Leaden losses

By Uditha Jayasinghe

Strikes by workers in the Katunayake and Biyagama Free Trade Zones (FTZs) last week will cost the apparel industry between US$ 20 million to US$ 25 million, said a top industry official.

The head of one of Sri Lanka’s biggest apparel manufacturing companies told the Daily FT that the breakdown of numbers was being assimilated by the companies at the moment and a realistic figure would fall between US$ 20 million and US$ 25 million.

“Much of the factories in the FTZs are engaged in garment production and after discussions with other manufacturers, we have realised that the losses in the Katunayake zone alone would be around US$ 20 million,” he explained, adding that work stoppage in the Biyagama FTZ also compounded losses.

“Several other zones including Wathupitiwala, Ja-ela, Ekala and Seeduwa that are not demarcated as a FTZ but where garment factories operate were also disrupted, bringing losses closer to the US$ 25 million mark.”

Several shipments were also delayed from the Biyagama zone and manufacturers were disgruntled about the delay in meeting buyer deadlines. “If a shipment is delayed, then the manufacturer might have to pay around US$ 2 per garment, which is sometimes more than the production cost,” he remarked.

From a macro perspective, the apparel industry is expected to earn Sri Lanka around US$ 3.6 billion this year. This means the industry should earn approximately Rs. 70 million a week to meet this target. Of Sri Lanka’s dozen FTZs, the one in Katunayake manufactures around 30% of exports.

The 265 companies in the BOI-run free trade zones account for about 13 per cent of the annual $ 8 billion in exports.  Most are involved in the garment industry, one of Sri Lanka’s top three foreign exchange sources.

The Labour Ministry meanwhile has stated that it would interact with the International Labour Organisation (ILO) to formulate a fresh draft of the Pension Bill. The Government had earlier reiterated that a pension scheme for the private sector was part of the ‘Mahinda Chinthana’ and therefore another attempt would be made to present a Bill in a different format.

According to reports, the Ministry has also decided to partner with the Finance and Planning Ministry to draw up the Bill rather than let the latter handle it, as was previously done.

FDI highest-ever in 1Q

The Board of Investment (BOI) yesterday announced that Sri Lanka has hit the highest-ever quarterly FDI inflow in the first quarter of 2011.

Releasing a statement, the BOI said that the inflow of US$ 236 million in foreign investments for January to March this year was an increase of almost 160% versus the corresponding period in 2010.

According to the statement, the annual average FDI figure of the last five years was US$ 668 million, which accounts for approximately 2% of the GDP.

 The goal is to increase the FDI target gradually to US$ 2.5 billion in 2015, resulting in an FDI/GDP ratio of approximately 4% and paving the way to achieving an economic growth rate of 8-10%, it said.

“The strong performance was helped by investments in the dynamic tourism sector, which accounted for US$ 132 million,” said BOI Chairman Jayamapathi Bandaranayake. The major contribution to this relatively high value came from strategic investments in Colombo and Hambantota by the luxury Shangri-La hotels chain.

The second largest contributor to FDI in Q1 was the utilities sector, driven by investments in telecommunications, representing a total value of US$ 62 million. The apparel sector received inflows of US$ 7 million.

A decision had been taken in the first quarter of 2011 to grant approval for six garment manufacturing companies to set up expansion units in the Northern and Eastern Provinces, with projected investment in excess of US$ 40 million.  At present, these companies are in the process of finalising their locations and implementation plans.

With the increased emphasis on high value investments, the number of agreements signed in Q1/2011 declined to 29 from 42 in Q1/2010. However, the total value of estimated investments increased to US$ 882 million from US$ 302 million in the corresponding period. As a result, the average estimated investment per project increased to US$ 30 million in 2011 (US$ 18 million excluding strategic development projects) versus US$ 7 million in Q1 of last year.

In accordance with the new tax policies with a reduced general rate of tax, many of the smaller investments (less than US$ 3 million) will be operating under the normal tax regime and will not necessarily fall under the purview of the BOI. However, export companies as well as import substitution industries will benefit from operating under BOI facilitation.

The period also witnessed a strong increase in imports and exports of BOI companies. Total exports by BOI companies increased to US$ 1 644 million in 2011 from US$ 1 302 million (an increase of 26%), with quarterly garment sector exports increasing to US$ 994 million in 2011 from US$ 781 million from the previous year (an increase of 27%).

The significant increase in FDI is a strong vote of confidence by the international investor community in Sri Lanka, following the 30-year civil unrest.

With the Government placing an increased focus on higher thresholds for investment to benefit from increased concessions, large-scale projects which can make a substantial impact on the country’s economy are expected to account for a major share of investments to the country.

“The BOI is confident that the country will leverage the strong momentum into achieving a record inflow of US$ 1 billion this year and with policy consistency as well as the several State agencies working in harmony and coordination towards this common goal,  the country will be  a promising investment destination,”  Bandaranayake said.