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Tsunami repairs growth stalls as war hits Sri Lanka paint industry.

A BOOMING paint and coatings sector in Sri Lanka that grew by 9% in 2006 was set to slow down as building plans are shelved and refurbishment put on hold with new taxes slapped, interest rates jacked up and an 18% inflation rate registered as the country slides back into civil war.

"One contributory factor for the high growth in the sector last year was the reconstruction and repair necessitated by the December 2004 Asian tsunami," said Gerald De Saram managing director CIC Paints Pvt. Ltd., the market leader in the Sri Lankan coatings industry.

De Saram, whose company accounts for 50% market share, told the Asia Pacific Coatings Journal that after a sluggish first half in 2005, which was caused by the economic dislocation wreaked by the tsunami, the industry began to pick up and blossomed in 2006 as the paint sector was the last in the construction industry to benefit from a repairs boom.

However, marketing manager of Asian Paints (Lanka) Ltd., Channa Hewage observed that growth in the Sri Lanka construction industry had actually been much longer term than this, and began with the commencement of the 2002 peace process that is now in shambles as hostilities between the government and Tamil Tigers resumed in the latter part of 2006. With the country now on a war footing, the defence budget for 2007 rose to SLRupees 139 billion (US$1.27 billion), a 28% increase over last year.

During this fleeting peacetime, apartments had sprung up in the capital Colombo and housing complexes mushroomed in the suburbs, not to mention the office buildings that came up as businesses thrived. But this peace-dividend development has now come to a halt

And the country's paint sector has also been hobbled by union power, its growth slowing down owing to painters sticking to high daily wages (SL rupees 1,000 and over--US$9.18-big bucks in Sri Lanka) fixed in the post-tsunami reconstruction, said De Saram. (Today, the paint costs just a third the price of the job while labour and scaffoldings account for the rest).

With costs of living soaring and inflation high, painting is not high on the list of priorities in a country where decorative paints account for 75% of the market and re-finish paints just 20%. Building plans are being shelved as interest rates are volatile and banks specialising in disbursing housing loans on long-term fixed interest rates are settling for floating rates. Housing loans that were 13% in October 2006 have jumped to 15.5% and the manager of a state-run housing bank--who did not want to be named--does not rule out a 20% interest rate in the none too distant future.

Hotel refurbishments have also been put on hold as tourism generally dips during war times. Also, a 5% excise duty slapped on the sector on November 17 last year has aggravated the situation and the Secretary of the Paint Manufactures Association of Sri Lanka (PMAS), Ruwan Weerasinghe says representations have been made to scrap this duty. "We would take our grievances to the highest levels since we strongly believe that this cess [local tax] will be counterproductive," Weerasinghe, who is also marketing manager for Lankem Paints Limited, told the APCJ.

"It is important to protect the local industry and not burden it further with more taxes," added Weerasinghe, noting that local paint manufacturers cater to more than 95% of the Sri Lankan paints requirement, with products comparable to international brands.

There is also some discontent about the 27% duty on importing paints that is designed to help the local industry. Island paint industry sources pointed out that the country's Board of Investment (BOI) had allowed some foreign projects to enjoy a duty waiver. They maintained that as almost all raw materials for locally manufactured paints are imported and also attract duty, when combined with the devaluation of the SLRupee by 10% over the past six years has been to their disadvantage.

In any case, the country's industry is quite concentrated, with eight key manufacturers members of the PMAS and their total market share is estimated at 90%, while the total industry comprises 20 to 30 manufactures including small companies. And many thousands of Sri Lankans depend on the health of these bigger coatings companies, with between 200,000 to 250,000 Sri Lankans directly or indirectly employed in related industries including coatings-linked products manufacturing, retailers, paint service providers and others; 30,000 to 40,000 are directly employed in the eight key manufacturing companies.

As for moving ahead, despite the difficult political and security situation, the PMAS is planning to improve its sales statistics: "We have set up a subcommittee consisting of all heads of sales in the member companies to monitor market dynamics and report to the main body," said Mr Weerasinghe. The association has also been trying to promote corporate social responsibility, albeit with mixed results. An association committee is planning to formulate a CSR campaign to actively involve all members: "We are also looking at the possibility of educating our members on environmentally friendly manufacturing processes and sustainable growth without adverse effect on environment and towards this end, we will seek foreign expertise," said Weerasinghe.

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Author:Noyahr, Keith
Publication:International News
Date:Feb 1, 2007
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