Sri Lanka economy

Advocata commends the government’s decision to shut down SaluSala - a State Owned textile Enterprise

First appeared in Daily News, Daily Mirror, Daily FT, Lanka Business Online, Economy Next, Republic Next, Colombo Page and Sunday Observer

Advocata Institute commends President Maithripala Sirisena’s directive to shut down the loss-making, state-owned handloom enterprise Salu Sala. While we commend this decision, we are also anticipating the official gazette enacting this statement.

The SaluSala, now a white elephant to society, was once the only state textile trading enterprise in the country. As the only provider of textile during the closed economy, SaluSala received heavy protection.

In 2011, the First Committee of Public Enterprises Report (COPE) revealed that for the year 2009/2010, Lanka SaluSala Ltd. has made a loss of Rs. 30 million. The reason for this loss, as identified by the report, was due to salaries paid to staff who had been sent on compulsory leave during the restructuring process of the organisation. However, Advocata has been unable to track the financials of Lanka SaluSala thereafter as there has been no Annual Reports or Performance Reports published and available to the public.

‘A lack of accountability is leading to flagrant abuse within SOE’s. The government must act urgently to prevent it spiraling out of control. Salu Sala is only one of many examples”
— Ravi Ratnasabapathy - Resident Fellow, Advocata Institute

Advocata Institute strongly believes that the state should have no role in running business enterprises using taxpayer money,  particularly in industries with enough private investment and competition. Advocata encourages the government to look at other ‘white elephant’ State Owned Enterprises (SOEs), and divest and exit industries that serves no strategic purpose. Out of 527 SOEs identified by Advocata’s 2018 State of State Enterprises report, only 54 are classified as being ‘strategic’ by the government.

Whilst the policy debate in Sri Lanka on SOEs has focused on ‘privatisation’, many of  Sri Lanka’s SOEs have no commercial purpose, riddled with corruption and mismanagement and, in the core justification of existence, is not attractive to private investors looking for profit making ventures. Advocata urges the government to exit enterprises of  this nature and release the valuable resources they occupy into more productive sectors of the economy, while awarding fair compensation to public sector employees of these enterprises.

In the case of Sal Sala, the Treasury has allocated Rs. 340 million to pay compensation for 217 employees under a voluntary retirement scheme. This is a model the government should consider adopting in cases where paying a compensation is more economically viable than continuing to keep a loss making enterprise afloat. Lanka SaluSala is not the only State Owned Enterprise (SOE) that is a fiscal strain on Sri Lanka’s Economy. Non Strategic SOEs like Sri Lankan Airlines, Lanka Sathosa and Agriculture and Agrarian Insurance Corporation are in need of immediate reform.

Source: Department of Public Enterprises, Performance Reports (2015-2017) and Ministry of Finance - Annual Report (2018)

Source: Department of Public Enterprises, Performance Reports (2015-2017) and Ministry of Finance - Annual Report (2018)

Key Points

  • Lanka SaluSala, a state owned handloom enterprise will be shut down as per orders by the President.

  • Advocata Institute commends this decision and is anticipating the gazette formally enacting this order.

  • The Treasury has allocated Rs. 340 million to pay compensation for 217 employees of SaluSala under a voluntary retirement scheme.

  • SaluSalu has been a “white elephant” for years, and the government has failed to keep track of the financials for this enterprise.

  • The first COPE report in 2011 revealed that Lanka SaluSala Ltd. has made a loss of Rs. 30 million for the year 2009/2010. Annual Reports have not been published thereafter, and the Ministry of Industry and Commerce, which is the designated line ministry has also not published any information on the performance of Lanka SaluSala thereafter.

  • SaluSala is only one of the many SOEs fiscally straining Sri Lanka’s economy, and it is only one of the many SOEs that the government has failed to monitor financials for. Out of the 527 state owned enterprises identified by the Advocata Institute, the government regularly tracks the financials of only 54.

  • While the Advocata commends the government’s decision to close SaluSala, it is equally important that the government conducts a survey of all state owned enterprises in order to establish a comprehensive system of financial monitoring.

  • Other non-strategic loss making State Owned Enterprises in need of immediate reform includeSri Lankan Airlines, Lanka Sathosa and Agriculture and Agrarian Insurance Corporation.

Razeen Sally delivers Lecture on Three scenarios for Sri Lanka's future

Prof. Razeen Sally delivered a public lecture at the Advocata Institute, last week on Sri Lanka's future.  This is the third edition on Advocata's series of public lectures.  The full lecture is now online.  The event was done in partnership with the Echelon Magazine. 

 

From Economy Next:

Sri Lanka had windows of opportunity to change direction in the past, but had 'missed the bus' several times in its post-independence history according to many commentators.

Sally recalled something that is said often about Brazil: "Brazil is the country of the future, it always was and it always will be.

"There is that golden potential out there, but it is never achieved," Sally said.

"Of course Sri Lanka never misses an opportunity to miss an opportunity. I hope that opportunity has not been squandered. It is late in the day, but it is still there."

Sri Lanka's economy did not have enough competition with 'commanding heights' of the economy controlled by oligarchs. 

The country was in the grip entrenched political and economic interests without any new blood to bring change and competition.

"Sri Lankan economy has a competitiveness problem," Sally said. "It has a productivity problem," The way to raise productivity and to raise competitiveness is to have a stronger private sector. 

"And also to have much more globalization of the Sri Lankan economy. More trade, more exports import as well as more foreign investments.

Doing business policies had to change. A combination of domestic and private sector investment was needed to transform the economy to have 6-8 percent growth.

Reforms were needed to bring 3 to 5 billion US dollars of foreign investment. 

Sri Lanka needed simple and predictable tax policies.

"No more price controls, no more announcements of exchange controls."

A stable macro-economic policy that went beyond the IMF program, including tax reforms that were genuinely simpler and relatively low without sudden changes was needed.  Institutional checks were needed including a genuinely independent central bank with better policies.

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