RECENT DEVELOPMENTS
AND FUTURE PROSPECTS FOR PRIVATE SECTOR WOOD BASED INDUSTRY IN SRI LANKA
LAKSHMAN WANNIATCHI.BSc
PRESIDENT. WOOD BASED INDUSTRIALISTS’ ASSOCIATION
LAKSHMAN WANNIATCHI.BSc
PRESIDENT. WOOD BASED INDUSTRIALISTS’ ASSOCIATION
PRESENT STATUS
* Formal Sector.Legally registered, tax paying. Enjoy
several benefits. Tax deductions, raise funds, bid for large orders, negotiate
export orders, retain good and competent work force etc.
About 60% of the domestic market . Capacity to expand
•
Informal Sector. Owner/Manager type enterprises.
Low pay regime compels a talented worker to start own business. Thousands of
such enterprises, sometimes not even registered.
•
Product
Types: Furniture, Flooring, Industrial Brushes, Toys, Doors and Windows,
Roofing, Chib Board, MDF etc
•
Types of
Wood: Rubber, Albesia, Pine, Mango, Alistonia, Mahogany, Teak etc. With
diversity of SL’s eco-system, the variety of wood types is very high. Informal
sector very active in Moratuwa and remote areas, use unknown wood types too.
Threats Faced:
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Supply.
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Restrictions needed in order to save the
country’s depleting forest cover which is below 20%. Saving the natural
virginTimber forest is absolutely
necessary. Forest department is committed and seems to do a good job. When we
visit the forest over the years, there is less rogue attack. Severe punishment
to these rogues is best. No harm can happen to the industry even if some
precious tree varieties can be really banned from use.
•
Sources Available: The protected forest is just
not a source to supply timber.
–
Rubber Plantations: In SL Rubber comes only from
plantations, big or small they are reasonably well managed. Environment
friendly, one of the best timber types for value addition. Supply is regular,
one can plan to consume a known quantity within competitive set up. Not a
single rubber tree in the protected forest.
–
Well Managed Forestry Plantations: Forest Dept.
manages relatively large extents of Pine, Micro, Grandis, Teak, Mahogany etc.
It’s the mandate of the Forest Dept to maintain these forests profitably. But we industrialists do not have their
annual uprooting plan in order to plan our manufacturing.
–
Commercial Plantations: Lately several private
companies invested in them. Due to the absence of a regulatory authority, some
of these companies exploited the hard earned money of gullible public investors. Extensive Teak
plantations in South American countries are known to exist.
–
Home Gardens: This is a very viable concept. At
present government red tape causes a big damage to the growth of this sector.
Majority of the people tend to resort to bribery to overcome the unnecessary
red tape. If I plant a teak tree in my garden and want to harvest in 18 years
for around Rs 25,000. what logic is there that I need anybody’s permission to
cut my legally owned tree. If there is no restriction on harvesting the tree
that you yourself planted, it easily encourages people to resort to home
gardening as the climate in SL is extremely favourable and it certainly helps
the environment.
So, if it’s the timber supply for value addition, its really
not a threat.
Labour
Perhaps the most popularly spoken threat. This applies to every sector of
industrial activity. As a developing country, unemployment is expected to be
high. But many of us are claiming labour
shortage.
* Foreign Employment. At least 1.4 million people employable here work abroad.
*. Defence Forces: Active Defence, Home guard defence, VIP defence, Asset
Defence etc. Over half a million able bodied talentd people are in defence
service in a country where the total revenue is below the debt servicing cost.
However, we often see the use of such talent in many productive ventures.
*. Three Wheelers: There are supposed to be 800,000. three wheelers in
operation. Mostly youngsters are driven to this sector. Are they productively
employed and do they make good return on their investment.
In the absence of monetary benefits, are they driven to illicit acts.
*. Lazy People: In our society, we have lazy people who evade responsibility
and just not employable. This number can be at least 200,000.
*. Militants and Combatants: I think this does not exist now unless they are
political stooges. But remember we have to earn their living.
*. Unrecognised and Non prestigious Job Title: This egoistic deficiency in recognising
a fellow member in society dispels such potential aspirants to take up training
in many a vocational training institute.
*. White Collar Syndrome: This is fast fading. If the employer ensures a decent
pay and privacy of a worker, they come well dressed and go home same way.
Skilled people now tend to earn more.
Power & Energy:
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Power cuts are now minimal. Besides unless it’s
a particular type of wood industry like MDF or Chip Board, the energy cost is
within industry norms. It is only necessary to apply good energy saving methods
to dry the wood or run the large machinery. Dust extraction is of high energy
cost, but if the dust can be burnt in the timber drying boilers, that waste is
somewhat curtailed.
Government & Bureaucracy.
The government may introduce very tough laws to protect the
natural forest. Sri Lanka being a tropical country with sufficient rain fall,
general growth of fauna is fast. Compared
to many countries in the world, SL remains quite very green. Therefore
under these favourable conditions, its only prudent to encourage the people to
use their home garden trees and other plantation timbers in the value addition
process. When timber supply improves, corruption disappears and the wood
products become competitive in the market.Its a good practice to get children
to plant a tree on his/her birthday. A mahogany p lant I planted when I was around 7 years was later
sold for a high sum of money.
Taxation Policy.
The tax policy does not seem a threat. Enterprises are
required to pay the respective manufacturing taxes such as VAT which is in fact
deductible from the the VAT that is payable payable on sales. The corporate
taxes are generally manageable at 10% or 28% of the taxable income. What is not
manageable in my opinion is the penalty over the slightest delay in paying the
taxes. Also the government has allowed
VAT exemption on companies which record below one million sales per month.
Technology.
•
This is perhaps the biggest threat in SL on the
growth of the wood industry. A few years ago some Moratuwa carpenters working
at my home were surprised to hear that we do not use hand planers, hand saws,
hammers and chisels in our furniture factory. To say that SL has many skilled
carpenters is not much a saleable idea from industry point of view. Its just
amazing to see how a saw milling company in Japan works. (EXPLAIN THE PROCESS)
Technology applied in whole of SL is still below the global large scale
industry. Highly automated line production ensures uniformity and consistency
in general quality of the product. Biggest impact is in the labour cost per
unit. Then overheads are much related to the labour cost and the final product
value rises steeply.
RECENT DEVELOPMENTS.
•
LAST TWO DECADES
It is interesting to turn back to the last two decades. What
happened, did the industry grow or decline. There were large establishments
such a s Borwood, Parquet (Ceylon), Furnifits, Woodplex, Magpek, Simplex, Gold
Wood etc. But at the same time companies like Damro, Woodman Exports,
Merboc etc commenced large scale production. Merboc is a huge consumer
of Rubber wood and its impact at the early stages was very adverse on the survival of many small scale production units
which consumed rubber wood. This was a wrong decision on the part of the government
to have approved this project because they consume good quality sawable rubber
logs to manufacture yet another raw material called MDF. In the scale of value
addition MDF fetches a price of around USD 200 per cbm whereas in the form of furniture the end
value is around USD 1,500. Then what about Moratuwa- the traditional centre of
wood industry. A few weeks back there was agitation by way of violent protests
in the face of their threatened livelihoods. I personally believe its more the
technology that pushed them behind. Further, invasion of plastic and metal
based furniture caused big damage. From our WBIA we have requested the
government to give priority to use locally manufactured wooden furniture before
deciding to import substitutes. Moratuwa wood industry got also affected by the
rising prices of timber. Due to strict regulatory measures adopted by the state
the prices of logs increase. If there would be least regulation on the use of
non protected, non forest timber species, higher supply will ensure lower
price.
Very Recent Developments.
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It is interesting to notice the many new and
trendy furniture establishments springing up lately. Both Singer and Arpico
sell massive quantities of wooden furniture, mostly procured from domestic
sources. Their growth trajectory was so impressive, on a couple of occasions
resorted to import the furniture requirements when the domestic suppliers
failed to cope up with the demand. Fortunately for us, that did not become a
great success. ( EXPLAIN WHY). Then look at the spread of imported furniture
selling in the local market. Whilst it is the duty of the government to
safeguard the interests of the domestic furniture industry, it is up to us to
face that competition. One way to adapt to the situation is to manufacture
similar items here and introduce to the market at a lower price. Remember,
importer has to go through several steps of taxation at the point of import.
The legally landed cost of a piece of
furniture is nearly double the ex-factory cost of the same. If we can not
challenge such imports how can we ever export our furniture. True there are
reasons why it is difficult to compete with foreign supplies. (TAKING UP LATER)
It is also a very encouraging sign that so many modern baby furniture shops have
sprung up. Only a smaller portion of their wooden furniture is imported and the
balance is domestically procured. Visit the recently started Mothercare shop at
Bambalapitiya. Its just revealing and encouraging. Not really threatening.
FUTURE PROSPECTS
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Let me talk about furniture because I make a
living out of it. I will just select one country to elaborate world market
position.
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INDONESIA
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Furniture Export value in 2012 was USD 1.95
billion. They expect the exports to grow by 10% to USD 2.15 billion in 2013. Their main buyers
are from USA and Europe. We don’t see any negative perceptions in the minds of
these people. They even target to sell furniture in to China assuming that
Chinese economic growth raises the living standards of the people and Indonesia
hopes to send quality furniture to suit them. We can generalise a situation (of
course with a considerable knowledge about the import volumes by developed
countries) where the foreign market potential is just unlimited considering our growth prospects. The domestic market
position is very different. Actually due to the growth of the living standards
of the people, the marketability increased. But whilst traditional carpenter
failed in their strengths, various others filled this gap. Plastic, metal, boards
(furniture made out of laminated chip board, MDF and plywood) etc. At the same
time new industrial units applying at least some higher technology started to
manufacture furniture in large scale. Even small time production outfits using
simpler machinery entered in to the field. In other words, the domestic market
did not shrink, it was just exploited by those who were better prepared.
Best Case Scenario
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Domestic Market: If the government is ready to
encourage domestic manufacturing sector by imposing restrictive conditions on
the import of furniture, the volume of domestic furniture that is required
thereby would run in to several millions of rupees. This is one area Moratuwa
carpenters can fulfill. Foreign exchange saving also will be very helpful to the
state. I hope this University can undertake a study to see the viability of
this proposal and the economic and social impact that can be made.
•
Foreign Exchange: When the country’s exports are
worth USD 10 billion, the imports are 20 billion. A trade gap of USD 10 billion
a year was too high to ignore. Position of negative trade balance was
repetitive regularly during the past too. Therefore it is really necessary for
the government to reverse this import/export formula. The Finance Ministry is
making every effort to achieve this eventuality. So, by increasing our export
volumes, not only we industrialists are benefited but even the country will
benefit.
CONCLUSION
•
Despite great prospects both in the foreign and
domestic markets there are several reasons as to why we can not develop our
industry.
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1. Availability of timber: Position of Rubber
wood is favourable as of now. By now everybody knows the necessity of chemical
impregnation and kiln drying. However, the supply of other timbers is very
irregular mainly because of unnecessary legal restrictions.
–
2. Imported inputs: The average imported input
cost in rubber wood furniture is much higher than the cost of timber. This is
mainly because there are various taxes and duties payable when importing
finishing materials, sanding paper, furniture fittings, upholstery materials
etc. This becomes the main obstacle on the export of rubber wood furniture.
–
3. Technology: When proper technology is not
applied, the labour cost increases and quality consistency fails.
–
4. Labour: This is not properly understood. If
cleaner and sophisticated working conditions can be offered, this industry can
afford to pay higher salaries than in
the garment sector. Skill is not important, one must be reasonably intelligent
and willing to work.