CEYLON CHAMBER PROPOSES MULTISECTORAL APPROACH FOR POST-COVID-19 ECONOMIC REVIVAL

The Ceylon Chamber of Commerce submitted its multisectoral proposals to the Task Force for Economic Revival and Poverty Alleviation. This was building on the submission made to the President on a Shared Vision for POST-COVID-19 Economic Recovery.

The sectors included in the document covered immediate, medium and long-term proposals across all sectors, from agriculture to digital economy and capital markets. Developed with input from chamber committees and experts in each respective sector, the recommendations under sector and thematic focus areas are as follows:

1. Agriculture 1.1 Immediate

a. Upgrade existing storage facilities preferably near the economic centers and convert them into cool rooms using available resources that are idling. Engage private sector cool room/cold chain operators to provide solutions for operating on lease/ppp terms to be the nucleus of a cold chain to overcome the wide fluctuations of supply and its impact on prices. b. Allocate one compartment on trains of the following railway lines (RL) for the transportation of agricultural produces, in order to reduce transportation cost.

i. Hambantota RL: (Suriyawewa, Thanamalwila, Embilipitiya, Ambalanthota, Ranna, Angunukolapelessa)

ii. Puttlam RL: (Norochchole, Puttlam, Anamaduwa, Chilaw, Wanathawilluwa, Karuwalagaswewa) iii. Badulla RL: (Welimada, Bandarawela, Nuwara Eliya, Kandy) iv. Jaffna RL: (Kilinochchi, Vavuniya, Anuradhapura, Thambuttegama, Dambulla, Galewela) v. Trinco RL: (Seruwila, Kantale) vi. Batticaloa RL: (Welikanda,

Polonnaruwa)

This initiative is to be carried out via a PPP model, where the private sector will set up the cold room in the compartment and manage the operation. This collaboration shall operate on a profit share model between Sri Lanka Railways and the private entity. c. Work with agriculture development groups and contribute towards agriculture modernisation projects with investments to ensure farmer benefits and encourage young farmers.

d. Reduce non-tariff barriers related to the importation of seed material with high yields.

1.2 Medium to long term

a) Immediate establishment of a national steering committee for agriculture comprising government officials and private sector representatives, where minimum of 60 percent representation is from the private sector, spanned across diverse areas in agriculture (including livestock and fisheries), such as growers, farmer organisations, agri value-addition enterprises, agri professionals and academics, agri scientists, local and global marketers of agri produce, providers of agri inputs and local agri investors. b) Permitting the import of the best quality seeds available in the global market would be a pre-requisite to reduce cost of production and increase yield. Efficient procedures for testing such new seed and plant varieties must be immediately adopted with all seed importers and commercial farmers being permitted to test new seeds and plant varieties at their own farms under the supervision of the Agriculture Department. Local seed, plant propagation and tissue culture laboratories must be supported for long-term sustainability and food security.

c) Facilitate to set up an ‘agro innovation centre’, in the Colombo or Gampaha district targeting the development of value-added food products and processed foods for local and export market. This facility to be managed together as a collaborative initiative of the government, business chambers, universities and the private sector.

2. Apparel 2.1 Immediate

The sector would require a twofold approach in meeting its wages. A subsistence allowance equivalent to the current Samurdhi benefit should be extended to employees of SMES within the sector, which are impacted negatively. Large enterprises in the same predicament as above should be allowed to pay the same amount to their employees in lieu of wages without the government having to incur any expense.

2.2 Medium to long term

a) All large buyers who are readjusting their risk profiles will start insisting on regional supply chains instead of China-dependent supply chains. We should work with the SAARC countries to exploit this opportunity to the maximum. Sri Lanka should be leading this project.

b) With the current impact to the economy and massive unemployment, the government should seek redress by seeking duty free exports to markets currently enjoyed by LDC countries such as Bangladesh, Cambodia, Maldives, among others.

3. Capital markets 3.1 Immediate

a) The Colombo Stock Exchange (CSE) has ceased to be an avenue for companies to raise debt and equity. Reviving the market will reduce the dependence on the banking system. A deep and liquid capital market helps companies to raise long-term capital needed to finance their businesses, which in turn contributes to increasing the overall economic growth. The SEC, CSE and stakeholders should address all operational impediments for the CSE to fully function online, such as making it mandatory for settlement of stock market transactions through online banking and trade confirmations to be sent electronically i.e. email or SMS only and company secretaries undertake secretarial functions.

b) Set up a sovereign equity fund to provide equity capital to companies affected by COVID-19, which are operationally viable but are over geared with seed capital from the Government of Sri Lanka (GOSL) and multilateral and bilateral development agencies such as IFC, DEG, IBRD, etc. The fund should be managed by an independent team of professional fund managers. c) Fast-track the implementation of real estate investment trusts (REITS) and establish related legislation/ regulations. This can also help revive the real estate market as well.

d) The GOSL to raise capital by the issue of long-term (10-15 year) taxfree infrastructure bonds to foreign and local capital markets, backed by cash flows from the respective infrastructure projects [expressways, railways, airports, power, ports] coupled with a sovereign guarantee. The structuring and awarding of these projects must be expedited.

3.2 Medium to long term

a) Government to supplement the capital of the state banks by having IPOS to raise new capital and listing them and therefore strengthen their ability to support the SME sector and other important sectors such as agriculture and exports in Sri Lanka. b) Direct Government institutions such as EPF, ETF, SLIC, NSB, Bank of Ceylon and People’s Bank to invest at least 5 percent of their investment portfolio in fundamentally strong companies, which are offering good value at current market prices.

4. Construction and real estate 4.1 Immediate

a) Facilitate the commencement of construction projects as soon as practically possible and permit interdistrict movement/transportation of workers, based on clear regulations and guidelines by the government’s health authorities.

b) All payments withheld by the government and all other state institutions to be immediately settled to the contractors and construction companies, in order to carry out operations.

c) Relook at the cess structure on project-related construction material with a view of stimulating development activities and reducing cost structures in infrastructure development and real estate.

4.2 Medium to long term

Stimulate demand for foreigners to purchase condominium property by introducing the special residential visa scheme for investments above US $ 250,000 per apartment and granting loans up to 40 percent of value from domestic banking sources.

5. Digital economy and e-governance 5.1 Immediate Digital economy

Digital ID, data security and e-payment platforms are key pillars that support economic and financial inclusion, which ultimately contributes to economic growth. Shortcomings in data security and digital identity also results in risk to individuals and businesses and hinders economic growth. Below are key recommendations to increase digital adoption and security in the country: a) Create a comprehensive digital ID with biometrics.

b) Enable digital ID and signature for authentication - API to NID/PP/DL. c) Enable digital on boarding for banking – lending and savings– account creation/e-kyc. d) Implement the long-delayed Data Protection Act.

e) Encourage and create awareness on adopting Sandbox facility to enable e-payment platforms.

E-governance

This would also be an opportune for the government to introduce e-government services so it will reduce crowds gathering at so many places and minimise face-to-face contact while promoting the overall productivity of the public. Some of the measures to be introduced are listed below: f) Facilitate local commerce and e-governance services by enablement of multiple layers of Sri Lanka’s administrative service, including but not limited to Grama Nildaharis and agrarian officers to be ‘digitally enabled’ to enable the local and global marketplace.

g) G2E app and G2G portals to increase the efficiency and transparency of government services. h) Introduce a digital and electronic payment system to make payments on government services. i) Digitising government operations in areas such as tax registrations, ID and passport applications, pension payments, import/export procedures, shared platform for fulfilment and logistic, permits, etc. to enable businesses to operate smoothly. j) Agri Nerve system that aggregates and promotes interaction within the agriculture ecosystem for weather, pricing, land-bank, etc.

k) Improve digital skills of the government staff. l) Implement proper infrastructure for the government staff to carry out tasks (e-approving/e-issuing) even at home (in situations like COVID-19).

5.3 Medium to long term

a) Enable digital micro lending and savings – A progressive approach to proportional regulation applicable to fintech-driven financial inclusion, such as Digital Payments and Settlements Act.

b) The Central Bank of Sri Lanka to encourage and permit more mobile payment services to enable the digital economy.

6. Food and beverage manufacture 6.1 Immediate

a) There are a number of new food regulations pending enforcement soon. Some of them mandate changes in product formulations, changes in labels, which incur cost to the food and beverage companies. Given the severity of the current situation, due to the impact of COVID-19, the government can look to postpone the implementation of all new food regulations.

b) Establish food manufacturing process certification relating to the POST-COVID-19 era through Sri Lanka Standard Institute. This will enable manufactures to certify their products and overcome consumer ambiguity.

c) There is a delay in delivering orders by shipping companies. Some suppliers are unable to submit health certificates from relevant authorities. Arrival of original documents takes longer times. Therefore, the industry requests to honour electronic documents, past track records of the importer, certificates issued by the suppliers as is the case in Singapore, Indonesia, Malaysia and several other Asian countries, to relax the regulations/ procedures as a temporary measure to catch up the speed.

7. Healthcare 7.1 Immediate

a) Settle long outstanding dues from the government sector to the private healthcare sector or seek to fund the private sector with government guaranteed loans (interest-free) to cover overdues.

b) In a PPP arrangement, the public sector can utilise the capacity of private hospitals in specific surgeries/ diagnostic procedures through allocations/credit period from government until the overload is reduced on public sector. This would be a stimulus package to the private sector and will help the government to mitigate the immediate cash crunch needed for increased healthcare spending while reducing the backlog of routine diagnostics/ surgeries that are on hold at present. This will also ensure the safety of health-seeking people of this country whilst providing accessibility to routine healthcare whilst the public sector battles COVID-19.

c) The healthcare industry is a heavy operating expense industry with most retained profit having to be invested back into the business. The industry hires many skilled employees at the lower end of the social demographic. Given the priority towards healthcare in the next six to 18 months, it is important to support the industry. In the short term, it is necessary to introduce a mechanism through working capital loans to sustain wages, overheads and the replacement costs of equipment. In the medium term, low-interest loans need to be made available for capital expenditure (capex) for pharma manufacturers and hospitals undertaking capital investments. d) Increase the high-quality production capacity in essential therapeutics under all dosage forms to supply both private and public segment to reach the 50 percent of self-sufficiency in the medium term by incentivising the existing manufacturers and new investors.

e) Immediate implementation of an e-procurement process, instead of manual depositing/opening tenders for all government healthcare purchasing. This will also assist in maintaining social distancing practices. We recommend appointing an oversight committee on SPC procurement to ensure quality and pricing transparency.

7.2 Medium to long term

a) When air travel is permitted, the government and the Health Ministry should immediately restart the foreign kidney transplant programme to attract medical tourism and relax the regulations to promote the programme.

b) Develop a pharma export industry to reach US $ 500 million by 2030 and achieve economic benefits of inflowing foreign currency via creating an industry of US $ 1 billion. c) Supporting healthcare institutions in developing digital platforms to promote digital and mobile services.

d) COVID-19 illustrates the heightened risk of NCDS and pre-existing conditions. As we come out of COVID-19, the country should focus to address this as it could save billions in healthcare costs and have a more productive workforce. This can be done with the well-defined PPPS between the public health system and the private healthcare institutions.

8. Tourism 8. 1 Immediate

The sector urgently needs a government-backed wage support scheme through a grant for six months to support employees with a monthly salary of Rs.40,000 and below.

If not, the regulatory changes/ amendments to the labour laws (as per submissions made to the labour commissioner) to be actioned immediately for a specific period to sustain the tourism industry until normalcy returns.

8.2 Medium to long term

a) This is an opportune time to establish procedures for better visitor management considering the current and past issues. Private sector is willing to work together in this regard. b) Identification of safe zones for the early start of tourism. This can be done through ring fence zones in lowrisk areas (especially the districts that have had no report cases of infection) and maintain restricted movement several months in advance so as to create marketable micro-destinations for identified segments.

c) Focus is required to develop the tourism product for the future by improving the infrastructure around tourist sites (rest rooms, signboards, souvenir shops, cafeterias, etc.) d) Offer lower rates at the airport, landing, handling, catering, etc. to attract airlines to fly into the country at the opportune time.

9. Trade including manufacturing and international logistics

a) Now is an opportune moment to take advantage of the shift in global manufacturing trends with companies looking to diversify their geographical risks. Recently, the Japanese government announced large incentives to its companies that are moving out of China. Sri Lanka is best placed to leverage this. The Hambantota Industrial Zone should be heavily promoted as an alternative base ready to accommodate these Japanese companies and other investors.

b) Encourage local manufacturing by not introducing ad hoc taxes and Special Commodity Levies (SCL) on key raw and packing material that will discourage domestic manufacturing. Provide concessions for organisations with 90 percent local agriculture supply chain (e.g. Energy/logistics/tariff in valueadding materials such as flavours, seasonings, etc.). If a company is using 100 percent local raw materials, there should be tax encouragements. c) There is opportunity for the Colombo Port to establish itself as a storage hub and transit storage to enhance the country’s importance in the global shipping network by leveraging on the hub and spoke model. Given that most ocean carriers are looking for opportunities to consolidate cost, the need for hubs has never been felt more meaningful. Thus, the government should fast-track the already delayed East Container Terminal construction and build the deep draft port capacity to attract ultra large ships to the Port of Colombo. Due to COVID-19, most shipping lines will find it feasible to consolidate their loads into hubs and use larger ships for main markets to reduce per unit cost.

d) Consult relevant stakeholders, including chambers of commerce, when amending/enacting laws and regulations affecting businesses impacted by COVID-19. E.g. The Gazette notification 217/5 of April 16, 2020, needs careful scrutiny and amendment. The government should set up a ‘review’ panel consisting of representatives of all stakeholders who are easily accessible for review suggestions and recommend amendments to the government.

10. Non-banking financial institutions

Given the relief that the non-banking financial institutions (NBFIS) will be providing at this point, it will be prudent to also address key risks such as liquidity for the sector through:

a) Liquidity support through minimising reserve requirements and through other tools available at the CBSL as the lender of last resort to NBFIS.

b) Credit guarantee schemes for the contract moratoriums, which are granted.

c) To expedite the loan recovery process of the NBFIS through grant of Parate rights on mortgaged properties for the NBFI sector similar to banks. Allowing criminal procedure for criminal breach of contracts and cheque returns, process and infrastructure to expedite the legal procedure, etc.

THE CHAMBER RECOMMENDS RELIEF BE GIVEN BY INCREASING THE DEBT THRESHOLDS AND PROVIDING A LONGER PERIOD OF TIME TO RESPOND TO STATUTORY DEMANDS FROM CREDITORS SO AS TO PERMIT BUSINESSES TO CONTINUE TO TRADE THOUGH TECHNICALLY INSOLVENT

11. Plantations

a) Promote and support expansion of non-traditional export agriculture and other alternate perennial food crops in the plantation sector in order to enhance our national food security. One such cultivation, which can be promoted, is oil palm, with the policy support to increase the current cultivation from 9,000 hectares of oil palm to 20,000 hectares, under strictly enforced guidelines to address environmental concerns. b) Restrategise and promote the marketing of Ceylon Tea as having the best curative, preventive and antidotal quality and as having the highest number of natural compounds (polyphenol) in our teas, compared to other teas in the world. c) The state and relevant authorities to engage the industry stakeholders in the decision-making and policymaking process, far more than the current level.

12. Telecom

a. Relax import restrictions on network infrastructure and exclude telecommunication equipment from the list of non-essential goods set out in Schedule B of Annex 1 of the Direction No. 1 of 2020 dated March 19, 2020, issued by the Banking Supervision Division of the Central Bank of Sri Lanka b. To facilitate Internet usage profile: „Relax the restrictions on New Site Deployment – withdraw Tower Farm regulation of the TRCSL.

„Permission to use common tower infrastructure such as lamp poles and deploy antenna in sites with Structural engineer certification (for buildings without COC).

„Grant access to fibre transmission infrastructure owned by the GOSL agencies.

„Electricity - Include telco sector consumption under industrial category.

„Incentivising of rural connectivity investments utilising the telecom development funds collected by the TRCSL/GOSL, with a particular emphasis on highcapacity wireless broadband and fibre-optic networks.

„Facilitate release of unused spectrum to deliver coverage and capacity on broadband: Release spectrum from 700MHZ, 2600MHZ bands for 4G.

„Efficient and timely allocation of spectrum for 5G deployment to support long-term broadband capacity requirements and industrialisation:

Digital dividend broadcast spectrum – releasing upper UHF frequencies for MNOS and digitising broadcast domain.

At least 200MHZ of IMT spectrum monetised and assigned efficiently.

13. Other thematic proposals

These proposals will help to create the enabling environment for all the above and other sectors.

13.1 Labor regulations 13.1.1 Immediate

a) Delay remitting Epf/etf/gratuity for all sectors without having to pay the surcharge up to 90 days from the due date of the payment. b) Enhancing the existing working capital scheme under the ‘Saubagya COVID-19 Renaissance Facility’ to support industries that find it difficult to manage the payment of wages. The working capital scheme can be along the lines of the employment support scheme suggested by the chamber in our proposal on April 17, 2020. Extent of support can be based on the significance of sector impact and an assessment of reserves and leverage of the sector and individual firms. The GOSL could consider a multitier scheme to address the varying degree of impact across the private sector.

13.1.2 Medium to long term

a) To allow engaging employees (male and female) beyond normal working hours, per day, per week and on holidays, to cover the hours that were lost due to the curfews imposed by relaxing daily, weekly and monthly limits imposed on overtime, if any. b) To grant permission for a compressed week (to work 45/48 hours within a short working week) without additional payments. c) To permit employees, whose services have been terminated post COVID-19, to withdraw the ETF benefit, disregarding the five-year rule.

13.2 Tax proposals to drive a sustainable economic recovery 13.2.1 Recap of proposals submitted as part of our submission to the President on April 17:

a) Reintroduce the exemption from income tax of interest from all debt securities to encourage the deployment of debt capital so that companies will have greater access to cash. b) Abolish all transaction taxes including Capital Gains Tax, Stamp Duty, VAT and other forms of taxes to facilitate companies to merge and restructure to overcome the crisis situation. c) Introduce double deduction of expenditures incurred by companies that have paid for salaries for the retention of the existing staff. d) Take proactive measures to prevent acute employment displacement. This could be done by permitting double deduction of expenditures incurred by companies to train the existing staff (reskilling) and labour from industries that are affected by the crisis to new industries, such as agriculture and manufacturing for domestic consumption, etc. e) Grant investment relief for companies that invest in new and productive sectors of the economy, which provide additional employment and have the potential to grow in the wake of the current crisis.

13.2.2 Additional proposals to consider:

a) Temporary withdrawal of thin capitalization regulations for the next two to three years at a minimum to support the POSTCOVID-19 recovery of businesses. This would give time for businesses to consolidate and recover. b) Set off of outstanding VAT refunds from future taxes to support cash-strapped businesses due to COVID-19. This would reduce the administrative burden for both the taxpayer as well as the revenue authorities while addressing cash flow issues of businesses. c) Allow 100 percent accelerated depreciation of deduction on capex on plant and factory in the next one to two years. Capex will be drastically cut by most companies in the coming months. However, there might be capex already committed but also not incurred in relation to manufacturing with strong return on investment (ROI).

13.3. Other legislative reforms

It is understood that no changes can be made to any existing legislation until general elections are held and the new Parliament is constituted. However, preliminary work on the formulation and drafting of some much-needed amendments to legislation can commence immediately with a view to having them passed when the new Parliament meets in a few months’ time.

13.3.1 Changes to bankruptcy and insolvency laws

The chamber recommends that relief be given by increasing the debt thresholds and providing a longer period of time to respond to statutory demands from creditors (or seek the intervention of court with respect to such demands) so as to permit businesses to continue to trade though technically insolvent.

The law should also grant the officers of the establishment, including directors, partners and trustees, to be temporarily relieved from their obligations by permitting the organisations to trade in the ordinary course of its businesses, notwithstanding being insolvent during the prescribed period. However, they will remain criminally liable if operations are conducted outside ordinary course of its business.

The COVID-19 Singapore (Temporary Provisions) law can be followed. This should capture individuals as well as businesses.

13.3.2 Changes to law towards facilitating e-transactions

The requirement is to obtain real-time access to the citizen’s profile databases maintained by the Department for Registration of Persons to facilitate the instant validation of the identity of the National Identity Card (NIC) holder, prior to availing a customer, over 18 years of age, any service including but not limited to any banking, financial and/or telecommunications services, thereby facilitating e-transactions in the POST-COVID-19 environment. The government has already embarked on a forward-thinking E-NIC project and allowing third party/external access to make use of the information on hand, will be the next step in the development of this programme.

13.3.3 Changes to the laws that set out mandatory time periods

It is recommended that a temporary law be enacted to give relief to the persons who have not been able to exercise their rights, duties and obligations in terms of the timeframes stipulated under any law. This can be achieved by enacting a special provisions law suspending the operation of such provisions.

Suggested draft provision

“Notwithstanding anything to the contrary in any law, subordinate legislation, regulation, by-law, no person, not being a person exercising any statutory power or duty under any law, shall be prejudiced on account of effluxion of time stipulated in any law, subordinate legislation, regulation, by-law during the period March 16, 2020 and date X.

For all purposes, the computing of time in terms of any law, subordinate legislation, regulation, by-law shall stand suspended from March 16, 2020, up to date X and shall resume from the day immediately following such date of certification.”