Rubber Industry In Srilanka Economics Essay

There are no export restrictions and no licensing requirements for rubber dealers and exporters; however, the Government imposes duty on the import of synthetic rubber and related input materials. At present synthetic rubber imports are subjected to a CESS37 of SL Rs 15 per kg, which has led to higher prices for final products. The Government also charges SL Rs 4 per kg as CESS on procurement of natural rubber (EDB 2007), and this has significantly impacted the cost of rubber products. The rubber products manufacturing sector could be further encouraged, if the CESS on domestically consumed natural rubber is reduced while the CESS on raw rubber exports is increased, – thus favoring domestic rubber demand without affecting the Government revenue. The changes in CESS policy should aim at natural rubber to become more competitive locally and to increase export of higher value added rubber products. Although the total CESS collection is said to be available for the development of the rubber industry and the long-term production of raw rubber, both the rubber cultivation and rubber manufacturing sectors complain that the CESS is not utilized for that purpose. However, at present the Government uses the CESS to finance replanting of rubber trees and provide certain social benefits to smallholders.

The Government also plays a pivotal role in rubber research and development, and by extension, rubber cultivation. However, the industry lacks expertise on product and compound developments, introducing only limited innovations. There is currently no centralized rubber- and/or polymer-based product testing facilities, especially the ones focused on quality improvements in Sri Lanka. Although polymer-based and compound material testing facilities exist at several research and academic institutions, cost testing procedures in these institutions do not have official accreditation and their certification is not internationally recognized to testify the quality of Sri Lankan rubber products – an important requirement in the export market. Finally, all rubber product manufacturers must obtain Environmental Protection License (EPL) from the Central Environmental Authority (CEA), affirming their continuous compliance with minimizing noise and dust levels to protect the environment.

Conclusion:

Government has no any restriction on Export and licensing. Government imposes duties on import because of that its leb to higher prices for final product. Government also apply CESS on procurement so, its directly impact on its price. If CESS reduced in domestically and increased in exports than favouring domestic rubber demand without affecting the government revenue. Government are not provide polymer based product testing facilities, especially the ones focus on quality improvement in srilanka.

7. Economic Factor Effect on Rubber industry in Srilanka:

In general, the economy of Sri Lanka has not been adversely affected by the currency crisis that occurred in the South East Asia (SEA) starting on the 2n d July 1997; compared to other SEA countries due to following factors:

a. Majority of foreign investments in Sri Lanka were not confined to SEA countries only like Korea, Taiwan, Malaysia and Indonesia.

b. Sri Lankan rupee was allowed to devalue gradually over time as a floating currency.

Among the SEA countries, Malaysia had been the largest recipient of Foreign Direct Investment (FDI) during the past decade followed by Indonesia, Thailand, South Korea and Philippines. In comparison to US $ Mn 32348 and 18198 received by Malaysia and Indonesia respectively the investment in Sri Lanka in terms of FDI is not significant at all. Total FDI attracted by Sri Lanka between 1985 and 1996 amounts to just over US$ Mn. 800 only. A further amount of US$ Mn 85 has been invested in Sri Lanka during the I* half of 1998. Hence, the distribution of FDI between these Asian countries clearly explains the reason as to why Sri Lanka did not experience a noticeable impact of the Asian financial crisis. Other issue that needs to be investigated is that the nature of International borrowing and capital account convertibility adopted in Sri Lanka. Owing to the borrowing restrictions enforced by the Sri Lankan monitoring authorities, opportunities given to the private sector for borrowing money from the lending organizations in International financial market is limited. Further, the capital convertibility becomes important only if Sri Lanka has substantial foreign investments. One of the reasons for less foreign investments in Sri Lanka during the past decades is the war that is going on from 1983 and if not for that definitely there would have been very much more foreign investments in the country by now and the situation in the country as a result of SEA financial crisis would have been much worse.

Out of the 19.7 billion US$ invested in Malaysia investments from Japan alone is 8.2. bn US$. In Indonesia out of 48.3 on US$ total investment, 22.0 bn US$ is from Japan. In Thailand, out of 61.7 bn US$ investment, 37.9 bn US$ is from Japan. But in Sri Lanka, out of the total investment though South Korean component is about 20%, the balance 80% is evenly distributed among all countries in the world.

However, due to the possible drop in both export revenue and FDI, the possibility of Sri Lankan economy getting affected in the future remains fairly strong.

As a result of the currency devaluation in major rubber producing countries in the world viz. Thailand, Indonesia and Malaysia, the effective farm-gate price paid to their rubber farmers rose rapidly and hence they produced more rubber since July 97 than the anticipated target figures for 1997. Releasing of buffer stocks kept in Thailand during this period to ease their economic problems worsened the situation for rubber and as a result the rubber production recorded a surplus of over 10% by the end of 1997. Hence, the global rubber price dropped rapidly until May 1998, recording a figure of Rs. 45.00 per Kg. for average grades of RSS from the figures above Rs. 65.00 recorded before July 1997. Similarly in the case of other industries like the garment industry and commodity export industries, the revenue fell far bellow the expected targets. Due to the financial hardships faced by South Korea, Malaysia, and Honkong, a fall in foreign investment in Sri Lanka too, is excepted.

Eventhough the total rubber production in the country dropped from 112 000 MT to 106 000 MT in 1997, the amount of latex crepe produced out of the total production remained even slightly above the production in 1996. This was mainly due to the attractive premium price paid for this top quality commodity in the world market which has already reached Nitch status. In order to maintain this position for this commodity in the world market, RRI owned “Dartonfield Estate” gained ISO 9002 in the middle of 1998 while few other crepe factories in the country are already very close to gain this important standards registration. However, Sri Lankan authorities have taken all necessary precautions to prevent an over supply situation of latex crepe rubber in the International Market. The environment safe water soluble bleaching agent introduced to the crepe industry by RRI Sri Lanka is now exported to both India and Indonesia by Chemanex Ltd.

In order to help the small holders who were badly effected by the 25-40% price decline in sheet rubber and the farmgate price paid to them for their latex by the centrifuged latex manufacturers, a cess of Rs.5.41 levied on raw rubber exports was abolished by the Government of Sri Lanka from May 1998. This along with the gradually declining rupee value against the US Dollar helped the small holder to withstand the sharply declining rubber prices at least to some extent. Central Bank of Sri Lanka is maintaining a 10% depreciation of the rupee in 1998 compared to the 7.4% depreciation maintained through out 1977.

Conclusion:

Majority of foreign investments in Sri Lanka were not confined to SEA countries only like Korea, Taiwan, Malaysia and Indonesia. Sri Lankan rupee was allowed to devalue gradually over time as a floating currency.

9. Technology Factor Effect on Rubber Industry in Srilanka:

Natural rubber plays a key role in the economies of many of the nations that have the climate and resources for growing and processing this valuable commodity. Among these countries is Sri Lanka, where rubber exports are one of the highest foreign exchange earners. The rubber therefore is an important agriculture crop to Sri Lanka, having around 151, 000 Ha of rubber plantation in it.

Sri Lanka is the world’s leading supplier of solid rubber tires. But Sri Lanka’s rubber production has shown a declining trend since 1996 though Sri Lanka is bestowed with rich resources of natural rubber and other process materials as well as the availability in comparatively cheap labour. So it is obvious that there is a burning problem in the raw rubber industry and Researcher therefore made a hypothesis that there can be a major component missing in the whole supply chain of this industry and that would have been the technology component, which is more advanced in other countries.

Researcher therefore made an effort to do a detailed study to check whether Sri Lanka is technologically lagging with compared to the Natural rubber processing state of art country by assessing the Technology status of Sri Lankan raw rubber industry. Having assessing the technology status, research was targeted to check the significance of technology status to the industry productivity, i.e. annual yield per hectare. For that researcher has integrated the APCTT model, 1988- increasing degrees of sophistication of Technology components, and the framework for technology based development, technology content assessment developed by Asian and Pacific Center for Transfer of Technology (APCTT)- UNESCAP( 1988) to assess the technology status of this industry.

According to the model analysis, it can be concluded that technologically Sri Lankan raw rubber industry is lagging behinbestd to the technology status of global industry leaders like Malaysia, Thailand and India and that has resulted in a lower productivity of this industry.

According to the statistical analysis, especially lower status of technology factors like Info ware, Orga ware and Human ware as well as non-technology factors like lower number of trappable trees per hectare have affected the Sri Lankan raw rubber industry productivity i.e. actual annual yield per hectare though there are hardly any relationship with the industry productivity and the status of techno ware component. Factors affected to lower the status of each technology component was evaluated with the qualitative techniques like, SWOT analysis, value chain analysis and the cause an effect diagrams and found out that lower consideration on workforce and their education background as well as training and retraining facilities, bad management practices due to the poor Managerial competence, rigid organizational structure has become major drawbacks of this industry.

Conclusion:

Since 1996 rubber industry is declining and rich resources of natural rubber and other processing material became more costly than labor cost. By the doing research on technology status India Malesiya, Thailand are playing a best role in producing rubber but Srilanka is also producing best quality of solid rubber tire which is having a good demand in the market . In Srilanka the technology used by most of raw rubber manufacturers is very old and this results in low productivity.

10. Environmental Factor Effect on Rubber Industry in Srilanka:

Rubber Industry is a major industry in Sri Lanka, which has a significant contribution to national economy. Also, Rubber Industry generates many employment opportunities to rural population having lower level of education. The technology used by most of raw rubber manufacturers is very old and this results in low productivity and high environmental damage which people to do not tolerate any longer.

A closer look reveals that rubber industry consumes large volumes of water, uses tons of chemicals and other utilities and discharges massive amounts of wastes and effluents. The few cleaner production assessments and implementation programs carried out in Sri Lanka has shown tremendous benefits. Some of them are lesser usage of chemicals, energy and utilities including water, improvement in productivity and profitability, lesser loads and volumes of effluent discharged to the neighborhood, better image and relationship with employees internally and with the neighborhoods externally.

These benefits should encourage many rubber industrialists to follow a cleaner production program in their own places. Many have realized cleaner production is the only way to survive in today’s competitive market where cost of production is on the increase and prices are decreasing.

Conclusion:

In Sri Lanka, raw rubber manufacturers are mostly use very old technology and because of that low productivity and high environment damage are increased which harm a lot to the people as well as environment and creates more pollutions.

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