Tuesday, November 14, 2017

My Take on the Post Budget Seminar – "A vision today, A reality tomorrow?" @ Cinnamon Grand on the 13th Nov

The highly anticipated Post Budget Seminar, on Monday, 13th November at the Oak Room of the Cinnamon Grand @ 2pm featured both, the Finance Minister, Mangala Samaraweera, who gave the keynote address and the State Minister of Finance Eran Wickremaratne, who was on the panels to whom many questions were addressed.

“You know we are part of a coalition, and we have to reach consensus” was Eran’s answer to why nothing has been done! In short it was an exercise in futility trying to put icing on a cake that has yet to be baked, so sure to send a lot of tummies rumbling if they ate the cake!

The whole thing was a farce of the top order. The minister laid a spin on his thinking in this budget for the long term, an environmentally friendly budget, that tried to accommodate all needs and in the end made more enemies than friends, as the good proposals like liberalization, cutting 1,200 para tariffs only reflects a long needed cleanup of dust that has settled, and NOTHING that will lead to a WOW factor that will energize the gathered into any sort of action to grow the Economy.

Mangala mumbled about the opportunities now being opened to those who don’t go into State Universities. Actually the real issue is those who go into the state universities ARE the PROBLEM, they are the unemployable. Not the others who have enough opportunities, as is to get ahead, and if they don’t take advantage of the zillion opportunities available to today’s youth (other than state universities, which I don’t recommend anyone go to) it is only for lack of effort, as the openings are there everywhere in an Economy with a million vacancies. No more money need be wasted here, as the teachers who are supposed to empower are just not there. Having a German Tec everywhere is wonderful, but what is the practicality of establishing it? NOT EASY AT ALL.

Don’t forget the FM read the budget speech, we don’t want a regurgitation of it, we want his honest belief on how it is a true vision, and paradigm shift, which will turn into a reality tomorrow. To that extent there was NOTHING in his speech other than a lot of hot air, interspersed with a few after dinner type jokes! The gist is good, and will take years and years to sink in, but no instant jump start that is needed to get to $5,000 of GNP per capita.

Then came the Lady from PWC, which was another joke, merely pandering to a small class who are worried about the duty on cars, and alcohol. She really knew the selfishness of the audience that she addressed and NOT the nation’s need about how GROWTH FRIENDLY it is or not! Without growth the Youth Aspirations will not be met.

So that was a waste of a speech. Then there was the HSBC Country head who plugged HSBC’s green initiative running into Billions of Dollars, which was only a plug for that bank as to how much emphasis they are placing on Renwable Energy, and sustainable development, completely at odds with the budget in Sri Lanka, just buying a peanut 50 electric buses, that will come under a corrupt deal and result in buses that are not roadworthy in days.

The Welcome and vote of thanks speeches were merely formalities with no substance, and so what of the panel discussions?

Nisthar Cassim moderated the sessions, as always asking stupid questions of the panelists. Either, the answer was the obvious, or he was being facetious with his questioning, that had NO direction or ultimate objective on why he questioned them. Nothing earth shattering coming out of them, except when the industry players came on stream to explain how the budget will affect them, and how they should react to the future. The Ansell guy was fixated on wanting a tax holiday, as otherwise he will switch his growth to Vietnam that will give him the benefit.

When Eran said that business decision making is only concerned in small part on tax holidays, while most of it is how each working person manages his whole operation and looks at all the benefits. Then the water of the BOI Zone in Biyagama which has never been upgraded since its inception in 1982 was quoted as an example of lack of vision on the part of the state in providing the infrastructure for a growing business! Ansell had to build their own water treatment plant to handle their internal expansion.

The person from the fishing industry, while crediting the GSP plus for reinvigorating the export of fish to Europe, wanted some clarity in import, process. He requested, re-export of fish based products, with value addition done in Sri Lanka, without the need to pay duties etc on import of the raw materials for export.

Sriyan from TJ a apparel company, wanted to see a more attractive climate for business in SL, as even they are finding better opportunities to set up business in Vietnam in preference to expansion in SL for a whole host of reasons.

Even the schizophrenia in the IT industry was commented on by Eran, who said that what he had said at a previous forum had been taken out of context, about importing skills not available, and reiterated that none of the FTAs have any commitments to open the doors for people to come and work in SL. 

The reality is IT has to be made more competitive by opening the doors to all comers, as in the end the ability to pay determines who you can attract, and our people go overseas for higher wages, and if we are to retain, we also have to offer higher remuneration, and if we have shortages then we may only fill them from imported labor anyway, IF THE BUSINESS IS TO GROW. Competition with foreigners within SL, will improve the competitive standard of the workforce in SL, rather than the reverse, if they are protected. They will not get the exposure they otherwise would have got. It will raise the mediocrity of protection to the excellence of free labor movement.

The guy from Siam Cement a Frenchman was new to SL, but nevertheless, understood the enormous profits they make from having restricted access to imports of cheap cement, which can be sold in SL at 40% below that which Siam sell their main product, which means we in SL are paying a huge premium for cement, which in reality should be shifted from cement to higher real wages for the construction workers as our cost of raw materials in construction is the highest of all in South Asia and South East Asia due to the protection of industries. The government is NOT considering the liberalization of Cement Imports, as it will bring down construction costs by a substantial amount.

The Government by making noises about liberalization, has a long way to go to make it real, and for the cost of many inputs to come down, as the PAL of 7.5% of almost all imports is effectively an import duty, whatever it is named as. So protecting Siam Cement is unconscionable as it is effectively a monopoly charging monopoly pricing, as it allows a few entrants also NOT to rock the boat and make big profits, and any reduction in price is called dumping, requiring bogus anti-dumping legislation.


NO intelligent person left this seminar with a good feeling, that the Govt knew what they were on about. After all even the deputy secretary to the Treasury Atygalle agreed that some items missed will be put in next time, and the exemption from VAT of Sale of Condos has been lifted which could have a devastating effect on the already overpriced housing sector. After all there is NO lower limit to help the poor, so any apartment purchase will carry vat, and I am presuming it is only on the first sale, and construction companies will be able to claim input VAT on their vat paid purchases.

The concept of greater liberalization, DOES NOT RESULT IN GROWTH per se, and if it does the lag is years, not days or months. What we in SL need is growth NOW not tomorrow. How do you get growth when you balance the budget, in effect in a high debt scenario you have NO choices except one in SL. We only have a two year window before international interest rates skyrocket! After that is stagflation and redundancy.

Sell ONE state Bank and get US$5B. Use the money to stimulate the economy in areas that will not result in inflation, but instead aid in achieving double digit growth without being trapped in debt. This stimulus will encourage business, reduce interest rates, (put a break on import of consumption goods in this scenario as that will just add to Balance of Payments woes without resulting in real growth!) Reduction of interest rates should be tied to investment in plant and machinery for growth.

It will raise wages in the economy and hopefully transfer workforce from unproductive three wheeler drivers, and government servants to the private sector, merely by market forces of supply and demand, where this enormous need is ever present. No mention was made of making the public service more efficient, as that is also a key to growth, by shedding excess staff to join the private sector that is struggling to fill vacancies.

So instead of plaudits that donkeys in the various press articles, have given the Budget, it is high time to really admit that we have a problem. Growth will slow and turn negative, as the IRD act bites in April 2018, and RAMIS will suck a lot of excess liquidity of people in the black economy, the consequences of which will only be really felt in the latter half of 2018. The top brass in the Treasury and CBSL are in denial of the consequences. Added to this the Medamulana Tax will give a good excuse to banks as to why they will not reduce their interest rates, bearing in mind the spread is unconscionable. 


What a damn shame!

APPEAL: Prey tell me what in the budget is going to stimulate growth of the economy? NOTHING - case closed.

Link the budget speech in English (available in Sinhala and Tamil also in the Ministry of Finance Website)



1           Reducing the spread in the Banking Sector was not announced, but that is also a barrier to growth, just like non-tariff barriers. It can only come about by privatizing the State Banks to become more efficient and not lend to loss making SOE’s.

2         Improving Education is a long term solution to growth with a better educated workforce. However the new thinking is to promote pre-school education with highly trained staff. That will take 20 years and a lot of money but that is at least a sure return, and nothing is allocated here.

3               Changing the land ownership and tenure laws is a must to boost agricultural productivity. We must allow owners to never lose their land, even though they allow people to farm their land for a rent, and tenants have to leave after the term expires, and you can leave it at a minimum 2 year tenancy.

4                   Monopolies that make super profits in Sri Lanka must not be protected, however if they make super profits, they are either told to reduce the prices or face overseas competition. Insee Cement will reduce cement by Rs250 for a 50kg bag which will allow construction to pay more and hire locals, if that threat is carried out.

5                   Impose a loan scheme for all university students that are payable on employment or by 30 at the latest, you will be surprised how quickly people will only go into education with a career at the other end.

6                   Sell off the state banks and reduce the interest rates immediately, to stimulate growth. Until this high interest scenario is 15% no one will invest in plant and machinery and expand or build new businesses.

7                   One stop shop for FDI is imperative for particular industries where SL holds a comparative advantage and value addition can also occur on site.

8                   Have a team of overseas educators to come to Sri Lanka for 3 months to train our trainers to hold workshops with youth to empower them to take vocational training, not merely provide vocational training that has NO takers, even if they pay people to attend schools! TO cap there are NO takers today for courses, whoever has them. To empower youth is the challenge from the State Job mentality to the needed careers of tomorrow. So many jobs going abegging, but youth don’t even know what they are, what is needed to get them, how much they pay etc. they need to know that first before they pursue any vocational courses to get them. It shows that the policy makers have not realized the problem is not the lack of vocational courses, it is the lack people interested in following ANY OF THEM.

9                   There is NOTHING in the budget about Public Sector Efficiency, or holding them to account and improve productivity. Neither is there anything on SOE’s and what the Govt intends to do about them. That sector was conveniently ignored in the budget.

10              Of course there has to be at least one WOW factor in the budget and what better place than in the renewable energy industry, where a US$20M give away of Solar Panels on a contingency basis based on speed of implementation of Net Metering will add 200MW directly to the grid!


Anonymous said...

There is NOTHING in the budget that will stimulate the economy in the next two years the crucial window of opportunity.

Thanks to Rajapaksa era debt, we have our hands tied, unless we sell a large state asset. That is the only hope other than an out of the box idea that is used as a catalyst for growth.

There is none of this in the budget, so its at best a neutral budget, and that is NOT what we need today, especially in another election cycle.

Can anyone show one item that will actually stimulate growth in SL.

Anonymous said...

SS Enterprise to the moon maybe, but not a budget that will encourage any enterprise from locals who are being whacked left right and center, and likely to sit this out.

All the reforms envisaged need legislation and that in SL snails pace will take years and that too only if this govt last. Another dose of MR will be highly regressive and return the past and not an attempt at the future. This is the catch 22 SL finds itself in, and we just cannot sit around compromising, while the whole world sprints ahead of us.

Give SL to China to run if they want, they will know exactly how to get our people out of their induced stupor/slumber

Anonymous said...

The budget has got it all wrong. They are trying to provide vocational skills so people can get jobs that are in demand. That is NOT where the money should be spent as there are so many vocational schemes, but few people applying to enter.


The mindset has to change first if anyone is going to follow any of the hundreds of courses on offer.

Anonymous said...

In short a very complacent budget, where nothing will happen in the short term as all the good ideas will take a month of Sundays to implement. Nothing to shake the Country out of its slumber and spur growth, too right.