Key export markets slowing down?

In the recent past we have seen a strong push by Sri Lanka to attract FDIs and stock market investment, but little do we know that the sector that needs the strongest private partnership and attention is the export industry.

EU triggered slowdown

The export industry that was contributing almost 10 billion to Sri Lanka is up against the strongest challenge due to the EU triggered slowdown of the economy that is affecting the Western world.

Sri Lankan exports to UK are down by 3.7%, Belgium 3.6%, Italy is reeling at 11.7% and France at 10.1%, which are all countries in the top 10 export markets for Sri Lanka in 2013. Overall exports are down by 7.9%, which must be taken into account in light of the 8% drop that the country experienced in 2012.

To further aggravate the situation, the current adverse weather impact in Europe that has resulted in floods across many of the key export markets of Sri Lanka will further create challenges given that State monies having to be spent for investing in infrastructure restoration but livelihoods of many will be destructed and this can have consumer pull issues in the market place.

The latest forecast coming from top economic organisations are also not very positive for the remaining part of the year with France’s unemployment at the highest of 10%, which gives an indication of the volatility of the export business of Sri Lanka. The Turkish riots will further create issues for Sri Lanka given that it is the 14th top export market for Sri Lanka.

Key strategies – SL

1. Tea: Launch the Global Ceylon Tea Campaign in the key markets identified by the private-public committee. The sponsorship of the Sri Lanka Cricket team globally will support this effort whilst driving in a gold standard implementation of the local campaign in Sri Lanka. A word to commend the Tea Board working methodology and its relationship with the trade. The burning issue in the sector is maintaining the cost and driving productivity up given the recent wage rate increase.

2. Apparel: Continue the umbrella differentiation approach where the capability of the apparel manufacturers can be highlighted together with the ethical considerations. Whilst market penetration outside the US and EU can be pursued, a point to note is that the need of the industry once again is driving the cost down and increasing productivity. The current cost increase on basics that include labour is challenging to the industry. The need for skilled labour remains a burning issue.

3. Rubber: The industry is targeting five billion dollars in the long-term plan that was facilitated by the ADB recently. But the challenge once again is the supply chain development required. The launch of a Rubber City that includes a dedicated estate for rubber is worth driving. The need for increased rubber and maintaining cost is critical to keep such companies like Loadstar in the country. The drive for value addition rubber is a step in the right direction, but it needs policy support at regional and estate level.

4. Cinnamon: Here the challenge is keeping the agenda going for differentiating Ceylon Cinnamon as against the price savvy cassia. Whilst the above line challenge is being addressed, the below the line activity must continue, which includes supply chain development initiatives with standards for peeling, training and certification support to the producers.

5. ICT/BPO: The starting point here is the survey to understand the ‘as is’ situation. The work done by the EDB must be commended in driving this industry. The soft skill development at regional level will be key to driving the ICT/BPO agenda given that the skill base availability/development is the biggest challenge of the industry. The skill set development must include network management, web application, the BPO business, designing and quality checking, data mining, embedded system designing, e-publication, ICT consultancy, KPO, customer care and call centre support, just to name a few. However, keeping the electricity tariff rate competitive will be key to the development of the industry.

Policy focus

Some of the policy issues that need urgent action as per the trade and industry association remain very basic in nature.

1. Clear VAT refund issue: Clear the backlog and reduce the time lag on the VAT refunds.

2. Focused EDRS scheme to support the winners: So that we give an incentive to strategic sectors and strategic export sectors.

3. Industrial zone linkage to the SME sector and the key export policy making bodies that must include the chambers.

4. Drive 10 sectors in the SL-India FTA: Given that exports into the India have declined by almost 19% as at end April 2013, an option could be identifying some key sectors and drive ruthlessly to drive business. Apparel is growing by 24% into India. Insulated wire and cables are up by 9% to almost 10 million dollars as at March 2013. Boat building and cloves is also in a positive trend. Glass and glass ware, pepper, woven fabrics, toys and sports requisites are also doing well together with a strong performance in the boat building segments, which are interesting categories though most of them are unbranded in nature. Rather trying to drive strategies like blue ocean, may be a better option is to identify the bottlenecks like certification requirements, tests, etc., and see how we can move the overall export number to achieve last year’s performance by end of third quarter 2013 from the current -21%.

5. Drive the cess back to the industry: Even though many State organisations support the export sector the fact remains that the cess collections by statute must be directed to the relevant agency that must invest in R&D and systemic development of the industry. This is what was happening and must happen given the experience of countries that have developed their export base.

Export core team

Maybe a high level cabinet appointed committee can be formulated to drive Sri Lanka’s export agenda under the line ministry, given the above data and the urgent action required.

(The author can be contacted on [email protected]. The thoughts are strictly his personal thoughts.)