By David Ebert
Outgoing Exporters Association of Sri Lanka Chairperson Dawn Austin, in her address at the association’s 16th Annual General Meeting held recently, urged the Government to make SME development a critical area of focus in its plans to create a balanced economy.
The EASL, Austin warned, is aware that unless the SME entrepreneur community is given the focused support and direction they need to enable growth in a sustained manner would lead to an unbalanced economy not too far down the line.
Austin added that the aspect of limitations of funding available to SMEs has been a major concern to many export industries, where SMEs play an essential role in supply chain operations and are a key driver of growth within the export sector. In its efforts to bridge the finance gap, the EASL has been instrumental making representations to both the Government and the banking sector on behalf of SME stakeholders in order to work out how both entities can work together to achieve growth.
Speaking on this issue Austin said: “As a result of an improvement in awareness of each other’s perceptions and the need to address the cost of finance for SMEs has been evidenced but it is not sufficient for us to be able to stand up and say Sri Lanka has a strong and vibrant SME sector which will augur well in the long term if achieved.”
In addition, Austin also revealed that the request for relief made by the Association, to meet the high costs of energy in the export sector is one example where consideration has not been forthcoming. “It has been explained by the experts that the cost of energy generation will reduce in a few years time; the rationale for which I have not been able to comprehend.”
Further, Austin also highlighted what was termed “inexplicable and insidious non-tariff barriers” within the FTA with the country’s largest trading partner India, which she opined, were implemented to dissuade Sri Lankan exporters from tapping into and supplying the vast Indian retail market. However she commended the SLSI and the Commerce Ministry for their initiatives in taking the matter up with a high level Indian delegation soon and expressed hope that redress would be in sight.
Austin also requested local exporters to bring any such discrepancies concerning access to the Indian market to the notice of the authorities. “It is imperative that exporters continue to bring any anomalies they may experience in developing the Indian market to the attention of the EASL, the SLSI and the Ministry of Commerce to ensure that all aspects are covered with an effectively implemented Mutual Recognition Agreement on standards, testing and certification between the two countries which is outside of the terms of reference for CEPA.” Austin urged the Government to take maximum advantage of and to not immediately dismiss possible GSP+ eligibility announcements made recently by the EU and the government of Norway, in order to give the export sector the boost requires in order to regain its competitive edge and recover lost ground. The Government announced recently that that the application for the review of GSP+ was not in the pipeline.
“The fact that the news hung in the air for even a short while gave the impressions that it was not a ‘smoke without fire’ situation and the benefits anticipated would have energised the export sector like no other incentive can ever achieve. This would be a dream come true for many sectors and if there is any possibility, I would urge the authorities to consider this facility as a special case which will, without a shadow of a doubt, result in exponential growth.”
Chief Guest Hayleys Group Chairman and Chief Executive Mohan Pandithage echoed similar sentiments on the importance of adequate measures needed to boost the country’s exports, given the fact that Sri Lanka’s exports as a percentage of GDP have dropped from 33% in the year 2000 to 16.4% in 2012. Pandithage added that in recent months as well, Sri Lanka’s exports have been on a declining trend, contracting by 6.4%, whilst several competing exporters such as Vietnam’s grew 27.4%, Cambodia 29.9% and Philippines 8.2% in the corresponding period.
He warned that the domestic economy alone would not be able to sustain the Government’s growth projections without the support of exports to support the country’s export balances. “Given the fact that Sri Lanka is an island economy of GDP US$ 60 billion, relying on the domestic economy alone will not be sufficient to generate the Government’s target of sustained GDP growth over 8%. Exports cover around half of Sri Lanka’s US$ 20 billion import bill, and along with FDI and remittances, are crucial non-debt creating inflows, necessary to support Sri Lanka’s external balances.”
Pandithage also warned that the country will eventually lose its labour cost arbitrage as the country’s per capita GDP continues to rise and will find it increasingly difficult to compete in exporting labour intensive, low-value products, since exporters such as Bangladesh and Vietnam will continue to be far more competitive.
“Therefore, it becomes necessary to compete in products that are more difficult to produce, requiring greater degrees of mechanisation and technology. At present, high tech exports account for less than 2% of Sri Lanka’s total manufactured exports. To improve this ratio necessarily entails investment in machinery, technology and higher skilled labour.”
Pandithage also warned that in the global economy’s strategic shift towards Asia, Sri Lanka can’t rely on its strategic location at a central point between the east and west alone, as it could only achieve its objective of becoming a regional transport and logistics hub, if the right investment climate is available.
“Sri Lanka has the opportunity to become a major exporter of transport and logistics services, acting as a hub for these services in the region. However, even in this business, location is a necessary but not a sufficient condition for success. To be a major player in this field it will be necessary to attract investments that provide world class service standards to compete with ports such as Singapore and Jebel Ali in Dubai.”
Pandithage also stated that the Hambantota Port should be made a free port which would have the potential to attract investment into ship services provision, entrepôt trade, assembly and other value-added industries, catering to the region and taking advantage of Sri Lanka’s free trade agreements in South Asia.
He added that from a policy perspective, stable macroeconomic conditions and fiscal adjustment also need to be maintained to support the development of the export sector. “Predictable, low inflation helps us maintain costs within tolerance levels of buyers, and a flexible exchange rate will help exporters adjust to any cost differentials between competitors and Sri Lanka. Fiscal adjustment needs to continue so as to avoid putting pressure on interest rates, which in turn act as a deterrent to investment which is needed to support value-added exports.”
Pix by Lasantha Kumara