Exports excel

Confirming resilience and an   improved competitive mindset amidst global and local difficulties, Sri Lanka’s exports sector has concluded its second year of over 20% growth.

Export Development Board (EDB) Chairman and Chief Executive Janaka Ratnayake yesterday told the Daily FT that as per provisional data, exports in 2011 had grown by 22.1% to $ 10.46 billion on the back of 21% improvement achieved in 2010. When the estimated $ 400 million from ICT exports are included, the 2011 total figure is likely to reach $ 11 billion.

According to the EDB Chief, the  global economy has changed dramatically since 2008 and developing countries have been adversely affected by the crisis. Signs of the global economic crisis were visible from early 2008 with a gradual decline in demand in developed countries for imports from developing countries.

After dipping in 2009, Sri Lanka’s exports have shown considerable resilience. In 2010, it grew by 21% to $ 8.5 billion, beating the previous best of $ 8.11 b achieved in 2008.

 “The performance in 2011 was exceptional as it exceeded our targets as well as projections,” Ratnayake said. “Given the recession in West as well as other challenges in the global marketplace, the 2011 performance of Sri Lankan exports can be described as outstanding,” he added.

Mid last year EDB had projected exports in 2011 to be at $ 9.1 billion whilst the Government as per 2010 Central Bank Annual Report had put a figure of $ 9.6 billion. On both counts the eventual performance in 2011 had been better.

Ratnayake attributed the outstanding performance to policies enunciated in the "Mahinda Chintana 2010 - The Vision Ahead" as well as follow up stimuli from the 2010 Budget. He said that resilient exports also played their part in helping the country to achieve 8% economic growth for the second consecutive year.

Except for July and October in 2011, exports had registered double digit growth, EDB Chief said adding that the positive performance achieved by the export sector was reflected in all the three major categories of i.e. industrial, agriculture and fisheries.

The largest contribution to the growth in earnings came from industrial exports, followed by the agricultural exports and fisheries exports.

The EDB provisional data is the latest as Central Bank last week only released end-November performance which showed a growth of 22.2% to $ 9.58 billion. The 2011 growth is also significant as it completed a full year minus the EU GSP+ benefits, which were suspended in August 2010. Despite recession in the West, apparel exports have remained robust too, recording a 25% growth to $ 3.8 billion by end November.

With regard to prospects for 2012, EDB Chief expects the growth momentum to continue despite a more challenging environment. “We grew despite the turmoil in EU and USA which are our key export markets. Earnings from our exports to USA and EU have impressively increased in 2011,” he added.

He said that a healthy investment climate in the local front presents an encouraging outlook for the sector.

Ratnayake further added that the EDB as the apex body responsible for the development of exports has adopted a strategic approach in promoting exports during the next five year period.  

Diversification of export products and markets, value addition, brand promotion, productivity improvement, product adaptation, market communication and market development are the main components of the Strategic Plan.  

“This strategy together with the right policies adopted by the Government will gear the export sector to achieve the export target of $ 15 billion b set for the year 2015 under the Mahinda Chinthana,” Ratnayake added. The Central Bank in its roadmap for 2012 and beyond put a figure of $ 12.5 billion for this year. Some view this as ambitious given the intensity of European crisis and improved pricing by competitors via much sharper devaluation of their currencies than Sri Lanka.

Whilst the $ 11 billion achievement in 2011 is likely to soften the stance of critics but the target of $ 12.5 billion in 2012 will require only a near 14% growth over last year. As per the medium term macroeconomic framework contained in 2010 Annual Report of the Central Bank, the project for exports in 2012 was $ 10.86 billion, which once actual 2011 data is available would confirm whether it has already been surpassed or not. The framework has projected a $ 12.3 billion export figure only in 2013 and $ 14 billion by 2014.

In the 2012 Budget, the Government effected a 3% devaluation of the rupee as a direct boost to exports apart from several proposals/incentives to enhance performance of the apparel, tea, rubber, minor export crops, fisheries, livestock, craft, IT among others.

The Budget 2011 presented in November 2010 too had several stimuli for the export sector and some of them had made a beneficial impact in boosting 2011 performance.

According to the Central Bank 2010 Annual Report, the Government supported the sector’s efforts to move towards the export of value added and finished goods from the traditional primary products.

A Cess was imposed on all exports of raw and semi-processed items while exports of finished goods were exempted. Further, duties and taxes on machinery, equipment and raw materials were reduced to enable enterprises to have more affordable access to world class technologies and thereby increase domestic production. Income tax was reduced from 15% to 10% for industries with domestic value addition in excess of 65% and Sri Lankan brand names with patent rights reserved in Sri Lanka.

Several tariff concessions were granted to promote export industries such as gem and jewellery, apparel, leather and footwear. Further, in a move to encourage exports in general, income tax applicable on all export companies was reduced from 15% to 12%.

Trade promotion activities were targeted at improving both, demand and supply side issues that were hindering the rapid growth of trade. Integrated supply chain development programmes which focus on improving stakeholder coordination and all stages of the export process were initiated by the EDB for key agricultural and industrial exports and professional services. Further, the EDB continued the Simplified Value Added Tax scheme (SVAT) which helps reduce cash flow difficulties of non-apparel sector exporters, generating an estimated benefit of Rs. 18 billion to 740 registered direct and indirect exporters. The National Gem and Jewellery Authority (NGJA) embarked on a three pronged strategy in 2010, comprising of supply and demand development and capacity building, to achieve the export target of US dollars 1 billion by year 2016 for gem and jewellery. This is supported by the Budget 2011 proposal to increase the foreign exchange allowances for imports of raw gem stones from US dollars 10,000 to US dollars 50,000 per person with effect from November 2010.