Ceylon Today Editorial

2nd wave of apparel investments

30 November 2016

Recent poverty statistics dished out by the Census and Statistics Department (CSD) shows that 56% (14 districts) out of the island's 25 districts, as per a 'poverty census' carried out last month, are mired in poverty.

This figure is unchanged from the previous month's (September's) poverty numbers. CSD for this purpose has taken the poverty cut off point as Rs 4,064 per capita.

On the assumption that all of the country's 25 districts have an equivalent number of people (which for practical purposes however is not) and that all of the districts which have been identified as being 'poverty districts' have all of its people's mired in poverty (which for practical purposes is not the case), that means of the island's 21 million population (as at middle of last year), 12 million are living in poverty.

The figure of 12 million is just a million short of Sri Lanka's total population of 13 million in 1971, according to CSD. The year 1971 was a significant year for the country. That was the year the island faced its first youth insurrection which emanating from the south, where undergraduates played no meaner part, and which in its wake left 13,000 mainly Sinhala youth dead.

The faces of the dead were tarred beyond recognition by the organs of the State and burnt, not cremated, in tyre pyres and if buried, more often than not, in unmarked mass graves, unsung and unmourned.

If the 12 million 'poverty' figure is a gross exaggeration, on the assumption that 10% of that number are in actual poverty, that means 1.2 million or 5.7% of the country's total population is in poverty...Currently the CSD is engaged in a poverty survey covering the period January to December of this year, so as to come up with an annual poverty number.

In the last of such survey done, which was in 2012/13, the country's poverty headcount figure was 6.7%. Therefore, if it's assumed that the poverty headcount for this year is 5.7%, then it's a one percentage point (15%) improvement over the previous survey figure.

If, on the assumption, that, of that 12 million number, 20% are mired in poverty, that will throw up a 2.4 million or a 11% poverty figure, a reflection that poverty in the country is on the rise, thereby reversing the gains the island made 'in its fight against poverty,' in the 10-year period from 2002 to 2012/13, where the poverty headcount fell from a massive 22.7% to 6.7%, a 16 percentage point (70%) gain.

In the context that the Government of Sri Lanka (GoSL) raised the VAT rate by a massive four percentage points (36%) to 15% only this month to appease the IMF, in a bid to enhance revenue and thereby regain the heldback second tranche of US$ 168.1 million of its $ 1.5 billion Extended Fund Facility, such an increase will however, boomerang on the'poverty' battle because VAT, an indirect tax, is no respecter of persons, hitting the poor and the rich alike.

The IMF Board in Washington DC, was expected to make a favourable decision in this regard at their meeting recently.

Another piece of an indirect tax, as proposed in Budget 2017 presented by Finance Minister Ravi Karunanayake in Parliament recently week was the levying of a 0.05% tax for every cash withdrawal above Rs 10,000. This works out to a Rs five tax per such withdrawal, equivalent to a similar charge levied by certain banks on ATM withdrawals, thereby doubling total charges to Rs 10 on such withdrawals.

With 1.4 million or 1.8 million of the country's population working overseas, the bulk of whom are engaged in blue collar jobs, or even worse, as lowly housemaids, their families in Sri Lanka live off the remittances sent by such persons. It's, such indigent beneficiaries who will be hit by this indirect bank tax. Though such a tax may not drive them 'further' into poverty, neither will this tax help them to be alleviated from poverty.

Meanwhile, a recent World Bank (WB) study on 'exports and South Asia' argued that the best way for South Asia to get out of the poverty trap is by enhancing its garment exports to the markets of the West, the main consumer, not only of garments, but virtually of every consumable under the sun.

Its hypothesis was that rising costs in East Asia would wean away Western buyers to the South Asian market. This hypothesis was a fact nearly 40 years ago in the Sri Lankan context. When the island opened up its economy in 1977, to take advantage of Sri Lanka's cheap, but educated labour, garment factory operators in East Asia translocated their businesses here, because of rising costs in East Asia even then.

Subsequently, these shifts also benefited Bangladesh, where that country enjoys duty free access in its exports to the West (USA and EU) as it's identified as an indigent State. The difference between 1977 and now, however, wasthat China was not in the game then. China, according to the WB, accounts for nearly 50% of total garment exports currently.

Therefore, the island may have to create the necessary conditions to entice a second wave of garment investments, similar to that which took place in 1977.