Rupee fall no cure-all for exports says EDB Chief

Reuters: Textiles exporters hoping the fall of Sri Lanka’s rupee would drive a boom this year are set to be disappointed as a resulting rise in costs of imported materials undermines margins, the state-run Export Development Board (EDB) said on Wednesday.

Firms have been calling for years for a weaker currency to help them compete with other low-cost Asian producers; a change in the central bank’s approach to the currency has driven the rupee 14 percent lower in the past month.

After garment and tea exports drove a 22 percent rise in exports last year, officials had targeted a similar gain this year that would drive exports above $13 billion.

But EDB Chairman Janaka Ratnayake told Reuters in an interview the target was now increasingly challenging.

“The main challenge will be the impact of the rupee currency depreciation,” he said.



“Depreciation has been the demand of exporters for many years and there is a direct positive impact on the export revenue. But majority of our exports like garments are based on imports. Because of the depreciation, the import cost will go up and the margins will come down,” he said.

The industrial sector, led by garments, accounts for around 80 percent of the total revenue and mainly depends on raw material and machinery imports.

The rupee hit a record low of 131.60 per dollar on Monday after the central bank on Feb. 9 opted out of an intervention method that cost it $2.7 billion in the second half of 2011.

Ratnayake also said the tea industry would suffer from the fallout of unrest in a number of key markets in North Africa and the Gulf.

“Although the Arab Spring is over, the tail is still there. So our tea industry may face an issue,” .

Iran, Libya, and Syria buy around a quarter of the $59 billion economy’s tea and traders have complained that local banks are reluctant to lend to them, fearing the consequences of a raft of impending U.S. sanctions against Tehran.

However, U.S. officials in Colombo have confirmed that food, medicine, and medical devices are exempt from the sanctions, as stated in the law.

The EDB expects export revenue to grow by around 50 percent to $15 billion by 2015 and $20 billion by 2020.

Given the slowdown in growth in much of the developed world and the euro zone’s struggle with debt problems, Sri Lanka is looking for more Asian export destinations to boost revenue, Ratnayake said.

“The European crisis will prevail ... On the other hand, the consumption will be high in this part of the world in Asia and logistically it will be easy for us and cost-effective. So we have to find market here,” he said.

The export share from Europe and the United States has fallen from 61 percent in 2005 to 54.1 percent last year, while the Asian share grew by around 3 percent during the same period.

“If you look at the shares from India and China, they are on the rise. We are also looking at Singapore, Malaysia, Indonesia, and Thailand,” Ratnayake said without elaborating.