancing foreign relations. What does this really mean and what concrete steps are being taken and how does it help making Sri Lanka an attractive place to do business?

A: It is a two-step process. Firstly we need do ensure that at political level foreign relations are re-set. After that the foreign investors and businesses will get the confidence that Sri Lanka is a place where we can do business and keep its commitment. For the last so many years Sri Lanka couldn’t even apply to get GSP+. Only last year we made a firm commitment to re-apply and for the last six months we have had very thorough discussions with EU on GSP+ and once we make the application within six to eight months we will get our 12% duty waiver. 

This is not about just apparel. We lost many opportunities including for other export products. In the next months we will see political relationships converting to stronger economic and trade relations.

Question to Hasitha Premaratne: What is the future of the apparel industry and is there scope for more FDI in to the sector?

A: A couple of decades ago, the apparel industry started to deliver value with entrepreneurs invested towards sustainable growth. They didn’t take short cuts but took effort to comply with labour and environmental standards. This ensured a significant differentiator for Sri Lanka against competitors. So for some of the big brands Sri Lanka became a must have ‘compliant sourcing destination’.

Over the years via joint ventures, Sri Lanka has upgraded skill levels in the apparel industry and manufacturing prowess. Industry continues to transform to tap the over one billion labour and market opportunity in the region even though China continues to supply 45% of global apparel demand. I think Sri Lanka will be the centre for design, development, front end merchandising, supply chain related initiatives, financial and logistics solutions. Sri Lankan apparel will grow from within as well as expand in to the region.

The industry exports $ 5 billion and within our own resources we can go up to $ 8 billion but if we harness the regional dynamics, the industry can grow to $ 20 billion within the next five years. We are quite bullish about this as the industry has invested a lot.

Question to DEG’s Balasuriya: What sectors do you see as bright sports in Sri Lanka?

A: We see a lot of opportunities in the infrastructure side. Hitherto it was spearheaded by the Government but we see a direction towards more private-public partnership which will give opportunities for institutions such as DEG which is looking at a minimum transaction size of $ 10 million. So greater public private partnership is important as well as more long term policies and consistency.

Question to Deputy Minister de Silva: What are the key elements to make Sri Lanka a hub for the region?

A: If you look at history, when Sri Lanka was a great nation every time we were very integrated with the world, based on entrepot trade, import, exports and logistics. In the next 25 to 50 years from where would growth come from, it will be the Asian-Ocean region. Pacific and Indian Ocean together and Sri Lanka is geographically strategically located and we need to strengthen ties with trading countries and become a logistics centre and around that multiple services. 

Our policies in the past due to the war had been closed and didn’t help us see beyond our boundaries. That is changing. Sri Lanka used to exports about 35% of GDP 10 years ago and it has fallen to below 15% at present. That is not the direction we want to go. This Government is opening up, building bridges, thinking big, make Sri Lanka the hub of the Asia Ocean. That is the new thinking, attitude, based not because we think it is good but on evidence based policy. 

Question to Deputy Minister de Silva: Given the political economy dynamics including opposition to new trade pacts how would Sri Lanka open up and forge greater trade links and attract FDIs? 

A: We are 100% confident we will get it done. It is a matter of communicating the benefits to the people. I do recognise we have had some difficulty in that department. Perhaps we could be more proactive. Having taken that into consideration, President and Prime Minister are spearheading the initiatives of expanding markets. We need to look at 1.8 billion person market to expand Sri Lanka’s market share and also utilise labour in the region to leverage Sri Lanka’s exports. We are very confident of Sri Lanka India new agreement done and also the Sri Lanka China FTA. 

A: DFCCs Arjun Fernando

In early 1980s, there was Martin Trust from US with a vision and who invested in Sri Lanka’s apparel industry with companies like Brandix and MAS Holdings. I am hoping in this forum   there could be an entrepreneur who could look at an industry and Sri Lanka is the one to partner.

Question from the audience

Q: When TPP comes in to force, what is the future of the apparel industry?

A: Deputy Minister de Silva: The Prime Minister said in Parliament that Sri Lanka is interested in TPP at the right time. As you know it requires lot of domestic reforms and we have started the process. 

A: Hasitha Premaratne: Any retailers sourcing map generally has three regions – China, ASEAN including Vietnam which is a big player, and South Asia -  India, Sri Lanka, Bangladesh and Pakistan. The latter is an important strategic sourcing destination for any retailer. Whether TPP is there or not, we will not get eliminated from map but there will be price pressure. But with GSP+ returning, any impact can be balanced off from success in EU. TPP will require yarn to be sourced within the region which will be a challenge for Vietnam. We are very confident that Sri Lanka apparel will continue to growth in spite of TPP. 

Q: What efforts are being pursued to ensure eco-friendly or sustainable growth? 

A: Deputy Minister de Silva: We are discussing with Green Growth Fund for a number of opportunities in Sri Lanka including a $ 34 million long term program. 

Arjun Fernando: Banks will walk away from a project if there is damage caused to the environment. The banking sector is looking at signing sustainability principles to adhere to.

Q: in terms of trade agreements, what can Sri Lanka provide to the Asian region in the next 15 to 20 years based on its competitiveness? How will Sri Lanka manage rising imports given impact on Balance of Payments?

A: Hasitha Premaratne: Under GSP+ greater value addition about 40% will be required on certain products. There are opportunities on that score. We are very much geared in knit apparels but not on synthetic. Industry is speaking to big Chinese suppliers/mills of synthetic fabric to locate in Sri Lanka to fully harness GSP+ benefits. 

Deputy Minister de Silva: We need both exports and imports or trade or entrepot holistically. The focus is on removing non-tariff barriers so that we can reduce actual protection rates when importing. Sri Lanka needs to Sri Lanka as entrepot destination where you need to import to export. In Singapore, the exports to GDP is 150% in Hong Kong it is 300%, Sri Lanka is 15%. That explains the opportunity to grow 10 or 20 times and that is what Sri Lanka can become in the future.