Exports see resurgence thanks to GSP plus | Sunday Observer

Exports see resurgence thanks to GSP plus

Felix Fernando and Hasitha Premaratne
Felix Fernando and Hasitha Premaratne

Sri Lanka’s apparel exporters expressed ‘cautious optimism’ over the resurgence in garment exports, courtesy the restoration of the Generalised System of Preferences Plus (GSP plus) facility which has helped cumulative exports to climb to over a million dollars consecutively for the months of July and August this year.

According to statistics, export earnings from textiles and garments in August have risen by 10% (year-on-year) to US$ 433 million which was preceded by an increase of 9.6% in the previous month.

The Central Bank said earnings from garments exports to the EU market, where the GSP plus facility is applicable, had increased by 12.2% (year-on-year) to US$ 186 million contributing more than 68% to the growth of total garment exports.

“We are very happy that we have started to gradually reap the benefits. The last quarter of this year also looks very promising and we expect to have sharper increases in export growth in the coming months,” Chairman of the Sri Lanka Apparel Exporters’ Association (SLAEA), Felix Fernando told the Sunday Observer.

He said that two of the main positives of late, were to hear that Star Garments, a unit of the US-headquartered Komar Company, shifted their Innovation Centre from the United States to Sri Lanka while the retail market in the US has also shown signs of revival.

“What it reflects is that Sri Lanka is fast gaining attention on a global scale which is the major positive,” Fernando said.

Commenting on regional competition in the apparel trade, he said that export volumes of Bangladesh have recently dropped for the first time in a long period, while Vietnam poses tough competition.

However, he pointed out that Sri Lanka cannot be compared to Bangladesh as the island had ‘technology and quality advantages’.

The SLAEA Chief said that while a few of the European buyers are exploring the Sri Lankan market, the island had greater potential if it worked on fixing its regulatory and macroeconomic environmental issues.

“If we can improve on the benchmark indices such as the Ease of Doing Business Index, Transparency and the general law in the country, we then have a greater room for improvement,” Fernando pointed out.

Sri Lanka regained its GSP Plus facility in May this year enabling exporters to access the European Union market with additional tariff preferences.

The restoration of the GSP Plus status means tariffs on over 6,000 products have been removed, with the complete lifting of duties on some two-thirds of all tariff lines.

The Chief Financial Officer of Brandix Lanka Limited, Hasitha Premaratne said that order books for the next three months are strong and Sri Lanka should see stronger growth in the short term.

However, in the longer term, Premaratne pointed out that while the traditional western markets such as the United States and Europe will show marginal growth, larger growth can be expected from China if the proposed Free Trade Agreement (FTA) is signed.

“One thing I need to highlight is that although Sri Lanka’s growth as an export apparel hub has tremendous potential, according to the recently passed Inland Revenue Act, profits earned by a Sri Lankan company for manufacturing abroad, will be taxed at 14%.

This may have some disadvantage and if the authorities consider revising or removing this tax rate, the possibility of achieving hub status becomes even stronger,” Premaratne said.

A Central Bank official said the USA, the UK, India, Germany and Italy were the leading markets for merchandise exports from Sri Lanka during the first eight months of this year, accounting for about 50 percent of total exports.

During the first half of this year, Sri Lanka’s earnings from textiles and garments plummeted by 5.2% year-on-year to US$ 2.4 billion compared to the corresponding last year.

In the five years prior to the revocation of Sri Lanka’s GSP Plus privileges, the country’s exports to the European bloc rose at an average annual rate of 16.4 percent.

Of the nearly € 4 billion in bilateral trade recorded last year, Sri Lankan exports to EU member states accounted for € 2.6 billion, giving it a strong trade surplus.

On a cumulative basis, earnings from exports grew by 7.6 per cent (year-on-year) to US dollars 7,413 million during the first eight months of 2017 mainly due to increased earnings from the export of tea, petroleum products, transport equipment, spices and seafood.

“Sri Lanka’s external sector showed a mixed performance in August 2017. Although export earnings increased in August, higher growth in import expenditure resulted in an expansion of the trade deficit,” the Central Bank said in the External Sector Performance released for the month of August, last week.