Struggling exporters fire warning

By Nisthar Cassim

Top representatives of leading export sectors of the country on Tuesday fired a serious warning that their success and survival was under threat owing to fast-eroding competitiveness on account of five major blows.

At a special forum for journalists organised by the 450-member-strong National Chamber of Exporters (NCE),

representatives engaged in export sectors of porcelain ware, rubber, coconut, ship repair, building and boat manufacturing, apparel, seafood, confectionary, fruits and vegetables listed a host of issues which have increasingly eroded their competitiveness.

The biggest hit all these sectors highlighted at the forum of NCE, which styles itself as the ‘Voice of Exports,’ was the new electricity tariff and high energy cost. The others were the loss of EU GSP+, the suspension of US GSP, appreciation of the rupee and lack of or high cost of raw materials or inputs as in the case of coconut products. Lower interest rates and rationalisation of holidays were some of the other recommendations.

“We are not putting pressure on the Government but what we are asking is support by way of relief on these issues for two years if the export sector is to realise the US$ 20 billion target by 2010,” NCE President Sarath De Silva said.

In 2010 exports earnings are estimated to have increased by 13% to $ 8.02 billion. However, last year’s performance was after exports dipped in 2009 to $ 7.1 billion from $ 8.1 billion in 2008.

Late last year the Central Bank said exports were projected to grow by 10.5% in 2011 with higher levels of value addition, further diversification of export products and markets, higher economic activities expected from the Northern and Eastern Provinces and the gradual recovery of the world economy.

In addition, deeper regional economic integration through enhanced trade with the regional countries is expected to help enhance export performance.

However, the NCE President and members expressed doubt about achieving the forecast growth in the short and medium term.

In response to Treasury and Central Bank suggestions to exporters to improve productivity, the NCE members said: “We as the private sector certainly want to improve our efficiency and productivity levels. We are at it daily, but our progress as well as benefits of relatively lower interest rates, get dented by continuous external factors-driven higher costs,” they pointed out.

The new electricity tariff came under severe attack by the exporters and judging by their admission, it is the biggest blow to improving competitiveness. It was emphasised that the Government needs to prioritise safeguarding of export sector competitiveness before trying to make CEB profitable.

Contributing nearly 2% of the country’s total exports, the Colombo Dockyard Plc Managing Director Mangala Yapa, who is a Vice President of NCE, said that the new tariff would increase its electricity component to 22% out of its operational cost, from 17% last year.

To prove a point that the private sector has been pursing operational efficiency, Yapa said that between 2006 to date, electricity charges have increased by 117%, whereas the number of units used by Dockyard had increased by only 16% during this period, whilst the company’s turnover has doubled as well.

“The private sector remains focused on reducing its cost base in order to remain competitive as well as enhance stakeholder returns. However, external factors-driven cost pressure is greater,” he added.

It was pointed out that forcing the industrial sector to shut down during domestic user peak hours isn’t advisable. The perishable foods export sector also said that it would be detrimental to shut down cold rooms.

NCE Vice President and Royal Fernwood Porcelain Chairman and Managing Director Jagath Peiris said the ceramic export sector has been hit by five factors. One was the loss of EU GSP+ which has resulted in Lankan products slapped with duty ranging from 8% to 14%. “Our buyers have refused to pass on the cost to customers so we have to take the hit,” he added. The recent suspension of US GSP scheme is a further blow. These two blows are midst an appreciating rupee.

He said that the ceramic sector had seen sharp rise in LPG cost whilst Dankotuwa Porcelain Chairman Sunil Wijesinha added that when global prices are down the Government had twice resorted to keep it high by slapping special levies.

Peiris also said that for the industrial sector electricity tariff has not only been increased but the KVA charge has been unfairly increased from Rs. 675 to Rs. 850 per KVA whereas domestic and other users are not being charged. “We have improved power factor to the best as we can but these hikes are highly damaging,” he added.

At present the porcelain ware sector is negotiating export orders for delivery in summer 2011 and buyers were refusing to accept higher pricing.

Dankotuwa Porcelain Chief Wijesinha Sri Lanka was no longer competing on price as other suppliers of similar quality have become more competitive.  “Our buyers are willing to pay a premium for Sri Lankan products but they warned that at revised prices that we are forced to quote on account of new cost increases Sri Lanka is fast becoming expensive,” he claimed,.

“We are right now at the tipping point and the exports sector is getting hammered from all sides,” Wijesinha said in references to factors affecting competitiveness.

Ceylon Biscuits General Manager Exports J.F. Rubera, DSI Group Samson Compounds Assistant Accountant Saman Mudalige  and boat exporter Penthouse Group’s Neil Marine Director Administration Kapila Sumanapala too new electricity tariffs have made their operations and exports uncompetitive. They also warned fresh investments in to their business are at stake in this environment. NCE’s Apparel Sector Head and Ramya Apparels Chairperson and Managing Director Ramya Weerakoon also reiterated these issues and added the industry was facing lack of skilled human resources, which must be addressed urgently.

Global Sea Foods’s Managing Director Prabhash Subasinghe emphasized that exporters must be supported and industrialists protected if post-war Sri Lanka is to truly progress. “With the 30 year war over Sri Lanka has got the golden opportunity to get export sector right,” he added. According to him despite national exports improving in 2010 sea food exports suffered a 30% decline.  “Despite being blessed by sea all round the country our sea food exports is a paltry $ 150 million whereas Vietnam exports are worth $ 4.4 billion, Indonesia $ 3.5 billion and Singapore $ 800 million,” he revealed.

Subasinghe also said that loss of EU GSP+ has slapped a 18% duty on sea food exports from Sri Lanka and warned that sea food is highly perishable and energy intensive industry hence new power tariff was a fresh blow.

Beligala Coconut Products’s Managing Director Saman Gunasekera said that coconut products sector which has been impacted by scarcity and high prices of key raw material coconut will be severely handicapped by the hike in electricity tariffs. He urged the Government to reduce the current high 40% duty on palm oil imports so that there will be less demand for coconut oil thereby releasing a part of coconut supply for export sector.

“The country’s ideal coconut requirement is 3.7 billion nuts but we have had shortages since the year 2000,” he said. Local consumption is about 1.9 billion nuts whilst a further 1.3 billion nuts are used for producing coconut oil. The value added export sector requirement is around 600 million nuts.

Noting that electricity accounts for 20% of the production cost, he said that though industrial power tariff hike was 8% with taxes the actual increase amounts to near 20%.

NCE President Sarath De Silva said that about 15 years ago he forewarned about Sri Lanka likely to face a food crisis and urged the then Government to release land to private sector to start commercial cultivation of fruits and vegetables. “Several Governments have been in power in between but there hasn’t been much progress on this issue,” he added.

Founder President of NCE Patrick Amarasinghe urged the Government to reactivate the Council of Ministers for Export under the EDB Act so that proper dialogue with private sector can be achieved along with speedier resolution of issues facing exporters.

He also urged political parties to reach a consensus on rationalizing holidays and making meetings productive as one of the means to increase overall productivity in the country. Inefficient public sector also poses problems for private sector which have to deal with the former.  With Local Government elections and ICC World Cup in the next few months the country is likely to see drastic drop in productivity, he warned adding that there must be a new work culture and ethics.

Tourism sector says no issues with power tariff

DESPITE original concerns the tourism sector yesterday maintained that it was satisfied with the revisions in the electricity tariff.

As per initial proposal the hotels which remain classified as a separate category from the general industrial sector was to be slapped with over 100% increase.

However following representations made to the Government and the Public Utilities Commission the increase has been brought down to around 10% provided hotels maximise the “time of use tariff.”