The export community is confident that the sector will bounce back and meet the targets set for the year.
“We are confident that the export sector will make a quick come back to perform better in terms of value and volumes. With plans to enhance production capacity, the sector will work to infuse capital investment and technological know-how for quality improvement and capacity building, Immediate Past President, National Chamber of Exporters (NCE), Ramal G. Jasinghe said.
“With the change of the leadership, there are clear changes in certain areas particularly the introduction of the stimulus package to kick start the economy. In terms of the economic situation and the execution of certain plans, the business community, particularly the export fraternity is hopeful that the new administration will provide an impetus for the export drive,” he said in an interview with Business Observer.
Excerpts:
When reviewing the performance of the export and import sectors in the first nine months of 2019, it is observed that there is a contraction in trade deficit, from USD 7.9 bn in 2018 to USD to 5.6 bn.
Although this is due to the decrease in imports, especially in the automobile sector, significant increase in exports of textile and garment were the key contributors for this contraction. But exports have only grown by 1%, where industrial export growth has only accounted to 2.6% increase. On the other hand, agriculture exports have dipped by 4.5% and mineral exports have declined by 9.2%.
Growth of exports (YoY)- (USD mn)Textile and garments - 258.9
Transport and equipment - 29.2
Coconut products - 20.4
Animal Fodder - 12.1
Base metals and articles - 11.8
Source: Central Bank of Sri Lanka
Ten principals adopted by the new regime
1. Priority to national security
2. Friendly and non-aligned foreign policy
3. An administration free from corruption
4. New Constitution that fulfills the people’s wishes
5. Productive citizenry and a vibrant human resource
6. People-centric economic development
7. Technology based society
8. Development of Physical Resources
9. Sustainable Environmental Management
10. Disciplined, law abiding and value based society
The emphasis of Development of Physical Capital, as well as Sustainable Environmental Management would significantly support the drive for ethical businesses to reach global markets, through proper means and measures.
This initiative could further enhance the measures towards effectively reaping benefits from the 4th Industrial Revolution, as Sri Lanka has missed many such opportunities in the history of an emerging technology-based society; which could bring about significant change.
New tax regulations
Significant changes in the tax policy, such as reduction of value Added Tax from 15 per cent to 8 percent, would enable the economy to grow as well as support the exporters to reach beyond borders, as this will mostly stimulate export efforts and galvanise Foreign Direct Investments (FDAs). This measure should galvanise local industries and businesses to enhance capacity building and development within this window of opportunity.
Q. What more should be done to increase values and volumes?
A. Measures to enter niche markets by engaging in agricultural development with enhanced efforts to engage more in Research and Development will have far-reaching benefits to the export sector. It is necessary to expand on Export Value Addition and to this end, greater participation of the MSME Sector is essential. Development of the emerging industries identified by the National Export Strategy (NES) and action for refinement of the NES are vital in this regard.
Sri Lanka should mainly focus on quality over quantity, for example Bangladesh cottage industry produces high end winter jackets for the European markets. Such high quality products, despite the volumes being low, are manufactured at a cottage industry level.
Therefore, setting up proper standards for export products could lead Sri Lanka to expand into high-end products, with a higher value although volumes are low. We should enhance our efforts by participating in niche fashion industry markets, which would not be necessarily high end, but create a bigger role for our exporters to become a vital link in the value chain, which could prove to be cost effective, and efficient, in terms of reaching new export markets.
This could encourage the inclusion of the SME industrial sector to the national export drive.
In terms of the agricultural produce, we need to meticulously plan to increase the efficiency of the producers, to avoid the waste of resources, while encouraging the new generation to use technology to reap the best of natural resources.
Revisiting traditional agricultural practices for enhanced development is of utmost importance, to increase our research and development capabilities.
This effort could be accelerated by bringing in expert knowledge and expertise from the academic arena, agri development authorities, enhanced engagement and encouragement of the private sector to play a major role, as well as involving marketing professionals to introduce strategies and trends to this development drive will serve towards effective, practical implementation levels on the field.
For example, the Thai government is advised by the Kasetsart University through research and development on how paddy cultivation could be made more efficient.
It is said that our export value addition component stands at just 33%. For the benefits of exports to be reaped by the National Economy, this figure needs to be significantly improved.
The recent currency fluctuations could have worked positively for the export economy, had the value addition component been better. The enhanced contribution from the services sector, including hospitality and tourism, SME development and an enlarged role of the various State and private sector research institutions including a role for marketing and market research could significantly change the export landscape for the economy.
The Micro, Small and Medium Enterprises (MSME) has as history has shown, been the backbone of the economic and export development of many developed countries. Our MSME sector has been predominantly inward looking, catering largely to domestic consumption of products and services. Given the potential for exports, and the cottage industries that we are blessed with, market and marketing know how needs to be imparted to these entrepreneurs to build efficiency and scale to sustain their industries and play a major value addition role, as well as to serve as a vital link in the export value chain. Mechanisms to bring these methods of marketing and production know how, would need to be enhanced to ensure inclusion of the sector. Active participation of the MSME sector could become a strong link in the economic development drive of the country.
The National Export Strategy (NES) after research and engagement of the Stakeholders had identified 6 industries as emerging and potential for effective export development. They are namely, Boat Building, Spices, Processed Food, Wellness Tourism, IT-BPM and Electronics.
Enabling and encouraging the implementation of the various strategies, mainly the Ease of Doing Business for these industries to emerge and develop, will be a key success factor for enhancing foreign exchange earnings.
Much effort had been vested in the formulation of the NES through its stakeholders. However, there would be areas for refinement in areas, pertaining to the effective implementation and facilitation for these industries to thrive and develop within an enhanced export economy. This is viewed as an urgent requirement, for tangible benefits to be reaped by these industries.
Q. What technological interventions to improve manufacturing and production?
A. Technological interventions to enhance the capacity of the exporting industries would help the current exporters to expand their competitive advantage, while supporting the startups to find their space in the marketplace, with the upcoming wave of the 4th industrial revolution.
Using the internet of things (IoT) concept to enhance the productive capacity, through proper research and development of the mentioned areas could make a significant change.
It is also important for Sri Lanka to focus more and invest in STEM education, to enable a better equipped world class skilled labour force, helping the country to attract more FDIs for the technolog-based service exporting companies.
Encouraging young people to engage in traditional export trades, such as handicrafts, spices cultivation and tea plantation industry will retain the age-old techniques preserved about these industries.
Similar to the South Korean model in acquiring technology through the foreign direct investments coming into the country, Sri Lanka could embark on attracting technological transfers through export manufacturing industries. The partnership approach, used by Indian companies such as ‘Suzuki-Maruti’ and ‘Hero-Honda’, Sri Lankan companies could explore at the option of creating alliances, to facilitate smooth technology transfer to Sri Lankan manufacturing organisations.
Q. What would be the way forward for the next five years?
A. The Global gross Domestic Product GDP as we speak is at a depressed level at around 3%. It is in this backdrop that we seek economic development, particularly in the export markets. There would be much inward thinking of the major economies taking place and emerging economies along with new alliances and changing Economic Blocs will play a leading role over the next five years.
Sri Lanka will need to recognise these global challenges and seek benefits from initiatives, such as the Belt and Road initiative and other emergent markets and market trends. We could expect changes in the dominance and structure of various economic blocs, in the coming years, which could have a bearing to our export markets.
The GSP Plus Challenge and BREXIT:
As the window of opportunity of the GSP Plus is narrowing, increasing the utilization rates of available concessionary mechanisms such as GSP plus could be away to increase the volumes of exports to EU. Currently only about 20 main products are exported under GSP plus concession. We could plan to expand and diversify our product basket and reap the benefits of the currently available schemes, which is highly likely to be lost in few years’ time, once we stabilize ourselves as upper middle-income country.
Britain is a major or foremost export market to Sri Lanka in the EU. The challenge of Brexit will be of great significance to this facility, as well as with the UK, embarking on strategies and plans to build an export economy for themselves, will be particularly challenging to our export community. This could effectively be a major challenge for our products exported to other countries of the EU as well.
Hence the need for recognising this imminent threat and build development strategies particularly for new markets and products among the other EU countries, as well as forging favourable trade ties and terms with Britain on a Post Brexit scenario, will be of paramount importance.
Enhancing import substitution
Programs to increase backward integration could help us reduce our importation of raw material and enhancing local Value Addition, whilst providing economic opportunities for the strengthened Supply Chain businesses, particularly the MSMEs, building a conduit for access to the export effort through the direct exporter; reaching the international export markets. The export Value Chain should be inclusive of the MSME, with these programs.
Exploiting the facilitation of logistics:
Attracting tradable FDIs to the country will also contribute to expand the exports from Sri Lanka. Recent BOI investments plans to establish a bunkering and petrochemical facility in Sri Lanka which will benefit the country in terms of re-exporting fuel since the geographical positioning of the country complements such innovations.
Introducing dedicated export zones can promote export-centered facilities and infrastructure necessary for fast shipments especially for perishable items.
Obtaining Geographical Identification (GI):
Spices and other natural commodity items are of high global demand, particularly in the Food, Pharmaceutical and Ayurvedic Industries. Spices of Sri Lankan origin, particularly cinnamon and pepper are much sought after at premium prices.
Due to global competition, these commodities are either imitated, or substituted and at times passed off as being of Sri Lankan origin.
Obtaining Geographical Identification (GI) certification for our commodities could deter such practices and enhance and expand the demand for our produce.
Approach Free Trade Agreements (FTAs) with care:
It has been argued that FTAs provide inclusion and access to global markets for indigenous manufacturers and exporters. These agreements are based on a win-win trade negotiation to benefit both parties to the agreement.
However, the realities of Non-Tariff Barriers, Negative Lists, etc, hamper the smooth implementation and intention of such an Agreement. As Sri Lanka progresses economically and is increasingly gaining inclusivity to global trade, signing up of FTA’s would become a necessity.
While this measure could improve the quality and scale for our local manufacturers and producers, there should be adequate protection to ensure the wellbeing and interests of the indigenous entrepreneur, where equal reciprocity should prevail.
The success of an FTA is measured by mutual trade benefit, and not the exploitation of weaker economies.
The National Chamber of Exporters (NCE) plans to strengthen and enhance its working arrangements with other Chambers of Commerce to bring about a Joint Chamber effort to build a greater understanding and a meeting of minds for the Country’s economic and export development. We feel that as a Chamber, this is our duty and contribution to the country and community at large.