National Chamber of Exporters has its say on 2017 Budget

Tuesday, 15 November 2016 00:17 -     - {{hitsCtrl.values.hits}}

The National Chamber of Exporters (NCE) in a press release stated that the Budget Proposals for 2017 have many positive features that encourage the export sector in general to effectively contribute to the achievement of the economic development targets of the Government in the medium term.

The Chamber is particularly pleased with the allocation of Rs. 10 billion as the capital contribution of the Government to implement the establishment of an Export Import Bank (EXIM Bank). The Chamber has been consistently calling for an EXIM Bank, which was included in last year’s Budget proposals.  However, implementation of the relevant Budget proposal was constrained, apparently due to a lack of clarity on 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 marketplace since inadequate export capacity is a major constraint to expanding 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 that the bank will be set up as soon as possible within the year, with the infusion of professional management on the lines of more relevant models in Asian countries, particularly India.

An outline of the views of the Chamber related to specific sectors and segments are as follows.


Agriculture sector

The proposal to commercialise 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 relation to economies of scale and reduced costs, due to the ability to use mechanisation and hi-tech irrigation, etc.  

It will also encourage entrepreneurs to move into agro processing and value addition to specific fruits and vegetables and other agricultural items with export demand.

Tea sector

Several positive moves have been made to encourage value addition and increase the competitiveness of the sector. 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 inflicted 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. 50 million 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. 900 million for replanting rubber, introducing high yielding plants and rain guard technology, will boost the rubber sector and other value added rubber products such as motor vehicle components, for exports. 

Toys and allied products sector

The positive focus of the budget proposals on the Rubber sector is considered to have a direct impact on the manufacture of rubber toys as well, since they are marketed worldwide as a natural and sustainable product.  Furthermore, the intention to provide support to participate in trade fairs is welcome since the industry spends a substantial amount participating 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 its current figure in the next three to five years, including value addition through canning and processing, has been recognised. In this regard, the allocation of Rs. 500 million to encourage the introduction of new technology to multiday 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 the expansion of production capacity with significant potential for the expansion of the outgrower 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 are also a vital contributor for export growth, their expansion and growth are severely affected due to limited access to financing, which has been a perennial problem.  In order to address the lack of collateral by SMEs to access finance, the proposal to allocate Rs. 500 million as ‘seed capital’ for an SME credit guarantee scheme is a welcome move. This proposal 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 the decision-making process related to investments will hopefully boost expansion of investments for capacity enhancement.  

In this regard, the proposal to remove the cess of 25%, which is applicable to prefabricated structures, will also encourage investments. More importantly, the move to provide capital allowances related to investments, and the grant of 5% of the investment at the end of the second year of operations for large-scale investments with a more than 40% value addition and employment generation for 500 and above, is an additional incentive to encourage investments. 

Assistance for science, technology and innovation for development

Several measures have been introduced to financially support the science, technology and innovation requirements of development. In this regard, the proposal to establish a Biotechnology Innovation Park and the allocation of Rs. 100 million for the purpose as well as the allocation of additional funds to the University of Moratuwa for the Center for Advanced Electronic Designs, as well as Rs. 250 million 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 the 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 marketplace.  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 in terms of sustainability and economic growth to enable the Sri Lankan people to improve their livelihoods. 

The Chamber will conduct a post-Budget forum on 16 November, with the participation of Finance Minister Ravi Karunanayake 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.