“Ceat-Kelani JV Has Had Exceptional Success”
(India/Rubber Asia) When the Indo-Lanka Free Trade Agreement (FTA) was signed in December 1998, informed opinion may have considered it experimental. In Sri Lanka, the questions raised were: “Will Indian goods flood the Sri Lanka market?” and “Does Sri Lanka have the resources to penetrate the vast Indian market?”
The FTA became operational in March 2000, and trade across the Palk Strait has expanded significantly since then. When the Sri Lankan and Indian Prime Ministers met in June 2002, they decided to widen the scope of cooperation under the FTA which dealt with trade and tariffs, to include services, technology and investment, thus moving the two economies towards greater integration and propelling them forward to a Comprehensive Econonomic Partnership Agreement (CEPA)
In this context, Rubber Asia recently interviewed Oscar Braganza, CEO of the Ceat- Kelani joint venture (JV) operating in Sri Lanka. The JV, incidentally, has done well under the FTA especially when in March 2000 export of tyres from Sri Lanka to India became duty-free. The JV now has the triple advantage of duty-free exports to India under the FTA, the distribution and marketing network of Ceat and, of course, the Ceat brand name. As a result, the JV’s exports to India have ballooned from 100 containers in 2003 to over 1,500 in 2004. With tyres being made in Sri Lanka, the JV also has the advantage of Sri Lanka’s proximity to the south India, which is a market of around 400 million people.
Q: After the PMs agreed that the FTA be elevated to the status of a CEPA, we’ve had a special task force addressing this issue and their report has been submitted to the respective governments. Now, how does the proposed CEPA benefit you? Are you thinking of greater investment in Sri Lanka, to maximise your advantages?
A: We’ve the status of a JV between the Indian tyre giant, Ceat, and Sri Lankan interests. As a JV, we have benefited from a free flow of technology from our parent (Ceat) to our Sri Lankan operation. So, as far as technology transfers are concerned, we’ve had the best of both worlds under the FTA. Turning now to capital investment, as we are a JV there has been no restriction on capital investment and, again, that is not an issue. The CEPA may bring about a greater flow of people, particularly on the technology, resources and services sides between our two organisations. Such movements will definitely help in the acceleration of technology transfers.
Q: You export to Dubai, Nepal, Egypt, the Philippines, Singapore, Uganda and Bangladesh and, of course, India. None of these countries benefits from the FTA as do exports to India. It is heartening to note that you are exporting to these countries from your Sri Lankan plant in competition with global tyre giants. How do you view this level of market penetration?
A: Yes, we export to these countries and we meet international competition on a level laying field and meeting the market challenges, both in terms of quality and price. In tyres, we are in a high-volume game. Even a 1 per cent rise in market share is a very large gain. The global market continues to grow and we’re experiencing a strong demand not just for private car tyres, but also for tyres of motorcycles, tricycles and, of course, new vehicle OEMs where we’ve achieved exceptional success.
Q: Your tyres can go in dutyfree to India but none of your Indian competitors can send their tyres duty-free to Sri Lanka to compete with you here. So this is a unique advantage, isn’t it?
A: Yes. That is the way the FTA has been structured. Tyres have been placed on the negative list by Sri Lanka, whereas India hasn’t. The situation will be corrected in 2008.
Q: Now, with all the advantages you’ve, are you thinking of a really large investment in Sri Lanka?
A: We’ve our hands full with projects already started. For the next three years or so, we’ll focus on building our competitive strength. Our aim is to raise production from today’s level of 1,200 tonnes to 2,000 tonnes a
month. That will, in the current context, give us a reasonable footing for exports to the whole of the South-east region. “Ceat-Kelani JV has had exceptional success; CEPA could bring more of it”
Q: Are you thinking of raising new capital funds?
A: I do not rule out that possibility but currently it is premature to talk about it.
Q: What does the future hold for the Sri Lankan rubber industry?
A: I think Sri Lanka has a strong rubber-based industry which is growing fast and very soon its rubber industry will consume all the natural rubber produced in the country. When that happens, Lankan plantations will become less dependent on the vagaries of international rubber markets, as her own industry will be able to absorb the totality of her production.