INDUSTRY >>>

- Rising overseas sales and a liberal economy underpin a government programme to improve competitiveness -

A s the Sri Lankan government looks forward to the new year, it can take heart from the recent growth of the industrial sector. Last year saw record exports for some manufactured products, and a brisk start by fledgling industries. Exports overall were up 27.5 per cent year-on-year for the period January-August. There was, for example, an 85 per cent growth year-on-year in the gem and jewellery export market achieved in the six months to September, with sales worth 3.24 billion rupees (£26.8 million).

The Sri Lankan government has signed an agreement with the United States Agency for International Development for the provision of $2 million towards a new programme that will "increase Sri Lankan competitiveness in the global marketplace". The programme will benefit several industry sectors, helping them to gain links with lucrative markets and "to innovate and increase their productivity and improve their strategies and business models". Praise for Sri Lanka's liberal economy came in a recent report by the International Herald Tribune, which said Sri Lanka has "the region's most open trade and foreign exchange regulations". It also noted that "the country also benefits from strong textiles and clothing exports and gem mining". In the growing hi-tech industrial sector, several joint ventures have been created to manufacture new products.

Global Software Labs Private Ltd has a deal with Microsoft to build next-generation products for the US software giant. Managing director Emerick Fernando says: "It is an open-ended contract which could be worth a couple of million dollars in a few years." Sri Lanka is also exploring the possibility of developing its petrochemical industry, with Chinese help. As a first step, the storage capacity of a Chinese-built oil tank farm is to be doubled.

The Ceylon Petroleum Corporation (CPC) has awarded the $79.52 million contract to build 30 tanks and single point buoy mooring to China's Huanqiu Chemical Engineering Corporation. China is also helping CPC to expand its refinery and one project is for a hydro-cracker to handle more crude oil. The refinery expansion is to enable Sri Lanka to cut back on expensive imports, as well as to develop its petrochemical industry. Mr BRL Fernando, chairman and chief executive of Chemical Industries (Colombo) Ltd (CIC), says there is a movement away from the traditional industries to which CIC used to supply raw materials. "Investment is going into areas where there is a competitive advantage, and unfortunately those areas where we have a competitive advantage are not areas where we were supplying raw materials." CIC is restructuring and has taken over some government farms where it can supply fertilisers and pesticides. "We are looking at expanding the supply of fertilisers and pesticides, and also linking up the services that we provide to the agricultural community, because we feel that the agricultural sector in this country will start producing goods for the export market."

Higher global oil prices eroded profits at Sri Lanka's Caltex Lubricants by 17 per cent in the first nine months of last year. Nevertheless, man-aging director Shahid Ahmed says: "We have got the funds and we are waiting for opportunities in liquefied petroleum gas (LPG), aviation and marine products. "Obviously this is an area that is very attractive for every-body else, so we expect a lot of competition when we try to pursue these sectors." Caltex held a product monopoly for six years and 95 per cent of the market, but Mr Ahmed says there is plenty of competition now from Shell, Valvoline and others. He adds: "We would like to be in a position to sell our plant. To do that we have to demonstrate that we are as competitive as well as technologically advanced as similar plants in Singapore and Dubai from where we import. We have to invest a little bit more to bring it up to standard and sell it."

At Royal Ceramics Lanka (RCL), chairman Morarji Udeshi says one of the company's aims is to protect Sri Lankan ceramics and porcelain industries from poor quality substitutes. The industry has achieved a high international reputation - nine out of ten coffee shops in Scandinavia have porcelainware from Sri Lanka, for example. "We are trying to protect the industry and we have asked for more controls as well as higher standards in Sri Lanka," says Mr Udeshi. "With the known resources and the raw materials available in Sri Lanka, this industry, with the present technology, will last for another 50 years. We are trying to get the maximum possible foreign exchange into the country during that period, otherwise with the changes in technology we might have difficulties in maintaining market share. "We are trying hard to stop the influx of cheap imports in order for us to supply high quality porcelain products, not just tiles." With a new factory under construction and sales up by more than a fifth last year, he is upbeat about the future. The company is looking for new export markets as the local market is no longer big enough, although one trend is for more orders from Sri Lanka's rural areas, indicating improving standards of living among the poorer sections of society. About 60 per cent of RCL's tiles are exported to the US and the company's porcelain tableware is sold in 35 countries.

Opening up world markets

Much of Sri Lanka's export success last year is attributable to textile and garment manufacturing. The sector showed a strong 26 per cent growth in exports to $2.19 billion between January and September 2000, compared with $1.74 billion in the same period the year before. The country's garment businesses have been using the internet to market themselves in preparation for the scrapping in 2005 of the quota system operating in industrialised countries. The EU has already suspended quotas following negotiations in December. Without quota restrictions, Sri Lanka hopes to generate an additional $200 million in 2001 in apparel export earnings to the EU.

Many international retailers and top brand names are associated with Sri Lankan manufacturers. MAS Holdings for example, one of the country's largest companies, has a partnership with Germany's Triumph International and makes nearly one million bras a month. MAS began with a joint venture with MAST Industries of the US 14 years ago and has since set up lucrative ventures with many European companies. It produces a huge range of clothes for retailers such as Marks & Spencer and BHS.

Chairman Mahesh Amalean says MAS has been working hard to prepare for competition that will inevitably result from the change in quota systems due in 2005. "There are changes that are already taking place in the market. Special bilateral agreements in the Nafta (North American Free Trade Agreement) region have given certain concessions to Mexico, making Mexico one of the largest exporters of clothing to the US. "The EU has created special agreements with Eastern European countries and has entered into a relationship with Bangladesh, which makes it possible for Bangladeshi apparel manufacturers to export duty-free, quota-free clothing into the EU. "And the US senate has passed what is called the Caribbean and sub-Saharan Treaty which gives quota-free access to 48 countries.

Cambodia has a concession and Jordan has got special benefits. "All this is changing the rules of the game before 2005, and that is what concerns us most. If the duty is 8 to 10 per cent, we think we can handle that, but if it is 15 to 30 per cent, it becomes disturbing," he says. "Unless Sri Lanka starts negotiating harder for similar concessions, business will migrate out of the country: that definitely concerns us."