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Tuesday, 15 September 2015 01:20 - - {{hitsCtrl.values.hits}}
By Charumini de Silva
Verite Research yesterday said that Sri Lanka’s export finance market remained underdeveloped while the country’sexport policy had failed torecognise the role itcould play in helping exporters, especially those in the SME sector, to become more competitive through international trade and diversify into new markets with varying products.
Noting that the availability and diversity of export finance instruments was low and the few available export finance solutions remained weak and underutilised, the think tank suggested that steps to improve availability, access and effective utilisation of export finance in the country would be an important part of backing up the renewed expectations for expanding Sri Lanka’s exports to the world with action.
From left: Verite Research Executive Director Dr. Nishan De Mel, Head of Economic Research Subhashini Abeysinghe, National Chamber of Exports Chairman Sarada De Silva and Secretary General Shiham Marikkar at yesterday's briefing – Pic by Shehan Gunasekara
Verité Research suggested three factors - instruments, information and institutions - that Sri Lanka needed to focus on in order to expand export finance instruments.
“The regulations and the structure for economic facilitation that comes from Government policy and regulation are extremely important in creating instruments like value chain financing because without that backbone of law and regulation it is very difficult to make these instruments work,” Verité Research Executive Director Dr. Nishan de Mel said.
Furthermore, he added that only 2%-4% of Sri Lanka’s exports were covered by credit insurance, while the world average was around 10%-12% of exports. “This suggests that both the availability and the understanding of export finance as an instrument to facilitate exports are low in Sri Lanka.”
He said Verité Research, the National Chamber of Exporters (NCE) and other exporting chambers had been working together during the last few months to understand the problems of exporters and to suggest concrete solutions that the Government could implement.
Commenting on the third factor – institutions - he said that the country had found it difficult to improve the capability, professionalism and advancement of these institutions in line with global changes.
“Sri Lanka cannot afford to be the fat man in the economic race that Asia is a part of. We have to be able to run as fast or even faster. When our institutions are not productive and not professional enough to improve at the same speed of the other countries then this is difficult,” he added.
Elaborating further on the institution factor, he said: “We think that it is important for those State Enterprise Development Ministers to recognise that improving State enterprises is not just making them profitable; that’s a very old way of thinking. But they should rather focus on delivering a better service and professionalising and improving ability so that the stakeholders and the country benefits from it as expected.”
Noting that the three key factors could be implemented by existing private and public sector institutions, Dr.de Mel said that establishing an EXIM Bank would be an added advancement to boost Sri Lankan exports.
“Having a specialised agency of this nature would help better execute the interventions we suggested. Most countries have used the EXIM Bank to develop their export sector but Sri Lanka is yet to do so. We think that it is a very important policy to implement,” he said.
Greater risks
Verité Research Head of Economic Research Subhashini Abeysinghe said exporters carried added risks to the normal dangers of business and on top of that they depended on few products, markets and players, leading to greater difficulties.
Clarifying her point, she asserted that commercial and national risks were two particular risks that every exporter dealt with and export finance instruments could manage to mitigate these risks via credit schemes which are specially designed for exporters.
Sri Lanka’s exports have steadily declined from 33% in 2000 to 15% in 2014, while the share of world exports declined from 0.08% to 0.05%.
Abeysinghe said that in the competitive conditions of global trade, buyers had the power to dictate credit terms in most instances.
“Today, especially in developed markets, buyers dominate international markets. As the power of buyers increases they tend to delay payments until goods are received and sometimes until they are sold. Exporters, in a bid to secure their orders, bear a huge cost and risk deferring payment collection until goods are shipped and delivered. Those who cannot adhere to these terms and conditions tend to lose orders to their competitors,” she explained.
She said export finance could play a pivotal role in enhancing exporters’ capacity, especially in the SME sector, to trade on open account terms by supporting them to mitigate associated risks such as cash flow crunch and payment default via instruments like export working capital financing, credit insurance and export factoring.
NCE President Sarada de Silva said the financial sector needed to think fresh and look at the export sector in a bigger way if they were looking at $ 15 billion by 2015 and $ 20 billion by 2020, instead of improving what they were doing now.
He pointed out that more than the established large exporters it was the SMEs that required this innovative thinking in export financing.
“I agree with the Government in setting up tall goals. We have to think bold with large numbers and if you don’t set higher targets we will not get anywhere,” he said.
However, he said that although the target had been set to reach $ 15 billion by 2015, Sri Lanka was likely to reach only $ 12 b by the end of this year.
