Exports plight

THE sustained decrease in exports topped with the 18.2% dip recoded in January has raised serious concerns over economic sustainability and steps taken by the Government to improve this ailing sector.

Speaking at a recent forum prominent private sector stakeholder DSI Samson Group Managing Director Kulatunga Rajapaksa made several observations on what needs to be done to boost exports, highlighting the need for assistance from the Government.  

According to him, high electricity costs, unproductive labour laws, high finance costs and low Budget allocations for investment in research and development are among the main reasons for flagging exports. A knotty regulatory framework, unstained policies and even complicated EPF and ETF systems are all among the bottlenecks highlighted by him.  

Rajapaksa had lamented the absence of an effective incentive regime pointing out that the Export Development Rewards Scheme (EDRS) is not operative and that the cess collected from the tea, rubber and gem industries, which were supposed to be ploughed back to develop those sectors, were diverted to the Treasury instead. He stressed that despite repeated appeals use these funds to develop markets for key exports no progress has been made.

He had also emphasised that anti-dumping practices are not implemented. The tenuous exchange rate together with high overhead costs means that Sri Lanka’s exports are not competitive in the global market. Ills that Government policies have not adequately addressed for a long period of time.

After growing nearly 100% in 2011, the country’s trade deficit declined by 4.1% in 2012 to US$ 9,313 million as at end December from US$ 9,710 million a year earlier. Imports fell 5.8% to US$ 19,086.5 million while export earnings fell 7.4% to US$ 9,773.5 million. In January 2013, export earnings fell 18.2% year-on-year to US$ 726.7 million. Export earnings at 30.58% of GDP in 2001, declined gradually to 16.44% last year.

Economists at the event also argued that fiscal policy and monetary policy needed to undergo a structural shift, so as to create a macroeconomic environment that would be conducive to both exports and FDIs, as heavy borrowings-led economic growth could not be sustained for long. Upholding the rule of law was also cited as a critical ingredient.

Overall improvement in governance and transparency is also needed for attracting Foreign Direct Investment (FDI), which is another aspect that has not garnered much support from the Government.

After four years of poor performance, with only the tourism industry providing sparks, the Sri Lankan Government recently outlined plans to bring casinos in the country. Understandably this effort has drawn much flak from various parties who fear a moral downfall in Sri Lanka if the policy is implemented. An encouragement to prostitution and drugs as well as further escalation in corruption is also a likely result.

Yet, with falling exports, the Government has little choice but to encourage FDI within a short term via any means necessary. As debt racks up, the Government has to find ways to develop exports as the only viable measure for meeting repayment schedules. Undeterred it is banking on remittances and tourism to fill the gap left by exports, regardless of the costs.

The Government that spends billions building highways, airports and ports has the capacity to provide better assistance to exports but so far it has chosen not to.