Features
More on the Russian tea trade – bear traps and an Iron Lady
(Excerpted from the Merrill, J, Fernando autobiography)
Up to the dissolution of the Soviet Socialist Republic, India had maintained a stranglehold on tea imports into Russia, on account of the existence of a barter agreement between the two nations since 1979. Indian tea imports into the USSR, approximately 10 million kilos per year in 1960, had increased to around 128 million kilos by 1990.
With the dissolution of the Soviet Union, the trade agreement was voided and replaced with an annually-renewable purchasing protocol, allowing tea and other Indian products under a ‘Technical Credit’ scheme. The release of the Indian grip on the Russian tea market was our opportunity to step in, as Ceylon Tea, despite being dwarfed in volume by the cheaper and lower quality Indian tea, still enjoyed an excellent reputation for quality amongst the consumers in the CIS bloc.
Liberalization of the Russian trade resulted in an immediate influx of short-term speculators from various countries, exploiting unsuspecting Russian merchants, who were equally ignorant of both tea quality and market prices. Hundreds of intermediaries from Europe and other regions contracted to supply the Russian distributors with tea, at relatively high prices, for average and low quality tea, purchased from the cheapest possible sources.
Many traders in Colombo, too, temporarily cashed in on this situation, going to the extent of getting the Government to relax the minimum quality standard for exports to Russia. Subsequent events proved that this was a serious error.
With our traders packing cheap tea for Russian labels, what followed was tragic in its predictability. As more and more supermarkets came in to existence, they resorted to the Western, multinational type of retailing. Soon the Russian traders set up their own packaging plants in the country, sourcing cheaper tea from other origins, but still retaining the Ceylon origin on the label, despite the diminution of real Ceylon Tea in the pack.
Today, some of those fully Russian-owned brands, developed on the value proposition of Ceylon Tea, with the support of our own exporters, are competing successfully with our exports, not only in Russia but in our traditional markets in other countries as well.
Consumer loyalty is built around brand names and claims of quality. Brand loyalty, the foundation of branding success, is the customer’s creation. Progressive variations in quality, caused by the gradual diminution of quality tea in the pack, are not detected by the average consumer in the everyday cup of tea, if the brand loyalty is strong. This is exactly what has happened in the case of the market in Russia. Our traders’ venality and greed for short-term profits got them entangled in a race to the bottom and lost us a golden opportunity, for the development of genuine Sri Lankan brands.
Ironically, it was a sad replication of this lack of enterprise and foresight that both our trade and the regulatory institutions demonstrated, just a few years previously, in the case of the Middle East market. Our failure to capitalize on that opening then did not serve as a lesson of history to us, just a few years later, in a different market but under very similar circumstances. Those opportunities will never come our way again.
Warning unheeded
In February 1994, at the invitation of Michael de Zoysa, then Chairman of the Ceylon Tea Traders’ Association, I made a presentation on the `Russian Tea Market’ on the occasion of the Centenary Celebrations Congress of the Association, held in Colombo. Within my allotted 20 minutes, I presented to the gathering, the history, background and the prevailing situation of the Russian market, accompanied by a concise Strengths, Weaknesses, Opportunities, and Threats (SWOT) analysis, of and for Ceylon Tea, in relation to that market.
In the presentation, I briefly covered all the issues I have described in greater detail in the preceding paragraphs and elsewhere in this writing as well. I was invited to make the presentation, as it was acknowledged that of all our exporters, I had the widest and the longest experience in the tea trade with Russia. In retrospect, I am inclined to believe that many of my listeners would have agreed with me. However, I have not seen much evidence of the practical implementation of any of the suggestions I made then.
In or around 1995, the Russian Government imposed increased tariff rates on value-added tea imports to the country. That was an indication that investment incentives and other concessions aimed at invigorating the local tea packaging industry were in the pipeline. The State-sponsored protection measures compensated the incompetent Russian tea packaging industry against, the general inefficiency of that operation in its totality, whilst attracting the additional investment required to make the industry more viable. Since then, the development of the Russian local tea packaging industry and the parallel decline of our presence in Russia is a matter of history.
Interesting episodes
My trade with Russia was marked by many interesting episodes, some amusing, and a few fraught with danger the latter occurring during the general lawlessness which engulfed Russian society, arising from the loss of the strong central controls following the break-up of the Soviet Union.
Dilmah had become a household word, with singular demand in tea-drinking circles in Russia. One day, in 1993, the representative of one of our customers, Koncom of Nizhni Novgorod, rang me and said that he wanted to fly to Sri Lanka to purchase a plane-load of tea. I tried to talk him out of it as it seemed a preposterous idea, apart from being a very costly proposition as well.
However, he was insistent, and I found out that he could transport 16 MT of tea in the aircraft model he was planning on bringing in. I then proposed to him a date for arrival, giving myself time to purchase the tea. He agreed and requested me to make visa arrangements for nine passengers.
When I was notified of his arrival at Katunayake, I sent a Dilmah staff coach to collect them from the airport. My driver rang from Katunayake and said that the buyer had arrived with 33 passengers and I had to hastily send a staff bus instead.
I was amazed that they had been able, on their own, to obtain visas for the entire contingent, when my arrangement with immigration was for only nine named crew members. I asked my representative why he had brought so many passengers and his answer was simple: “They paid for the fuel”!
It was a Saturday and I was alone in the office. The group wanted to do some shopping and I sent them to the ‘Night Bazaar’ near the Fort Railway Station, where they negotiated with our traders for local goods, with mostly the vast quantities of Russian vodka they had brought with them, launching what was the first informal barter trade between Russia and Sri Lanka. I also hosted them for lunch and they loved the spicy food. Meanwhile, the plane was loaded with Dilmah tea and they left for Russia immediately thereafter. The next morning The Sunday Observer featured a bold headline: ‘Russians Come to Town’!
Earlier on, sometime in 1984, there was another incident which could have had unpleasant consequences for the company MJF Exports which was then regularly servicing very large Russian orders for bulk tea. During that period, before the dissolution of the Soviet Union, the tea export volumes were determined on a Government-to-Government purchase agreement, and the buying was distributed between six companies. Mine was one of them. The purchases were almost entirely from the High- and Medium-Grown catalogues and at periods of peak Russian buying, the volumes were such that the buying had a significant impact on the auction in its entirety.
One auction day, when we were scheduled to buy extensively from the High-Grown catalogue against an urgent Russian order, I got a call from the auction floor advising me that there was no buyer for MJF Exports and that, as a result, many of the ex-estate lots normally snapped up by me were unsold or being purchased by other traders, cashing in on an unexpected opportunity. I was astounded as my two junior buyers, David Colin-Thome and Hemantha Fernando, should have been active on the floor the former buying the Off-Grades and Hemantha bidding for the quality High-Growns. With some difficulty I managed to get David to the phone a difficult task in the middle of an auction before the mobile phone era and found that Hemantha had failed to turn up at the auction.
I instructed David to immediately switch to the High-Grown catalogue and start buying, pending my arrival at the auction to take over from him. Due to the early warning I managed to avert what would have been a serious embarrassment, resulting from Hemantha’s unpardonable and unexplained absence from the auction. Justifiably, he later felt the full weight of my wrath.
It was an infraction of trade protocol which affected Hemantha’s relationship not only with me but his standing in the trade as well. Our tea trade is a small, insular world, peopled by individuals with long memories.
In another instance several small traders from Russia had flown in to Colombo and, having secured a taxi, requested the driver to take them to the Dilmah office. The driver brought them up to our main gate and had told the security officer on duty that the Russians had actually wanted to go to another company, but that he had persuaded them to come to Dilmah instead. On the strength of this alleged favour to us, he also sought a commission!
This group walked into my office with a large briefcase stuffed full with US Dollars no longer an uncommon occurrence with Russian buyers and I immediately sent them off with one of my accountants to pay the money into the bank. Having finalised the banking, they returned to the office and asked me for the tea. I had to explain to them, much to their irritation, that the delivery of an order would take three to four weeks.
A significant feature of our business with Russia was the receipt of large sums of money into our bank accounts and our inability to immediately trace the source of funding. We would then get a call from a Russian buyer who would advise us that he had paid money into our account and asking why we had not shipped his tea. Then my office would hurriedly set about regularizing the transaction, for which we had developed a standard procedure.
We also received orders from Germany, France, and Italy for shipments of tea destined for Russia. For these orders, which we would meet at our usual FOB prices, the final Russian buyer would pay an additional 25%-30%. To me, these purchases were an affirmation of the strength of the Dilmah brand and the reliability of the service I had provided to Russian buyers over the years.
Russian bear traps
Zara Tolstenkova, of Dora Ltd., Moscow, was another regular buyer of Dilmah tea. She too once visited me with a bag stuffed full of US Dollars and said that she wanted to buy 25 containers of our specialty ‘Fruit Tea’. This variety, which I introduced as a ‘Fun Tea,’ became enormously popular both in Russia and in Western markets. Subsequently, a major competitor introduced 30 different flavours at prices substantially below those of Dilmah.
Zara incurred a huge loss in her business during a period when I was visiting Moscow. We were at lunch together when her warehouse manager called to tell her that it was a good day for them as they had sold a large volume of tea. When the surprised Zara said that she had not received any new orders, her manager advised her that two men had arrived at the warehouse with an order on a company letterhead, and driven away with the tea. Apparently, these two men, through some ploy, had obtained a company letterhead from her office and defrauded her of the tea. Zara was robbed, but in the context of the times in Moscow, she was unable to take any action to recover her losses.
The popularity of Dilmah in Russia caused me much grief as well. In Moscow and in the Ukraine, the Dilmah pack was replicated by fraudsters. The packaging was perfect, but the contents were terrible. When I approached the local Police and asked them to investigate, I was advised that such a course of action could endanger my life! Basically, what they gently told me was, “You could disappear.” As a counter-strategy, I reluctantly placed the image of my face on the packs. Within two months that too was replicated to perfection.
When I discussed this matter with my agent, he suggested that we change the distributor, he too advising me of the physical danger to myself in pursuing legal action against those responsible. However, we managed to counter the threat to an extent by well-orchestrated PR programmes and radio interviews. That was how my face became the focal point of our advertising, thereafter, even in other markets. Though I did not realize it then, my face on the pack later became one of our strongest marketing tools.
Viktor Mikhailchenko, another buyer who owed us a large sum of money which he delayed to settle, met Dilhan, who had agreed to a meeting in his (Dilhan’s) hotel room at the Moscow International, without understanding the implications. Mikhail had not been friendly. However, at my insistence, the discussion was moved to the hotel reception area and Mikhail agreed to produce the bank manager, who would guarantee payment within two weeks. Since he could have brought any individual and identified him as the bank manager, I suggested a meeting at the bank, which Mikhail did not agree to! We had no option but to agree to his verbal assurances of settlement, but surprisingly, he did pay us the outstanding some weeks later. However, despite his repeated requests, we stopped doing business with him thereafter.
When I first started visiting the USSR, in the early 1960s, it was a quiet, orderly society with a rigidly-controlled economy. There were absolutely no public displays of affluence and the only privileged people were Government officials. In the course of my business dealings with tradespeople in Russia, I used to be frequently invited to parties and other social gatherings. Apart from the wonderful array of traditional Russian food, a feature of these parties was the large consumption of vodka, for which my Russian hosts demonstrated an enormous capacity, as well as an inexplicable resistance to its impact.
My maximum would be about three glasses but that was totally insufficient to meet the demands of the innumerable toasts that would be drunk of an evening. I would, in every possible instance, surreptitiously empty my glass into the nearest flowerpot or some other container a move that would not be lost on my friend Rafiq Nishonov!
On my visits to Rafiq’s home in Moscow, an elegantly-appointed official residence, his wife Rano used to prepare a delicious ‘pilaf’ that we call ‘pilau’ with which our plates would be loaded. Whilst in Sri Lanka he had two fierce Doberman dogs, who used to be locked up when visitors were present. The same pair were guarding his household in Moscow as well. Traveling around in Moscow in Rafiq’s beautiful Mercedes 350 was a pleasure, as his official status enabled quick access to any destination, with highly-deferential treatment from security officers.
On one of my visits, with Dilhan also accompanying me, after finishing our work in Moscow we flew to Belarus, where we had direct importers of Dilmah tea. We stayed a couple of nights in a hotel which also had a casino where, in a rare gambling session, we won enough money to pay for our hotel and also purchase an old, traditional Russian tea samovar for around USD 300. I thought that it would be an attractive addition to the Dilmah Tea Archive in Colombo, but, unfortunately, at the Moscow Airport Customs, it was confiscated on the grounds that the samovar was an antique item and therefore not transferable out of the country.
In 2006 Herman Gref, Minister of Economic Affairs and Trade of Russia from 2000 to 2007, made an official visit to Sri Lanka. He first met the then Minister of Trade and Commerce, the late Jeyaraj Fernandopulle, in the latter’s office, in order to sign the WTO protocol. During the meeting he had told the Minister that he would also like to visit the Dilmah factory as he had grown up drinking Dilmah tea in Russia. When Minister Fernandopulle conveyed the request to me, I said I would be quite happy to come over to the Ministry to meet Gref, but the latter insisted on coming over to my office in Peliyagoda on his way to the airport, on the return journey to Russia.
He congratulated me on my trade with Russia and the quality of my products and offered me unconditional assistance, which included land at no cost, to set up a tea packaging operation anywhere in Russia. I had some difficulty in declining this seemingly-magnanimous offer! Gref was subsequently appointed CEO and Chairman of Sberbank, the largest bank in Russia. He still holds these positions.
Eventually, in view of my considerable losses in the trade with Russia, largely owing to illegal intrusions by the Russian mafia, from 1997 onwards I significantly downsized my presence in that market, despite having been a major player with my Dilmah brand since 1988. The devaluation of the ruble also had its impact on the import-export trade, as Russian traders experienced difficulties in obtaining US Dollars from banks. However, in retrospect, despite the difficulties, I feel that moving out of Russia was an error of judgment as when I returned to it, I was not able to recapture the dominance I had been enjoying earlier. In the relatively short period of my limited involvement, many other brands had moved in.
The iron lady becomes a friend
When marketing Dilmah tea in Russia more than a decade later, it was my intention to link up with one of the country’s largest supermarket chains, the X-5 Retail Group, which operated chains of convenience stores, supermarkets, and hypermarkets under different brands right across Russia. The X-5 Group was also Russia’s largest food retailer. In order to re-develop our business in Russia I had, in the meantime, set up a company in Russia called Dilmah Rus, as an associate company of the MJF Group. Megapolis, Russia, was appointed as the Dilmah distributor in the country.
Despite all our preparations, however, our team was facing problems in obtaining listings with the X-5 Group. Though Dilmah tea had previously been widely available in Russia, since we had changed distributors, as was the practice the retailer had de-listed us. Unquestionably, our success in Russia was contingent upon our linking up with the X-5 Group and that was to be determined solely by Olga Ivanovna, the Chief Commercial Buyer of Beverages for the X-5 Group. She was, reputedly, an uncompromising negotiator. Both Dilhan and Roshan Tissaaratchy, my Director, reported to me that Ms. Olga had laid out very rigorous conditions, which included wide-ranging discounts and a stiff listing fee, before she would consider accepting the Dilmah brand.
In 2010 I travelled to Moscow, accompanied by Roshan, for a meeting with this lady. She arrived alone for the discussion and, firstly, insisted that my Russian distributor, who was also present, be asked to leave the meeting as she dealt only with principals. We tried to convince her, without success, that the distributor’s presence was necessary. Fortunately, our distributor resolved the problem by courteously agreeing to withdraw and we commenced our negotiations with her with only me, Roshan, and our Country Manager present.
Olga was extremely business-like, controlled, and gave no indication of her true feelings, but I did get the impression that, inwardly, she was intrigued at having to deal directly with the owner of a brand. My guess was that it was an unusual situation for her, and for me an advantage that I would go on to use as a lever in the negotiation. We laid out our product range for inspection and I described my background in the tea trade in Russia to her. I also explained my business philosophy. I then told her that years before, I had introduced to the Russian market a large-leaf tea pack called OP-COP, which had sold very well and that it continued to be our best seller, along with our Pure Ceylon Tea bags, as I had provided the same product over the years with no change in quality.
However, whilst she was appreciative of our arguments, she still laid out pre-qualification conditions, which included a 50% discount on our price range and a USD 800,000 listing fee. I was startled at the stiffness of her terms, but told her very courteously that the tea I was proposing to deliver was of the finest quality, direct from the plantations and superior to any product that she already had.
I also made it clear to her that I would not be able to provide that package on the bargain-basement terms she was proposing, as that would compel me to compromise on the Dilmah benchmark of product purity and authenticity. I explained to her that those were was not concessions I was prepared to consider, irrespective of the rewards at stake. Having thus stated my position, I thanked her for her time and prepared to withdraw.
She then spoke to the Country Manager in rapid-fire Russian and, at the end of the that exchange, turned to me and asked how quickly we could deliver one million units of Dilmah tea, at my price, for a special promotion. She also agreed to fund part of the promotional expenses. We came away from that meeting with an order for one million X 100 tea bag units. Eventually, we also became great friends with Olga and subsequently, after she had left the X-5 Group, she visited Sri Lanka with her family for a vacation.
To me, the episode in its entirety was the reinforcement of my long-held personal ethos, that if you have a good product and refuse to compromise on quality, at a commensurate price, the buyer-consumer will eventually accept the proposition as a fair bargain. To both Dilhan and Roshan I think it was part of an interesting learning curve, the kind that is not normally reflected in marketing textbooks. Persistence, reinforced by integrity, rarely fails to produce a decent result.
However, the developments and the progression of events described above, were indisputable proof of a prediction and a statement I had made repeatedly, firstly to the Ceylon Tea Propaganda Board and later to the Sri Lanka Tea Board in any market, one must use the opportune moment to enter and establish the dominance of your product or brand. If you fail to do so, another trader-entrepreneur will step in and occupy that space. In large, lucrative markets, that kind of opportunity may come only once, and a belated re-entry carries a massive cost that only a few can afford.
by Dr Gotabhya Ranasinghe
Senior Consultant Cardiologist
National Hospital Sri Lanka
When we sought a meeting with Hon Dr. Ramesh Pathirana, Minister of Health, he graciously cleared his busy schedule to accommodate us. Renowned for his attentive listening and deep understanding, Minister Pathirana is dedicated to advancing the health sector. His openness and transparency exemplify the qualities of an exemplary politician and minister.
Dr. Palitha Mahipala, the current Health Secretary, demonstrates both commendable enthusiasm and unwavering support. This combination of attributes makes him a highly compatible colleague for the esteemed Minister of Health.
Our discussion centered on a project that has been in the works for the past 30 years, one that no other minister had managed to advance.
Minister Pathirana, however, recognized the project’s significance and its potential to revolutionize care for heart patients.
The project involves the construction of a state-of-the-art facility at the premises of the National Hospital Colombo. The project’s location within the premises of the National Hospital underscores its importance and relevance to the healthcare infrastructure of the nation.
This facility will include a cardiology building and a tertiary care center, equipped with the latest technology to handle and treat all types of heart-related conditions and surgeries.
Securing funding was a major milestone for this initiative. Minister Pathirana successfully obtained approval for a $40 billion loan from the Asian Development Bank. With the funding in place, the foundation stone is scheduled to be laid in September this year, and construction will begin in January 2025.
This project guarantees a consistent and uninterrupted supply of stents and related medications for heart patients. As a result, patients will have timely access to essential medical supplies during their treatment and recovery. By securing these critical resources, the project aims to enhance patient outcomes, minimize treatment delays, and maintain the highest standards of cardiac care.
Upon its fruition, this monumental building will serve as a beacon of hope and healing, symbolizing the unwavering dedication to improving patient outcomes and fostering a healthier society.We anticipate a future marked by significant progress and positive outcomes in Sri Lanka’s cardiovascular treatment landscape within the foreseeable timeframe.
by Fr. Emmanuel Fernando, OMI
Jesuit Fr. Aloysius Pieris (affectionately called Fr. Aloy) celebrated his 90th birthday on April 9, 2024 and I, as the editor of our Oblate Journal, THE MISSIONARY OBLATE had gone to press by that time. Immediately I decided to publish an article, appreciating the untiring selfless services he continues to offer for inter-Faith dialogue, the renewal of the Catholic Church, his concern for the poor and the suffering Sri Lankan masses and to me, the present writer.
It was in 1988, when I was appointed Director of the Oblate Scholastics at Ampitiya by the then Oblate Provincial Fr. Anselm Silva, that I came to know Fr. Aloy more closely. Knowing well his expertise in matters spiritual, theological, Indological and pastoral, and with the collaborative spirit of my companion-formators, our Oblate Scholastics were sent to Tulana, the Research and Encounter Centre, Kelaniya, of which he is the Founder-Director, for ‘exposure-programmes’ on matters spiritual, biblical, theological and pastoral. Some of these dimensions according to my view and that of my companion-formators, were not available at the National Seminary, Ampitiya.
Ever since that time, our Oblate formators/ accompaniers at the Oblate Scholasticate, Ampitiya , have continued to send our Oblate Scholastics to Tulana Centre for deepening their insights and convictions regarding matters needed to serve the people in today’s context. Fr. Aloy also had tried very enthusiastically with the Oblate team headed by Frs. Oswald Firth and Clement Waidyasekara to begin a Theologate, directed by the Religious Congregations in Sri Lanka, for the contextual formation/ accompaniment of their members. It should very well be a desired goal of the Leaders / Provincials of the Religious Congregations.
Besides being a formator/accompanier at the Oblate Scholasticate, I was entrusted also with the task of editing and publishing our Oblate journal, ‘The Missionary Oblate’. To maintain the quality of the journal I continue to depend on Fr. Aloy for his thought-provoking and stimulating articles on Biblical Spirituality, Biblical Theology and Ecclesiology. I am very grateful to him for his generous assistance. Of late, his writings on renewal of the Church, initiated by Pope St. John XX111 and continued by Pope Francis through the Synodal path, published in our Oblate journal, enable our readers to focus their attention also on the needed renewal in the Catholic Church in Sri Lanka. Fr. Aloy appreciated very much the Synodal path adopted by the Jesuit Pope Francis for the renewal of the Church, rooted very much on prayerful discernment. In my Religious and presbyteral life, Fr.Aloy continues to be my spiritual animator / guide and ongoing formator / acccompanier.
Fr. Aloysius Pieris, BA Hons (Lond), LPh (SHC, India), STL (PFT, Naples), PhD (SLU/VC), ThD (Tilburg), D.Ltt (KU), has been one of the eminent Asian theologians well recognized internationally and one who has lectured and held visiting chairs in many universities both in the West and in the East. Many members of Religious Congregations from Asian countries have benefited from his lectures and guidance in the East Asian Pastoral Institute (EAPI) in Manila, Philippines. He had been a Theologian consulted by the Federation of Asian Bishops’ Conferences for many years. During his professorship at the Gregorian University in Rome, he was called to be a member of a special group of advisers on other religions consulted by Pope Paul VI.
Fr. Aloy is the author of more than 30 books and well over 500 Research Papers. Some of his books and articles have been translated and published in several countries. Among those books, one can find the following: 1) The Genesis of an Asian Theology of Liberation (An Autobiographical Excursus on the Art of Theologising in Asia, 2) An Asian Theology of Liberation, 3) Providential Timeliness of Vatican 11 (a long-overdue halt to a scandalous millennium, 4) Give Vatican 11 a chance, 5) Leadership in the Church, 6) Relishing our faith in working for justice (Themes for study and discussion), 7) A Message meant mainly, not exclusively for Jesuits (Background information necessary for helping Francis renew the Church), 8) Lent in Lanka (Reflections and Resolutions, 9) Love meets wisdom (A Christian Experience of Buddhism, 10) Fire and Water 11) God’s Reign for God’s poor, 12) Our Unhiddden Agenda (How we Jesuits work, pray and form our men). He is also the Editor of two journals, Vagdevi, Journal of Religious Reflection and Dialogue, New Series.
Fr. Aloy has a BA in Pali and Sanskrit from the University of London and a Ph.D in Buddhist Philosophy from the University of Sri Lankan, Vidyodaya Campus. On Nov. 23, 2019, he was awarded the prestigious honorary Doctorate of Literature (D.Litt) by the Chancellor of the University of Kelaniya, the Most Venerable Welamitiyawe Dharmakirthi Sri Kusala Dhamma Thera.
Fr. Aloy continues to be a promoter of Gospel values and virtues. Justice as a constitutive dimension of love and social concern for the downtrodden masses are very much noted in his life and work. He had very much appreciated the commitment of the late Fr. Joseph (Joe) Fernando, the National Director of the Social and Economic Centre (SEDEC) for the poor.
In Sri Lanka, a few religious Congregations – the Good Shepherd Sisters, the Christian Brothers, the Marist Brothers and the Oblates – have invited him to animate their members especially during their Provincial Congresses, Chapters and International Conferences. The mainline Christian Churches also have sought his advice and followed his seminars. I, for one, regret very much, that the Sri Lankan authorities of the Catholic Church –today’s Hierarchy—- have not sought Fr.
Aloy’s expertise for the renewal of the Catholic Church in Sri Lanka and thus have not benefited from the immense store of wisdom and insight that he can offer to our local Church while the Sri Lankan bishops who governed the Catholic church in the immediate aftermath of the Second Vatican Council (Edmund Fernando OMI, Anthony de Saram, Leo Nanayakkara OSB, Frank Marcus Fernando, Paul Perera,) visited him and consulted him on many matters. Among the Tamil Bishops, Bishop Rayappu Joseph was keeping close contact with him and Bishop J. Deogupillai hosted him and his team visiting him after the horrible Black July massacre of Tamils.
Sri Lanka-Singapore Free Trade Agreement
By Gomi Senadhira
senadhiragomi@gmail.com
“You might tell fairy tales, but the progress of a country cannot be achieved through such narratives. A country cannot be developed by making false promises. The country moved backward because of the electoral promises made by political parties throughout time. We have witnessed that the ultimate result of this is the country becoming bankrupt. Unfortunately, many segments of the population have not come to realize this yet.” – President Ranil Wickremesinghe, 2024 Budget speech
Any Sri Lankan would agree with the above words of President Wickremesinghe on the false promises our politicians and officials make and the fairy tales they narrate which bankrupted this country. So, to understand this, let’s look at one such fairy tale with lots of false promises; Ranil Wickremesinghe’s greatest achievement in the area of international trade and investment promotion during the Yahapalana period, Sri Lanka-Singapore Free Trade Agreement (SLSFTA).
It is appropriate and timely to do it now as Finance Minister Wickremesinghe has just presented to parliament a bill on the National Policy on Economic Transformation which includes the establishment of an Office for International Trade and the Sri Lanka Institute of Economics and International Trade.
Was SLSFTA a “Cleverly negotiated Free Trade Agreement” as stated by the (former) Minister of Development Strategies and International Trade Malik Samarawickrama during the Parliamentary Debate on the SLSFTA in July 2018, or a colossal blunder covered up with lies, false promises, and fairy tales? After SLSFTA was signed there were a number of fairy tales published on this agreement by the Ministry of Development Strategies and International, Institute of Policy Studies, and others.
However, for this article, I would like to limit my comments to the speech by Minister Samarawickrama during the Parliamentary Debate, and the two most important areas in the agreement which were covered up with lies, fairy tales, and false promises, namely: revenue loss for Sri Lanka and Investment from Singapore. On the other important area, “Waste products dumping” I do not want to comment here as I have written extensively on the issue.
1. The revenue loss
During the Parliamentary Debate in July 2018, Minister Samarawickrama stated “…. let me reiterate that this FTA with Singapore has been very cleverly negotiated by us…. The liberalisation programme under this FTA has been carefully designed to have the least impact on domestic industry and revenue collection. We have included all revenue sensitive items in the negative list of items which will not be subject to removal of tariff. Therefore, 97.8% revenue from Customs duty is protected. Our tariff liberalisation will take place over a period of 12-15 years! In fact, the revenue earned through tariffs on goods imported from Singapore last year was Rs. 35 billion.
The revenue loss for over the next 15 years due to the FTA is only Rs. 733 million– which when annualised, on average, is just Rs. 51 million. That is just 0.14% per year! So anyone who claims the Singapore FTA causes revenue loss to the Government cannot do basic arithmetic! Mr. Speaker, in conclusion, I call on my fellow members of this House – don’t mislead the public with baseless criticism that is not grounded in facts. Don’t look at petty politics and use these issues for your own political survival.”
I was surprised to read the minister’s speech because an article published in January 2018 in “The Straits Times“, based on information released by the Singaporean Negotiators stated, “…. With the FTA, tariff savings for Singapore exports are estimated to hit $10 million annually“.
As the annual tariff savings (that is the revenue loss for Sri Lanka) calculated by the Singaporean Negotiators, Singaporean $ 10 million (Sri Lankan rupees 1,200 million in 2018) was way above the rupees’ 733 million revenue loss for 15 years estimated by the Sri Lankan negotiators, it was clear to any observer that one of the parties to the agreement had not done the basic arithmetic!
Six years later, according to a report published by “The Morning” newspaper, speaking at the Committee on Public Finance (COPF) on 7th May 2024, Mr Samarawickrama’s chief trade negotiator K.J. Weerasinghehad had admitted “…. that forecasted revenue loss for the Government of Sri Lanka through the Singapore FTA is Rs. 450 million in 2023 and Rs. 1.3 billion in 2024.”
If these numbers are correct, as tariff liberalisation under the SLSFTA has just started, we will pass Rs 2 billion very soon. Then, the question is how Sri Lanka’s trade negotiators made such a colossal blunder. Didn’t they do their basic arithmetic? If they didn’t know how to do basic arithmetic they should have at least done their basic readings. For example, the headline of the article published in The Straits Times in January 2018 was “Singapore, Sri Lanka sign FTA, annual savings of $10m expected”.
Anyway, as Sri Lanka’s chief negotiator reiterated at the COPF meeting that “…. since 99% of the tariffs in Singapore have zero rates of duty, Sri Lanka has agreed on 80% tariff liberalisation over a period of 15 years while expecting Singapore investments to address the imbalance in trade,” let’s turn towards investment.
Investment from Singapore
In July 2018, speaking during the Parliamentary Debate on the FTA this is what Minister Malik Samarawickrama stated on investment from Singapore, “Already, thanks to this FTA, in just the past two-and-a-half months since the agreement came into effect we have received a proposal from Singapore for investment amounting to $ 14.8 billion in an oil refinery for export of petroleum products. In addition, we have proposals for a steel manufacturing plant for exports ($ 1 billion investment), flour milling plant ($ 50 million), sugar refinery ($ 200 million). This adds up to more than $ 16.05 billion in the pipeline on these projects alone.
And all of these projects will create thousands of more jobs for our people. In principle approval has already been granted by the BOI and the investors are awaiting the release of land the environmental approvals to commence the project.
I request the Opposition and those with vested interests to change their narrow-minded thinking and join us to develop our country. We must always look at what is best for the whole community, not just the few who may oppose. We owe it to our people to courageously take decisions that will change their lives for the better.”
According to the media report I quoted earlier, speaking at the Committee on Public Finance (COPF) Chief Negotiator Weerasinghe has admitted that Sri Lanka was not happy with overall Singapore investments that have come in the past few years in return for the trade liberalisation under the Singapore-Sri Lanka Free Trade Agreement. He has added that between 2021 and 2023 the total investment from Singapore had been around $162 million!
What happened to those projects worth $16 billion negotiated, thanks to the SLSFTA, in just the two-and-a-half months after the agreement came into effect and approved by the BOI? I do not know about the steel manufacturing plant for exports ($ 1 billion investment), flour milling plant ($ 50 million) and sugar refinery ($ 200 million).
However, story of the multibillion-dollar investment in the Petroleum Refinery unfolded in a manner that would qualify it as the best fairy tale with false promises presented by our politicians and the officials, prior to 2019 elections.
Though many Sri Lankans got to know, through the media which repeatedly highlighted a plethora of issues surrounding the project and the questionable credentials of the Singaporean investor, the construction work on the Mirrijiwela Oil Refinery along with the cement factory began on the24th of March 2019 with a bang and Minister Ranil Wickremesinghe and his ministers along with the foreign and local dignitaries laid the foundation stones.
That was few months before the 2019 Presidential elections. Inaugurating the construction work Prime Minister Ranil Wickremesinghe said the projects will create thousands of job opportunities in the area and surrounding districts.
The oil refinery, which was to be built over 200 acres of land, with the capacity to refine 200,000 barrels of crude oil per day, was to generate US$7 billion of exports and create 1,500 direct and 3,000 indirect jobs. The construction of the refinery was to be completed in 44 months. Four years later, in August 2023 the Cabinet of Ministers approved the proposal presented by President Ranil Wickremesinghe to cancel the agreement with the investors of the refinery as the project has not been implemented! Can they explain to the country how much money was wasted to produce that fairy tale?
It is obvious that the President, ministers, and officials had made huge blunders and had deliberately misled the public and the parliament on the revenue loss and potential investment from SLSFTA with fairy tales and false promises.
As the president himself said, a country cannot be developed by making false promises or with fairy tales and these false promises and fairy tales had bankrupted the country. “Unfortunately, many segments of the population have not come to realize this yet”.
(The writer, a specialist and an activist on trade and development issues . )
US sports envoys to Lanka to champion youth development
Rahuman questions sudden cancellation of leave of CEB employees
