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#P

Contents

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05.

Trade Offers

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17.

Nce Gives Special Emphasis to Innovations of Exporters

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19.

Sri Lanka’s Lack of Innovation

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21.

Igniting a New Fire

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27.

Sri Lanka’s Tea Industry Needs Market-Driven Policies

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31.

US Research Shows Massive Potential for Sri Lankan Cinnamon

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33.

MSA Shipping (Pvt) Limited.

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35.

Now it’s Time to Grow

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37.

Market Analysis for Coir

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41.

Facing Tomorrow’s Challenges Today

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47.

99x Technology Wins The Gold Award

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49.

Recycling Entrepreneur Recognised with Asia-Pacific Award

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53.

Summary of Export Performance (January - March) 2012 - 2013

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54.

DisaggRegated Export Performance (January - March) 2011 - 2013

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65.

Full-Steam Ahead in Push for Sri Lanka’s Shipping Hub

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67.

Dry Ports for Sri Lanka to Solve Traffic Congestion

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73.

New 20ft Box Design Promises Greater Capacity for Shippers

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77.

Global Economic Downturn

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83.

Trade Challenges for WTO Members

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85.

The Acceptability of Management System Certifications

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87.

Improving Power use Efficiency

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91.

Eliminate Waste - The TOYOTA Way

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95.

Pakistan Eases Tariff on Three Lankan Commodities

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97.

Productivity Improvement

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Trade Offers by NCE member

companies

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Given below is a list of Trade Offers made by NCE member companies. Parties desiring business transactions related to the offers made should exercise due diligence, and enter into suitable legally binding agreements; to safeguard their respective interests.

Category I - Export of Products

Name of Organization: Samson International PLC

Address: Akuressa Road, Bogahagoda, Galle, Sri Lanka

Telephone Nos: +94-912-783783, +94-914-933945/6

Fax: +94-912-224036

Email: info@samsonint.com

Website: www.samsonint.com

Name and designation of authorized contact person to obtain more details: Mr. Sanjeewa Weerakkodi, Export Executive

Products offered for export with HS codes: • Rubber Hot Water Bottle - 4014.90 • Rubber; vulcanized (other than hard rubber), gaskets, washers and other seals, of non-cellular rubber - 4016.93 • Rubber Flooring/Mat - 4016.91 • Sealing Rings - 4016.99 • Rubber Profile/Beading (Cellular) - 4008.11 • Rubber Profile/Beading (Non Cellular) - 4008.29 Quantities and frequency of supply: Annually 3000MT Quality, Standards, certifications and brand names if any: ISO, BS 1970:2012, FSC

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Category I - Export of Products

Name of Organization: TINPAK (PVT) LTD.

Address: 70, K.Cyril. C.Perera Mawatha, Colombo 13, Sri Lanka

Telephone Nos: +94 112433143 - 5

Fax: +94 112435649/ 4614822

Email: tinpack@sltnet.lk

Website: www.tinpakmetalcans.com

Name and designation of authorized contact person to obtain more details: Mr. Dhanam Rodriguez – Consultant

Products offered for export with HS codes: • Decorated Metal Cans • Components for Cans (Ring/Lid/End) - 7310.21 Quantities and frequency of supply: • 10000 -20000 CANS - QUARTERLY Quality, Standards, certifications and brand names if any: • ARAB GUN POWDER GREEN TEA - DUBAI • KHOISAN TEA - SOUTH AFRICA Indicative terms of trade (Including applicable countries): • DUBAI - DP sight • SOUTH AFRICA - Against advance payment

Category I - Export of Products

Name of Organization: Rancrisp Cashew.

Address: No.41/3A, Archbishop Lane, Thudella, Ja- Ela

Telephone Nos: +94 112231093

Fax: +94 112231093

Email: rancrisp@sltnet.lk

Website:

Name and designation of authorized contact person to obtain more details: Mr. Asela Morapaya – Accountant

Products offered for export with HS codes: • Process & Supply of high quality cashew nuts - 2008.19.16 Quality, Standards, certifications and brand names if any: • ISO 22000/HACCP/GMP Indicative terms of trade (Including applicable countries): • Rest of the world

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Category I - Export of Products

Name of Organization: Golden Palm crafts (Pvt) Ltd

Address: 45, Horton Place, Colombo 07

Telephone Nos: +94112685386

Fax: +94 112686877

Email: ravi@goldenpalmcrafts.com

Website: www.goldenpalmcrafts.com

Name and designation of authorized contact person to obtain more details: Mr. Ravi Jayawardena – Chairman

Products offered for export with HS codes: • Wooden Toys & Children’s Gifts - 44.10 ? Quantities and frequency of supply: 30 days Quality, Standards, certifications and brand names if any: • EN 71 Parts 1, 2&3 and Fair Trade Indicative terms of trade (Including applicable countries): • Europe, USA, Australia, Canada, New Zealand

Category I - Export of Products

Name of Organization: Belden Industries (Pvt) Ltd

Address: 283, Kapungoda, Pamunugama

Telephone Nos: +94-115-882220/ +94-779-108862

Email: lpathirana@beldenind.com

Website:

Name and designation of authorized contact person to obtain more details:

Mr. Lasitha Pathirana - Chief Executive Officer

Products offered for export with HS codes: • Industrial Leather Gloves - 420329 • Industrial Leather Jackets - 420310 • Very good quality and high end products; Leather used on our products are grade A and hand picked Quality, Standards, certifications and brand names if any: Gander Indicative terms of trade (Including applicable countries): • All products are exported to Canada and the USA

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Category I - Export of Products

Name of Organization: Warna Exporters (Pvt) Ltd. Address: Industrial Park, Kandanapitiya, Bope, Padukka

Telephone Nos: +94 34 4928900-3

Fax: +94 34 4298197 Email: sales@warnaexporters.com Website: www.warnaexporters.com Name and designation of authorized contact person to obtain more details: Mr.Rajitha Fernando, General Manager

Products offered for export with HS codes: • Brooms made of local materials (Natural, black and white coco fibre) 9603.10.10 • Brooms made of imported materials (Palmyra, PVC, PP, Tampico, Horsehair, Arenga,Rice root etc) 9603.10.20 • Brushes made of local materials (Natural, black and white coco fibre) 9603.10.60 • Brushes made of imported materials (Palmyra, PVC, PP, Tampico, Horsehair, Arenga,Rice root etc) 9603.10.70 • Wooden blocks 4421.90.90 • Coconut fibre 5305.00.00 • Fibre Mixtures 1404.90.92 Quantities and frequency of supply: • 12 – 15 x 20’ containers per month Quality, Standards, certifications and brand names if any: • FSC COC Certification Indicative terms of trade (Including applicable countries): • FOB (EUROPE, ASIA), C& I (USA) , C&F (DUBAI, K S A)

Category I - Export of Products

Name of Organization: Lanka Brush Exports (Pvt) Ltd Address: #36, Moderawila Industrial Zone, Panadura, Sri Lanka

Telephone Nos: +94 38 2230701/2

Fax: +94 38 2230703 Email: lbexports@sltnet.lk/ lankabrush@gmail.com Website: www.lankabrushexports.com Name and designation of authorized contact person to obtain more details:

Mr.Ananda Patherana - Director (+94 777398959)

Products offered for export with HS codes: • Brushes filled with natural fibre - HS.9603.10.60 • Brushes filled with palmyrah /PVC/Union Fibre - HS: 9603.10.60 • Treated Rubber wood brush backs - HS: 4417.00.90 Quantities and frequency of supply: • Supplies throughout year; 45 days lead time to execute order; 10 nos.x 40’ containers of brushes and blocks Quality, Standards, certifications and brand names if any: • Certified to ISO 9001, Forestry Stewardship Council (CoC) , and SEDEX (SMETA) Indicative terms of trade (Including applicable countries): • TT, Full payment on copy documents, DP terms

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Category I - Export of Products

Name of Organization: Causeway Paints Lanka (Pvt) Ltd. Address: #15, Noel Mendis Mawatha, Moderawila Industrial Estate, Panadura Telephone Nos: +94 38 2240040-5 , +94 38 2243166-9 Fax: +94 38 2240046 Email: luxury@sltnet.lk Website: www.causewaypaints.com Name and designation of authorized contact person to obtain more details:

Products offered for export with HS codes: • Wall putty (Joint compound) 3214.90 • Wall sealer 3214.90.01 • Emulsion paint 3208.90 • Thinner 3814.00.09 • Enamel paint, Industrial paint, road marking paint, floor paint/anticorrosive, and wood finishes - varnish/lacquer Quantities and frequency of supply: • Wall putty (Joint compound) 1 l, 4 l, 10 l, 20 l buckets • Wall sealer 1 l, 4 l, 10 l, 20 l buckets • Emulsion paint 1 l, 4 l, 10 l, 20 l buckets • Thinner 350 ml, 625 ml bottles • 1 l, 2 l, 4 l cans

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Category I - Export of Products

Name of Organization: Damayanthi Exports (Pte) Ltd Address: 211A, Alwis Town Road, Hendala, Wattala. Telephone Nos: +9411292835, +94114812603, +94777636940 Fax: +94112937838 Email: damexport@sltnet.lk , subyjp@gmail.com Website: Name and designation of authorized contact person to obtain more details: M.Subramaniam- Managing Director/Chairman Products offered for export with HS codes: 1. Rice - 1006.30 2. Rice Flour - 1102.90.10 3. Curry Powder - 0910.91.90 4. Chilli Whole / Chilli Powder - 0904.20.12 5. Pappadam - 1902.10 6. Jaggery - 1702.90.22 7. Dried Fish - 0305.59.90 8. Dehydrated Vegetables - 0712.90 9. Ready to eat products - 2106.90.99 10. Vegetables in brine - 0711.90.90 11. Kitchenware items - 3924.10 Quantities and frequency of supply: • Quantity depends on the buyer’s requirement; Frequency of supply is after the confirmation with the advance payment within 2 to 3 weeks (depending on the quantities & commodities) Quality, Standards, certifications and brand names if any: • Quality certificates can be submitted for our products. Indicative terms of trade (Including applicable countries): • Letter of credit (LC), Telegraphic transfer or wire transfer (TT), documents against payment (DP) with a prior advance. Australia, Canada, UK, USA & New Zealand

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Category II – Export of Services

Name of Organization: Axienta (Pvt) Limited

Address: 67, Walukarama Road, Colombo 3, Sri Lanka

Telephone Nos: +94 11 2564676

Fax: +94 11-2564675

Email: info@axienta.com

Website: www.axienta.lk

Name and designation of authorized contact person to obtain more details:

Ajanthini Perumal – Business Analyst

Services offered with HS codes • Enterprise mobility solutions have been developed across different industry verticals including Real Estate, FMCG, Pharmaceutical, Telco and HealthCare. In addition to the key product of sales force automation, Axienta offers other enterprise mobility solutions such as MediCRM, dealer management solution, Hybrid SFA-CRM system and productivity enhancement solutions for the healthcare sector in the UK

Indicative terms for supply of service (including applicable countries) • Looking to develop solutions for clients in the Middle East, Southern Africa (Zambia, Zimbabwe, Namibia, Botswana and South Africa) and Latin America (Brazil, Argentina and Colombia)

Category III – Service Providers to Exporters

Name of Organization: Scanwell Logistics Colombo (Pvt) Ltd

Address: 67/1, Hudson Road, Colombo 03

Telephone Nos: +94 11 2426600/4766400

Fax: +94 11 2426602

Email: ShehanMohamed@scanwell.com

Website: www.scanwell.com Name and designation of authorized contact person to obtain more details: Mr. Shehan Anthony Mohamed (General Manager- Business Development)

Type and nature of services offered • Air cargo, Ocean cargo, Project cargo, Consolidation, Distribution, Customs Brokerage, Warehousing (Bonded & None Bond), Order Management, Vendor Management, Insurance, Multi Model Transportation, Express Freight and other Value Added ,which we tailor, make to suite the individual customer requirement. Standards, certifications, brand names if any • CTPAT, IATA, FIATA, and SLFFA Certified Indicative terms for supply of service (Including applicable countries) • A Global Logistics Company, which is head quartered in Hong Kong while also having the American Head office in Los Angeles, with a current base of 61 own offices and a network of exclusive agents to cover the Globe

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Category III – Service Providers to Exporters

Name of Organization: Freight Links International (Pte) Ltd

Address: Level 7, Access, Towers, 278 Union Place, Colombo 02

Telephone Nos: +94-11-2302-402

Fax: +94-11-2302-412

Email: henry.desilva@freight-links.com

Website: www.freight-links.com

Name and designation of authorized contact person to obtain more details: Mr. Henry de Silva - Senior Manager

Type and nature of services offered • Providing personalized logistics management services to any client wishing to move cargo, either by ocean, air or land, to and from any part of the globe. Standards, certifications, brand names if any • ISO compliant, Carbon Neutral Company-2012, FCPA Indicative terms for supply of service (Including applicable countries) • Own offices in 5 cities; India, Maldives and in Dubai.

Category III – Service Providers to Exporters

Name of Organization: Tasma International Manpower Supliess(Pvt)

Address: 549/A,Walgama,Malwana,Sri Lanka

Telephone Nos: +94 11-4815673, +94 11-4815674

Fax: +94 11-2488307

Email: udul@tasmagroup.com

Website: www.tasmagroup.com

Name and designation of authorized contact person to obtain more details: U.S.Bodhinayake -Asst. Marketing Manager (0716-904282)

Type and nature of services offered • All category of highly productive manpower supply Standards, certifications and brand names if any • ISO 9001-2008 / OHSAS18001 Indicative terms of trade (Including applicable countries): • Sri Lanka

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Category II – Export of Services

Name of Organization: Spedicon Logistics Private Limited

Address: Landon House, Commercial Building (1st Floor), #302 1/1, Havelock road, Colombo-05.

Telephone Nos: +94 115 649 480

Fax: +94 115 550 406

Email: info@spediconlogistics.com

Website: www.spediconlogistics.com

Name and designation of authorized contact person to obtain more details: Mr. Shazan Zamrooth Salie - Managing Director-(0777707307)

Type and nature of services offered • NVOCC/ NVO – Non Vessel Operating Common Carrier handling • LCL & FCL • SEA/AIR OR FREIGHT • Project Cargo Management • Exhibition & personal effects • Warehousing, Transport Insurance, Perishable Cargo, Customs Breakage etc.

Category II – Export of Services

Name of Organization: Asian Alliance Insurance PLC

Address: 7th Floor, Millennium House, 46/58, Nawam Mawatha, Colombo 2

Telephone Nos: +94 112315555

Fax: +94 112314400

Email: info@asianalliance.lk, udeni@asianalliance.lk

Website: www.asianalliance.lk

Name and designation of authorized contact person to obtain more details: Mr.Udeni Kiridena, General Manager (Non-Life)

Type and nature of services offered •

Insurance

Complied By: Kasturi Balasingam Business Development Executive - NCE

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Innovation

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THE NATIONAL CHAMBER OF EXPORTERS OF SRI LANKA (NCE) GIVES SPECIAL

EMPHASIS TO INNOVATIONS OF EXPORTERS IN SELECTING AWARD

WINNERS AT THE EXPORT AWARDS CEREMONY THIS YEAR

Geoffrey Tillekeratne Chairman Awards Committee - NCE The NCE has introduced a number of special awards to be given away to exporters at the Annual Export Awards Ceremony scheduled to be held on the 20th of September at the Hilton Colombo. These Awards which are in addition to the usual sectoral awards, aims to recognize the special efforts of exporters in the International market place. The Chamber has placed special emphasis on efforts at innovation made by Sri Lankan exporters, since it has become the most important measure of the ability of Sri Lankan exporters to compete in the International market place. The other special Awards that have been introduced are for the Best Performing Exporter in Emerging Markets, in recognition of the need to diversify export markets and for the ‘Most Outstanding SME Exporter’, in recognition of the vital contribution made by SME exporters to the economy. These Awards are in addition to the current special awards for the ‘Most Value Added Exporter’, the ‘Best Brand Exporter’, and the ‘Best Woman Exporter’. As stated in the Sri Lanka: Emerging Wonder of Asia Document “Sri Lankas successful integration with the global economy and it’s sustained success in international competition will depend increasingly on the effective combination of Science, Technology and Innovation”. The Hi-tech Exports of a country are a significant measure of its ability to innovate and commercialize scientific findings effectively. In this context while Sri Lanka has recorded an average of 1.8% share of Hi-tech exports each year during the last decade, Korea has achieved 75%, Thailand 27% and Singapore and Malaysia 50%. The performance of Sri Lanka has been even lower than her neighboring countries India and Pakistan. This is a direct www.nce.lk

result of the very low level of national investment in R & D, and efforts related to innovation. The priority given by the state to R & D, and to incentivise innovation was reflected in the budget of 2012, where a range of tax incentives were announced including reduction of tax arising out of income from R & D activities to 16%; reduction in personal income tax of those engaged in R & D from 24% to 16%, and reduction in income tax on Institutions engaged in R & D to 20% as well as exemption from VAT. Further, triple deduction of R & D expenditure undertaken by enterprises through Government Institutions was allowed. This facility was further extended in the budget proposals for 2013 to include R & D undertaken through Private Institutions as well. In the above background the NCE, the only private sector Chamber which exclusively serves Sri Lankan Exporters, entered into a collaborative agreement, during the latter part of last year, with the National Science Foundation (NSF) to promote innovations for the development of Hi-tech exports. This includes access to the Technical Assistance Fund of the NSF to financially support innovative activities of exporters. With a view to making a promising start to encourage exporters to undertake innovation related to Products, Processes and Markets, the Chamber will select the three best exporters who have made efforts at innovation during the year 2012 by awarding Gold, Silver and Bronze Trophies. In this regard, the Chamber has formulated simple criteria with the assistance of the NSF to evaluate the efforts made by exporters at innovation. These criteria have been already sent to all prospective applicants for awards to facilitate preparation of their applications for awards, with appropriate emphasis on innovative activities undertaken by them.

They are reproduced below: Product / Service Innovations • • • • • • • •

Any product / service new to the world Any new product line / service introduced (not necessarily new to the world) Improvements to existing products / services Additions / improvements to existing product lines / services Any cost reductions achieved due to innovation Re-positioning in the market Extent of value addition due to innovations Extent of local material used in such innovations

Process Innovations (for faster / cheaper / higher quality) • • • • •

New technologies (production equipment) added to the processes The ability to harness the full potential of such equipment through trained personnel How effectively such equipment has been organized into the production process Any new process components locally introduced Any other innovations / improvements introduced to the production processes (organization / layout etc.,)

Market Innovations • • •

New marketing tools adopted specially of innovative nature Improvements to export market share due to such market innovations Extent to which niche markets have been exploited

The advice and assistance of the Chamber will also be made available to all prospective applicants to prepare their applications in a suitable manner to attract recognition. The Chamber proposes to build further on these efforts in the future to boost Hi-tech exports from Sri Lanka.

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Sri Lanka’s

lack of innovation, markets, limit export growth: Dr. Saman Kelegama - Executive Director IPS

Garment factory workers While countries such as Vietnam and Bangladesh are rapidly growing their respective export bases, even during a global economic downturn, Sri Lanka’s lack of export innovation and limited markets have stymied growth, according to Dr. Saman Kelegama, Executive Director of the Institute of Policy Studies. Making a presentation at the recently held 18th annual general meeting of National Chamber of Exporters of Sri Lanka, Dr. Kelegama opined that the country’s export performance since 2000 has not been “satisfactory”. He also added that exports had been on the decline, as a proportion of overall global exports, as well as in relation to the Gross Domestic Product (GDP). Additionally, he noted that Sri Lanka’s absolute earnings in terms of exports in 2012 had also fallen, with many of these factors known to be partly impacting the country’s expanding trade deficit in 2011 and 2012. Further, Dr. Kelegama also pointed out that, in both 2010 and 2011, domestic exports had grown at a rate of just

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18.2 per cent and 5.4 per cent, respectively. This was in comparison to India’s 40.5 per cent and 29.3 per cent; Vietnam’s 26.4 per cent and 33.3 per cent; Thailand’s 28.1 per cent and 17.4 per cent; and Mauritius 18.7 per cent and 23 per cent. He also indicated that, over 2010, Philippines’ exports had risen by 34 per cent, while Pakistan’s and Bangladesh’s exports increased by 29.3 per cent and 41.5 per cent, respectively, during 2011. As such, he commented; “Clearly the global economic downturn is not the only reason for the low export growth in Sri Lanka”. At the same time, Dr. Kelegama also highlighted the significant export growth examples of Vietnam and Bangladesh, both of which had previously maintained similar levels of exports, in 1990, to Sri Lanka. He explained how these two countries had done well by diversifying their export portfolio of items and services as well as the markets exported to. He reiterated that Vietnam had risen from US$2 billion in exports in 1990 to $96.8 billion in 2011, now comprising exports of 20 per cent to USA, 11 per cent to Japan and 10 per cent to

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the use of existing preferential and free trade agreements. Most of all, he advocated an evolution to more complex products, from Sri Lanka’s current crop of simple, easy-to-copy exports. Elaborating further, Dr. Kelegama also commented that Sri Lanka’s export share in India was 5 per cent, with 0.7 per cent for Pakistan, and 1 per cent for China, and that these markets could be better exploited due to existing trade agreements such as ISLBFTA, PSLBFTA, SAFTA, and APTA which allowed for greater penetration into these markets. China and 4.5 per cent to South Korea. Further, products now exported consisted of clothing, shoes, marine products, crude oil, electronics, wooden products, rice, and machinery. Similarly, Bangladesh’s exports rose from $1.7 billion in 1990 to $24 billion in 2011 and, while the country was the world’s second largest ready-made garments exporter at $19 billion, it was now also focusing on ship building and pharmaceuticals, amongst other products, for export growth. Dr. Kelegama also highlighted the fact that Sri Lanka had grown from $2 billion, in terms of exports in 1990, to $10 billion in 2011. And, as per Export Development Board data provided by him, 62 per cent of all exports in 2011 were made up of primarily ready-made garments ($4 billion) along with a few manufactured items. Further, he also added that 54 per cent of exports went to EU and NAFTA. Continuing, he also explained that almost 99 per cent of Sri Lankan exports were simple products which were easily copied, and the value of local high technology exports had fallen “sharply” from $102 million in 2008 to $57 million in 2010. Another important disparity, according to Dr. Kelegama, was high technology exports as a share of all exports, now averaged 1.8 per cent. This was compared to 75 per cent for South Korea, over 50 per cent for Singapore and Malaysia, and 27 per cent for Thailand. As such, Dr. Kelegama recommended certain measures which would more fully realise Sri Lanka’s export potential. These included making the country’s macroeconomic policy environment more conducive for exports by way of a more flexible exchange rate, lower interest rates and better trade facilitation. He also reiterated that new, emerging export markets and/or innovations must be better tapped, with the government also helping to actively promote and encourage these new areas. Moreover, he advised that private sector research and development activities had to be ramped up, along with maximising

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He also advised that the growing export markets that Sri Lanka had to target would be China, India, East Asia, and the Middle East. He was also of the opinion that local companies first entering these markets would benefit significantly as a result of early mover advantage. Additionally, Dr. Kelegama noted that his advice to increase research and development expenditure was not so much because of the fact that it was low overall, in relation to other countries, being at 0.11 per cent of GDP, but that the private sector share of this was just 18 per cent compared to ‘successful’ exporters where this indicator generally topped 65 per cent. In keeping with his suggestions, Dr. Kelegama also revealed a number of areas where Sri Lanka could quickly build competencies and even possibly excel in a relatively short period of time. These included the light engineering sector, which supplies parts and spares for machinery, equipment and tools. An area in which Sri Lanka currently only exploits 20 per cent of its current capacity, and which would allow the country to accesses highly lucrative potential export markets such as Singapore, India, EU, USA, Hong Kong and Japan. He also indicated that plastic products and printing services were also areas to be considered, with the former encompassing polyethylene shirt and food wrap bags, etc., and the latter comprising stationery, labels, etc. Both of these fields were identified as having ‘considerable’ export potential, particularly in terms of exporting to SAARC region countries, the Middle East and the Far East, as well as even the USA. In the meantime, printing services could also be further in-demand in countries such as Russia, Kenya and Australia. Source: Sunday Business Times – 10th March, 2013. www.nce.lk


IGNITING A NEW FIRE:

Why innovation must be

Sri Lanka’s new priority

By Anushka Wijesinha

Sri Lankans have proven to be a creative and innovative group of people. Whether in the past – the world-leading irrigation systems during the reign of the kings or more recently – the trailblazing telecom industry that beat India in introducing GSM and 3G – Sri Lanka has proven itself. But our priorities seem to have shifted lately. The structure of the economy, and consequently the interests of the workforce, appears to be shifting more towards domestic non-tradeable activities like construction and retail and taking the focus somewhat away from export-oriented manufacturing and services, as evidenced from recent trade data. The Sri Lankan economy cannot achieve faster growth and sustain it without a heavy focus on exportable knowledgedriven economic activities with innovation at its core. In an increasingly troubled external economic climate, Sri Lanka will need to develop world-class products by a world-class workforce. As stated in the ‘Sri Lanka: Emerging Wonder of Asia’ document, “Sri Lanka’s successful integration with the global economy and its sustained success in international competition will depend increasingly on effective combinations of science, technology and innovation” (p.126). This article looks at the imperative for innovation and the policy priorities for Sri Lanka. www.nce.lk

Innovation for growth – Not just in the developed world There is a wide body of literature that demonstrates the role of innovation in economic development. For instance, the report ‘Innovation and Economic Growth’ by Goldman Sachs (2011) shows a clear statistical link between innovation and gains in the standard of living. Fostering innovation cannot simply be measured in terms of university degrees and patents awarded. Rather, the national goal should be to use the basic research and creativity inherent in our nation’s people and to translate these into innovative products and services through development and commercialisation initiatives. Andrew Grove, the former Chairman of Intel, and Eric Schmidt, Executive Chairman of Google, encouraged the need for “translational innovation”. It is this type of approach that will enhance returns to investment, boost economic growth and help create productive, well-paying jobs. Innovation is as relevant in the developing part of the world as elsewhere. Innovation was earlier seen as an activity to be carried out by highly educated labour in R&D intensive companies that have strong links to leading centres of excellence in the scientific world. From this view point, innovation appears to be typically a “first world” activity. But, this view is flawed. Innovation – the effort to transform ideas into new and improved products or processes – is an aspect applicable to economies at all levels of development. SRI LANKA EXPORTER | THE VOICE OF THE EXPORTERS

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Sri Lanka’s performance Given that innovation is widely considered a primary source of economic growth, policies to facilitate firm-level innovation are high on the agenda in most countries. Sri Lanka too needs to focus on innovation to achieve national economic prosperity and an improved quality of life. A country’s high-tech exports are a significant measure of a country’s ability to innovate and commercialise scientific findings effectively. In Sri Lanka, the value of high-tech exports has drastically declined in recent years. The share of high-tech exports out of the total manufactured exports which was just 2.2% in 2001 fell to 1% by 2010. While Sri Lanka recorded an average 1.8% of high-tech exports share each year in the last decade, Korea recorded 75%, Thailand 27%, and Singapore and Malaysia over 50%. Sri Lanka’s performance was poorer even when compared to countries in the region like Pakistan and India. (see Figure 1). Sri Lanka’s weak innovation inputs could be a leading cause of this. For example Sri Lanka’s Gross Expenditure

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on R&D (GERD) as a proportion of GDP was just 0.11% in 2008 – a drop from 0.21% in 2004. The number of R&D scientists has also decreased from 4,062 in 2004 to 4,037 by 2008. Meanwhile, the expenditure on R&D by the private sector, out of total R&D expenditure, is remarkably low. Unlike in most developed countries where much of the R&D expenditure is by the private sector (over 65% in most cases), in Sri Lanka it is a mere 18%. The bulk of R&D expenditure in Sri Lanka is by the State sector (57%). This has strong implications on the rate of commercialisation of science and technology research.

Innovation is beyond research Yet, innovation is distinct from just research and it doesn’t autonomously result from it. The nexus of industry-research collaborations, appropriate financing options, and support for commercialisation are vital drivers to move research to innovation. Unlike in most developed countries, many universities in developing countries like Sri Lanka have not established sufficiently strong linkages with industry. Industry obtains access to university laboratories, talents of research scientists, and a pool of potential recruits. Universities receive industry’s financial support, necessary www.nce.lk


to conduct their work and expand their resources, and they also receive feedback from industry to adapt research to the needs of the economy. The Five Year Strategy of the Ministry of Technology and Research observes that “at present very few knowledge intensive companies and very little R&D that is required for innovation, is taking place in the private sector. On the other hand, most of the R&D undertaken by Sri Lankan scientists end up as mere publications in scientific journals with very few research outputs yielding a commercial product or a process” (p. 31). Very few noteworthy examples of industry-research linkages exist in Sri Lanka today. The most prominent one is the Sri Lanka Nanotechnology Center (SLINTEC). In its first full year of operations alone, SLINTEC was able to secure five international patents on nanotechnology products. This is impressive when compared with Sri Lanka’s historic average of 1.8 total international patents per year. Similar industry-research partnerships in areas aside from nanotechnology need to be cultivated, drawing lessons from SLINTEC’s business model.

Value Added Tax (VAT); triple deduction in relation to research and development expenditure undertaken by enterprises through Government institutions, to promote private institutions to use Government research facilities; and so on. These measures have been commended by private sector groups. However, interviews with leading industrialists reveal that several issues may constrain these incentives: (1) the small number of suitable Government research institutions capable of catering to industry needs (the ITI was the only one mentioned by those interviewed); and (2) the limited capacity in, and low-industry orientation of, Government research facilities. However, this is a vicious cycle and needs to be broken. Government research institutions cannot develop greater industry-orientation without kick-starting this process. Meanwhile, Sri Lanka’s private sector needs to be given confidence in the abilities of Government research institutions, and for this their financial and human resource capacities need to be expanded.

Building a talent pool Meanwhile, building a qualified pool of individuals geared towards S&T and R&D will be critical to Sri Lanka’s innovation ambitions. Education – especially science education at all levels – is important. The importance of STEM subjects (Science, Technology, Engineering, and Mathematics) in building this workforce is now firmly on the education agenda globally. It is recognised that gearing a workforce towards an innovation-driven economy means giving young people an enhanced STEM education. While the e-Sri Lanka initiative has certainly helped bridge the digital divide, the situation of science education is alarming. Nine out of every 10 schools in the country do not have the facilities to teach science stream subjects at A/Ls. Young boys and girls living as far off as Anuradhapura, Kantale and Vavuniya are travelling to Kurunegala to attend A/L science tuition classes. Very few students are engaged in science and engineering courses at Sri Lankan universities. Compared to a distinct knowledge-led economy like Singapore, where the majority enrolment is in engineering sciences of nearly 30%, in Sri Lanka the majority enrolment is in arts of over 30%.

Incentivising firms

Policy priorities moving forward

Government policy has a role to play in incentivising innovation at the firm-level. In fact, Budget 2012 was a watershed moment in this regard. In Budget 2012, a range of tax incentives were announced, including: reduction of income tax on research income from 24% to 16%; reduction in personal income tax of all those engaged in research and technology from 24% to 16%; reduction in income tax on all institutions engaged in research and technology to 20% and such institutions are exempt from

Sri Lanka’s weak performance on innovation is a symptom of the low priority given to S&T and R&D investment over the past several years. This may be largely attributed to the distraction of fighting a war. In post-war Sri Lanka, reversing this will be a key determinant of our competitiveness and rapid export growth. A key point that needs emphasising is that innovation is beyond just research. Innovations come from the entrepreneurs who make them happen

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and ultimately depend on a society’s responsiveness and ability to transform research into higher exports, into things that add value to people’s lives and to the economy. Encouraging these entrepreneurs with appropriate policy support for true entrepreneurship is important, for example by setting a conducive business environment, better access to finance through venture capital, incentivising commercialisation of inventions, etc. For successful innovation policy to kick-in, it will need the firm backing of top leaders, to lend credibility to the vision and facilitate the adoption of key measures for removing bureaucratic hurdles. It is time that Sri Lanka set up a powerful ‘National Innovation Council’ chaired by the President which can drive the innovation policy agenda at a national level. Meanwhile, Sri Lankan private sector leaders and public officials must take a close look at current examples of product and process innovation in the country to distil lessons from their experience and figure out how to multiply such enterprises. Enterprises like, for instance, Lanka Harness, have bucked the trend and become bestin-class through product and process innovation. Lanka Harness is now the world’s leading supplier of impact sensor harnesses for automobile airbags and seat belts to top automobile brands like Toyota, Honda, Ford and GM, with an impressive ‘1 Part Per Million’ quality standard. Emerging economies that were poorer performers than Sri Lanka only a few decades ago are moving forward at a rapid pace. South Korea’s Hyundai and Kia manufacture

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the most fuel-efficient cars in the world today. Brazil’s Embraer is one of the leading jet manufacturers and has partnerships with the market leaders, Boeing and Airbus. Taiwan’s Acer and Asus are now two of the leading notebook manufacturers in the world. Innovation was at the heart of propelling these firms, and their countries, into the global spotlight. Innovation is multifaceted and Sri Lanka doesn’t need to follow a set course in how the country engages with it. Yet it is clear that there needs to be a step-change in our priorities. While sectors like tourism certainly offer ‘lowhanging fruits’ capable of delivering quicker prosperity island wide; sustained, rapid and dynamic growth will only come from a ruthless focus on innovation. A Sri Lanka that ignites the fire of innovation across sectors and across regions will be a vastly different Sri Lanka to one that chooses to follow a more conservative ‘business-as-usual’ path. This new ‘fire of innovation’ must be ignited by every corporate boardroom and every government agency. This fire, if ignited without delay and without exclusion, can power Sri Lanka’s ambitions of greater prosperity for its people. (The writer is a Research Economist at the Institute of Policy Studies of Sri Lanka and Editor of the ‘Talking Economics Digest’ (www.ips.lk/talkingeconomics). The latest issue of the Digest contains a special edition on Innovation. Anushka can be contacted on anushka@ips.lk.) Source: Daily FT 12th May, 2013. www.nce.lk


Export Products & Markets

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SRI LANKA’S TEA INDUSTRY NEEDS market-driven policies Sri Lanka’s tea industry generates over a one-and-a-half billion dollars in revenue to Sri Lanka, and also provides almost a million jobs to people. With some cutting-edge decision making in the past, Sri Lanka has earned respect as a model worldwide across the value chain – as a grower of tea, to producer of best quality tea, as well as the most admired tea auction system in the world. From a demand perspective, the initiative of Ceylon Tea to secure the right to be the first tea beverage globally to be certified as being ozone friendly also spruces up the industry to be the benchmark to drive a complex industry in the economy. But the challenge is, where does Sri Lanka go from here, given the policy decisions that have been taken recently which are against the grain to become a competitive industry.

in 2013, which is an increase of 114%, whereas the net sales prices from the auctions reveal that in 2008 the average was at Rs. 310 per kg, while the prices at present is around Rs. 400, which reflects only a 29% increase. This indicates the supply chain and demand generation tipping point that the industry has reached. It also reflects poor quality policy making that is totally contrary to the grain of competitiveness of the industry. Whilst it could be said that the workers in a tea plantation must be remunerated in line with the increasing quality of life, as in other areas it should be noted that if the Cost of Production (COP) becomes greater than the Net Sales Average (NSA), the industry becomes nonviable, and this could lead to the collapse of the entire industry.

Catch 22

Why privatisation?

From the reports in the media, it is very clear that the industry is in a catch 22 situation with the recent wage increase for plantation workers. The wage rate has catapulted from Rs. 290 five years back to Rs. 620

It’s important to trace back the history of the Regional Plantation Companies (RPCs). In the 1970s, large extents of plantation land were acquired by the Government of Sri Lanka and vested under two State institutions,

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the Janatha Estates Development Board (JEDB) and the Sri Lanka State Plantations Corporation (SLSPC), under the Land Reform Act No. 1 of 1972. However, with the increasing inefficiency of the two institutions that were Government-owned, they sought Government assistance to offset the combined mounting operational losses that had increased to almost Rs. 1.5 billion per annum by 1992. In the face of mounting financial losses suffered by the two institutions, the Government appointed a Task Force which recommended the entrusting of the management of the plantations to the private sector. In view of this, the Government initiated the privatisation of the sector in 1992 which led the Sri Lankan tea industry to witness one of the most significant structural changes in the history of the industry. Incidentally the tea industry was the first to undergo a privatisation process in the country.

during the post-privatisation period. The RPCs turned around the two Rs. 1.5 billion loss making ventures into profitability. In the financial year 2007/8 the RPCs recorded the best performance of a Rs. 14.9 billion net profit with the introduction of modern techniques of management which provided structure to the agriculture driven colonial economy. However, in 2013 we see that the hard work done by the private and public sectors together is coming apart from a supply and demand perspective.

Ramifications One key ramification of the situation at hand will be the lower or nonundertaking of replanting. Whilst for some it can be a secondary health check, the reality is that out of the total extent of Old Seedling Tea (OST) in Sri Lanka, 75% belongs to the corporate sector as shown in the table. It can be seen that only about 9% of this extent has bushes which are less

converging on the NSA, this remains only a statement that cannot be implemented in practice. One study by the Tea Research Institute (TRI) states that the current volume of approximately 126 million kilogram output from the corporate tea sector will decline to 98 million kilograms of tea within the next five years since the tea in this sector are at the senile stage, and yield is declining rapidly. If one quantifies the loss to the country in volume terms it will be around 28 million kg of tea per annum and in value will be 92 million dollars, while in rupees it will be a colossal Rs. 9.9 billion. These are the issues that need to be taken into account when wage rates are increased. However, sadly these aspects are not even on the agenda. The TRI has outlined a scheme for the implementation of a replanting

How it worked In 1992 when the State opted to privatise the management of the State plantations, 23 RPCs were set up, of which 20 RPCs were leased out to 12 management companies during the period 1992/1993, resulting in the conversion of 461 estates managed by the JEDB and the SLSPC, to 20 RPCs under the Companies Act No. 17 of 1982. In the administrative structure of the RPCs, 100% ownership was retained by the Government. The respective RPCs ware initially assigned lease-hold rights of 12 to 29 estates for a period of 99 years for a nominal lease rental. The lease period was later adjusted to 53 years. This was the birth of the new operating model of the corporate tea sector of Sri Lanka. With the new management architecture in place, the best tea plantation managers were absorbed by the private sector Companis

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than 60 years old while the rest is well over 60 years old. Hence it could be seen that senility of tea bushes is one of the main reasons for declining productivity, and the correspondingly lower production volumes that Sri Lanka has witnessed. A key remedial measure that can be implemented is a robust replanting program by the RPCs. But with the current situation where the COP is

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program. The issue however is that replanting of one hectare of tea costs over Rs. 3 million. This cannot be justified financially given the COP and the corresponding NSA values. This is the reason for the replanting rate to be at a low ebb, according to some research reports. The TRI stipulates that the replanting rate should be around 3% in practice in a healthy agricultural system. But www.nce.lk


once again this remain a statement on paper since financial viability is in question. Especially in the corrupters that have conglomerates; tourism, renewable energy and even education could be more attractive business ventures rather than investment in the tea sector. One can just imagine the pressure in the board rooms for the sector heads in agriculture.

What next? Hence it is clear that unless some serious policy decisions are taken based on market dynamics, Sri Lanka’s corporate tea sector could head towards very rough waters. One key recommendation is for the Global ‘Ceylon Tea’ campaign to be launched due to the reason that from October 2010 monies had been collected out of private sector exports. However, once again this has become a nonstarter, which is tragic for the industry that is under pressure from the supply

chain end, and where market shares are declining in virtually every market. One must keep in mind that the tea industry was the first to be privatised in Sri Lanka, and has been kept alive with some smart and sharp working models, given that in the last 20 years amidst a war situation the industry was able to keep the country together. Now that peace has returned, the need of the hour is strong and structured decision making in a balanced manner by the private and public sectors based on facts and data.

The challenge is, who has the power to drive this thinking in a political economy? That is the million dollar question. Source: Daily FT – 21/05/13

Labour Wage

(The author has a double degree in marketing and an MBA. He is an alumnus of the Harvard University in Boston. The thoughts expressed are strictly his personal views and have no links to the organisations he serve.

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US

research shows massive potential for

Sri Lankan Cinnamon The alarming levels of a banned toxic chemical found in cinnamon substitutes makes Ceylon Cinnamon safer, more By Hassina Leelarathna

A scientific research study four years in the making and just released in the US spells a major windfall for Sri Lanka’s cinnamon industry. Appearing in the April issue of the prestigious Journal of Agricultural and Food Chemistry (JAFC), published by the American Chemical Society, the study by researchers at the University of Mississippi analysing levels of the banned toxic chemical coumarin in cinnamon products affirms the superiority of Ceylon Cinnamon, a.k.a. ‘True Cinnamon,’ as compared to more widely-used cinnamon substitutes. High levels of coumarin, a chemical that naturally occurs in cinnamon, is toxic to the liver, acts as an anticoagulant, and is known to cause cancer in rodents. According to the researchers, experiments conducted using a variety of popular cinnamon flavoured foods and cinnamon food supplements found Ceylon Cinnamon to contain insignificant traces of coumarin www.nce.lk

whereas barks from cassia, imported from China, Vietnam and Indonesia and sold as cinnamon in the US, had substantial amounts of the toxic chemical. “This is a great development that opens up many possibilities for Sri Lankan cinnamon growers,” said Ananda Wickremasinghe (now living in Canada) who has been patiently awaiting the results ever since he took the initiative to get the study started in 2009 while serving as Consul General in Los Angeles. Wickremasinghe, an agricultural graduate who spent most of his career as an agriculture scientist, spotted the potential for promoting Ceylon Cinnamon in the US after its lower coumarin content and superiority over substitutes was established by European as well as Sri Lankan researchers. “Some Sri Lankan exporters were already aware of Ceylon Cinnamon’s lower coumarin levels and studies have been conducted by the Industrial Technology Institute. However, to

gain acceptance in the US, an independent study by American researchers was needed.” He presented the proposal to Dr. Dhammika Nanayakkara, Research Professor in Pharmaceutical Sciences at the University of Mississippi, one of the nation’s top pharmaceutical research colleges. Dr. Nanayakkara eventually co-authored the study with research scientists Dr. Yan-Hong Wang (University of Mississippi), Bharathi Avula (University of Mississippi), Jianping Zhao, and Ikhlas A. Khan. The research was supported in part by ‘Science Based Authentication of Dietary Supplements’ funded by the Food and Drug Administration, the United States Department of Agriculture, Agricultural Research Service, and the Global Research Network for Medicinal Plants (GRNMP), King Saud University. The researchers analysed coumarin and other compounds

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in authenticated cinnamon bark samples as well as locally bought cinnamon samples, cinnamonflavoured foods, and cinnamon-based food. “The experimental results indicated that C. verum bark [Ceylon Cinnamon] contained only traces of coumarin, whereas barks from all three cassia species, especially C. loureiroi (Vietnam Cinnamon) and C. burmannii (Indonesian Cinnamon), contained substantial amounts of coumarin,” the study said. Researchers then analysed of 21 cinnamon-flavoured foods such as cereals, snacks, bread, rolls, bun, swirl, bar and pastries, all purchased from local stores. Except for cinnamaldehyde that is essential for cinnamon flavour, coumarin was detected in all cinnamon-flavoured food products, varying in content from 0.05 to 2.4 mg per serving. Two cinnamon dietary supplements that contained powders of cinnamon bark were also analysed and found to contain high coumarin levels – 2.5 and 3.9 mg per serving. The identity of the cinnamon used in the samples was determined based on cinnamaldehyde and coumarin content, leading to the conclusion that most of the cinnamon used was of the Indonesian variety (C.burmannii) which has higher coumarin content, is cheaper, and accounts for 90% of US cinnamon imports in the past five years. Surprisingly, despite cinnamon’s widespread use as a flavouring in a wide range of foods and its growing popularity as a ‘miracle cure’ for everything from diabetes to weight loss, this is the first published study in the US that analyses the coumarin content of cinnamon. As such this is also the first American study that affirms Ceylon Cinnamon’s low coumarin content – a fact long known to European researchers and industry insiders.

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While coumarin has been banned in the US as a food additive since 1954, its presence is mostly associated with artificial vanilla (http://en.wikipedia. org/wiki/Vanilla). Coumarin was also banned as an adulterant in cigarettes by tobacco companies in 1997 but due to the lack of reporting requirements to the US Department of Health and Human Services, it is still being used as a flavouring additive in pipe tobacco.

Sri Lanka’s share of the world cinnamon market is around 22% while its share of the US market is slightly less than 6%.

The JAFC article warns that ingesting substantial amounts of coumarin on a daily basis may pose a health risk to individuals who are more sensitive to the compound. The researchers are calling for the establishment of a Tolerable Daily Intake (TDI) and maximum limits for coumarin in foods marketed in the US.

Upping the statistics to 10% of the international market is well within reach says Wickremasinghe, adding that every measure must be taken to increase cinnamon production. “It will require doubling Sri Lanka’s current cinnamon growing area, improving agronomic practices, and extending cultivation into parts of the wet zone where cinnamon is not currently growing,” he says. He strongly believes coumarin free cinnamon plants could be found in Sri Lanka and that they could be used to introduce coumarin free cinnamon varieties.

European health agencies already recognize the adverse side effects of coumarin and EU regulations specify a TDI for coumarin of 0.1 milligrams of coumarin per kilogram for food products. But setting such limits doesn’t ensure compliance. Recent tests by a leading independent consumer protection group warned that coumarin levels in a variety of cookies, cereals and rice puddings sold in Germany were up to 20 times the European legal limit.

Coincidentally, the study comes in the midst of a growing controversy over ‘The Cinnamon Challenge,’ a prank that challenges teenagers to shovel a spoonful of ground cinnamon into their mouths. The fad has gone viral with over 40,000 videos posted on You Tube, nearly three million Google hits, and, on the flip side, dozens of challengers ending up in emergency rooms with serious problems such as collapsed lungs.

The US study, which establishes the occurrence of high coumarin levels in popular foods as well as health supplements, is bound to attract the attention of consumer groups and open the door to scrutiny of cinnamon additives by the Food and Drug Administration (FDA), the federal agency that oversees and sets guidelines for food safety.

Worried parents are scrambling to put a stop to it, while bloggers, talk show hosts, school authorities, and doctors are all weighing in. Surprisingly, doctors are coming out saying cinnamon is ‘totally harmless’ other than for an inert substance called cellulose which can lodge in the lungs. No mention of coumarin.

Wickremasinghe believes Sri Lankan authorities should seize the opportunity and take proactive measures, such as promotional events by foreign missions, contacting food watchdogs, and making oversight bodies such as the FDA and Health Canada in North America aware of the study, in order to maximise the leverage potential of Ceylon Cinnamon.

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“What better time to start talking about the facts of cinnamon and the superiority of our cinnamon to the American public and pass the message along to other countries?” asks Wickremasinghe. The planets are definitely lined up in favour of a big push for Ceylon Cinnamon. Source: Daily FT – 23rd May 2013 www.nce.lk


MSA

Shipping (Pvt) Limited. We at MSA Shipping (Pvt)Limited are honoured to be associated with the National Chamber of Exporters (NCE) and our fellow customers as one of the local Total Logistics Service Providers during the last decade by delivering their products locally and across the globe. As a result of the NCE’s encouragement of exporters to strive to create value for the nation, everyone could witness today a rapid growth in the export segment thereby creating a very positive impact on the economy of the country. MSA Shipping (Pvt) Limited which is backed by the “Manco Group” was established in the year 1947 as a Merchant Exporter / Importer. MSA Shipping (Pvt) Ltd. is today ranked as an “A” Grade Company, registered with the Department of Merchant Shipping. The MSA Group in Sri Lanka & the eight Branch offices in India in addition to our vast Global Network have created joint innovative ‘Total Logistics Solutions’,

enabling customers to deliver their shipments in a methodical and timely manner. In our journey forward, MSA Shipping (Pvt) Limited has today reached commendable heights, and has recorded an impressive achievement as a result of our business philosophy of Robust Fundamentals, Customer Satisfaction, Employee Contentment & Business Attainments to create an environment of continuous business growth which contributes to society to benefit many We witness today a vast transformation in the infrastructure of the country through the opening up of new Ports, Airports, Highways and many other Skyscraper Buildings due to the innovative vision of H. E. the President which facilitates exporters, importers, traders and also transportation service providers, to enhance their spectrum of activities. Undoubtedly these developments will boost the economy of the country to a great extent in the long

run, since the return on investments of these projects are very promising. However, if the government takes further initiatives to lay more emphasis on facilitating local and foreign investors by creating an investor friendly environment, and policies similar to those of neighboring countries of Sri Lanka, the country will undoubtedly prosper to greater heights. We take this opportunity to convey our sincere appreciation of the National Chamber of Exporters of Sri Lanka for their tremendous efforts to encourage local exporters, and wish the NCE success in its endeavours to promote the Export Sector of the Country. Hussain Mansur - Director

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Now its’ time to grow

Kiri Ala on coconut lands There exists a good market for Kiri Ala locally and internationally. As Kiri Ala is widely used as a substitute for potatoes, and commands a good price. Kiri Ala is a crop that can be grown with ease in the Wet Zone, and coconut lands with moist conditions. It also grows very well in shady coconut cultivations in the Intermediate Wet Zone. It could be even grown in shady coconut cultivations in the Dry Zone under irrigation. Selecting suitable coconut lands Kiri Ala is considered special among intercrops as it is ideally suited to coconut cultivations of 5-20 years, being a crop that likes shade and can be intercropped along with bananas. Climate Areas with warm weather conditions, with dry weather interspersed, 1500 meters above sea level, with annual rainfall of 1500 mm or more are suitable for the growing of Kiri Ala. Though this crop likes shady conditions, the yield is often higher in more light conditions. Soil conditions A light, loamy well-irrigated soil with a high organic content and with a pH value of 5.5-6.5 is ideally suitable for this crop. Period of planting A perennial crop, when grown as a commercial crop, it becomes an annual crop. Though Kiri Ala is planted with the ‘Yala’ and ‘Maha’ rains, it is possible to plant this crop any time of the year with irrigation. Planting material Money has to be spent for planting material only in the first growing season. The commercial yield is not used as planting material, but the mother roots are used as planting material. Ten to fifteen plants can be obtained by planting a mother root. Months of planting A high yield could be obtained by planting Kiri Ala in the months between March and June. The yield www.nce.lk

tapers off after June. So the period beginning from March is ideally suited to plant Kiri Ala. Preparing the ground Kiri Ala is traditionally planted by putting coconut husks in contour trenches that are dug in coconut lands to control soil erosion, and after they are decomposed planting Kiri Ala in them. Though this is a better method of planting, it is difficult to grow Kiri Ala methodically this way. Preparing trenches between lines of coconut trees Dig ditches between lines of coconut trees 6 feet from coconut trees at intervals of 1.2 meters (4 Feet). Prepare the trenches 0.45 meters (1.5 Feet) broad and 0.45 meters (1.5 Feet) deep, fill them with coconut husks and close them up. Plant the Kiri Ala plants in March and April at a space of 4 Feet between the plants. Preparing planting holes between coconut trees Dig 2X2X2 holes with a spacing of 4.4 feet 6 feet away from coconut trees. Kiri Ala plants could be planted after filling the holes with top soil and organic fertilizer. Planting Material The root, stem and top parts that are leftover after harvesting could be used as planting material. Stem weevil pest can be eradicated by dipping planting material in pesticide or wood ash before planting. Applying coverings Applying coverings is important to ensure good growth and high yields. It also controls weeds and retains soil moisture. Coconut fronds, coconut peat, straw and rice husks could be used for coverings. Controlling weeds Weeds could be controlled with a mammoty. Later, when the plants grow up, weeds are controlled by the shade of the leaves.

Using fertilizer Compost fertilizer is ideal for Kiri Ala plants. The yield could be increased by adding more Potassium to the soil in the form of wood ash. Using coconut fertilizer is also very popular among cultivators. Time and quantity of fertilization (kg/ha) Urea, Triple Super Phosphate (TSP), Murate of Potash (MOP) Three days before planting or two weeks after planting 30 120 60 Surface 1 (1 ½ -2 months after planting 60 60Surface 2 (3 – 3 ½ months after planting 60 60Harvesting Kiri Ala could be harvested after 8-9 months of planting. If the crop is planted in March, it is ready to be harvested in the months of November – January. A yield of about 1 – 1 ½ Kilogrammes could be expected from one plant. Kiri Ala varieties recommended by the Agriculture Department Though there are several varieties of local Kiri Ala, the Agriculture Department has recommended only the Red Kiri Ala variety named Isuru, because of yield differences and other reasons. Description of Isuru variety Red lines on the two edges of the young leaf stem. Leaves are green and blue in colour. Adapts to any method of cultivation. Each plant yields 10-15 yams. Average weight of a yam 125-150 grammes. Can obtain a yield of 14-15 tonnes from a hectare. Requirements of Kiri Ala which are processed for export Must consist of a brown rind and white flesh.The circumference should be equal. Has to be shaped like a flask. A yam has to be over 100 grams. Must be newly dug yams free of dirt, cuts and insect damage. The Isuru variety of Kiri Ala yields a harvest of yams conforming to the above requirements.

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Market

Analysis

for China is still the major buyer of coir products in the world market, but she has been buying at a lower level during the year 2012. This is because of the declining global economy, and a weakening domestic property market in the country. In regard to coconut fiber, China imported 25,598 tons from Indonesia in 2012 upto July, and 28,053 tons of mattress fiber from Sri Lanka upto July 2012. Apart from raw fiber and mattress fiber, China also imported other kinds of coir products such as bristle fiber, twisted fiber, coir yarn, coir twine and coconut pith comprising a total volume of 24,589 tons from Sri Lanka during the same period. In the third quarter of 2012 it was estimated that the import volume of coir products would be around 16,000 tons. Almost all Indonesian exports of raw coir were sold to China during 2012. The volume was 44,871 tons of which 64% was raw coconut fiber and 36% semi processed products. Indonesia earned about US$ 15.3 million from the Export of coir products to China. The total volume of coir products exported to China in 2012 upto July was 43.5% higher compared to the same period for 2011.

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COIR

In 2012 the export volume of finished coir products from Sri Lanka upto July 2012 recorded an increase where the total value was up by 19% to Rs. 8.36 billion from Rs. 7.1 billion in 2010 for the same period. It was estimated that the total export value for 2012 would be Rs. 15.9 billion. This is 22% higher than the value last year of Rs. 12.97 billion. Together with unfinished coir products, the coir industry contributed Rs. 11.84 billion to the export earnings from coconut products of the country upto July 2012 as opposed to Rs. 10.15 billion the previous year. Coir fiber pith/dust had a significant share of the export earnings at 10.4% [Rs. 2.94 billion] which was 28% more than the preceding year’s figure of Rs. 2.3 billion. Japan South Korea, North American Countries (Canada and USA), Italy, the Netherlands, Spain, Israel, Iran and the UK are the main buyers of this commodity. They absorbed 53,700 tons of coir pith exported during the concerned period of 2012, which was about 70% of total exports.

moulded coir products had a higher demand during that period, and exports increased by 52% and 18%, respectively. Exports of Coir matting achieved considerable growth during the same period at 1.7 fold. It jumped to 13,513 tons from 5,004 tons the previous year. The export value was up by 12% to Rs. 6.7 million in 2012 from Rs. 6 million the previous year.

The volume of coir brooms & brushes exported by the country upto July 2012 (11.3 million pcs.) decreased by 19% when compared to the volume from January to July 2011 at 14 million pcs. Coir twine and

Sri Lankan export performance of coco pith recorded an upward trend in 2012. As of July, total exports were 76,716 Mt. as opposed to 71,419 MT the previous year, up by 7%. Export earnings of the commodity were up

Exports of tawashi brushes, were slightly lower by 3% [13.7million pcs.] in 2012 as against the previous year’s performance of 13.9 million pcs. These brushes have many applications and are manufactured by using bristle fiber. They are used for toilet cleaning, bottle cleaning, and for industrial purposes. The export of geo-textiles from Sri Lanka decreased at the significant rate of 34% to 1500 tons compared to the previous year’s performance of 2,299 tons. Export earnings from this commodity decreased as well to Rs. 222 million from Rs. 250 Mn the previous year which was a decrease of 11%.

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increase of 33%. From January to July 2012, countries in Asia, and Africa imported 34,900 tons of coir pith from Sri Lanka. The estimated volume for 2012 was 60,180 tons.

by 28%. The average price of coco pith was US$295/MT which was up from US$ 248/MT the previous year. In regard to husk chips too both the quantity and value of chips exported during the same period in 2012 surged by 16% and 46%, respectively. Total exports were 9,763 tons [vs. 8,400 tons in 2011] generating an income of Rs. 542Mn as opposed to Rs. 370 Mn. The export price was US$ 427/MT. FOB Colombo. Prices of coir products vary in the world market. Currently, the price of raw fiber in the Chinese market is relatively lower than the earlier price. Quotes for Indonesian raw fiber ranged between US$ 245 – US$ 330 per ton [FOB] in November 2012. The price was down significantly by US$ 50 – 65/MT from the price in the previous month. In the domestic market of Sri Lanka, the prices of mix coir fiber and bristle coir fiber averaged US$139/MT and US$461/ MT respectively, in November 2012.

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The average price of tawashi brushes was US$0.16/ pc which was approximately 8.4% higher than the price in 2011. Prices of brooms and brushes were also stable at US$0.93/pc. Rubberized coir pads and mattresses for bedding recorded a significant price increase of 79% at US$ 2.15/m2 as against US$1.2/m2 in 2011. However, a 25% decrease in price occurred in the case of coir mats and rugs recording US$2.65/m2 from US$3.54/m2 in 2011. Meanwhile, the price of coco pith also increased to US$295/ton from US$248/ton in 2011 which was an increase of 19%. However, the price of coir geotextiles decreased to US$1,010/ton from US$1,070/ton in 2011. For coir pith, the main market is countries in the EU viz; the United Kingdom, Germany, Italy, Spain and the Netherlands. The total import demand of these countries in 2012 [as of July] was 15,248 MT compared to 11,500 MT in 2011, which was an

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Apart from the above countries, the USA and Canada are also important buyers of coir pith with a market share of 36,000 MT in 2011. Their import share from January – July 2012 was 18,562 tons. Japan and Australia are also importing countries with a total import share amounting to 25,000 MT in 2011. In 2012 as of July they imported 16,340 tons of coir pith from Sri Lanka which was an increase of 27% over the corresponding figure in 2011 of 11,900 tons. Exports of Indonesian coir products were mainly to China [99%], while Malaysia, Germany, Belgium, the UK and the USA together accounted for the balance. India exports about 14 categories of coir products to the world market. These include semi-finished products such as coir yarn, loom mats and mattings, and rubberized coir; and also finished products like geotextiles, coir rugs, and carpets. In 2011 Indian exports of coir products recorded 70,000 tons, with an estimated revenue of US$ 6.59 million. About 90.3% of the total exports of raw fiber was absorbed by China. The export volume of raw fiber in 2012 was 45,000 MT. Source: Expo News – February ‘A’ & ‘B’ 2013 – of the EDB

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Success Stories

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Keynote Address by Mr. Rohan Fernando – Chairman, HVA Foods PLC to Students at the CA National Conference 2013.

FACING

TOMORROW’S CHALLENGES

TODAY

Keynote Address by Mr. Rohan Fernando – Chairman, HVA Foods PLC to Students at the CA National Conference 2013. I am extremely happy to be with you this morning to share some my experiences. I am told the gathering here today comprise of over 600 students from Sri Lanka and neighbouring countries in the Indian subcontinent. Having gone through the learning process to manage issues of the commercial world you will eventually graduate and progress to become decision makers. I stand before you as a person who was not as lucky as you are to enhance an academic career, but learnt lessons through experience and costly mistakes; some of them far too expensive to be repeated. The content of my submissions, ladies and gentlemen is free to use and does not have copyrights. It would give me great pleasure to know that my efforts today would leave a good impression for you to benefit from. I am a person, not for lectures. In fact lectures invariably put me to sleep. When the invitation was first presented to me for today’s event, I was taken aback. Not because I did not want to share my experience with you, but my aversion for lectures brought in a certain fright that I would drive you to boredom. www.nce.lk

Hence, I deviated from my comfortable style of interactive, talking off the cuff, to a more formal and structured text to avoid repetitions or being carried away unwittingly. I sincerely hope my presentation today will be meaningful and constructive to all of you and I most sincerely welcome your comments even if they are of a critical nature.

points to note. The byproduct of evolvement is opportunity. Have we discovered everything that the world needs? The answer is a firm NO. Some of the noteworthy discoveries were made during the last two centuries. The automobile, the locomotive, the flying machine, moon landing; rocket science, atomic energy, nanotechnology, the list goes on.

Understanding the subject matter – “Facing tomorrow’s challenges today”.

The flying machine was a dream of Leonardo da Vinci, the famous painter and sculptor. Being an artist, he sketched his dream machine with minute details. But the opportunity to fly came much later after relentless efforts by so many. Today flying inside a steel tube is so comfortable and claimed to be safer than road travel.

What is a challenge? Or is it opportunities, we actually mean? I think, challenges are opportunities for some, and obstacles for others. The entrepreneurs thrive on challenges as they see them as opportunities. Unfortunately there is a dearth of entrepreneurs in the world and naturally the majority perception of challenge as an obstacle gets highlighted. If not the subject for today’s conference may have taken a different approach and perhaps rephrased as “Getting ready for tomorrow’s opportunities today”. The world continues to evolve and the process never stops. The Biblical story of creation and the opportunities provided to its inhabitants are serious

Then the idea of going to the moon would have been blasphemy in the days of yore and could have landed the proposer in a nut house. But look at what Neil Armstrong and Alan Bean did. They played golf on the moon. Who knows golf in zero gravity may not be an impossible task to dream of. By the way, golf according to folklore is a sport started several centuries ago by shepherds in ancient Scotland to while away time in between the watch over

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their flock. They used the shepherd’s crooks to hit pebbles to specified targets. Today this simple pastime has evolved into a multi trillion-dollar business, indulged in and discussed at the highest level in boardrooms. When you study the historical events, the inventions taken for granted have come about through the sheer entrepreneur spirit of the human being and not necessarily due to a crying need. In meeting the challenge to deliver my keynote address, I will take the opportunity to share the experience of our Company starting from virtually nothing and going after dreams to make them real through team spirit, innovation and utmost confidence in reaching its goals and most importantly going after opportunities. The substance of my address is based on experience and common sense and I will keep it as simple as possible.

The Tea industry pioneer, Sir Thomas J. Lipton sailed all the way from Scotland, way back in the 1860’s to cash in on the good quality of Ceylon tea for his Lipton brand. In fact the cornerstone of the Lipton tea business was Pure Ceylon Tea. But see what has happened today the origin has been pushed back from the front of the line for the brand promise to be predominant. Sometimes the origin which gave birth to the brand is not even mentioned. Lipton does not piggyback on the finest quality of Ceylon tea anymore. They have a brand and a brand promise to brag about. Similarly many brands have emerged from the products, which were originally boasting to be from a special geographic region. When we first started HVA Lanka Exports as a private limited liability company, in 1990, we were very well aware that trading in tea was like joining the herd and venturing into branding was the

in most developed consumer markets such as Japan and Korea and most prolific markets such as Russia. The first registration of the brand took effect in 1994 but more than five years was taken to create a sustainable pull from the shelves. It is now the accepted norm that we are in a very competitive world. With the opening of economies from controlled to market oriented and the proliferation of information technology the choices offered in consumerism, services and other human needs have increased leaps and bounds. The change of attitude in the People’s Republic of China opening a 1.3 billion market, the collapse of communism in the Soviet Bloc and the move to market oriented commerce in India have created a massive consumer appetite. Approximately 2.7 billion people comprising nearly 38% of the world population live in the countries

Now a word of caution, your health and fitness of your body. Remember corporate athleticism plays a major role in you upward mobility in the corporate world. “Mens sana in corpore sano” The famous Olympic tagline, Healthy mind in a healthy body. Only then you could concentrate and strategise the future with confidence. Also do not forget, health is wealth and it is tax free. My intention is to disclose the DNA of our company and show the cause and effect of the many challenges we faced in shaping it to what it is today, a public quoted entity listed in the Colombo Stock Exchange. Evolving of the world of commerce– Before diving deep into the subject it is important to understand the world of trade and commerce and the consumer behavior from a layman’s point of view. Today we live in a competitive world made seamless through communication technology with unlimited access to information at the touch of a button. Technically speaking the university of knowledge is in the clouds. What drives the world of commerce? Is it manufacturing; Service providing or Brand equity? At the beginning, consumerism was driven by originbased supplies. Wines from France, Watches made in Switzerland, American automobiles, Ceylon tea and fine whiskeys from Scotland.

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end goal in securing a piece of the global tea market. In our feasibility report in establishing the operations this very fact was emphasized and an opportune moment was awaited to branch out of the herd. We saw the unlimited opportunities in an industry virtually stagnant for over a century ambling away on a traditional path of producing a cheap cuppa. When we compared the Sri Lankan tea production of 300 million kilograms per annum with the world tea consumption of nearly 6 billion kgs and a cross-world export trade of 1.5 billion kgs, we had our first goals set, to go after the bigger picture. Having set our goals the strategy to reach our targets was constantly reviewed, as there were no textbook solutions. When looking back we are happy to reminisce the path we traversed in building a world-class brand in HELADIV. The claim, world class is a sine quo non. Registered in 45 countries, the brand is well accepted

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mentioned. These changes, which took place during the last 25 years, have created new opportunities for people to go after. On my first visit to sell tea in Russia in 1995 just after Perestroika, Russians were still coming to terms with the newfound economic freedom. The streets of Moscow only had Russian made “Lada” and “Volga” cars with an occasional “Zil” limousine used by Kremlin officials. Today the transformation in Russia is mind-boggling. You hardly see a Volga or a Lada, instead all top of the line limousines of the world clog the streets of Moscow. Russia has also produced many billionaires during this short span of economic transformation. The Russians have pushed the property prices in London Mayfair and even own football clubs. Similarly the Chinese transition from the ultra left communist doctrine of Mao Zedong to a more tolerant market dominant www.nce.lk


economy under Deng Xiaoping, has freed the Chinese populous to engage in economic activities. Today China has emerged the second largest economy in the world and its citizens have advanced in the field of trade and commerce far exceeding any other race in the eastern hemisphere. India too moved away from a controlled economy under Mrs. Indira Gandhi’s phylosophy “Be Indian Buy Indian” to a liberalized market driven economy and is now reaching the benefits in the world trade and services. Recently several Indian businessmen were classified amongst the richest men in the world. With the relaxing of these economies, our company lost no time in entering these markets to explore opportunities. The challenges faced were many. Lack of security in payments, communication difficulties due to language barriers and vast distances separating the countries had to be taken in to account as challenges to meet. Today the Russian market we entered in 1993 is one of the most prospective and a lucrative profit Centre for the Company. Ten years ago, getting the Chinese to drink Ceylon tea was like an attempt to install a fridge in an igloo. In 2009, HVA initiated a joint venture to establish tea cafés in China and today the chain has grown to 30 high-end cafés under the HVA top end brand infini-t and is still growing. China is the biggest producer of tea and also the biggest consumer of tea in the world. According to statistics, the annual production is around 1.2 billion Kilograms and the consumption is around 900 million kilograms. Now with affluence being the buzzword in the Chinese society, improvements in consumerism, with extensions into variations is taking place at a steady pace. If you number crunch and follow statistics what do you see, a challenge or an opportunity? Then the Indian market one of the most traditional and ingrained with age old food habits also showing expansion into variations in all forms of www.nce.lk

consumerism. HVA will soon enter this vast and potential market through a strong business partner. Now you can decide for yourself the opportunities presented by being active in these markets with a 38% global share of the throat. Meeting the requirements of these citizens is the most exciting challenge we could ever face and will keep us on our feet for many more years to come. These countries are still on the way up and will look for variation in every aspect of human life. These are certainly positive vibes for dreams of grandeur and to chase after your contemplations. On a different note, the worst global recession was experienced in the latter half of 2008 triggered by the collapse of the financial and industrial institutions on the American front. This also led to a domino effect in some of the European countries and is still continuing. However, the pertinent question is, what about the citizens of these countries, what do they eat, drink and cover their nudity with? What about the medication and health care? What about the education of their children? Don’t these point towards a situation where something’s are essential come what may and somebody got to find a way to keep the supply lines moving. These developments will open new vistas or windows of opportunity. In a nutshell, during the last quarter century the world has seen changes and transformations as never seen before. It is now fairly well understood that the power of commerce is moving away from the west to the east and much closer to home. The turmoil in the Middle East instigated by western democracies will somewhat delay the shift of power, nevertheless there exists vast opportunities in the newly developing economies which will be joined by the African continent which has had a very unfair share of treatment by the rest of the world. Hypothetically, we in the Indian subcontinent are located

in the centre of these developments and closest to the busiest sea lanes crisscrossing the world, carrying essential goods. This should leave a serious note on any economist’s mind to pursue future potentials. Branding and the power behind it When you analyze global commerce, brands occupy the driving seat. Be it simple necessities, luxury items, services and almost anything, even spiritual doctrines, the human needs are driven by brands and their promise to satisfy the customer. When we made our first attempts in brand building, Russia was our test market. Strategy and Principles In setting up the tea Company and building the brand, we used many strategies and out of the box thinking. 1. It was our principle to emulate the leaders but not to copy them. This was the start of innovation at HVA. Today we humbly proclaim our brand, HELADIV, perhaps to be “the most innovative tea brand in the world” 2. We also believe that there is no substitute for hard work. Hence we continue to travel on the decided path despite defeat and debacles, looking for success even in defeat, true to the Latin dictum, “Omnia Vincit dures labor”, hard work conquers all. 3. It is our conviction, “Impossible is Nothing”. Incidentally, the motto of the Sri Lanka Commando Regiment is this tag line and they showed it well in May 2009, giving leadership to finish the war against terrorism. 4. At HVA, we instill self motivation on career paths jointly identified through a unique annual assessment process. Our human resource development and staff welfare are also unique and do not correspond to any standard textbooks. What we witnessed at the great financial collapse in the recent years was retrenchment en mass at some of the world renowned business establishments. Whilst, these

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were inevitable situations, our welfare and staff empowerment programs have kept us in good stead even during the difficult periods and we have enjoyed excellent worker relations without industrial disputes. 5. R&D was in our focus from the very beginning as the key to sustainable development and propagation of the brand. The in-house R&D department was set up in 1998 with a dedicated team of qualified personnel handling research, development and quality assurance functions. Same year we started the HELADIV incubator to give birth to our embryonic ideas. With R&D, we were privileged to discover the unlimited options available in tea other than the simple cup that cheers! Our R&D is not a cost centre but a profit centre to the Company. We have made provision in our cost sheets to capture the cost on R&D as an integral part of product value. 6. In 2008, we were selected by the plantation development project to qualify for a grant made available through the Asian Development Bank (ADB) to set up a pilot plant to manufacture tea extract for use in several innovative products. The pilot plant termed “HELADIV Innovative” was made operational in 2010, where several tea based products were successfully and economically developed for the beverage, leisure, pharmaceutical and horticulture industries. Research work is in progress to develop these in to commercial products for worldwide marketing. 7. At HVA we diligently follow the Edison Principle, the innovation quota introduced by Sir Thomas Alva Edison, the greatest innovator of modern history. Edison’s theory was that you have to come up with many ideas in order to have one good one. So he set an innovation quota for himself and the research team. One minor invention every ten days! a major invention every

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six months! Relate the Edison’s inventions and founding the GE company. 8. The research team at HVA consisting of research scientists representing process engineering, food technology and bio-chemistry is headed by the Chairman of the Company and monthly meetings are conducted to discuss and dissect the embryos in the HELADIV incubator. Conceptualizing & Building the Brand

When we planned on building a global brand in 1997, extensive discussions were conducted. The idea behind this was to take the progression of the company through developing a brand and the gradual transformation of the business from trading to marketing to brand marketing. To facilitate all aspects of brand building, a new company with BOI status was registered in 1997, titled HVA Foods (Pvt) Ltd. The word foods in the Company title was a well planned inclusion as our vision at that time was tea would come under strict food regulations before long and our new venture should comply with food standards. As we all know, today, tea is under a strict regime of food related controls, including nutritional values. Simultaneously the development of a carefully planned tea manufacturing facility was initiated. The land selected for the factory complex was a wasteland and gave us the opportunity to re-create the ideal dream factory which would later become the pride of the Company. The 3 acre land today is a virtual forest garden and on the way to be classified as a green factory. Apart from the tree covered environment, all man made waste is sorted at the point of generation for re-cycling, leaving nothing for dumping. Even the toilet waste is recycled through aerobic and anaerobic action for separation as clean water and sludge. All buildings are positioned along the solar path or the east west axis of the earth to receive maximum solar illumination during the daytime controlled by indigenous solar curtains on windows situated on the north and

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south. This has effectively curtailed the use of the national power for illumination and the cost of electricity is remarkably low at 0.5% of the turnover. The brand HELADIV was created in 1997, embodying the warmth of a tropical island called Heladiva in ancient times, the hospitality of the islanders and the natural beauty of a nation rich in culture and heritage. The process which began in 1997 has resulted in the brand being registered in over 45 trademark registries worldwide with renewals being done for the second ten year registration in most countries. At the time the branding process was on many believed, it was impossible to create a brand unless millions of dollars were spent on advertising. So we resorted to unorthodox marketing and brand propagation. The strategy we deployed used colours and designs to create hype. For instance, the terms of reference to pack designer was clear that no direct object of tea to be used on the packs. The widely used, tea cup, two leaves and bud, tea plucker, tea factory or tea fields were banned in the design formats. When the first pack with a stylized tea leaf in multi colours was presented to the market, sales people were shocked as the pack looked more like a box of perfume. But we persisted and rationalized as nobody knew the HELADIV brand and an unusual pack sitting on the tea shelf perhaps warranted closer examination by taking the pack in to the hand and that was the moment we prayed for. Today, our agents and customers ask for HELADIV by name. Building a brand without extensions we believed is like a tree without branches or feeder roots jeopardizing its survival in times of distress. We planned Brand extensions from the very beginning on realizing the importance. Brand and product extension at HVA is centered round the necessity to meet specific opportunities as the organic growth of the company so demands. As a first step, all registered brands of the company are analyzed and

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categorized as sub brands and stand alone brands specific to regions. Subbrands are direct extensions of the universal brand instrument “HELADIV” and adhere to all core values associated with ‘HELADIV”. In 2000, an important aspect in product extension was achieved, when the first ever commercial product of ice tea in tetra packs was introduced to the Sri Lankan market. This pioneering product has placed the Company on a stronger footing and development is taking place in this direction at a much faster pace. Learning from our Chinese experience, in establishing cafes the company looked at developing a worldwide café franchise, on lines similar to starbucks coffee but with much hype to project a lifestyle salon - Years of research and experience in China resulted in launching the concept tea salon in December 2011. The franchise which will be a club concept is aptly named HTC or Heladiv Tea Club. This we consider as our newest brand extension which will power the company to explore new markets and consumer segments traditional tea has not gone after. The second café on yet another theme will be opened in May this year at the newly developed Liberty Arcade. Our brand and product extensions will also figure in non-traditional tea products made from our extraction plant. Some of the products are already being test marketed and proper product profiles will emerge in due course. For instance, our unique tea bath combining all natural herbs and tea is a foot-comforter used in China. Our tea dye made from fluff is the marking ink for most of our packaging and soon will be available as a safe and food grade commercial product to the plantation sector. The spent tea residue from our extraction plant made into compressed rooting blocks is tested for long term nutritional benefits. Our latest research program teamed up with scientists from the University of Colombo will bring to light the curative properties in tea for containing several life threatening illnesses. Now this out of the box thinking has taken us on a long and exciting tea journey which most people in the industry www.nce.lk

thought was not possible. It is our belief, the non beverage segment of tea is a hidden treasure trove for the tea industry and the value addition potential in this sector is manifold, compared to the traditional beverage. This will naturally help in the government objective of expanding the tea revenue from the current 1.5 billion USD to 5 billion USD by 2020. In going forward we see unlimited, potential for growth in the beverage and non-beverage sectors for our company. We also see the potential of adding value to teas from other origins and thereby reaching segments which were hitherto not competitive. We also see the expansion of our café network not only in Sri Lanka but in other selected countries. We also see the possibility of HELADIV being in the global market with consumer confidence thereby transforming the company to a global entity. We also see the possibilities of strong joint ventures with powerful companies in the beverage industry and thereby working out a synergy for expansion. All these opportunities will certainly pose quite a few challenges in our forward march. These will come in the form of change in consumer behavior, restrictions in cross border trade, fierce competition on the shop floor and countering unfriendly competition. The trend we have created at HVA, through the involvement of the marketing department and the research & development laboratory regularly analyze these challenges as possible obstacles to take cover from. Solutions come in the form of product variation, product innovation, unorthodox marketing techniques and spreading the risk of the client portfolio. Some of these I believe are already analyzed in your curriculum as fundamentals in mitigating risks. If you look at the profile of our country and the immediate region as a power centre the opportunities available are also unlimited. Sri Lanka has sufficient fresh water if managed to develop a lucrative export business. It is predicted that in the future countries may go to war on the right to access water. Our blessed nation is directly under the sun throughout the year due to our

location being just above the equator. With the expansion in PV technology solar power is now becoming more affordable. This would be a new challenge to meet in chartering energy security for the nation. Sri Lanka is also blessed with a Maritime Zone 20 times the size of its land mass, yet the country imports fish from Chile. You will also be surprised that a large portion of our salt requirement is imported. It is alleged that the fish resources of the Indian Ocean is hardly exploited and the fish die of old age. If you look at the world map, from the southern Sri Lanka, the Indian Ocean extends right up to the Antarctic Circle without any land mass in-between. These are some of the opportunities that could lead to develop sustainable industries. These can also be termed as challenges with obstacles and worry about how to combat. If you awaken the entrepreneur in you the world is at your feet and what better opportunity you could have to draft a new order in water security, food security and energy security which are going to be the biggest challenges in the future. Then, facing tomorrow’s challenges will not be an obstacle but an exciting experience. When I look around, I see young people with hope eager to face the world and meet tomorrow’s challenges. You all are academics and looking at professional careers and not mundane run of the mill job opportunities. Now a word of caution, your health and fitness of your body. Remember corporate athleticism plays a major role in you upward mobility in the corporate world. “Mens sana in corpore sano” The famous Olympic tagline, Healthy mind in a healthy body. Only then you could concentrate and strategise the future with confidence. Also do not forget, health is wealth and it is tax free. Well, I have spoken enough and sincerely hope it was not too much to digest. I wish all of you who are gathered here today to go out to the world with excitement and reach for the highest.

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Wins the Gold Award

in the ICT Services Sector at the National Business Excellence Awards 2012

In this Picture : Mr. Mano Sekaram ,CEO & Co-founder, 99X Technology receives the award from Mr. Christopher Joshua, Executive Director of Access Engineering, accompanied by Mr. Sunil G. Wijesinha, Senior Deputy President of the National Chamber of Commerce Sri Lanka (NCCSL).

The prestigious 9th National Business Excellence Awards (NBEA) 2012 organized by the NCCSL was held on the 4th December at the Hilton Colombo, aimed at recognizing Sri Lankan businesses which contribute to social economic development in various business areas. 99X Technology, formerly known as Eurocenter DDC, won the Gold award in the ICT Services sector. www.nce.lk

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The distinguished panel of judges for the National Business Excellence Awards comprised the Director of the Postgraduate Institute of Management (PIM) - Professor Uditha Liyanage (Chairman of the Panel of Judges), the Resident Representative of the International Monetary Fund - Dr. Koshy Mathai, Chairman of the Japan Lanka Industrial Development Centre - Mr. Nihal Abeysekera, Chairman of the Capital Trust Securities Group - Mr. M R Prelis, President of the Society of Certified Management Accountants of Sri Lanka- Professor Lakshman R Watawala, and the Precedent Partner of Nithya Partners Mr. Aritha Wikramanayake. This award recognizes the contribution made by 99X Technology to the growth and thought leadership of the Sri Lanka’s IT/BPO industry, which is to be one of the largest revenue earners for the country by 2015. This reaffirms the company’s

continuous effort to make Quality as their key differentiator in the software export market.

Business and Professional Services’ sector at the 20th National Chamber Exporters of Sri Lanka (NCE) awards.

Mano Sekaram , CEO & Co founder, 99X Technology said “We are humbled to receive the Gold award for the ICT services sector at such a prestigious platform. This award belongs to all the men and women who persistently strive at 99X Technology towards achieving company excellence, and making it an outstanding organization that is admired in the ICT industry”.

99X Technology provides outsourced Software Product Engineering services to Independent Software Vendors (ISVs) in the Eastern Europe region, and has a proven track record of 10 years in building and releasing more than 100 high quality commercial software products worldwide. 99X Technology has shown tremendous commitment to evolve their innovative practices, and concentrate heavily on continuous research.

The company also had the honour of becoming the first ever Software Company in Sri Lanka to win the ‘Arch of Europe award for Quality and Technology’ in Frankfurt, Germany. Earlier this year, 99X Technology received the outstanding exporter in 2011 Gold award, in the Medium category for their outstanding achievements under the ‘Export of

In order to ensure that their delivery is of a high standard, all processes conform to ISO 9001:2008 and CMMi standards while being endorsed by the Microsoft Corporate as a Gold Certified Partner. These efforts have made Sri Lanka a preferred destination for outsourcing of software services in the global arena.

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Recycling entrepreneur recognised with

Asia-Pacific Award Sri Lankan industrialist Indhra Kaushal Rajapaksa, Member of National Chamber of Exporters of Sri Lanka who runs a successful recycling business – Kalhari Enterprises - in Heiyantuduwa was recently awarded The Most Promising Entrepreneurship Award by Enterprise Asia, a non-governmental organisation promoting the development of entrepreneurship across the Asia-Pacific region. The awards in Sri Lanka were organised by the Sri Lanka – Malaysia Business Council of the Ceylon Chamber of Commerce. The Most Promising Entrepreneurship Award is awarded to recognise individuals in the Asia-Pacific region who have shown very promising efforts, perseverance and growth in their business. Founder of the company Indhra Kaushal Rajapaksa, schooled at Ananda College, Colombo, studied Polymer Science Technology at the Katubedda Campus of the Moratuwa University, and has an MBA in Business Management. A Fellow of the Plastic and Rubber Institute [PRI] of Sri Lanka and its current Vice President, he has experience working in all the major footwear exporting companies in the Free Trade Zone. Before embarking on his own, he was employed in one of the world’s largest manufacturers of solid and pneumatic tires for the construction and agriculture industries in Sri Lanka [Loadstar Private Limited]. Kalhari Group has around eighty employees nearly eighty percent of whom are from the village of Heiyantuduwa where the company operates from. It has since expanded to five companies engaged in footwear upper stitching, tyre waste recycling, trading and has factories in Heiyantuduwa, Mahara and Minuwangoda. In addition, it provides the livelihood for around forty collectors who supply the factory with waste for recycling. Kaushal Rajapaksa set up Kalhari Enterprises in 2003 recycling used PET bottles. Today it is a group of five companies exporting significant quantities of recycled waste every month to several countries including China, India, Japan, Malaysia and Vietnam. Among the recycled products exported by Kalhari Enterprises are waste products from the tyre industry, the rubber latex industry, the garment industry, and the steel industry. Other export products include a variety of plastics including used PET bottles and electronic waste.

The APEA Award is but the latest for both Kaushal Rajapaksa and the Kalhari Group. They have consistently won export awards since the inception of the NCE Export Awards in Sri Lanka. “We have signed agreements with several corporate entities in Sri Lanka to be their service provider for waste management and it is an on-going process. We are aggressively pursuing MOUs with corporate entities for the management of their e-waste so that these could be recycled in Sri Lanka itself. With the proliferation of computers, mobile phones and other electronic equipment, Sri Lanka will soon face the challenge of how to deal with e-waste safely.” Kalhari’s Group CEO also outlined the direction the company would take in the immediate future. “Soon we expect to be able to expand our activities both by the volume of waste materials managed and by geographic coverage,” Rajapaksa explained. “Right now most of our employees are in the village of Heiyantuduwa where we have our operations. But with the expansion, we expect to be able to provide more job opportunities for people from other areas as well; particularly, the north and the east. Our aim is to make people more aware of the need to protect and sustain the environment and provide them with a livelihood as they do so.” Source: The Island – 11th March 2013

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Summary of Export Performance (January - March) 2012 - 2013 Code

Description

% Growth

2013 (January % To March) Growth5

617.74

549.03

-11.12

526.30

-4.14

376.14

329.41

-12.42

330.92

0.46

1.2 Natural Rubber

71.54

53.25

-25.57

23.93

-55.06

1.3 Coconut

80.40

100.28

24.73

74.42

-25.79

Coconut Kernel products

29.74

38.56

29.66

23.56

-38.90

Coconut Fibre products

33.58

39.05

16.29

32.10

-17.80

Coconut Shell products & Others

17.08

22.67

32.73

18.76

-17.25

89.66

66.09

-26.29

97.03

46.81

55.42

32.85

-40.73

61.37

86.82

Vegetables

5.43

4.27

-21.36

3.86

-9.60

Fruits

4.22

4.83

14.45

5.43

12.42

Cut Flowers & Foliage

3.77

2.85

-24.40

3.84

34.74

Essential Oils

4.92

5.02

2.03

3.47

-30.88

Others of Other Export Crops

15.90

16.27

2.33

19.06

17.15

Fisheries products

46.60

57.61

23.63

57.52

-0.16

Ornamental Fish

3.01

2.48

-17.61

2.61

5.24

Crustaceans

6.51

9.82

50.84

9.42

-4.07

Other Edible Fish nes

37.08

45.31

22.20

45.49

0.40

Industrial Products

1925.73

1957.04

1.63

1771.71

-9.47

1

Agricultural products

2011(January 2012 (January To March) To March)

1.1 Tea

1.4 Other Export Crops Spices

2

3

3.1 Diamonds, Gems & Jewellery

102.41

156.30

52.62

107.40

-31.29

1055.11

1022.30

-3.11

1046.30

2.35

622.61

643.84

3.41

510.41

-20.72

99.53

94.43

-5.12

62.89

-33.40

Leather & Leather products

4.87

4.24

-12.94

3.80

-10.38

Wood & Wooden products

17.03

16.72

-1.82

14.86

-11.12

Paper & Paper products

17.72

42.10

137.58

15.63

-62.87

203.05

231.70

14.11

201.75

-12.93

Chemical products

12.58

9.50

-24.48

7.60

-20.00

Plastic products

14.70

15.47

5.24

13.43

-13.19

Non Metalic mineral products

27.59

31.67

14.79

27.54

-13.04

Base metal products

13.06

17.87

36.83

12.39

-30.67

Electronic,Electrical,Machinery products & parts

74.71

83.40

11.63

71.13

-14.71

Transport Equipments & Parts

18.70

54.08

189.20

11.42

-78.88

Boat Building

76.81

0.81

-98.95

26.77

3204.94

5.38

3.72

-30.86

5.09

36.83

36.88

38.13

3.39

36.11

-5.30

145.60

134.60

-7.55

107.60

-20.06

6.99

6.42

-8.15

7.70

19.94

2597.06

2570.10

-1.04

2363.23

-8.05

3.2 Textiles & Garments 3.3 Manufactures Food,Feed,Beverages & Tobacco

Rubber Finished products

Footwear Other Manufactures nes 3.4 Petroleum Products 4

Products Unclassified

Grand Total

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Disaggregated Export Performance January to March 2011 - 2013

Code

Description

S . 01

Tea

S.0101 S.0102 S.0103 S.0104 S.0105 S.0199

Tea Packets Tea Bags Tea in Bulk Instant Tea Green Tea Other Tea nes Total

S . 02

Natural Rubber

S.020101 S.020102 S.020103 S.020104 S.020105 S.020199

Latex Rubber Sheet Rubber Technically Specified Rubber Crepe Rubber Block Rubber Other Natural Rubber nes Total

S. 03

Coconut

S .0301

Coconut Kernel products

S.030101 S.030102 S.030103 S.030104 S.030105 S.030106 S.030107 S.030108 S.030109

Coconut Oil Desiccated Coconut Copra Coconut Fresh Nuts Coconut Milk Powder Coconut Cream Liquid Coconut Milk Poonac Defatted Coconut Sub total

S . 0302

Coconut Fibre products

S.030201 S.030202 S.030203 S.030204 S.030205 S.030206 S.030207

Bristle Fiber Mattress Fiber Mixed Coir Fiber Coir Yarn Coco Peat & Fiber Pith Brooms & Brushes Carpets, Mats, Floor Coverings

54

SRI LANKA EXPORTER | THE VOICE OF THE EXPORTERS

2011 2012 2013 % % (January (January (January Growth Growth To March) To March) To March) 184.4 1.6 176.2 0.4 0.9 12.7 376.1

160.8 0.8 158.5 0.0 0.9 8.4 329.4

-12.8 -47.4 -10.0 -95.0 -1.1 -34.3 -12.4

154.7 0.9 170.8 0.0 0.7 3.8 330.9

-3.8 7.3 7.8 -100.0 -19.5 -55.0

0.0 23.3 4.9 37.5 0.7 5.2 71.5

0.1 17.4 5.0 23.7 0.4 6.7 53.3

0.0 -25.2 1.8 -36.7 -44.9 28.9 -25.6

0.3 6.2 2.2 13.8 0.4 1.1 23.9

520.0 -64.6 -56.3 -41.6 -5.3 -83.8

1.2 19.7 0.1 0.4 3.8 1.2 1.9 0.1 1.3 29.7

2.1 22.5 0.3 1.9 6.4 1.7 1.9 0.5 1.3 38.6

69.4 14.4 92.9 354.8 67.5 48.3 -3.6 750.0 0.8 29.7

3.2 11.1 0.0 0.0 5.4 0.8 2.0 0.0 1.1 23.6

56.1 -50.8 -88.9 -97.9 -16.1 -55.2 7.0 -92.2 -20.9 -38.9

0.8 9.2 9.9 0.2 4.4 3.2 1.4

0.6 7.5 14.1 0.4 6.0 3.0 1.3

-25.6 -18.0 42.2 111.1 36.9 -6.0 -6.6

0.7 5.5 12.3 0.2 5.2 3.0 1.1

20.7 -27.3 -12.5 -57.9 -13.3 -0.7 -14.2

0.5

-55.1

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S.030208 S.030209 S.030210 S.030211

Coconut Husk Chips Coir Pads Coir Twine & Ropes Geo Textiles

1.5 0.5 1.7 0.9 33.6

2.1 0.5 2.7 0.9 39.1

45.6 0.0 57.4 -5.5 16.3

1.2 0.5 1.7 0.8 32.1

Sub total

16.2 0.0 0.0 0.5 0.3 17.1

21.3 0.1 0.0 0.8 0.5 22.7

31.8 800.0 -75.0 47.2 43.8 32.7

17.3 0.0 0.0 1.2 0.3 18.8

-17.2

Total - Coconut

80.4

100.3

24.7

74.4

-25.8

8.6 28.5 14.5 3.6 0.3 55.4

1.2 23.3 4.0 4.3 0.0 32.9

-85.8 -18.2 -72.7 20.2 -88.0 -40.7

16.4 24.0 18.3 2.7 0.0 61.4

1241.0 3.1 362.5 -38.5 0.0

0.1 0.0 0.0 0.0 0.1 0.1 1.6 0.1 0.2 0.1 0.4 2.7 5.4

0.0 0.0 0.0 0.0 0.2 0.2 0.4 0.1 0.2 0.0 0.3 2.8 4.3

-90.0 0.0 0.0 0.0 50.0 112.5 -72.4 -23.1 5.6 -60.0 -25.0 3.6 -21.4

0.0 0.0 0.0 0.0 0.2 0.7 0.3 0.1 0.2 0.1 0.0 2.3 3.9

0.0 0.0 -100.0 0.0 53.3 282.4 -20.9 -50.0 -15.8 75.0 -97.0 -19.0

0.6 0.0 0.3 0.8 0.5

0.4 0.1 0.8 1.7 0.2

-28.6 400.0 144.1 111.0 -65.2

0.7 0.0 0.6 1.5 0.1

75.0 -80.0 -24.1 -15.6 -12.5

Sub total S . 0303

Coconut Shell products & Others

S.030301 S.030302 S.030303 S.030304 S.030305

Activated Carbon Coconut Shell Pieces Coconut Shell Powder Coconut Shell Charcoal Coconut Ekels

S . 04

Other Export Crops

S . 0401

Spices

S.040101 S.040102 S.040103 S.040104 S.040105

Pepper Cinnamon Cloves Nutmeg & Mace Cardamoms Sub total

S. 0402

Vegetables

S.040201 S.040202 S.040203 S.040205 S.040208 S.040209 S.040210 S.040211 S.040212 S.040213 S.040214 S.040299

Onions Tomato Garlic Carrots Gherkins Mushroom Manioc Kiri Ala Chilies Turmeric Ginger Other Vegetables nes Sub total

S . 0403

Fruits

S.040301 S.040302 S.040303 S.040304 S.040305

Pineapples Tamarind Goraka (Garzenia) Bananas Lemons

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-43.0 0.0 -37.2 -12.8 -17.8 -19.1 -77.8 0.0 47.4 -30.4

86.8

-9.6

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S.040306 S.040399

Melons & Papayas Other Fruits nes Sub total

0.1 1.9 4.2

0.1 1.6 4.8

-18.2 -18.2 14.5

0.1 2.4 5.4

S.0404 S.0405

Cut Flowers & Foliage Essential Oils

3.8 4.9

2.9 5.0

-24.4 2.0

3.8 3.5

S. 0406

Others of Other Export Crops

S.040601 S.040602 S.040603 S.040604 S.040605 S.040606 S.040607 S.040608 S.040609 S.040610 S.040699

Unmanufactured Tobacco Betel Leaves Cashew Nuts Oil Seed Coffee Areca Nuts Black Gram Cowpea Green Gram Lentils Other Export Crops nes

10.2 2.0 0.4 0.0 0.0 0.6 0.0 0.0 0.0 1.9 1.1 16.3

12.4 4.6 -44.1 -60.0 -66.7 40.0 -100.0 0.0 -100.0 -21.8 7.5 2.3

11.9 2.9 0.2 0.1 0.0 1.7 0.0 0.0 0.0 0.7 1.4 19.1

16.6 42.6 -50.0 250.0 300.0 201.8 0.0 0.0 0.0 -64.0 26.3

Sub total

9.1 2.0 0.7 0.1 0.0 0.4 0.0 0.0 0.2 2.4 1.1 15.9

Total - Other Expoprt Crops

89.7

66.1

-26.3

97.0

46.8

16.1 17.5 2.3 1.6 2.6 3.5 43.6

15.2 24.6 4.8 1.2 3.8 5.5 55.1

-5.8 40.7 109.1 -26.3 46.7 58.9 26.5

28.9 11.2 4.3 3.0 2.2 5.4 54.9

90.3 -54.5 -11.4 150.0 -42.3 -2.5

3.0 46.6

2.5 57.6

-17.6 23.6

2.6 57.5

78.5 20.6 3.3 102.4

111.9 37.7 6.7 156.3

42.5 82.8 106.2 52.6

66.7 34.0 6.7 107.4

23.7 1007.3 12.8 11.4 1055.1

24.3 976.0 12.1 10.0 1022.3

2.7 -3.1 -5.9 -12.1 -3.1

25.9 978.4 10.9 31.1 1046.3

S. 05

Fisheries products

S.0501

Edible Fish

S.050101 S.050102 S.050103 S.050104 S.050105 S.050199

Frozen Fish Fish Fresh or Chilled Prawns Lobsters Crabs Other Edible Fish nes Sub total

S.0502

Ornamental Fish Total - Fisheries products

S. 06

Diamonds, Gems & Jewellery

S.0601 S.0602 S.0603

Diamonds Gems Jewellery Total

S.07

Textiles & Garments

S.0701 S.0702 S.0703 S.0799

Woven Fabrics Apparel Made-Up Textile Articles Other Textile Articles nes Total

56

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55.6 49.7 12.4 34.7 -30.9

17.1

-0.4 5.2 -0.2 -40.4 -9.8 0.0 -31.3 6.7 0.3 -9.7 211.5 2.3

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S. 08

Manufactures

S. 0801

Food,Feed,Beverages & Tobacco

S.080101 S.080102 S.080103 S.080104 S.080105 S.080106 S.080107

Processed Vegetables, Fruits & Juices Confectionary & Bakery Products Processed Food Rice & Cereals Beverages Manufactured Tobacco Animal Feed Sub total

S. 0802

Leather & Leather products

S.080201 S.080202 S.080203

Raw Hides & Skins Travel Goods, Bags etc. Industrial Gloves, Belts etc. of Leather Sub total

S. 0803

Wood & Wooden products

S.080301 S.080302

Furniture & Seats Jewellery Boxes, Cloth Hangers and Handicraft Brooms & Brush Handles Fuel Wood & Charcoal MDF Boards Plywood, Densified/Particle Boards Builders Joinery, Flooring Panels Other Wooden Products nes

S.080303 S.080304 S.080305 S.080306 S.080307 S.080399

Sub total S. 0804

Paper & Paper products

S.080401

Waste & Scrap of Paper /Paper Boards

1.1 10.5 23.6 41.5 1.6 7.5 13.7 99.5

1.8 9.7 14.0 30.3 1.4 10.3 26.9 94.4

57.7 -7.3 -40.8 -26.8 -14.4 37.3 96.3 -5.1

2.3 5.1 12.4 14.0 0.9 14.2 14.0 62.9

28.6 -47.9 -11.2 -53.8 -33.6 37.7 -48.0

0.1 0.9 3.9 4.9

0.1 0.6 3.6 4.2

25.0 -35.6 -8.7 -12.9

0.1 0.5 3.2 3.8

4.6 2.4

3.8 2.8

-16.5 12.7

4.1 2.2

0.0 0.1 7.7 0.2 0.0 2.0 17.0

0.0 0.2 7.8 0.4 0.0 1.8 16.7

0.0 25.0 1.4 90.9 -50.0 -11.4 -1.8

0.0 0.1 7.0 0.0 0.0 1.4 14.9

7.3

6.8

-7.6

5.9

-13.3

0.3 0.7 3.0 4.0

0.4 0.6 2.2 3.1

15.6 -18.6 -27.6 -22.6

0.4 0.5 2.3 3.2

0.0 -7.0 7.4

2.2 2.4 1.8 6.4

27.1 3.8 1.4 32.2

1116.6 55.6 -22.9 404.4

1.4 3.8 1.4 6.5

-94.9 0.0 3.7 -79.7

17.7

42.1

137.6

15.6

-62.9

-33.4 10.0 -17.9 -9.8 -10.4 8.9 -19.3 -100.0 -26.7 -10.1 -90.5 -50.0 -23.6 -11.1

S. 080402 Stationery products S.08040201 Envelopes, Letter Cards, Post Cards S.08040202 Registers, Account Books, Diaries S.08040203 Labels Printed or Not Sub Sub total S.080403

Other Paper Products nes

S.08040301 Books & Printed Matter S.08040302 Cartoons, Boxes & Bags S.08040399 Other Paper Products nes Sub Sub total Sub total - Paper & Paper products

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3.9

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S. 0805

Rubber Finished products

S.080501

Rubber Plates, Sheets Rods of Vulcanized Rubber Pneumatic & Retreated Rubber Tyres & Tubes Industrial & Surgical Gloves of Rubber Gaskets, Washers, Seals etc. of Hard Rubber Other Rubber Products nes

S.080502 S.080503 S.080504 S.080599

6.2

14.5

135.2

11.0

131.5

151.1

14.8

127.8

42.1 22.1 1.2 203.1

44.7 20.5 0.9 231.7

6.3 -7.4 -20.3 14.1

44.2 18.1 0.7 201.8

4.6 0.4 0.8

3.2 0.5 0.4

-31.3 39.5 -41.3

2.5 0.1 0.5

0.1 0.7 3.6

0.1 0.5 1.2

71.4 -34.3 -66.4

0.1 0.8 1.5

1.4

0.8

-43.4

1.1

1.0 12.6

2.8 9.5

164.4 -24.5

1.0 7.6

Sub Sub total

1.2 1.9 6.9 4.6 14.7

1.1 0.9 7.5 6.0 15.5

-9.7 -55.3 8.2 29.5 5.2

1.3 1.0 6.9 4.3 13.4

-13.2

Total - Chemicals & Plastic products

27.3

25.0

-8.5

21.0

-15.8

1.5 0.3 0.3 2.2 4.3

2.4 0.4 1.3 0.2 4.3

67.1 50.0 270.6 -89.7 0.7

2.1 0.2 0.8 0.4 3.5

-12.7 -56.4 -34.9 56.5

3.3 1.6 4.9

3.4 2.2 5.6

4.2 38.5 15.2

4.6 2.2 6.8

Sub total S. 0806

-24.3 -15.4 -1.1 -11.7 -29.8 -12.9

Chemicals & Plastic products

S. 080601 Chemical products S.08060101 Inorganic Chemicals S.08060102 Organic Chemicals S.08060103 Wadding Gauze & Similar Pharmaceutical Articles S.08060104 Fertilizer S.08060105 Paints, Varnishes and Dyeing Extracts S.08060106 Perfumes, Cosmetics & Makeup Preparations S.08060107 Soap, Washing Preparations, Waxes, Candles etc. S.08060199 Other Chemical Products nes Sub Sub total

-21.6 -90.6 18.2 0.0 78.3 25.0 30.9 -62.5 -20.0

S. 080602 Plastic products S.08060201 S.08060202 S.08060203 S.08060204

Starches, Glues, Enzymes Gloves, Mitts & Mittens Sacs & Bags of Plastics Other Products of Plastics nes

S.0807

Non Metalic mineral products

S.080701

Natural Sands

S.08070101 S.08070102 S.08070103 S.08070199

Silica & Quarts Mica & Mica Waste Graphite Other Natural Sands nes Sub Sub total

S.080702

-19.4

Articles of Stones

S.08070201 Worked Monumental Stones S.08070299 Other Articles of Stones nes Sub Sub total

58

12.5 17.6 -8.0 -28.8

SRI LANKA EXPORTER | THE VOICE OF THE EXPORTERS

33.4 2.3 21.4

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S.080703

Ceramics & Porcelain products

S.08070301 S.08070302 S.08070303 S.08070399

Wall Tiles Tableware & Kitchenware Ornaments Other Ceramic Products nes Sub Sub total

S.080704

Sub Sub total Sub total - Non Metalic mineral products S.0808

Base metal products

S.080801 S.080802 S.080803 S.080804 S.080805 S.080806

Structures of Iron & Aluminum Standard Wire of Aluminum, Copper & Iron Nails, Screws, Bolts & Nuts of Metal Refined Copper & Lead Alloys Tools, Implements, Cutlery & Parts Scrap of Ferrous, Aluminum, Copper & Other Metals Other Products of Base Metal nes Sub total

S.0809 S.080901 S.08090101 S.08090102 S.08090103 S.08090104 S.08090105 S.08090106 S.08090107 S.08090108 S.08090109 S.08090110 S.08090111 S.08090112 S.08090199

-29.6 -7.8 -38.4 62.5 -14.9

1.8 5.7 1.0 0.1 8.5

53.5 -6.7 27.3 -61.5

3.5 5.4 0.0 8.8

3.7 9.9 0.0 13.6

5.5 84.4 0.0 53.6

8.2 0.5 0.0 8.8

124.9 -94.6 0.0

27.6

31.7

14.8

27.5

-13.0

1.4 1.0 0.1 4.5 3.1 0.0

0.3 1.9 0.1 2.8 5.8 1.6

-79.9 89.0 -15.4 -37.3 89.3 5366.7

0.2 2.7 0.1 4.3 1.4 0.5

-34.5 42.9 -54.5 52.7 -76.5

2.9 13.1

5.3 17.9

81.6 36.8

3.3 12.4

9.9 1.9

8.2 0.4

-17.1 -78.6

7.7 1.1

6.2 3.2 12.2 0.1

7.2 2.6 13.2 0.1

17.4 -19.7 8.0 0.0

7.1 2.6 8.1 0.5

13.7 0.3

12.5 0.5

-9.2 80.8

14.9 0.2

0.0 9.3 3.6

0.0 7.7 1.6

0.0 -17.2 -56.2

0.1 7.9 3.4

0.1 14.3 74.7

0.1 29.4 83.4

-42.9 106.5 11.6

0.2 17.4 71.1

4.0

-35.5

-68.3 -38.0 -30.7

Engineering products Electronic,Electrical,Machinery products & parts Electrical Transformers Telephone Sets, Audio/Video Equipments & Parts Printed Circuits Switches, Lamp Holders Boards & Panels Discharge Lamps Electronic Circuits, Transistors, Valves, Cathode Tubes etc. Insulated Wires and Cables Boilers, Piston Engines, Pumps & Vacuum Pumps Air-Condition Machines Refrigerators & Freezers Tea Bagging, Packing, Cleaning, Weighing Machines Automatic Data Processing Machines Other Electrical & Electronic Products nes Sub Sub total

60

1.1 6.1 0.8 0.1 8.2

Other Non Metalic Mineral products

S.08070401 Glass & Glassware S.08070402 Mineral Sands S.08070403 Natural Salt

S.080899

1.6 6.7 1.3 0.1 9.6

SRI LANKA EXPORTER | THE VOICE OF THE EXPORTERS

-6.2 162.5 -1.7 1.2 -38.1 269.2 19.8 -68.1 0.0 3.1 113.9 162.5 -40.9 -14.7 www.nce.lk


S.080902

Transport Equipments & Parts

S.08090201 Motor Vehicles & Parts S.08090202 Bicycles Not Motorized S.08090299 Other Transport Equipments nes

3.8 11.0 3.9 18.7

3.4 10.7 40.0 54.1

-11.5 -2.8 938.4 189.2

3.8 6.0 1.7 11.4

76.8 2.0 11.8 1.1 91.7

0.8 2.0 13.4 0.7 16.9

-98.9 -0.5 13.9 -37.4 -81.6

26.8 1.4 14.7 0.8 43.6

3204.9 -30.7 9.2 11.9

185.1

154.4

-16.6

126.1

5.4

3.7

-30.9

5.1

-18.3 36.8

2.0 5.0 0.6 0.0 14.4 22.0

1.7 4.1 0.3 0.0 16.0 22.1

-17.9 -17.3 -47.6 -100.0 11.0 0.1

1.4 4.6 0.4 0.0 12.9 19.3

-12.4

Total - manufactures

622.6

643.8

3.4

510.4

-20.7

S.09

Petroleum Products

145.6

134.6

-7.6

107.6

-20.1

S.10

Products Unclassified

7.0

6.4

-8.2

7.7

2597.1

2570.1

-1.0

2363.2

Sub Sub total S.080903

Other Engineering products

S.08090301 S.08090302 S.08090303 S.08090304

Boat Building Aircrafts & Parts Toys Games & Sport Requisites Metal Furniture & Seats Sub Sub total Sub total - Engineering products

S.0810

Footwear

11.5 -44.1 -95.9 -78.9

157.9

Other manufactures S.081101 S.081102 S.081103 S.081104 S.081199

Mattresses & Mattress Supporters Brooms & Brusher of Other Fibers Buttons, Studs, Fasteners & Similar Products Synthetic Rubber Other Manufactures nes Sub total

Grand Total

www.nce.lk

-17.6 12.4 24.2 0.0 -19.1

19.9 -8.0

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Shipping

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Full-steam ahead in push for

Sri Lanka’s shipping hub Dr. Priyath Bandu Wickrama

The last time Sri Lanka built a breakwater to protect its fleet of ships, the teardrop-shaped island off the coast of India, was called Ceylon and was still under colonial rule. Today, this independent country of 21 million people is a regional rising star and the government is capitalizing on the island’s strategic location to promote it as an economic hub in South Asia. The new breakwater at Colombo Port is part of a US $ 500 million port expansion - supported in part by US $ 300 million ADB loan - that is moving Sri Lanka toward this goal. Colombo’s new breakwater has a depth of 18 meters, compared to the previous 14 to 15 meters - a crucial difference in a world in which ever bigger cargo ships require ever deeper docking berths. “Most of the main [shipping] lines use vessels with a capacity of more than 8,000 containers and due to the limitations at Colombo Port we have not been in a position to service them,” says Shanthikumar Sadanandan, Group Director of the shipping company Hayleys Advantis, which uses the port. Priyath B. Wickrama, the Chairman of the Sri Lanka Ports Authority, the state-owned custodian of all Sri Lanka’s ports, agrees, saying that the new deepwater facilities are an important breakthrough for Colombo. “This is a development we have been discussing for five to 10 years,” he says. “It will definitely reduce freight rates, make us more competitive and attract more ships to call at Colombo.”

Makings of a hub The breakwater was completed in April 2012. The next stage of the project involves the completion of two 400-meter-long terminals by July 2013. A third 400-meter terminal is also in the planning stages. These will make it possible for Colombo Port to accommodate the latest generation of mega-container ships, which carry 18,000 containers and more. www.nce.lk

According to Wickrama, the project will eventually increase the port’s capacity to 12.5 million containers per annum from a current five million. “We are looking at this project to convert Colombo to the biggest transshipment hub in the region,” Wickrama said. Wickrama adds that most big shipping lines want to make the few deep seawater ports in the world into transshipment hubs, delivering cargo to these ports that is intended for many ports in the region. These companies would then use smaller ships to move the goods from the hub to shallower “feeder” ports, which are unable to accommodate ever bigger vessels. Sri Lanka is strategically located on the main east-west shipping route, positioning Colombo as a favourable candidate for South Asia’s transshipment hub. Hanif Yusoof, the Chief Executive Officer of Expolanka Group - among the biggest freight forwarders in the country - adds that Colombo’s efficiency levels are among the best in the region.

For the Cargills group, one of Sri Lanka’s biggest importers and owners of the largest local chain of supermarkets, a larger port will be a boon for business. “This will facilitate the arrival of mother vessels direct to Colombo. Previously, we had to depend on feeder vessels from other major ports,” says Delano Dias, Executive Director, Millers Limited, a subsidiary of Cargills group. He adds that the company often experiences long delays in imports at other busy ports, particularly during peak seasons such as Christmas. The group imports approximately US $ 1.5 million in goods per month and expects this to increase by 20 percent year-onyear once the new terminals are ready for business. Top tea exporter Dilmah also expects exports to grow by 5 percent to 10 percent annually because of the new terminals. “The increase will be moderate, but we expect greater efficiency and lower costs,” says Malik Fernando, Director, Dilmah, which exports about 3,000 containers per annum.

A promising future

Direct to market Around seven hectares of sea was reclaimed for the breakwater, which features 34,500 specially designed boulders - along with an additional five-meter-high wave wall - that can defend the port against the most inclement weather. The main breakwater and access channel enable the development of the three container terminals. The first of these, the South Container Terminal, is being developed under a public–private partnership. While some 70 percent of the cargo that passes through Colombo Port is for transshipment, local exports include tea, garments, coconut and rubberbased products. Imports are largely white goods, consumer electronics and vehicles.

According to Rohan Abeywickrema, Director at freight forwarder Sathsindu Group, the lack of a deepwater port and berthing facilities in Colombo has in the past resulted in business loss to other countries. But, according to Sri Lanka Ports Authority Chairman Piyath Wickrama, Colombo Port will soon be able to accommodate not only the new 18,000-container capacity ships, but even the next-generation 22,000container capacity ships. “We are looking at this project to convert Colombo to the biggest transshipment hub in the region,” he says. Source: Daily FT – 17th May, 2013

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Dry ports

for Sri Lanka to

Solve traffic

Congestion Jayantha Rathnayake.

INTRODUCTION

By definition, a dry port is an inland intermodal terminal directly connected by road or rail to a seaport operating as a centre for the transshipment of sea cargo to inland destinations. In addition to their role in cargo transhipment, dry ports may also include facilities for storage and consolidation of goods, maintenance of road or rail cargo carriers and customs clearance services. Thus a dry port is a place where distribution of cargoes take place with functions similar to those of a sea port (including cargo handling facilities, providing intermodal transport connectivity, information exchange, as well as other ancillary services such as Customs inspection, storage, maintenance and repair of empty containers and tax payment etc.). In most of the cases, the sea port is driven by the need for stretching in to the hinterland, for the purpose of meeting the expectations of the customers and growth of its business, thus paving the way for emergence of dry ports. Growth of intermodal transportation which embraces hitherto untouched traditional bulk cargoes, and www.nce.lk

new yet remote production areas which can be reached by different modes, also play a key role in demarcating the dry ports. This process is more apparent in geographically extensive markets such as India, China and Europe. The Post-containerization era is marked with the growth of maritime shipping networking at the global level and consequential integration with port operations to ensure cargo handling efficiencies to minimize the time spent in the ports, which is considered a non-remunerative and costly function in the voyage of an ocean-going ship. This phase is followed by maritime shipping getting integrated with the hinterland through the gate-way sea port thus giving birth to inland ports or dry ports. The impetus for the emergence of dry ports are thus found in the need of the sea ports to stretch out, which could be for enhancing business as a positive motive or to prevent business suffering and eroding due to road and/or port congestion as a protective motive. Therefore, logically any proposal to set up dry ports in Sri Lanka too, should be in line with the above two motives. SRI LANKA EXPORTER | THE VOICE OF THE EXPORTERS

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CURRENT STATUS

Right now, Sri Lanka does not operate a single dry port. Yet there is an ongoing discussion on the subject, and also some preliminary work has been done for the setting up of dry ports in Sri Lanka. Among these, a) the plan of the Ministry Of Transport (MOT) for the setting up three dry ports b) ground work done by the Sri Lanka Ports Authority (SLPA) for a cargo village (a synonym for a dry port), are in the forefront, apart from a few attempts made by some private parties earlier in 2004 viz; K –Port Pvt Ltd to set up a dry port. As discussed briefly above, emergence of dry ports are often linked with the need felt by the sea port to expand its domain for different reasons. Therefore, one may wonder whether there is a need for the port of Colombo or the logistics industry to set-up dry ports in Sri Lanka. Dry Ports are primarily identified as service providers for containerized cargo. In 2011 at the port of Colombo, out of the total annual cargo throughput of 62 Mn. mt, about 88% was containerised cargo, dry bulk (cement etc) consisting of 7%, with break bulk occupying the balance 5%. Thus the need for the port to stretch inland by setting up dry ports should emerge, with services provided within and outside the sea port in handling, transporting, storing and providing logistics support to containerized cargo, which tend to create a host of problems such as port and road congestion and the consequential increase of logistics costs, time costs etc. Therefore the primary objective of this article is to examine whether there is a need for the setting up of dry ports in Sri Lanka, and for what reasons. Further, identification of the reasons for the setting up of dry ports from the perspective of the industry stake holders; if they think dry ports are a necessity, together with the most suitable location for such dry ports would be the secondary objective that is examined using empirical data.

NEED FOR DRY PORTS IN SRI LANKA

Global experience for the emergence of dry ports is linked with the rapid development of freight distribution systems with enhanced focus on intermodal transport, and the consequential capacity issues in the gate-way ports, with the regional economic development of the concerned countries. Capacity issues have, in most instances, been identified as an intrinsic problem occurring within the port premises rather than outside their boundaries. However, in the case of Sri Lanka, capacity issues associated with the city infrastructure; especially the roads, seem to have had a bigger role in propagating the setting up of dry ports, rather than as a solution to the capacity issues of the sea port viz. Colombo, as has happened in the global scenario. For instance the SLPA, the governing authority of the only container port in the country, and one of the proponents of dry ports has cited as their main objective, ‘to shift following activities [sic] to the proposed Peliyagoda site as this will help to minimize traffic congestion due

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to transport of containers on the road’ (ADB Multimodal Transport Project Report June 2012, p 17). One may expect a sea port to have different business related goals in promoting a dry port which, by definition, is expected to replicate the functions of a sea port, sans handling ships, thus considerably enhancing business for the sea port whilst acting as an integral part of the supply chain process. Failure of this factor to capture the attention of the SLPA in promoting a dry port could be attributed to the low priority occupied by the volume of domestic cargo in the overall composition of the port container throughput which is in the range of 18 % of the total annual average port throughput of 4.0 million TEUS. Recognition achieved by the port of Colombo as the regional transhipment port has overshadowed the importance of the volume of domestic cargo which is just below 20%, whilst transhipment cargo is around 75% or about 3 mil TEUS. Neither the change of the economic development model of the country, switching to trade liberalization policies in 1977, nor the recent revival of business after ending internal conflicts in 2009, has resulted in a substantial upward shift of the volume of domestic cargo especially the exports of the country, thus leaving the SLPA with no other alternative but to protect, give priority, and facilitate the smooth handling of transhipment cargo which contributes a higher portion of revenue. Therefore, the tendency of the SLPA to expand water front space, by constructing new ports, viz; Hambanthota and expanding the existing port further in to the sea (Colombo International Container terminal, CICT), rather than developing dry ports for the purpose of enhancing domestic business, is in line with its main objective of facilitating and attracting an enhanced volume of transhipment containers of which only a negligible portion of containers; such as MCC will require the facilities offered at a dry port. Table 1 compares the growth of the volume of local cargo against that of transhipment volume during the last few years. During the last ten years, transhipment volume has nearly tripled, while the domestic volume has just doubled, and it is yet to reach one million TEUS. Under the circumstances, the SLPA is justified in declaring alleviation of road congestion as the motive in developing dry ports, over the provision of facilities for the slow-growing domestic cargo volume. Along with the declared objective of easing the ‘road congestion’ the SLPA seem to have been galvanized by the need to reduce the number of container carriers entering the port premises which causes delays in transporting containers in and out of vessels at berths. This need may have prompted the SLPA commencing the first Container Freight Station (CFS) in Peliyagoda, in 2001; the first step towards operating dry ports. As per the SLPA Web, LCL containers, wherein cargo consigned to more than one consignee is carried, (save for those containing liquor, www.nce.lk


Table 1. Composition and growth of domestic & transhipment containers at the Colombo port. Year

Total vol. (TEUS)

T/s vol. (TEUS)

% increase

Domestic vol** (TEUS)

% increase

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

1,763,380 1,959,336 2,220,525 2,455,304 3,079,085 3,381,242 3,687,337 3,464,297 4,137,441 4,262,887 4,187,120

1,147,000 1,287,469 1,461,435 1,646,398 2,449,500 2,468,661 2,785,422 2,632,055 3,095,589 3,123,828 3,064,767

- 12.0 13.51 12.66 48.78 0.78 12.83 -5.47 17.57 0.91 -2.0

390,000 441,803 511,363 553,499 568,157 593,612 588,180 541,109 659,559 747,948 731,700

13.0 15.74 8.24 2.65 4.48 -0,92 -8.0 21.89 13.40 -2.1

Source: CASA Circulars to members ** Domestic volumes consist of laden imports and exports.

cigarettes, mail, hazardous, and security cargo), were facilitated for direct carriage from the terminal, to be de-stuffed and distributed at this place, thus reducing the number of lorries entering the port to take away ‘cleared’ cargo. The main objective of the other institution vying for dry ports, viz. The Ministry of Transport (MOT) is identical to that of the SLPA, and has been consistent since 2010 upto 2012, where alleviating road congestion and reaping the resultant economic benefits are intended. It is said that road congestion cost the economy Rs. 33 billion in 2005 by using the greater Colombo road network. According to their research, Prime Movers are a major contributor to road congestion, consisting of 24% of vehicular traffic on the Peliyagoda-Katunayake road, 14% on the Kandy road, and 7% on the Galle road. Table 2 shows how congestion has reduced travel speed from 1997 to 2006 on a few main roads linking the Colombo city.

1997 28 32 23 18 23 27 28

1999 18 16 22 16 17 17 18

2001 15 14 16 11 12 14 15

Source: Country Report Sri Lanka, MOT, 2010: p5.

In opting for dry ports, the MOT seems to have found justification in the reduction of travel speed. One may tend to agree with the reasoning of the MOT when one considers that container carriers contribute about 25% of road congestion. They believe, setting up of dry ports (with rail connections) would address the road congestion problem, simultaneously facilitating enhancement of international trade through the introduction of dry ports. In carrying out a feasibility study for the setting up of

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NEED FOR DRY PORTS; SURVEY RESULT ANALYSIS In order to understand the position of the industry stake holders regarding the dry port concept, an opinion survey was carried out drawing a sample consisting of those associated in:

a) shipping b) international trade viz. exporters andimporters c) logistics companies and d) academics in the Transport and Logistics field. Their opinions are discussed below: Since till now, the discussion on setting up of dry ports has mainly been confined to two State institutions viz. a) the MOT and b) the SLPA, (primarily to find a solution to ‘road congestion’), the logistics industry stake holder views on this was tested through the survey by asking the respondents whether they see the need for dry ports in Sri Lanka. Their responses are shown in Figure 1. Figure 1. Whether dry ports are needed in Sri Lanka

50 45 40 35 30 25 20 15

Table 2. Inward direction, morning peak, travel speed (KMPH) for length of 13 km link from Colombo city centre. Colombo-Galle road Colombo-Ratnapura Road Colombo-Kandy road Colombo-Putlam road J’pura-Kollupitiya road Colombo-Horana road Wellampitiya-Kaduwela road

dry ports at the behest of The MOT, the ADB, after studying nine locations, finally recommends a dry port to be set up at Enderamulla.

2003 13 12 14 10 09 12 13

2006 11 12 12 08 08 11 12

10 5 0

Highly disagreed

Disagreed

Neutral

Agreed

Percentage

Highly Agreed

Thus a clear majority contributes to the idea for the setting up of dry ports in Sri Lanka

Since both the MOT and the SLPA visualizes dry ports as a means to ease road congestion, the sample population was asked to mark what they expect to achieve (‘expected benefits’) through the setting up of dry ports. Their responses are tabulated below with the ranking order given based on the Mean value. The mean value for the expected benefit ranked as number 1 was higher than the any other parameter, showing that respondents confirm that sea port congestion is the highest priority for their proposing dry ports in Sri Lanka; which is quite contrary to the motive of the

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Table 3. Respondents’ expectations of dry ports Expected benefit 1. 2. 3. 4. 5. 6. 7.

Ease out congestion at the ports Ease out road congestion Speedy and cheap distribution of regional cargo Promote Export opportunities Make exports more competitive A cheap alternative to a sea port Be a catalyst for regional economic growth

Rank 1 2 3 4 5 6 7

Source: Survey data two State organizations viz. the MOT and the SLPA. The primary objective of the two institutions in proposing the setting up dry ports viz. easing road congestion too was tested but it received a lower mean value, occupying the second place in the ranking order. Through these results, it appears that the industry stake holders have a different priority than that of the two proponents’ viz. the MOT and the SLPA. However, the respondents consider the easing out of road congestion also in higher esteem, than other factors (save for sea port congestion) by selecting it as the second most important parameter. The above position is not very far from the reality of the current status of the port as admitted by the port officials themselves, who state that they have stopped accepting any new services, in view of port congestion( Sunday Times 19/06/2011 p.21). The entire sample taken for the survey has comprised those who either actively associate with the logistics industry (which by definition encompasses shipping as well ) or are studying it. Their prioritizing, easing port congestion seems quite logical as dry ports are expected to alleviate the burdens of the gate way sea port. Yet the respondents seem to be quite aware of the importance of easing road congestion too, by awarding the second highest priority status in the priority ranking. This position was reaffirmed by the respondents in responding to another question where they were asked to name the main criteria needed for the setting up of dry ports. The results show that a good road connection is considered to be as important as another parameter viz. ‘presence of significant economic activities’ returning the same Mean value for both. Obviously they are looking for congestion-free traverse. The respondents identified the need for the speedy and cheap distribution of regional cargo as the third priority.

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This could be interpreted as the desire of the industry to lower the transport costs incurred consequent to the time taken for transiting cargo between the port and their business places, and vice versa. The data shown in Table 2 above seem to be quite collaborative with this view, as in certain routes, travel time has almost tripled during a period of ten years, whereas it should have been lower with the enhanced infrastructure, as experienced by other metropolises. The MOT, which is planning to set up dry ports in Sri Lanka, has considered the recommendation made by the ADB to set up a dry port at Enderamulla; a place about 10 KM north of the Colombo port, as the most suitable place for the above purpose. In the survey carried out, having named the locations considered by the ADB and the SLPA as prospective places for dry ports, the respondents were asked to nominate their most preferred place. The respondents’ opinion seems quite different from those proposed by the above-mentioned entities. Out of the places mentioned, the respondents had given almost the same value to both Ratmalana and Peliyagoda, with Ratmalana having a slight edge in the mean value. Veyangoda was their third choice, whilst Sapugaskanda occupies the fourth place. It is interesting to note that the respondents have chosen Ratmalana as the first preference when cargo generating areas comprising the two prominent Export Processing zones (EPZ); Katunayake and Biyagama, and most of the container deports, which feed containers to production zones, are located north of Colombo; whereas Ratmalana is located south of the Port of Colombo, also this is a town that has long been dethroned from the pre-1977 position of an industrial area. The Map below shows the location of container depots and EPZs close to the Colombo port.

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Map 1. Locations of Container Depots and Export Promotion Zones

CONCLUSIONS

It is interesting to note, that although the proposal for setting up of dry ports has taken a top-bottom approach (having initiated at the policy makers’ level) rather than a bottom-up approach (as it should have been), the logistics industry seems much receptive to the idea. But rather than visualizing it as a platform for enhancing export/import volume or regional economic growth, they see it as a remedy to arrest the congestion at the port of Colombo, and consequent road congestion. Also they have identified railways as the most ideal mode to transport cargo between the dry port and the seaport. Respondents’ preference for railways as a means for transport of goods was confirmed through their selection of ‘any place’ with proper railway connection as suitable for setting up a dry port! Yet, the importance of the road connections too was highlighted thus showing the critical nature of the transport related problem in the country. In naming the preferred location for a dry port too, the respondents’ desire for a rail-solution as a decisive way to control port and road congestion has been reflected by www.nce.lk

their voting for Ratmalana, which is well connected with railways, as the most suitable place for setting up of a dry port; in contrast to the place ear-marked by the ADB viz. Enderamulla. Ironically, a dry port; which is appreciated as a node in the supply chain management process in any other country, is considered in Sri Lanka as a tool to ease traffic congestion; another convincing fact of the seriousness of the vehicular traffic congestion problem in Sri Lanka (jayantha@cargoserv.lk). (Jayantha Rathnayake is a Doctoral Candidate in Transport Planning and Logistics Management at the CINEC Maritime Campus, Sri Lanka, affiliated to the Dalian Maritime University, China. He received his Masters Degree at the University of Colombo, and Bachelors Degree from the University of Sri Jayawardanapura. He works as the Managing Director of the Commercial Cluster of the Ceyline Group of Companies in Colombo. His research interests include maritime transport, port management and public transport.) SRI LANKA EXPORTER | THE VOICE OF THE EXPORTERS

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New 20ft box Design promises

Greater capacity for shippers By: Gavin van Marle

A new 20ft shipping container design could result in shippers being able to increase the number of pallet loads inside boxes by as much as 36%. Developed by a UK Company ‘Container Group Technology (CGT),’ which includes key executives who were behind the development of GESeaCo’s SeaCell units, the 20-20 SeaCell is the first unit which actually measures 20ft inside the container. Existing standard 20ft boxes actually only measure 19ft 10½ inches in length and 7ft 7¾ inches in width internally. The difference in dimensions may not actually be much – 6,096mm by 2,426mm for the 20-20, compared to the existing 6,058mm by 2,330mm – but the net result is the ability to load an extra four euro pallets – or 15 per tier compared to 11 – and two ISO pallets more – 12 compared to the current 10 per tier – inside the box. This has been achieved by making the front wall flat, rather than corrugated as in standard boxes, and by making the doors much thinner. Combined, these two factors have allowed for an extra inch and half of length internally which, allows the addition of a whole additional row of euro pallets. CGT Managing Director John Evans told The Loadstar that he hoped the new design would make using 20ft units attractive to shippers once again. “The 20ft box has been made extraordinarily uncompetitive because of the limitations in the number of pallets it can load. As a result, many shippers believe they get greater economies of scale by shipping in 40ft units. However, for shippers with

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denser cargo it is not so simple. With heavier cargo you cannot use a 40ft box efficiently because of safe working load restrictions,” he said. He said that a case study on shipping kegs of beer in boxes had shown that almost as much cargo could be loaded in a 20ft as a 40ft before weight limitations became an issue. “Around 30% of a 40ft was left empty, and yet some shippers continue to use 40fts. Certainly shipping lines love 40fts, and I’m sure if they could they would ship nothing but them.” However, Mr Evans, and his business partner Martin Clive-Smith, also added a feature which allows the two boxes to be joined to form one 40ft unit – originally conceived as a way for shipping lines to reduce their handling costs when repositioning empty equipment. “By locking the two together they can get a reduction in the cost of handling at the ports for empties returning to Asia,” he said. In an innovative twist however, the 20-20 design also allows for the two boxes to be locked together with their doors facing each other, making them impossible to be broken into while in transit – or without the help of heavy lifting equipment at least – thus making the unit potentially of great interest to shippers who are increasingly concerned by the rising a mounts of cargo theft. Similarly, the doors have been designed to open outwards in such a way, to enable shippers, with the

correct equipment, to slide an entire tier of pallets into a box at once. “More and more shippers are investing in this type of loading equipment – it cuts down on damage to the cargo and the container, and it speeds up the process,” Mr Evans added. Prototype units have been built and successfully field tested, but generating interest from the market will require the company, and indeed the container manufacturing industry – to look beyond its traditional clientbase. “Normally one would look to either shipping lines or leasing companies to buy this equipment, but the problem for leasing companies is that they have to interest shippers in this particular product, and it is difficult for them because that means approaching customers of shipping lines, who are understandably touchy about it. “Shipping lines, for their part, are not that bothered by the concept – they do not, in general like ‘specials’. The group that would be interested in this product are the shippers – and some shippers in the past few years have gained a competitive advantage through their supply chain,” he said. Secretariat Sri Lanka Shippers’ Council C/o. The Ceylon Chamber of Commerce 50, Nawam Mawatha, Colombo 2 Direct Tel: +94 11 2392840, 5588871, 5588880 General Tel: +94 11 2421745-7, 5588800 Fax:+ 94 11 2449352, 2437477 E-mail: slsc@chamber.lk Website: www.shipperscouncil.lk

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International Trade and Investment

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Global Economic DOWNTURN: The challenges ahead

K. Sivagananathan Memorial Oration delivered at the Bank of Ceylon Auditorium by IPS Executive Director Dr. Saman Kelegama The global financial crisis has been analysed in-depth quite a lot during the last five years. In the analysis of the crisis however there were several areas that have been proved wrong. One was the decoupling of the East from the West â&#x20AC;&#x201C; which was never the case. Then the much-anticipated V shaped recovery did not materialise and what we see is more of a W shape recovery emerging. IPS Executive Director Dr. Saman Kelegama delivering the 11th K. Sivagananathan Memorial Oration

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The crisis is still prevalent; US economic recovery is slow despite three doses of quantitative easing. EU is in

stagnation with few signs of an immediate recovery. The final shape of global recovery may take more time than predicted. In this context we need to re-visit the global financial crisis and attempt to answer a fundamental question. Why is the recovery taking a longer time? The epicentre of the crisis was USA; thus a closer look at the US economy from the perspective of broader global economic reforms at the very start will be useful. One of the

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key policies we saw in the late 1980s all over the world was the opening up of the financial sector. Developed countries were able to deregulate their financial systems more than the developing countries. Investors, from individual savers to pension fund managers were now able to better diversify their investments across domestic and international assets â&#x20AC;&#x201C; thereby increasing the rates of return. Businesses were able to fund promising ideas and fund their expansion plans. Politicians felt that under the new set-up financial resources were being invested more efficiently, thus contributing to higher economic growth and living standards. Thus many political establishments too supported the rapid opening up of financial sectors. In the US, the growth and development of the financial sector led to an expansion of its ability to spread risks. Thus a range of financial transactions that were hitherto not possible created greater access to finance for both firms and households. Concurrently, we saw the emergence of various intermediaries whose size and appetite for risk was huge. Financial innovation far out-spaced financial regulations. Business was moving, US banks were making profits with new financial instruments, and there was a boom in the economy. The US Government itself benefitted because of tax revenue from booming sectors and these additional funds assisted the Government to spend on social welfare. Why could not the economists and financial analysts of the US predict the financial crisis? I think many economists and financial analysts knew that the debt financed consumption and investment model with large domestic and external deficits was not sustainable, but there were certain factors that compelled the political establishment in US to believe that it was sustainable.

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First, there was optimism that the US economy overcame the dot. com dip in 2000 without much policy adjustments; second, the debt financed model was sustained with a low interest rate policy for more than 6 years during the George Bush II years of 2000-2007, thus the economic bubble that was developing was seen rather as an economic boom; third, the financial derivatives were developed by the best mathematical minds in the US, thus it was believed by key players of the US market, that the financial wizards have found new ways to manage risks; fourth, many finance companies that were coming out with innovative financial products were receiving high ratings from the globally known rating agencies, etc. All these factors kept the US political establishment to believe that the so-called economic boom could be sustained. It only required a small adjustment upwards in the US interest rates for the bubble based on the debt financed consumption and investment model to burst. It was then that it was realised that some of the financial derivatives and products were risky and some went to the extent of calling them toxic. These toxic financial derivatives and products attracted foreign funds and some of the US financial institutions that engaged in business with these toxic products invested overseas and that is what made the US financial crisis spread the world over. This deregulated financial sector in the US was the key policy that triggered the global economic crisis. The global economic crisis exposed major anomalies in the global economic system. They can be categorised to three broad areas: (1) the problem of having the US dollar as the global reserve currency; (2) the problems of having major global trade imbalances; and (3) lack of rules and regulations to govern global financial flows. I will now deal with each one of these areas.

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US Dollar as global reserve currency As stated, the US economic model was based on debt financed consumption and investment. US followed a relaxed monetary policy with low interest rates to encourage both consumption and investment. Moreover, the US ran a large trade deficit by generating a demand for import of many items from the rest of the world. To fill this gap, US Treasury bills and bonds were sold to foreign investors. It is estimated that the total foreign investment in US gilt-edge securities amounted to nearly US$ 6 trillion. For these investments which sustained the debt financed investment and consumption boom to remain in the US, policy adjustments to address domestic imbalance, like a large trade deficit via a depreciation of currency became difficult for the US, as foreign funds would go out from the US. In 2008 there was already pressure on the dollar to depreciate due to global commodity price escalation. To take some pressure off the dollar to depreciate, the US Federal Reserve had no option but to adjust the interest rates upwards. That is the time that the bubble burst as investment in financial derivatives such as sub-prime mortgages became unprofitable. The fundamental question that one could pose is how did the US manage to attract large amount of foreign investment despite the low interest rates? This happened because the US dollar is the reserve currency of the world and any nation would be willing to keep large reserves of dollars for their own macroeconomic stability. The US thus had this unique advantage to borrow from the rest of the world at low interest rates. At the time Special Drawing Rights (SDRs) were created in 1960, it was hoped they would become a major component of global reserves, thus creating a system in which growth of global liquidity would depend on deliberate international decisions. www.nce.lk


This expectation was not fulfilled due to veto power the US possessed over decisions in the IMF Governing Board. The US Government abused this power of being the custodian of global reserve currency to the maximum by running budget deficits and financing the debt via printed dollars. As long as those dollars did not come back to the US but remained outside the US, it did not cause US prices to rise. Even when the dollar-gold link was broken in 1971, the US Dollar as the global reserve currency prevailed. So as long as this was the case, US remained the world’s consumer and importer of last resort and the world’s Central Banker. China, being the largest investor in US Treasury bills and bonds (US$ 1.2 trillion), was obviously worried on investment returns when the dollar started depreciating. So China took the lead to propose an alternative reserve currency to the dollar. The Chinese recommendation was not to re-invent the wheel and introduce a new world currency but to make the SDR as Super Sovereign Reserve Currency, which had the backing of the BRICS. The SDR is basically a basket with four currencies, i.e., US dollar, Euro, Yen and GBP and the weights of the four currencies are revised every five years. The Chinese proposal was to expand this basket to include currencies of other major global trading and financial powers. The UN-backed Stiglitz Commission report of September 2009 reiterated that if the world is to come out of the global economic crisis, the dollar being the global reserve currency has to end. The Stiglitz Commission Report went further by recommending converting the IMF to a Global Reserve Bank – so that it becomes something like a Global Central Bank. The major advantage of holding the global currency in a diversified way is that it would generate more stability and strengthen value of the reserve holding. The Commission also recommended broader reforms in the IMF Governing Board. Voting weight is heavily biased towards industrialised www.nce.lk

countries, and the recommendation was to increase the IMF quota so that more inclusive and representative governance could be introduced at the IMF. IMF quota reform received serious attention in 2010 where efforts were made to enhance the voice and representation of emerging economies and developing countries through a comprehensive review of the quota formula by early 2013.

US National Export Initiative aims to double exports in the next five years; i.e., achieving 15% export growth. The US Dollar was allowed to react to US domestic policy measures like the Quantitative Easing QE1, QE2, and QE3, and consequently the dollar weakened – so obviously with a depreciated dollar, the demand for imports in the US economy has declined.

ESCAP (2010) estimates that close to US$ 5 trillion out of the US$ 6 trillion foreign funds invested in US Treasury securities are of Asian origin. Clearly, if the current US model where its currency is the global reserve currency did not exist, the bulk of the Asian funds which are now stuck in US Treasury bills and bonds could have been re-invested in Asia. With the development of financial instruments and deepening the Asian financial markets, the ESCAP (2010) argues that a portion of these funds can be reinvested in Asia and the funds could have been used to address pressing issues in the Asian region such as developing the infrastructure and achieving MDG goals.

While the US is engaged in an export drive, the G-20 has identified the major imbalances in the global economy as the key contributor to the crisis. China, Japan, Germany, etc., having huge trade surpluses while the US, some European countries, etc., having huge trade deficits were highlighted as the prime examples of this imbalance.

Changing the existing reserve currency system is not going to be straightforward. It is a political process. No country would like to lose its super-power status if it had acquired it over a long time period. Global projections show that by 2050, China would be the largest economy in the world and India would occupy the third place with the US squeezed in between the two. Knowing this, the US will always attempt to keep its lead by retaining its existing powers, and possessing the global reserve currency is one component of that power. Global trade imbalances As the change to a new global currency system will take time, the immediate requirement to get out of the global economic crisis is for the US to gradually move away from a debt driven economy. For this purpose, the US should increase exports and reduce imports to cut its large trade deficit.

The G-20 view is that as long as such imbalances exist, the global recovery will take a longer time with outbursts of competitive devaluations of currencies by exportled industrialisation countries. These competitive devaluations will not be conducive for global economic recovery and stability. So according to G-20, countries like China should focus less on exports and more on increasing consumption in the domestic market. Many developed countries are of the view that the Chinese Yuan is heavily under-valued thus giving Chinese exports an undue advantage over its competitors. The US has brought pressure on China on several occasions to revalue the Chinese currency to accurately reflect China’s cost of production, but China has resisted this request. China seems to be having reservations on this request for revaluation of the Yuan – based on what the 1985 Plaza Accord did to Japan. Some economists attribute the ending of the high growth in Japan in the late 1980s and the two decades of consequent recession that Japan experienced since 1990, to the Japanese currency revaluation under the Plaza Accord. China has among other factors, this fear. So Chinese adjustments will be slow to come.

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G-20 did not empower the IMF to carry out surveillance responsibilities for ensuring that countries are making an attempt to rectify these imbalances. So G-20 has not been effective in implementing what it saw as a doable thing to come out of the global economic crisis. Thus, the much expected trade imbalance adjustment is not taking place as rapidly as expected. International financial architecture There is another issue that has to be focused to ensure a faster global economic recovery. That is to ensure stronger checks and balances on financial flows in the world. Today globalisation is driven mainly by global financial flows rather than global trade flows. Unlike international trade which is to a large extent governed by WTO rules and regulations, financial flows have little rules to govern them. There does not prevail an international financial architecture. Perhaps this was not seen as essential as there was a school of thought that financial regulation was an impediment for financial innovation and that always whatever regulations were brought in they lagged far behind financial innovation. Regulatory lags and regulatory failures need to be addressed, if not, rapid financialization of the economies, commodity markets, etc., does not augur well for the global economy. In many developed countries today, the financial economy dominates over the real economy. Two decades ago the financial sector was the servant of the real economy and today the clock has turned around – financial economy has come to become the master of the real economy in some developed economies. The players in the developed economies see some financial institutions as too big to fail, while policy-makers feel that they are too powerful to regulate. So the international financial architecture should be able to discipline not only the global financial flows but also the domestic financial markets. The Stiglitz Commission recommends the creation of a Global Economic

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Coordination Council – at the level equivalent to the Security Council of the United Nations. The argument behind this recommendation is that the failure of regulation by one country can have adverse effects on others. Thus, there is a need to have global coordination on regulation. The process of rapid financialisation has many ramifications and these have to be disciplined via a regulatory framework if global financial stability is to be gained. Two cases can be highlighted, viz., rating agencies and commodity markets. As the process of financialisation deepened, the influence of rating agencies grew in proportion. They began to shape market sentiments and their ratings became integral to the functioning of the modern market economy. The track record of these rating agencies is questionable. For example, some rating agencies gave a high sovereign rating for Thailand one week before the East Asian financial crisis that started in fact with the collapse of the Thai financial system. Similarly, they gave a high rating to Lehman Brothers in late August 2008, a fortnight before the downfall of the company. But these rating agencies were not accountable to anyone. The self-proclaimed disciplinary role played by rating agencies is not legally prosecutable for reasons that they merely give ‘opinions’ on the riskiness of assets. For example, in the US the rating agencies claim protection under the first Amendment as a matter of free speech and freedom of the press. Take another example of financialisation of commodity markets that have in part contributed to the escalation of commodity prices. During 2003-2010, assets allocated to commodity index trading have risen from US$ 13 b to US$ 320 b and the number of outstanding contracts of commodity futures and options have risen from 13 million to 66 million. This has disrupted the traditional trading relationship between future prices and supplies. Financialisation of commodity markets is a major concern for developing countries

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as speculative capital moves to commodity markets and make their prices volatile. The need for global financial market governance first appeared in international discussions after the East Asian crisis in 1997/98. The Financial Stability Forum (FSF) was created in the aftermath of that crisis in order to promote international financial stability, improve functioning of financial markets, reduce the tendency of financial shocks to propagate from country to country, and to enhance the institutional framework to support global financial stability. The framework of rules to guide the financial markets was under the underlying theme that financial markets are self-correcting or selfregulating. This framework based on voluntary compliance is based on international good practices by various issuing bodies – (a) Banking supervision under the Basel Committee, Securities regulation under the International Organization of Securities Commission, and Insurance supervision under the International Association of Insurance Supervisors (these areas come under Financial Regulation and Supervision); (b) Insolvency under the World Bank, Corporate Governance under the OECD, Accounting under the International Accounting Standards Board, Auditing under the International Federation of Accounts, Payment and Settlement under the Committee of Payment and Settlement System, and Market Integrity under the Financial Action Task Force(these areas come under the Institutions and Market Infrastructure), and (c) Monetary and Financial Policies, Fiscal Policy and Data Dissemination –the guideline issuing body is the IMF(under Macroeconomic Policy). The objective of the framework was to follow the market decision on the understanding of the risk involved of principles guiding financial policies. The rules that were in place were www.nce.lk


non-binding in nature unlike the trade rules of the WTO. Thus, global and domestic financial markets functioned in a very liberal space and the inadequacy of the post-1997/98 framework was seen only after the 2008 global economic crisis. Clearly, the reforms that were advocated were inadequate to avoid a major global financial instability. In April 2009, the FSF was re-established as the Financial Stability Board (FSB) to bring about more stability to the global financial system. The FSB and all other standard setting institutions are not very representative of views emerging from developing countries. Most developing countries are in fact not represented in today’s standard setting institutions. The Basel Committee of Bank for International Settlement and the FSF/FSB set important global economic standards in areas such as bank supervision, financial regulation and corporate governance. The committee’s regulator proposals have been generally adopted by most countries. As a result of inadequate representation of developing countries in these ad hoc bodies, these regulations have proved to be biased and carry the notion of “one size fills all”. Evolving structure itself has its problems. There is a possibility that in the face of Basel III rules, some of the higher risk activities such as investment banking and trading moving out of banks into the nonbank sector. This means that risk has been transferred from regulated to relatively unregulated areas of the financial sector. This will call for greater supervision of the non-bank sector. In 2010, G-20 identified four pillars of financial regulatory reform agenda: (1) a new capital framework; (2) effective supervision; (3) reforming international financial institutions; and (4) transparent international assessment. In February 2013 the first Working Group meeting of the G-20 on International Financial Architecture met in Russia and discussed a number of issues, including governance reform www.nce.lk

in the IMF. G-20 Working Group seems to be more representative of the voice of developing countries than the FSB, thus some of the policy biases in favour of developed countries will be hopefully addressed in the final recommendations of the G-20 Working Group.

exposed a whole lot of other issues that remained dormant for a long time in the global economy and these issues are crucial and need serious solutions if we are to get out the current downturn. And addressing the three issues cannot be done in a hurry due to the global political economy.

A key suggestion that has been put forward by some commentators on the subject of international financial architecture is to reduce the volatility of capital markets by applying some brakes on large speculative capital flows. It is estimated that US$ 6 trillion worth of capital per day is moved by speculators with significant disruptive impact on global price stability. In this context, the Tobin Tax proposal – a minute tax on global capital flows – has once again come into the agenda of the International Financial Architecture. In the aftermath of the 1997/98 East Asian Financial Crisis, this proposal got rejected due to strong lobbies of speculative fund players in the developed world and only time will tell whether the proposed tax would make a realistic come back under the present circumstances.

For the G-7 countries, these recommendations were too heavy to stomach. It is now almost three and a half years since the Stiglitz Commission Report came out with a list of recommendations, and many of these recommendations have not been taken up or followed up. Some powerful state officials who are beneficiaries of the current global system have no interest in reforming the system. Some leading bankers and speculators, who have immensely benefited from the current system are also resisting any changes to the status quo. There is an ‘implementation deficit’ due to the lack of ‘political will’ of the key political players of the global economy.

Concluding remarks So to come out of the global financial crisis, fixing the problems of the US financial sector alone is not adequate, but a whole gamut of issues in which the foundations of the current global economy is based has to be addressed. I have aggregated most of these issues under three broad areas, viz., (1) the need to create a new global reserve currency; (2) need to reduce global trade imbalances, and (3) need to create an international financial architecture. Although these are three broad areas, I believe that all the micro level recommendations to come out of the global economic crisis that are available in the current literature can be plugged into one of these three areas. The fact that the world is taking a longer time to recover from the 2008 US financial sector crisis is now understandable. The 2008 US crisis

Whatever reforms that take place, too much austerity in the US will have a significant impact on global demand. Thus, timing and sequencing of these reform measures have to be carefully worked out. In that context, President Obama’s efforts to go slow on the “fiscal cliff” seems a prudent move at least from the “developing countries” perspective. We are living in the modern world where information and communications technology has stimulated trade, finance, and investment to move faster. Thus people are not prepared to wait for long as seven to eight years like during the 1930s Great Depression to finally see global economic recovery. The picture is gloomy, but let us live in hope that the G-20 will be able to make a breakthrough and get some of the much-needed global economic reforms moving so that the entire world could come out of the current economic downturn soon. Source: Daily FT – 13th March 2013.

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Trade challenges for

WTO members

others. Technology, which has been a major contributor to the rise of global value chains, and the greater role of emerging and developing economies were also noted.

The latest report by the WTO is the report identifying the 21st century trade challenges that WTO members would face. The report, which was a result of an announcement at the conclusion of the WTO ministerial conference, was prepared by 12 members from the business sector and civil society. When launching the report, the Director General of the WTO stated that this report covers medium to long term challenges for the multilateral trading system and provides ‘food for thought’ for all stakeholders including WTO members. The document deals with the state of trade and its contributions to growth and development, ‘transformational factors’ of the current global economy that have shaped trade and the panel’s recommendations for potential action. The first chapter outlines why opening of trade can positively impact on welfare, growth and development in the context of concerns over issues of fairness, income distribution and social justice etc. although it cannot be the only policy to achieve inclusive growth. The chapter focuses on trade with regard to development, investment, job creation, sustainable development and their benefits and risks. When launching the report in Geneva, the panel of experts who prepared the report commenting on their work noted that globalisation has changed the world and made it more robust in some ways and more fragile in

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Increase in preferential trade agreements also carries with it benefits and risks, as the report noted. According to the WTO, over 300 such agreements are currently in effect with more under negotiation. Risks include regulatory divergence and increase in costs. The panel also noted that keeping track of all these agreements is a challenge, particularly for SMEs. Commenting on Non-Tariff Measures, the report notes that they are ‘increasingly associated with public policy objectives’ such as health, safety and environmental quality and that ‘the trade policy challenge’ in this context, is to ensure that NTMS do not unnecessarily truncate the benefits of trade. On the subject of the current impasse in the WTO Doha Round, while the report does not make any specific recommendations, panellists noted that while the current difficulties which caused the situation remain, conclusion of the round remains a ‘political imperative’. Among the recommendations regarding the conclusion of the talks are that WTO members explore ways that preferential agreements and the principles underlying them could be brought into the multilateral trading system in some way which could eventually lead to ‘consolidation around binding rules in agreed policy areas’. For instance, the panel recommended ‘permitted departure’ be regulated and monitored. The report also emphasises the need for increased transparency, particularly through greater domestic dialogue among interested parties, and more willingness on behalf of governments in advising trading partners in the development of policies and in

providing policy data. The report also calls for ‘fresh thinking’ with regard to the relationship between flexibility and reciprocity, referring specifically to the subject of special and differential treatment (S&DT) for developing countries. For instance, the panel outlines four guiding principles with regard to flexibility, such as making flexibilities time-specific and basing these on needs and capacity. The need to strengthen the WTO secretariat to make it more proactive by submitting proposals to speed up negotiations is also mentioned. The report concludes by outlining a four-pronged ‘convergence challenge’ that governments will have to face: Convergence among members, specifically regarding WTO negotiations; convergence of nonmultilateral trade regimes with the multilateral system; convergence between trade and domestic policies; and convergence between trade and public policy non-tariff measures. As a recent editorial in the Business Times of The Sunday Times pointed out, not many Sri Lankans will know about WTO as it doesn’t make headlines, but “this is one institution that ensures that trade flows across borders are equitable and just; is built on equality and consensus, no big bully or super power status”. As such, the report might help throw light on some new approaches to the talks to conclude the Doha Round. (Manel de Silva holds an Honours Degree in Political Science from the University of Ceylon, Peradeniya and has engaged in professional training in Commercial Diplomacy at ITC and GATT. She has served as a trade diplomat in several Sri Lankan Missions overseas and was the first female Head of the Department of Commerce as Director General of Commerce.) Source: Daily FT - 2nd May, 2013.

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The acceptability of

Management System Certifications Independent organizations that provide management system certifications and other types of conformity assessments are called Certification Bodies. Certification is a process where an independent third party attestation is given to products, processes, systems, or persons, enabling those who are in business to prove their conformity and ability to meet the requirements of the applicable standards. Similarly accreditation is an independent third party attestation given to Certification Bodies and Laboratories conveying formal demonstration of their ability to carry out specific conformity assessment tasks. Generally accreditation is given by independent bodies and these Accreditation Bodies are affiliated either to the International Accreditation Forum (IAF), or to the International Laboratory Accreditation Cooperation (ILAC). All IAF member countries need to sign MRAs (Mutual Recognition Agreements) with fellow members recognizing the accreditations of other Accreditation Bodies.

accreditation of the SLAB, or to inform the name of the accreditation body from which accreditation has been obtained. It is observed there is a common misconception among industrial and service sector organizations that the only way to have international acceptance of their certification, is by obtaining certification from a multinational certification body. If any trading partner insists on such a requirement it is highly contrary to International trade practices promoted by the World Trade Organization (WTO), and also with clause 8a related to the UN millennium Goals, which is based on openness, rule based, predictable, and nondiscriminatory trading and financial systems.

Until the Sri Lanka Accreditation Board (SLAB) was established in 2006 all Certification Bodies in Sri Lanka had to depend on foreign accreditation bodies for their accreditations. With the establishment of the SLAB accreditation could now be obtained locally.

The recognition of Certification or Accreditation issued by a Certification Body or Accreditation Body depends not on whether such body is local or foreign, but on integrity, impartiality and independence of its activities, and attestation of its capability by an independent body. It has been reported that some certification bodies which conduct certifications do not have accreditation to cover their local offices in Sri Lanka, but carry out certifications using the accreditation of their foreign counterparts. Therefore the certification activities of such certification bodies are not properly monitored by a recognized accreditation body.

All Sri Lankans should be proud that Sri Lanka has her own Accreditation Body, with the same recognition as any other Accreditation Body in the world. In this context it is the responsibility of all Certification Bodies operating in Sri Lanka to make known their existence and obtain

The recognition of certification through the chain of third party assessments is shown in the diagram below. IAF -International Accreditation Forum AB - Accreditation Bodies CB â&#x20AC;&#x201C; Certification Bodies

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Improving power

use efficiency

by Dr. Janaka Ratnasiri The Public Utilities Commission (PUC) announced a proposal for an electricity tariff increase highlighted in The Island of March 12 and called for public comments. Apparently, CEB has proposed this increase to defray Rs. 60 billion from the cost of producing electricity in 2013, estimated at Rs. 268 billion. The major cost component of CEB is on thermal power plants operated with imported fossil fuel, generating more than half the total electrical energy consumed in the country. In 2011, the total cost of fuel consumed for operating its thermal power plants has been Rs. 33 billion, according to the values given in CEB Statistical Digest (SD) for 2011. Assuming the rates for cost of generation given in CEB Annual Report for 2010 (Rs. 15.77/kWh) applies for 2011 as well, the total cost of generating thermal power from oil in 2011 has been Rs. 90 billion. CEB has also incurred a cost of Rs. 5.4 billion in 2011 for operating its hydro power plants (Rs. 1.17/kWh), though there is no fuel cost involved. CEB has further incurred a sum of Rs. 6.7 billion on fuel for its coal power plant (Rs. 6.49/kWh) in 2011. Thus, out of a total of Rs. 102 billion described as cost of generation in 2011, only a sum of Rs. 33 billion has been actually spent on fuel. Generally, the CEB losses have been attributed to the escalating fuel price which is beyond its control. However, if one takes a close look at CEBâ&#x20AC;&#x2122;s generation statistics, there appears to be some other factors contributing to its losses and one can see ways and means of cutting the losses. www.nce.lk

Hydro power and petroleum oil were the main sources of electricity in Sri Lanka up to 2010, and in 2011, coal power was introduced. According to the values given in CEB Statistical Digest (SD), the share of hydroelectricity during 2002 â&#x20AC;&#x201C; 2011 has been varying in the range 39% to 52%, with an average of 43%. The most logical way to keep the electricity production cost low is to optimize the hydro power output, as CEB does not pay any fuel charges to the Mahaweli Authority. Higher the hydro share, lower is the thermal share and hence the cost of generation. Hydro power plants From 1950 to about mid-seventies, Sri Lanka was totally dependent on the Laxapana hydro power complex for its electricity needs. With the launching of the Mahaweli Development Programme in the seventies, several large hydro power plants were built, including, Victoria (210 MW), Kotmale (201 MW), Randenigala (122 MW) and Rantembe (49 MW) on the main river and its tributary Kotmale Oya, which were commissioned in the eighties and nineties. Prior to that two smaller plants were built at Ukuwela (38 MW) and Bowatenna (40 MW) operating with the water diverted for irrigation. If one looks at the output of each of these hydro power plants during 2002-2011, it appears that these plants have been operating very much below the designed output. Table 1 gives the expected plant factor for the SRI LANKA EXPORTER | THE VOICE OF THE EXPORTERS

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four main power plants - Victoria, Kotmale, Randenigala and Rantembe (VKRR) – calculated using the installed capacity and expected annual average energy values given in CEB Long Term Generation Expansion Plan report. This table also gives the average of their actual plant factors for these 10 years, calculated using generation data given in Mahaweli Authority Statistical Handbook. These figures are about 2/3 the design values except the Kotmale plant which shows a figure of 3/4.

A key factor that controls the output of a hydro power plant is the availability of water which depends on the rainfall in the catchment area. Any diversion of water for irrigation could also reduce the generation output. Fig. 1 gives the average annual rainfall received at 11 rain gauging stations upstream of Victoria reservoir for the period 20012011. The average for the entire period is about 2500 mm with peaks in 2006 and 2010 and a dip in 2003. One would expect that there would be a close correlation between the rainfall received and the generation output, but it does not appear to be so.

Fig. 2 gives the combined generation from the above four power plants (VKRR) as well as the combined generation of the two power plants operating from the diverted water ie. Ukuwela and Bowatenne (UB) with data taken from Mahaweli Handbook 2011-2012. There is a deeper fluctuation in the power output of these four power plants than what is seen in the rainfall variation. For example, in 2010, with more than average rainfall received (3356 mm), generation output too showed a peak (2195 GWh), the highest seen since 1995. However, in 2009 when the rainfall received reached 2909 mm, significantly above the average value, the generation output dipped to a below average value of 1035 GWh, which is below 50% of the following year’s output.

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Again in 2006, the curve shows a peak with a value of 1890 GWh while in the two previous years 2004 and 2005 the generation had a dip with outputs of 877 GWh and 1047 GWh, respectively. However, the rainfall curve does not show such a deep variation corresponding to these years. It is not clear why there had been such a low hydro energy output in 2009 when the rainfall had been above normal. The UB output shows a steady value indicating that there had been no increased diversion of water for irrigation that year. Any low output of hydro generation means increased thermal energy production costing an enormous sum of money. If we assume that during 2008 and 2009, the hydro output had been 1500 GWh, the same output shown in 2007 when the rainfall was the same as in these two years, the system could have saved nearly 600 GWh of energy. The fuel cost of the CEB’s combined cycle gas turbine (CCGT) plant according to CEB Statistical Digest (SD) had been Rs. 11.87 and Rs. 18.24, respectively for these two years. If the operation of this plant was avoided had the hydro output been normal at 1500 GWh during these two years, the saving achieved could have been about Rs. 10 billion at 2007/08 prices.

Even in 2004, the hydro output has been below 900 GWh while the rainfall has been normal. This again has resulted in excessive burning of fossil fuel to operate the thermal plants to compensate for the reduced hydro output incurring extra cost. The high output of Victoria plant in 2010 with 971 GWh exceeding the design value of 865 GWh was an unusual case resulting from the exceedingly high rainfall received that year. But, during normal rainy years, the performance has been far below the design values and this needs further investigation to avoid recurring of similar situations in the future. Thermal power plants Sri Lanka’s thermal power system comprises several diesel plants operated with auto diesel or fuel oil, gas turbines and combined cycle gas turbines (CCGT), owned by both CEB and independent power producers (IPP). The CEB has to pay the private operators for the electricity they purchase from them at an agreed rate and also a fixed capacity charge for keeping the generators available. Hence the use of private plants will result in www.nce.lk


extra expenditure for the CEB than when using its own generators, and in turn an extra burden to the consumer. In an article published in the The Island on Aug. 30,2012, titled Decline in CEB thermal output, I pointed out the following based on performance data given in CEB Statistical Digest reports: •

The CEB’s share in thermal power output has dropped from 55% in 2004 to 26% in 2011.

The output of CEB’s 165 MW CCGT plant at Kelanitissa, which is its main thermal power plant, has dropped from 1100 GWh in 2004 to about 250 GWh in 2011.

The thermal efficiency of the CEB’s CCGT plant has dropped from about 46% when operated with naphtha during 2004 – 2008, to about 30% in 2011.

The main reason for the overall decline in thermal energy output has been the poor performance of the CCGT plant. The CEB’s performance report for 2012 has not been released yet to find out whether any remedial measures have been taken during 2012 to restore the efficiency of this plant. If it has not been done, the plant will continue to cause losses to CEB. There has been no comment from the CEB on this. The efficiency of a thermal plant indicates the fraction of chemical energy contained in the burnt fuel that is converted into electrical energy, the balance being wasted as heat. CEB Combined cycle gas turbine The CEB CCGT plant comprises two units, a gas turbine (110 MW) and a steam turbine (55MW), and hence the term combined cycle. Gas turbine is operated with fossil fuel, either diesel or naphtha, while the steam turbine does not consume any fuel as it is operated with the hot exhaust gas of the gas turbine. Because of this feature, a CCGT plant can achieve a high efficiency, normally greater than 50% which is not possible with other internal combustion engines. The latest generators operated with natural gas in temperate countries are reported to achieve efficiencies exceeding 60%. However, in Sri Lanka, the CCGT plants were operating at somewhat lower efficiencies - 46% when operated with naphtha and 42% when operated with diesel. Naphtha is the preferred fuel as it gives a higher efficiency and is cleaner. However, the supply of naphtha is limited as it is a byproduct of the refinery and hence the need to operate with diesel also. An assessment carried out by a JICA team in 2004 found the efficiency of this plant to be 48% with naphtha, the same value given in its EIA report. However, in 2011, the efficiency of the CCGT plant has dropped to 27% with diesel and 31% with naphtha. The most plausible explanation for this drop in efficiency could be that the plant’s steam turbine has not been functioning. This means that all the flue gas containing energy equivalent to that

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contained in fuel required to operate a 55 MW thermal plant has been wasted by releasing it to the atmosphere. According to the CEB’s SD of 2011, CEB has spent a sum of Rs. 8814 million for fuel to operate the CCGT plant in 2010, and a sum of Rs. 7290 million in 2011. Had the efficiency of this plant been an average of 46% during 2010 and 2011, instead of 38% and 30%, respectively as reported in the 2011 SD, a total sum of about Rs. 4 billion could have been saved in these two years. These losses have been estimated using the prices CEB has been paying for the fuel as given in its SDs – Rs. 77 for auto Diesel in 2010 and Rs. 95 in 2011, which are in fact below the market prices. If the CCGT plant could be operated at a higher efficiency with naphtha which is cheaper also– Rs. 66 per litre for naphtha and Rs. 95 per litre for diesel (CEB SD 2011) the logical step would be to operate the plant with naphtha 100% of the time. The shortfall that CPC is unable to supply could be imported from the closest supplier. The cost of fuel for generating one unit of electricity when estimated using above cost figures works out to Rs. 20 for diesel and Rs. 16 for naphtha, a 4 Rupee per kWh advantage. Naphtha has a density 18% less than that of diesel, but has a calorific value 4-5 percent higher than that of diesel. Hence, naphtha requires storage capacity about 16.5% more than for diesel for feeding a power plant. In recent years, the CCGT plant has been generating energy in the range 300-500 GWh with diesel (SEA database), and if this same amount of energy is generated using naphtha purchased at Rs. 66 per litre, a sum in the range Rs. 1.2 – 2 billion could have been saved each year. According to prices of fuel at Singapore appearing in the Internet, naphtha price in Singapore is about US$ 300-350 per tonne, which is less than half what the CEB has been paying for the fuel it has consumed. Even after accounting for freight and other transport and storage costs, a saving in the range Rs. 2-4 billion could be achieved if CEB switches to imported naphtha from diesel to operate the CCGT plant. Operating with naphtha also has other advantages, such as, less carbon emission (~9%), zero emission of particulates and reduced levels of other emissions such as methane, oxides of nitrogen and sulphur dioxide.

IPP Combined cycle gas turbine There are in addition two IPP operated CCGT plants, one at Kelanitissa (163 MW) and the other at Kerawalapitiya (300 MW). The high efficiency of CCGT plants should make it possible for them to supply electricity to a consumer at a lower price than what is possible with other thermal plants. Hence, one would expect that these plants are operated under optimum conditions at all times. However, during 2003 – 2009, the average plant factor of the Kelanitissa plant has been only 42%, while in 2010, it has dropped to 32.5%. This plant operates with auto diesel. The Kerawalapitiya CCGT plant commissioned its first phase in 2008 and the second phase in early 2010. It is operated with imported furnace oil with low sulphur content. Furnace oil has the advantage that it is cheaper than diesel, but it is not as

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clean, particularly in respect of sulphur and ash content. Even with imported low sulphur oil, the SO2 emissions exceed the permitted value and permission was apparently granted on the promise that it will be switched to natural gas once gas is available but with no time limit specified â&#x20AC;&#x201C; a kind of bending the rules. The plant has been operating at very low plant factor, being 23% in 2010, partly due to a break down in mid-2012. According to media reports, this plant ran into difficulties in getting its fuel supply on time as it depended on the Petroleum Corporation for the fuel and was forced to stop generation when the supply broke down. Apparently, this was because of a payment dispute between the supplier of fuel and the purchaser of energy. Such situations could be avoided if the monopoly for importing fuel is exempted for bulk users and permission granted to them to import their own fuel requirements themselves. It is quite an unnecessary exercise for ministry officials to sit at tender board meetings when it could be done more efficiently and promptly by the plant operator himself. It is a pity that after investing over US$ 300 million on the plant, it has not been operated in an optimum manner because of government red tape. The result is the consumer is deprived of getting cheaper electricity. This plant has been operating with imported furnace oil while violating environmental regulations. Instead, if it is operated with imported naphtha, it could easily comply with emission regulations, spend less money on maintenance and save billions of rupees annually as in the case of CEB. The price of naphtha at Singapore is significantly less than the price of low sulphur fuel/furnace oil according to what is posted in the Internet. There may be problems in storage and transport, but these could be surmounted considering the potential saving. Once the responsibility of importing fuel is given to the bulk user, they can decide the best fuel they should obtain to generate electricity at the least cost and beneficial to the environment, without having to be subjected to ministry red tape.

Coal power plant When the coal power plant was planned, it was mentioned that coal power will replace expensive oil power which will result in an overall reduction of cost of electricity production. However, this does not appear to have happened. The gross generation from oil-fired plants owned

by CEB and IPP has been 4994 GWh in 2010 and 5748 GWh in 2011, respectively. On the other hand, the total hydro power generated has been 5634 GWh in 2010 and 4622 GWh in 2011, a reduction of 1012 GWh from that produced in 2010. This may be partly due to low rainfall in 2011 compared to that in 2010 though. Nevertheless, what has happened is a reduction of the hydro power generation, while oil power has increased further. This means that under such situations there will not be any reduction of overall cost of production of electricity by using coal as claimed by coal proponents. Cost-cutting The low usage of hydro power plants even in normal rainy years would have resulted in the escalation of cost of generation because of greater dependence of thermal power. There is potential to save billions of rupees during years of normal rainfall if the hydro plants are operated in an optimum manner. The operation of CEBâ&#x20AC;&#x2122;s key thermal plant at low efficiencies for long periods without taking prompt remedial measures has resulted in losses amounting to billions of rupees annually. Further, there is potential to save several billions of rupees annually by switching from autodiesel to imported naphtha for the operation of CEBâ&#x20AC;&#x2122;s CCGT plant. Similarly, the Kerawalapitiya CCGT plant also could switch from furnace oil to naphtha for cheaper and cleaner operation while improving the plant factor and complying with environmental regulations. In order to implement these proposals, the present monopoly vested with the CPC for importing petroleum fuel should be removed for bulk users and the freedom given them to handle the import of fuel they need by themselves. It is another way of improving the efficiency of the system. It is important that both CEB and IPPs should optimize the utilization of their CCGT plants with improved efficiencies enabling the consumer to benefit. An upward revision of tariff should be considered only after all the measures suggested for cutting down losses - improving plant efficiencies and switching to more economic fuels - are implemented.

Source: The Island - 15th March 2013

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Eliminate waste The Toyota way

TIMWOOD is an acronym for the famous Seven Wastes identified by Toyota, presented in a user-friendly manner by Taiichi Ohno, the then Chief Engineer at Toyota. They are the basics of what we learned in industrial engineering under ‘Method Study’, where every activity was sorted under Operation, Delay, Transport, Inspection and Storage. www.nce.lk

The first step in Method Study, after defining and analysing an activity, was to reduce and eliminate all delays, transports, inspections and storage on the premise that none of them add value to a product or service, but add to the costs. It became a worldwide hit when Toyota pronounced it in a format that any layman could understand.

TIMWOOD Seven Wastes Transport – Any transport of material, machines / equipment or people is non-value-adding. Some amount of transport is unavoidable. However, an experienced industrial engineer can, at a glance, determine whether the workplace is well organised or not. Some factories I visit seem incredibly

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busy but it is because people and material are moving all over the place. It cannot be a high productivity factory. In some cases, the bad layout is obvious and I have pointed out many areas where transport labour can be cut down simply by relocating machines and changing the layout. In other cases, it is not that obvious and closer recording of movements may be required. A classic example is when Osu Sala first commenced operations in the early 70s. Prescriptions were handed over to a counter near the entrance. The pharmacist gives the customer a number and goes all the way to the room right at the back where it is entered in a register and he comes all the way back to the counter. This is repeated throughout the day. He has to also go occasionally and bring the drugs to the counter as well. When the Institute of Work Study studied this, it was found that the pharmacists were walking several miles a day. This may have been good for their health though. The institute recommended a very small change. The counter was shifted close to the room and an opening was made in the wall separating the counter from the room. The pharmacist sat at the counter, accepted the prescription, tuned around and placed the prescription in a revolving tray in the wall opening, where it went straight to the person entering the register. The drugs came back the same way and picked up by the delivery counter adjacent - a very simple change but a huge improvement in productivity. Inventory Toyota was the first to reduce inventory holding to less than a day. Inventory is a hidden cost which only accountants realise. Production and showroom people alike prefer high inventories, not realizing the cost of inventory. My usual policy is to include an inventory factor in any incentive scheme even for showrooms. While in a routine manufacturing process the greater proportion of items will need to be

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under stock control, where minimum stocks are kept, it is not necessary for all office supplies. I have seen many examples of slow moving and non-moving stocks, unwanted raw material because the formula has changed, obsolete forms, obsolete ink cartridges and similar items in stores. Working as Industrial Engineer at the then Sri Lanka Tyre Corporation, I remember we had huge engineering stores. In my first visit to Japan, I used to always ask to see the engineering stores during factory visits but got blank looks. They have a couple of cupboards where all needed spares are kept. Obviously we need more space because we import all the spares but we often overdo it. It is the same with work-in-process and finished goods. Motion There are many guidelines on how to design work to use the least of body motions. Principles of Motion Economy are standard guidelines. Frederick Taylor was one of the pioneers who in his famous exercise in a steel mill determined better ways of shovelling. Frank Gilbreth is well-known for having broken down bricklaying into a multitude of motions and coined the term ‘Therbligs’ (the reverse of his name) to each minute human motion. If analysed scientifically, we could reduce the labour content by reducing, hand, feet, head, body and eye movements. Waiting Waiting for components from the previous process and waiting for documents from the previous process are all waste. In a factory or even in an office, work balancing can reduce a lot of waiting time. Over processing This is where you process more than necessary. This is related to ‘value engineering’. The value of any product or service consists of two components - the functional value and the esteem value. If the incremental cost of processing is more than the

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incremental value it generates, it is a waste. Overproduction Producing more than the order at hand is overproducing. This can happen if you are unsure whether there would be rejects at final inspection. So you produce more. This is an easy way out for production people, rather than ensuring a higher quality yield. Sometimes your margins could be severely eroded by this waste. Defects This is obvious. In some industries, defects can be repaired or reprocessed. In some cases, reprocessing can take place in the early stages of production but nevertheless it is a waste. An eighth waste was added later the waste of unused talent. This is very relevant in Sri Lanka too. We do not use the full potential of our employees. We do not let them unleash their creativity. Later on, TIMWOOD was expanded to CLOSED MITT, which stood for waste due to/of Complexity, Labour, Overproduction, Space, Energy, Defects, Material, Inventory, Time and Transport. Most are covered under TIMWOOD. The others are as follows: Waste of Complexity – Manufacturing or carrying out office work in a complex manner. A good example that comes to my mind is the joke that Americans were busy trying to design a pen that would work in zero gravity, while the Russians used a pencil. Waste of Labour Where the labour content itself could be reduced through scientific Method Study. Waste of Space Space is becoming a constraint now. During our course in Japan in 1980, we visited the Keio University and 14 years later, when I called on my old professor, he pointed out that now his www.nce.lk


room is half of what it used to be, two professors now use it and it still looks spacious. Better layouts can reduce space in offices and factories. Closer home, during the restructuring of Merchant Bank of Sri Lanka we gave up several floors, redesigned the space and still had a comfortable working environment. Waste of Energy When energy is cheap we tend to waste it. In Japan, after the energy crisis of 1973, they became extremely conscious of energy. In 2005, they started the ‘cool biz’ policy, where thermostats were set to 26 degrees Celsius in summer. Full formal attire was done away with. One Japanese head of an international organisation found that Sri Lankan hotels were very cold and remarked “electricity must be cheap here”. In factories, many of the old machinery and processes consume much more energy than the modern ones. Waste of Material Sometimes the material cost is very significant but factories seem to focus more on labour productivity. There is scope to review even the material used to see whether alternative material is possible, scope to prevent waste, better utilisation and less spoilage. Many of these wastes can be reduced with the participation of employees. In my first programme in Japan in 1980 on Industrial and Systems Engineering, one of the lecturers asked us, “What is the most important role of an industrial engineer?” The answer was, “Teach the simple productivity techniques to all employees.” If these wastes our surfaced and all employees taught remedial methods, all such wastes could be minimised if not eliminated altogether. We need more waste consciousness. (Sunil G. Wijesinha is President, Sri Lanka Association for the Advancement of Quality and Productivity)

Source: Daily Mirror – 21st May, 2013 www.nce.lk

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“On behalf of Economic Development Minister Basil Rajapaksa, I thank the Government of Pakistan for honouring Minister Basil’s requests and reducing tariff on three Lankan export items. This is a step in the right direction as opportunities under our FTA are not fully utilised and it’s time to do so” - Rishad Bathiudeen

Minister of Industry and Commerce

• 100% waiver for coconut oil exports Lanka-Paki trade jumps by a strong 174% • Y’12 total trade at $ 433.69 m • 11th JEC Sessions coming before end-’13 Secy. level meetings conclude successfully in Islamabad Boosting Lanka-Pakistan bilateral trade levels and cooperation ahead of the next JEC meet, Pakistan has now eased tariffs on three Lankan commodities it directly imports from Sri Lanka. “On behalf of Economic Development Minister Basil Rajapaksa, I thank the Government of Pakistan for honouring Minister Basil’s requests and reducing tariff on three Lankan export items. This is a step in the right direction as opportunities under our FTA are not fully utilised and it’s time to do so” said Minister of Industry and Commerce Rishad Bathiudeen. He was addressing the High Commissioner of Pakistan to Sri Lanka Maj. Gen. Qasim Qureshi on 24 April when the latter made his first courtesy call on Bathiudeen at the EDB premises, Colombo. “I too fully agree that many opportunities under Lanka-Pakistan www.nce.lk

Pakistan eases tariff

on three Lankan commodities

FTA are not fully utilised and it’s time to do so. Our bilateral trade basket needs to be diversified further since it’s concentrated on around four to five major commodities. For example, Pakistan has a big sugar industry but Sri Lanka does not import sugar from Pakistan. Also, exploring a formal mechanism for interaction of various bilateral business chambers is a way forward to boost our trade and more importantly investments,” said Qureshi. Currently, there are 25 BOI projects undertaken by Pakistani investors in Sri Lanka, covering garments, chemicals, petroleum, rubber, plastics, leather products, food and beverages, and tobacco. Qureshi added: “Sri Lanka’s import tariffs are a problem for Pakistan. But we have eased our import tariffs on three commodities from Sri Lanka, namely crude coconut oil, betel leaves and bottle cooling machines.” According to the Department of Commerce of Sri Lanka, Pakistan imports 5,000-6,000 MT of betel leaves annually. Sri Lanka is the largest supplier followed by Thailand, Bangladesh and India. Pakistan is the only single market for Sri Lanka’s betel leaves. Pakistan has reduced the Lankan betel import tariff by 35% (In 2010, $ 5.77 m valued Lankan betel leaves were exported to Pakistan). Pakistan has also reduced tariff on Lankan crude coconut oil by 50% and with effect from July, the crude coconut oil duty waiver will be 100%. In 2011, Sri Lanka exported $ 1.25 m crude coconut oil to Pakistan. Previously, Pakistan agreed to remove crude coconut oil from its

no concession list and phase out in two annual installments and provide market access for bottle cooling machines on a margin of preference of 50%. Following India, Pakistan ranks as the second largest buyer of Sri Lankan products in the SAARC region, accounting for about 10% of Sri Lanka’s total exports to the region. “Bilateral trade between both countries experienced a substantial growth after the Free Trade Agreement between the two countries was implemented in 2005. The total trade which stood at $ 158 m in 2005 rose to $ 433.69, in 2012, showing a strong 174% growth,” said Bathiudeen. The balance of trade has always been in favour of Pakistan. Natural rubber, vegetable products, coconuts, Brazil nuts, tea, wood, oil cake, new pneumatic tyres (rubber) and coconut (copra) oil are Sri Lanka’s main exports to Pakistan. Both Bathiudeen and Qureshi were in agreement that the 11th Joint Economic Commission Sessions should be concluded before end 2013. The bilateral Commerce Secretary level meetings on the forthcoming 11th Joint Economic Sessions (JEC) between both countries, which started on 29 April, successfully concluded on 30 April in Islamabad. The previous Lanka-Pakistan JEC was held in Islamabad on 4-5 July 2011, successfully covering a wide range of subjects, including trade in goods, services, agriculture, tourism, science and technology, education, air services and technical assistance. Source: Daily FT - 2nd May, 2013

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Kaizen is a Japanese word. KAI means change and ZEN means better, the two words together mean - change for the better, or improvement. The concept of KAIZEN, which is now globally popular, means much more than simply “changing for the better”. It is a strong philosophy, a new culture, a desire to make small but important improvements all the time, and by every person in the organisation. It was Masaaki Imai who brought out the concept to the attention of the world outside Japan through his www.nce.lk

famous book “KAIZEN; The Secret of Japan’s Competitive Success”. Focusing on small things KAIZEN means many things including; focusing on small improvements first rather than on the big ones, utilising everyone’s potential and knowledge rather than depending on a few experts, having a philosophy that all problems have a solution and that nothing is impossible, rather than presuming that there are some unchangeable factors, implementing a continual stream of small improvements at a steady pace rather than some big changes once

in a while, and done at every place where some work is done. This is very different to the so called “big bang” approach which focuses on “big” or very significant improvements once in a while. According to Masaaki Imai, the success of many Japanese methods such as Total Quality Management (TQM), Quality Circles (QCC), Total Productive Maintenance (TPM), Zero Defects (ZD) etc. owes its success to the underlying KAIZEN philosophy. In a traditional organisation the Top management and to a lesser extent the Middle management will concern themselves with innovation,

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the Supervisors and Workers are expected be concerned with maintaining the status quo and ensuring that all work happens according to the standard operating procedures. In the Japanese model however there is a layer of KAIZEN between Innovation and pure maintenance of standard operations, and that is KAIZEN where there is a role for all. Host of simple changes KAIZEN is practiced at different levels; higher level improvements by the top and middle management, and floor level improvements by Supervisors and workers. At the bottom level, opportunity is given to front line workers to come up with improvement suggestions, and they are helped to implement these improvements. The underlying belief is that front line workers, having performed their tasks over and over many times and for many years maybe, have many good suggestions to make. Kaizens at the bottom level usually do not require capital expenditure. They are simple changes that may make a small difference, but it is the collection of these changes that could make a significant improvement to the organisation. A simple example of a Kaizen in an office is when trainer who asks his office Aid to make photocopies of the course material and would ask a student to distribute them, not realising that the original is also in the same pack of materials. The original too would mistakenly go to a student and it is photocopy (which is less sharp than the original) that is left for the trainer to make copies another day. The KAIZEN was to make a small triangular cut on the top right hand corner of the original which does not show in photo copying. The original could always be recognised

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and recovered. This is an example to show how a simple change without extra expenditure could improve productivity. In a factory a simple example was the inability to spot that the cooling fan, located inside a machine, has stopped working. The KAIZEN was to attach 9 inch long streamers to the grill of all the machines. When the fans are working the streamers would be flying horizontally due to the blowing, while the defective one would be stationary. Another simple example. There are many examples of workers making much more complex changes and significantly improving productivity, quality, on time delivery, safety and customer satisfaction. Kaizen mindset Everybody in the organisation is expected to have the Kaizen mindset and make improvements on a daily basis. However at the front line level, be they factory workers or workers in offices, shops and hospitals, employees need a simple structure. It is for these employees that the Kaizen Suggestion Scheme is useful. Kaizen suggestions are different to the suggestion box method where employees are asked to insert their suggestions into a box. Even in Sri Lanka the box method had failed in many instances when undesired comments were dropped in, and when the middle management was uncomfortable of suggestions made by their subordinates bypassing them. The Kaizen suggestion scheme is different, because the middle management has a role to play, and furthermore it is a transparent process. When a worker has an idea he would fill a form explaining the idea, or just go up to his immediate superior and explain the idea. Thereafter it is the responsibility of the superior to work with the suggestor and polish up the suggestion so that something useful comes out of it. While the

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Western style suggestion scheme will reward a good suggestion with some percentage of the annual savings, the Kaizen suggestions are very small improvements and rewards are usually not in proportion to the saving. They are token rewards. Different organisations have different mechanisms. Some reward the first, third, fifth, tenth suggestion and so on. Some give prizes for the most number of suggestions per month etc. The supervisors and department heads are also rewarded by calculating the Kaizen participation rate and other indicators. According to the Japanese system the objective is to obtain many suggestions per worker, which means the focus is on the quantity of suggestions rather than the quality of suggestions. The obvious reason being to motivate worker by keeping him involved and making him feel that he could use his brains too to contribute to the organisation. www.nce.lk

Japanese companies In many Japanese companies an employee gives about 50 suggestions a year. I have listened to a presentation in Japan where the employees implement more than one Kaizen per day. In East Asia change for the better is in their culture while in South Asia maintaining the status quo is preferred, says a Sri Lankan management guru. It is for this reason that a Kaizen suggestion programme has to be systematically introduced in Sri Lanka. An Indian company had an innovative approach. The Managing Director, whenever he toured a plant, would stop occasionally and ask a worker “What Kaizen have you done recently?” At first he got no answers. Workers were very uneasy and ashamed that they could give no answers and thereafter strived hard to come up with some useful Kaizens. In a matter of months the MD was inundated with descriptions of Kaizen

carried out by workers. It is a very well known company today exporting many of its products to Sri Lanka as well. During the period I was a consultant on productivity to the then Ministry of Industrial Development in the 1990s and Kaizen was being popularised, the Additional Secretary was listening to the long winded and sometimes meaningless discussions during a Ministry progress review meetings, and whispered to me “ I don’t know about Kaizen but we are clearly very competent at Kaiwaru”. If we are serious about improving our competitiveness we certainly need more Kaizen and less Kaiwaru. (The writer is the President of Sri Lanka Association for the Advancement of Quality and Productivity) Source: Daily Mirror – 18th April 2013.

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Corporate Directories

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