The export plan

• The need of the hour, large and extra-large, not small and medium

Since we as a producing country have the scale in terms of a sizeable exportable surplus in tea, there is a greater opportunity here for tea to contribute to the higher export earnings targets we have set for ourselves to be achieved in the next five years

A new country in 60 months

In the Five-Point Plan of the new Government, in two items – ‘Building the Economy’ and ‘Developing Infrastructure and Investment’ – you will find two key elements of the plan. In building the economy, while several separate initiatives have been outlined, ‘A Million Jobs’ and ‘Accessing Global Markets’ have rightfully been given pride of place. 

Although we are nearing full employment levels statistically, it cannot be denied that over a million educated youth are under employed and not able to participate fully in the development plans of their country. They have been deprived of the opportunity to make a greater contribution they have the potential to make, to the economy, with benefits to themselves and their families. 

The threat arising from the resulting frustration and despondency if left unattended has already been experienced before and does not need underlining. A repetition of such a fallout is unthinkable and one this country can ill-afford. The spill over of this under-employment is clearly evident if one observes the increasing number of tuk-tuks on the roads and the voices of those behind the driving seat, if we care to listen to them. 

It is also reflected in the increasing number of young women seen whizzing away on the streets on motorised scooters going about their business. It is the transformation and harnessing this youthful energy that could make a significant difference to the growth and build-up of our economy.

Bringing up our youth and children to participate and deliver

It’s not that there aren’t jobs waiting to be filled in this country but the vacancies remaining unfilled and putting some organisations out of business as a consequence, is for the reason that the type of work available does not meet the aspirations of the educated and well informed youth this country produces. 

They are unwilling to till the land, tap rubber, pluck coconuts, harvest tea, peel cinnamon, stitch dresses, sail the high seas by night or saw timber like their forefather’s did. They seek dignity and are now exposed to the vast changes taking place in many parts of the world and clearly see that there are better ways to carry out many of these activities which is sadly still in our country a remnant wage earning model of a by-gone era.

We need to give our youth the dignity and the chance in life they deserve, built on a firm foundation of minimum basic education, skills based training and opportunities for either employment in fields that appeal to them or to induce them and facilitate start-up ventures of their own preference. Studies and surveys may reveal that the aspirations of the young in our land lean towards service based activities rather than agro based farming or industry and/or low tech manufactories. 

The higher annual national spend and budgetary allocation for education, skills based/vocational training, IT literacy and application of new technologies is a step in the right direction. These young men and women between the ages of 18 and 35, the Y generation as we refer to them, who were the victims of a war-torn country in their childhood should be the ones now positioned to propel the country’s development forward and expand the national export base to generate forex earnings.

On the other hand, the generation from whom Sri Lanka can hope for a new country is really those who are still well under 18, the Millennials as they are called. It would be highly optimistic to expect a new country in 60 months. However, if we focus, on dutifully nurturing and bringing up the now children of Sri Lanka by the necessary inputs primarily health, education, values, standards and creating the necessary infrastructure with laws of equality and fairness, then we will see the rising of a super structure and a bright future for all who will call this land their home. After all the ranking of a nation is really judged by the character and lifestyles of its citizens.  To take the words of Mahatma Gandhi, we must be the change in the eyes of our children for this country to be truly prosperous and take our place as developed country, say in 20 years. In fact, many of our own we have lost to other countries in the recent past will return to enhance the quantum and quality of our national output in the years to come.

Both these laudable undertakings of entry into global markets and job creation have to run concurrently and require the formulation of well-thought-out strategies and action plans.

 The National Export Plan

The ambitious goals we have set ourselves, demand inter alia a properly-crafted Export Plan for the country and this has been repeated ad nauseum at the highest levels in recent months. Undoubtedly this is a matter that would and should receive the highest attention of the new Government as a top priority item when addressing Sri Lanka’s goals for rapid economic development within an overall 60-month timeframe in the overall National Plan. 

A goal of $ 50 b earnings per year

As urgent as the Plan itself is quick action to achieve targets as our overall earnings from exports has been lagging behind at an alarming rate still hovering around $ 10 billion level for too long and systematically falling as a percentage of GDP. 

The former Deputy Minister of Planning made reference to his own target of $ 50 billion by 2020 and his vision to see our foreign exchange earnings at near 100% of our GDP in the not-too-distant future. He gave examples of smaller countries in Asia which had achieved export targets exceeding 300% of GDP in a relatively short period of time. The priority given to economic diplomacy with Dr. Harsha placed in the seat driving this initiative is another good decision and bound to result in positive outcomes.

Change of mindset to service mounting foreign debt

What is required is a dramatic paradigm shift of mindset and our approach to the task at hand with coordination and facilitation by an interested and committed Cabinet Sub Committee to drive exports with determined consistent focus on the goals we have set ourselves. How we increase our export earnings sufficient to service the staggering levels of debt we have subjected ourselves to, in recent years is crucial to our economic wellbeing.

Staying in the same groove doing what we have always been doing and expecting different results is not only unlikely to generate the desired results but would be sheer stupidity in the current context.

It would be unproductive and misleading if we were to continue to confine our consultations to those who are already engaged in the export sector to formulate plans and strategies for the future.

The future should not be an extension of the past. We have Sri Lankan expertise in supply chain management and specialists in global marketing working overseas at the highest levels whose work has been acknowledged abroad but unfortunately their work has inured to the credit of large multinational companies and foreign economies and has not been fully tapped up to now, for the benefit of this country. Their vast knowledge and experience they possess could be harnessed to give us valuable direction and guidance in making our plans.

Change in terminology replacing “small and medium”     

So it is clear that we need to think big and change our mindset. One of the first things we need to do is to move away from this terminology of “small and medium”. The use of descriptions, naming and use of words are so powerful in themselves and is one of the reasons of why we remain small by simply describing ourselves in such terms. Just take Singapore as an example of a country much smaller in every respect when compared with our own, with no natural resources except a large harbour. Had they nurtured the “small and medium” mentality, I pose the question, would they have reached and attained the heights they have? 

The term “small and medium” defies definition and is relative. There is a sector which serves a useful position and purpose as vital link in the supply chain particularly in exports, but while fully recognising their role and value, we err in calling the sector small or even medium. The sector wrongly referred to by this demeaning name should be the “auxiliary force” driving the export thrust and is an important link in the value chain. 

This sector needs to be enlarged and given every recognition and incentives to expand to serve the purpose for which it is intended i.e. to support the front end in global export marketing. However, it would be a huge mistake to expect them or place them in the front end of the chain marketing Sri Lankan products in the global market place which should be the place of large corporates with the clout to play in the big league. 

A role this auxiliary force would be ill-prepared and ill-equipped to perform which would only discredit the country’s export image and result in no profit for small players in a large arena.

 A shift from agriculture

Being an agricultural country historically, blessed with sunshine and rainfall throughout the year and conditions ideally suited for cultivation it was perhaps only natural that we have long been exploiting those positive attributes to attain a degree of food security and sustain our economy with other cash crops. That blessing, looking back, may now even be considered a curse. 

Our people became accustomed to a laidback way of life with no real need to be extra creative, industrious or innovative until the realisation dawned recently that successive governments whom they had put in place had committed them, their children, grandchildren and generations yet unborn to massive debt burdens which successive generations would have to repay at great cost to themselves.  We did not have the means to service the loans we had taken to make investments in infrastructure which was not directly linked to a plan to create value using those assets. It is imperative to ensure that there will be returns commensurate with the levels of investments being made to repay what we were borrowing.

Foreign domination for long periods in our country’s history has also resulted in those natural advantages being plundered to the full by those who ruled over us by introducing plantation crops where the value addition took place and continue to take place in their own countries where real values accrue to them and their own economies rather than to our own people. 

Due regard for the environment

There are other reasons why we must depend less on increasing agricultural outputs to develop our country. The primary reason I see for this shift is the concern for climate change and the environment. In the words of His Holiness the Pope on his current visit to the United States, “The problem of the environment is not one we should leave for our children to solve. That will be too late.”

Our country is blessed with exceptional natural beauty and a friendly climate all year round. We are an island surrounded by beaches and abundant marine life. The range of varying climatic conditions within the distance of less than 200kms of travel within the island is remarkable. The variety of plant species, bird life, wildlife, etc., is truly exceptional. So it would in the interest of generations yet unborn to preserve the environment. 

It would be unwise to release large extents of land for farming; the damage caused by deforestation of land for agricultural pursuits has already had its impact. The regular incidence of conflict between man and the elephant provide ample evidence that we need to take heed of the message. We have a duty to consider ourselves as custodians of this the great national treasure we have inherited and to pass it on to the next generation untainted and untarnished which is a sacred responsibility.

Leaving the environment as we found it would also profit the country by the attraction it holds and will continue to hold for tourism which is one of the sectors poised for take-off, if it has not already done so. Our people have always been hospitable towards visitors and we have a natural flair of welcoming them. 

This is definitely a sector which will contribute significantly to our foreign exchange earnings targets. The infrastructure and investment required would be more easily forthcoming for this segment of development as many of the attributes necessary to ensure returns are already in place. 

Scale required to profit from agriculture

We already have 188,000 hectares; a vast acreage comprising 4% of the island’s land area covered in tea. We produce approximately 340 mkgs of tea annually and have an annual exportable surplus of 320,000 MT. In value terms we earn the highest revenue FOB when compared with China and Kenya, though both those countries export more in terms of volume than we do.

So tea is one agricultural product from Sri Lanka which has the scale to compete in the global markets of the world, whereas the same cannot be equally claimed for many of the other agro products. Tea constitutes 70% of the total exports earnings from all agricultural produce aggregated. 

Deriving greater value from tea and sustainability

This was the main point I intended to bring home when I started writing this article since my interest in tea has for the longest part of my working career remained the central focus. Since we as a producing country have the scale in terms of a sizeable exportable surplus in tea, there is in my view, a greater opportunity here for tea to contribute to the higher export earnings targets we have set for ourselves to be achieved in the next five years. 

It is quite clear however, that agricultural produce, including tea will not bring the dramatic change we seek to reach the export earnings targets we aim at which I am told is a multiple of our present earning levels. It is from the services sector and the offshoring of services from the developed world that those magic figures would become a reality. 

When we examine the length of the supply chain in tea we see the weakest link at both the home ends of the chain, we see large numbers of wage earning employees (still referred to as labourers) constantly pressing for a higher pay. The employer is responding to this cry with the call for higher productivity from the labourers on the one hand and better prices from those buying the tea at the auctions on the other. 

There appears to be no coincidence of the two sets of needs being met and the industry is regularly being referred to as being unsustainable.

What is most striking is that we have remained with this unsustainable model for so long at both ends of the chain at the home end. I refer to the point at which the tea is cultivated, maintained, manured, harvested and manufactured by primary processing and also the point at which the leaves our shores after secondary processing and packing.

Application of technology at both ends is onspicuous by its absence

We have stayed with the British model of getting work done on plantations for far too long and arrived at the point where there will soon be hardly anyone willing to continue to work on plantations.

It is obvious that at the worker level in tea, the transformation of labourers into stakeholders cannot be postponed. Experiments conducted on hybrid models by taking part of the Kenyan method and cooperative principles, by the more innovative and creative local experts we have working for this sector, have generated positive results and should be studied, vigorously pursued and extended.

At the point the tea leaves Sri Lankan shores, is not the end of the value chain. The real value is derived at the point of sale to the consumer and much of the value of our tea is derived outside our country. Our country gets little or no return from the value earned outside. So several links in the chain have been missed out and this model too has hardly undergone any transformation since the British interests in our tea diminished from around the mid-sixties. Our tea export business is still modelled mainly on the same legacy that we inherited from the former owners. We have let the status quo remain despite the great truth escaping us that these foreigners had equal interests at both ends of the value chain.

While we did not fragment tea lands post nationalisation and wisely created large public companies when we first privatised management and subsequently ownership in the nineties, the export trade largely continued to be handled by private companies. As a result the tea continued to be mostly traded and not marketed with limited returns to the country.

Large and extra-large

The need of the hour is the creation of large and extra-large Sri Lankan-owned global marketing companies and joint venture companies with access to the funds required to market tea internationally and ideally to launch Sri Lankan-owned brands in selected countries which are predominantly consuming Ceylon Tea. 

The acquisition of existing brands and gaining access to modern trade channels also requires funding and investments at that end of the value chain. This is the mechanism we need to work at if we wish to bring value from tea back to Sri Lanka in order that we ensure the filtering back of value to the producer level. This is critical in order that the industry continues to remain sustainable.

Deriving greater value from other agro produce

Though we do not have the scale in some of the other agricultural product sectors we produce we are known to have the best in some cases. For example Ceylon Cinnamon ranks exceptionally with hardly any comparable product from other origins other than cassia sold off as cinnamon. Similarly, pepper and cloves are also largely traded and not marketed from Sri Lanka. The strategy for these products maybe the conversion to final products in Sri Lanka by applying modern technology. This also requires large scale investment. 

Here again the question arises as to how we transform these family owned entities presently exporting these products in primary form to properly structured and adequately capitalised companies to undertake high end processing and marketing in the global arena. The small and medium are excluded from the big league purely on the strength of their financial standing, inability to take risks and the size of their investments. Rubber is one item of local produce which has systematically been subject to value addition at home and it is only a much smaller quantity yet exported in raw form. 

How do we create a million jobs?

We have so far learnt of the Volkswagen investment and the jobs that, that will create. It remains to be seen how many other investors would transfer or set up mega size manufacturing units in Sri Lanka and how soon.

To create a million jobs to meet the aspirations of the restless educated youth referred to earlier, waiting to be engaged productively we need large scale opportunities which will hold their attention and interest. Ten years ago The World Bank in Colombo published a very interesting Paper on ‘Finding Sri Lanka’s Offshoring Niche’ on the fundamental premise, that with the advancement of technology in the new millennium it is no longer true that goods are tradable and services not. It claims that in fact more and more services are easily tradable.

Countries that realised this early like our large and now friendly neighbour have already reaped the benefits. It is seen as benefiting both the origin and destination country through free trade, providing jobs to the destination country and lower cost of goods and services to the origin country. McKinsey expects the global market for offshore business and technology services to grow to about $500 billion by 2020, from the current $80 billion (2009), a year. Even with this more than six fold growth, the industry will serve less than a third of the potential market, which McKinsey estimates at $1.65 trillion to $1.80 trillion in 2020.

Services that are now being off shored go far beyond the traditional call centres and back office functions and services which include, investment and financial services, human resources, health services, retail functions, logistics and customer support functions.

Sri Lanka is now well poised in terms of the base pool of young educated people we have, good telecommunication infrastructure at competitive costs, reasonable rents, and changing labour legislation. The promising strategy for Sri Lanka lies in the developing a niche market area where we are relatively stronger in common corporate functions, including, HR, finance, accounting and IT services.

There will obviously be a wider range of options to be studied and considered but I see the offshoring option and the tourism and hospitality sector as ‘low-hanging fruit’ to deliver their due to our long-suffering youth.

(The writer can be contacted at: [email protected].)