SL defies UN resolution with record exports performance

Tuesday, 13 May 2014 00:01 -     - {{hitsCtrl.values.hits}}

Even with all the issues that Geneva has brought on to the country, the World Bank and ADB have forecasted an economic growth of around 7.5% for 2014 and 2015 whilst Coface had ranked Sri Lanka as a top growth economy globally last month. In this background, Sri Lanka has demonstrated its vibrancy with a brilliant performance in March which was an all-time record in one month where exports have crossed the 1.06 billion dollar mark, showing the world the love of the global consumer for Sri Lankan merchandise. Record exports in Q1 2014 The performance in the first quarter of 2014 was powered by the US and UK driving growth at 20.4% and 10.7% performance over last year, which demonstrates the preference of the American and British consumer for Sri Lankan products. A point to note is that 35% of the export proceeds to Sri Lanka in the first quarter of 2014 come from the US and UK, which happen to be countries that pioneered the resolution against Sri Lanka in the UN. Some research is required to understand why markets like Belgium, Iran, South Korea and Syria did not demonstrate the growth momentum that the other key markets have shown so that corrective action can be initiated from this end. The product categories that have performed exceptionally well are agricultural exports at 22.6%, tea growing by 13.6% and industrial products with a staggering growth of 74.4%, which was essentially driven by textile and garments at 44.8% which is very interesting. This can be attributed to the upturn in the US and UK economy that we have seen in the last quarter that has increased the purchasing power of a consumer. A point that needs to be understood is that research reveals that demand for lingerie related products tend to increase even in economies that have a downturn which Sri Lanka experienced when the US economy was reeling around five years back. Sri Lanka – $ 20 b exports Whilst the performance of the exports of Sri Lanka can be very positive in the first quarter of 2014, a point to be kept in mind is that way back in 1990 Sri Lanka, Bangladesh and Vietnam were all at the $ 2 billion export mark. However, as at now Vietnam has crossed the 100 billion dollar mark whilst Bangladesh is touching 50 billion dollars. Sri Lanka is targeting 11 billion plus by end this year, which demonstrates the challenge that we are up against. The debate right now is whether the FTAs or innovation was the driver. Be that as it may, we have a lot of work to do on both fronts. Next steps Whilst the next wave of growth for the export business can be the FTA with China, there are many other areas within our control that need to be managed in a private-public partnership approach. Let me share a few: 1. Get current FTAs to work Even though quarter one exports are a record performance, the two FTAs are not growing at the rate that Sri Lankan exports wants to grow. The key issue being the non tariff barriers Sri Lankan exporters are up against in India. As at end February exports to India was at -27.7% and Pakistan at -6.3%. Though the India market rebounded in March to end at a positive trajectory, the fact of the matter is that FTA is not driving the Sri Lanka’s agenda on the export front. This must be addressed with a joint trade commission given that a new government will be elected by 16 May 2014. 2. Clear VAT refund issue builds positivity One of the key cries of the private sector is to clear the backlog and reduce the time lag on VAT refunds. Many exporters state that they do not need any handouts but just getting the VAT refunds due to them can ease out the working capital issues. 3. EDRS scheme to support winners Whilst this scheme was discontinued in 2009, there were payments due to exporters prior to discontinuation of the scheme, which have been invested by the exporters. If this request can be addressed, we will be in line with the South Korea export model which is winners were selected and supported by the government rather than a blanket approach of financial schemes. 4. Streamline the TIEPS scheme There were many claims and counter claims on gaps in procedure that is making the TIEPS scheme a hassle than an enabler. Given that technology is developing rapidly there is no option but to move to driving this online. It will bring in a positive vibe given that anyway it will have to be paid on a later date. The question is whether the cash flow is available to make the online strategy feasible. 5. Industrial zone linkage Given that almost 73% of the exporters are SMEs, a point highlighted was that all trade fair participation as well as any technology transfer training is to be informed to the Industrial Zone coordinators in the country. Apparently there are 47 industrial estates in the country that house around 18-20 SMEs. Maybe the business chambers can play the bridging role. 6. Ceylon Tea campaign With the tea sector closing on to the two billion dollar mark, a key strategy requested by the exporter is the launch of the Ceylon Tea campaign. The good news is that with all the bureaucratic issues of a government institution, the Sri Lanka Tea Board partnering Dialog in sponsoring Sri Lanka Cricket is a big win. The Ceylon Tea Moments restaurant that has brought in a new dimension to the tea experience has potential to be franchised globally. But the launch of the Ceylon Tea campaign is a must given that it can have a positive rub-off on Brand Sri Lanka too. The process followed can then be replicated by the rubber, cinnamon and Ceylon sapphire business. 7. Drive ICT – growing at 30% More focus must be given to the ICT sector given that it is growing very strongly. This includes software development, network management, web application, the BPO business, designing and quality checking, data mining, embedded system designing, e-publication, ICT consultancy, KPO, customer care and call centre support, just to name a few. There is a very strong private-public partnership approach of developing this industry, which is very encouraging. I guess we must make this business one billion dollars in the years to come. 8. Export bank Having a dedicated export industry-led bank that can channel development finance targeting the SME sector might be a good idea. This can also drive in strategies like the Export-Oriented Investment Support System (EOISS), which will be on incremental export earnings. This mechanism can also ensure that export trade brings in the money earned into the country. an interesting thought though it may not be very popular. Conclusion In simple terms, we have to make the export business the key agenda of Sri Lanka. If we can make this business around 30% of GDP by 2020, I guess the objective of Sri Lanka crossing the 4,000 dollar per capita income will naturally happen given that 73% of exporters in Sri Lanka are SMEs. Hence this will demand a micro perspective like the above points discussed and a more macro perspective on the area of innovation and trade agreements with nations. (The author is the only Sri Lankan who has been Chairman of the Sri Lanka Export Development Board and then continued to be appointed as the Director of EDB for six years. A marketer by profession, he serves on many private and public sector boards as a Director. The thoughts are strictly his personal views.)