Sri Lanka as a Preferred ‘China +1’ Manufacturing Partner?

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China‘s manufacturers now account for over 20% of manufacturing globally. A true powerhouse and one that’s not likely to slow down any time soon. However, there are rumblings and, to a large extent, it’s all about labour costs.

Chinese labour costs are rocketing to a level that means China is no longer the cheap manufacturing base that it used to be. Other costs too are increasing – including land and development costs, taxes and the financial cost of legislation and regulations.

Standard Chartered Bank, in a report earlier this month, reports that Chinese labour costs year to date have risen 10%. Some companies have seen substantially higher labour cost inflation – with Foxconn (manufacturer of the iPad) having raised salaries in February in the range of 16-25% on the back of global pressure on Apple.

China’s strength is its supply chain – and this is a key factor preventing entire manufacturing operations going offshore to lower cost economies. Companies are already starting to automate more – in an effort to reduce headcount.

Chinese manufacturers may move to a China +1 strategy – to move some, particularly price-sensitive manufacturing to other locations.

There are already signs of this happening – and Sri Lanka is well placed to take advantage.

Labour and other costs in Sri Lanka are significantly lower than in China. It is substantially closer to Europe and the Middle East – offering additional cost savings on shipping. These benefits will be tempered somewhat by lower productivity rates (which can be improved with training and management).

The Economist, in an article ‘The End of Cheap China’ which explores the Standard Chartered report, suggests that labour costs in Sri Lanka are in the region of 30-40% lower than in China. Cost savings on shipping and lower land costs are also attractive.

Sri Lanka already enjoys a close diplomatic and commercial relationship with China – and whilst it would be competing with other countries in the Region such as Vietnam – an aggressive strategy now might serve to accelerate decision-making in China that might otherwise not materialise speedily.

Sri Lanka needs to become an agile and strategic ‘poker in the fire’. It should be out in China knocking on the doors of all the major manufacturers, having conversations and encouraging Chinese companies to look to Sri Lanka as their preferred China +1 Partner.

The question is – who’s capable of leading such an initiative in Sri Lanka – and who is capable of knocking down the doors? If Sri Lanka fails to jump in early it will be left behind and will have little future opportunity to steer the train back towards its shores.

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High Commissioner to UK Dr Chris Nonis – Great Strides for Sri Lanka Brand

It has been heartening over the past several months to see a resurgent Sri Lanka High Commission in London under the leadership of the new High Commissioner, Dr Chris Nonis.

Dr Nonis has led with a very positive, proactive and engaging approach as High Commissioner which has been raising the profile and awareness of Sri Lanka in the UK substantially.

Emphasis has been on speaking engagements (10 – 15 per month) to a whole host of audiences as well as establishing a program of engagement with the British community by opening the High Commission for events ranging from business to culture.

Sri Lanka: Upside to the Downside

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Cheaper exports and better value for money for tourists are just two major positives that should be aggressively exploited by Sri Lanka amidst what seems to be a litany of recent gloom-oriented financial indicators.

The Sri Lankan Rupee has devalued substantially since November 2011, currently hovering about LKR 122 to the Dollar. The depreciation reflects international market opinion and risk assessment towards Sri Lanka. The Rupee’s decline since the start of 2012 has been about 7%. During the same period, the Colombo All-Share Index has declined a little over 10%.

With Sri Lanka’s almost total dependence on Iranian oil, which it must now stop buying (UN embargo) – it is likely the country will have to source this key import at higher prices elsewhere, which will fuel inflation through to the year end.   Added to this is the substantial 25% fall in Sri Lanka’s foreign reserves since mid-2011 when the reserves stood at a little over $8 billion. The country’s growing trade deficit has been a contributing factor – and there is no real sign of abatement on this front. Sri Lanka has become an import led economy – and that is something that will not change dramatically over the next few years.

What it does demand, and necessitate, is policy change to capitalise in areas where disadvantage can be turned into opportunity.

There might be a view by some policy makers that ‘exporting more labor’ will increase remittances into Sri Lanka. The Central Bank in Sri Lanka forecasts net remittance flows at $5.8 billion for 2012. That represents a massive percentage of the economy – and, despite the expectations of the Central Bank, the figure looks overly optimistic. But there is a limit to how many workers Sri Lanka can export – both for practical as well as social reasons.

The real opportunities for Sri Lanka demand radical strategies and aggressive implementation. Tourism projections should be doubled or more. Achieving that exponential growth will require new approaches and very substantial PR measures. Sri Lanka’s continuing currency depreciation means increasingly better value for money for tourists. In particular, for tourists from wealthy developed economies – UK, Europe, Australia, US and Japan all fall into this category.

The daily spend per tourist from these countries is greater than the average spend by tourists from India and other South Asian and Asian economies (and Western tourists spend more time on average per visit). So it makes sense to direct policy and strategy towards increasing tourists dramatically from developed Western economies. Current marketing of Sri Lanka as a tourist destination in these countries is woeful compared to the efforts and visibility of competing countries. If necessary, Sri Lanka should be prepared to charter planes to substantially lift the flight capacity into Sri Lanka.

Exports is also an untapped market. Examination and analysis of the country’s trade statistics shows an unbalanced export strategy. There is an overdependence on a small number of sectors such as clothing and tea (and mostly bulk tea where the value-add is not realised). The contribution of export services, though growth oriented, is still small compared to that achieved by competing countries including Vietnam, India, Indonesia, Philippines and more.   There are many sectors that could become strategically important with the right strategy and with the combined support of Government, Business and Educational establishments.

But speed is of the essence and the World will not stop and wait for Sri Lanka. Rather, Sri Lanka needs to run, catch up and then sprint. Achieving that demands an end to bureaucrats, the end to self-effacing leaders in state agencies and in industry. Sri Lanka needs to adapt, become agile and give full rein to those not afraid of risk.

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Sri Lanka Tourism Trends

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According to the Sri Lanka Tourism Development Authority. arrivals from the U.K., the biggest source of visitors to Sri Lanka after India, were little changed last year at 106,082.

Visits from East Asia, including China and Japan, increased by 41% to 96,194. Indian tourism numbers rose 35% to 171,374.

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Saudi’s Complain at Cost of Exploiting Sri Lanka Domestic Workers

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The traffic in Domestic Workers leaves a sour taste for very many globally. It is a sad reflection on Sri Lanka that it’s economy has such a strong economic reliance on this trade.

It is far from amusing therefore to see The Arab News reports that Soudi’s are whinging that it costs money to secure a maid! Rather than dilute any part of this article and it’s insight on the mentality of certain sections of the Saudi population – it is reproduced here in full.

The only comment to be made on this is that a large part of any fee paid for a maid should be paid over to the maid and the practice including ‘middlemen’ should be abolished.   Cost of hiring Sri Lankan maids ‘unreasonably high’

By RIYADH: ARAB NEWS

Published: Feb 25, 2012 01:16 Updated: Feb 25, 2012 01:16

Several Saudi citizens have decried an exorbitant hike in recruitment charges by the Sri Lankan manpower recruitment offices and middlemen.

They noted that the recruitment offices have raised the charges for hiring housemaids from $3,000 to about $4,000, and that was in clear violation of the agreements signed earlier between the two countries.

The citizens urged the intervention of Saudi authorities to put an end to the reckless practice of raising recruitment charges, according to a report in Al-Riyadh newspaper.

Saudi sponsors said that the charges have been hiked during the short school vacation period in January when many of them reached Sri Lanka for recruitment purposes as well as for holidaying. During the one-week vacation, there was a huge demand for hiring Sri Lankan maids, and this prompted the recruitment offices and middlemen to raise the charges.

There was no time for Saudis even to bargain, and this was exploited by the recruitment offices, they said, while adding that there is no justification for raising recruitment charge from SR3,700 (less than $1000), which was the fee agreed upon by both governments earlier.

These charges included $300 each as fee for the recruitment office owner in Colombo and commission for the middlemen, $200 for the ticket, $40 for medical test, $21 for online registration and $112.5 as fee to the labor office in Colombo.   The citizens noted that a Saudi employer is forced to spend around SR14,000 to recruit a housemaid from Sri Lanka, instead of the actual cost that was less than SR3,700.

The sponsors also face the prospect of losing the whole investment when the housemaid runs away from the workplace.

They criticized the National Recruitment Committee at the Council of Saudi Chambers of Commerce and Industry for being silent on the issue and not taking any action in the matter. The employers also called on authorities to work out a new bilateral agreement with Sri Lanka to streamline the recruitment process in a way that would serve the interests of both sides as well as to put an end to the unreasonable hike in recruitment charges.

The Kingdom and Sri Lanka had decided to sign a memorandum of understanding to restructure the recruitment process between the two countries in August last year. The decision was taken during a meeting between Sri Lankan Foreign Employment Promotion and Welfare Minister Dilan Perera and Deputy Labor Minister for Planning and Development Mufarrij bin Saad Al-Hagbani at the Labor Ministry in Riyadh. Under the proposed scheme, the whole recruitment process would be streamlined under the direct supervision of the two governments. During the discussions, a social security scheme was proposed to protect both the employer and the employee.

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Sri Lankan Airline Sees Growth In Asia

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Bloomberg reports that Sri Lankan Airlines plans to focus expansion on Asian routes as European travellers remain cautious. The airline intends to boost its Asian services to daily frequencies to make them more cost effective and to help support the government’s drive to turn Sri Lanka into an aviation hub. Later in 2012 the company will increase its Tokyo flights to five a week from four currently.   Sri Lankan also plans to boost its Beijing and Shanghai services and may reduce its  off-peak London flights.

The airline has begun a turnaround plan including closing some overseas offices and working to reduce fuel usage in a bid to return to profit. It pared losses to 202.3 million rupees ($1.7 million) in the year ended March 31, from 6.03 billion rupees a year earlier, helped by rising tourism and one-time gains.

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Spice… and all things nice: Sri Lanka’s Exports Up in December 2011

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Garments, textiles, coconuts and tea all contributed to increased trade figures for Sri Lanka in the final month of 2011. Exports in December were up over 24% over a year earlier and achieving US$905.5m. Imports for December, however, also rose – by almost 34% to a value of US$1.9b.

Reacting to the figures, Sri Lanka will attempt to curtail import related credit to reduce the trade and current-account deficits, and ensure that inflation remains at the “mid-single digit levels” in 2012.

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Smart Governments Make Money From Indian Ocean Somali Pirates

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Following the footsteps of a number of Sri Lankan security services firms, State owned Rakna Arakshaka Lanka has launched an armed security service with 200 personnel for shipping at risk from Somali pirates. The service is reportedly offering its services to Sri Lankan shipping companies as well as to foreign shipping operators.

The company has obtained approval, including firearms and weaponry from the Ministry of Defense. The company has not disclosed its pricing structure but will likely offer a service that is competitive compared to similar current security services providers.

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Accolades for EnterpriseLab: Sri Lanka IT-BPO UK Trade Mission Outstanding Success

EnterpriseLab has been widely praised for the success of their recent UK Trade Mission for Sri Lanka’s leading IT-BPO firms. Many of Sri Lanka’s leading companies visited the UK for one week resulting in unprecedented success in creating new partnerships, business deals and new commercial opportunity development.

The Sri Lankan companies who participated in the program offer a range of services in Finance & Accounting, Engineering Services, Legal Services, Publishing Services and IT Services/Software Development. More details here….

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EU Funds Boost Education and Health Facilities in Sri Lanka

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The new health centre is to play a key role in tackling malnutrition among children aged below five as well as the high levels of anaemia among women.

Up to 900 students are to benefit from proper education through the newly opened school. EU Ambassador/ Head of Delegation, Bernard Savage said: “Education and health are two of the key sectors the EU constantly looks to improve. We have no doubt these new facilities will benefit the most vulnerable communities of the Trincomalee District and aide them in realising their hopes for a better education and a healthy life.”

An EU grant of over LKR 39 million (EUR 261,000) was committed for the construction of 30 classrooms, a science laboratory, teachers’ quarters and decent water and sanitation for the pupils of the T/M Elangaithuraimugathuwaram Hindu College, in Eechilampatthu, near Trincomalee.

LKR five million (EUR 33,260) was invested in the Gramodaya Health Centre, in Pallikuirruppu, Mutur. This health centre will provide the local communities with family planning, antenatal and immunisation services as well as growth monitoring of infants, supplementary food and other treatments for children suffering from acute malnourishment.

These investments in the community are part of a wider EU-UNICEF partnership with the Government of Sri Lanka, which aims to reduce social disparities by addressing the educational and health needs of the more vulnerable communities. Both facilities were officially opened during ceremonies on Friday, February 3, attended by UNICEF Representative, Reza Hossaini and the EU Head of Operations, Willy Vandenberghe.

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