Thursday Dec 26, 2024
Thursday Dec 26, 2024
Thursday, 19 October 2023 00:11 - - {{hitsCtrl.values.hits}}
By Patrick Fernando
Addressing the national management accounting conference of the Institute of Chartered Management Accountants of Sri Lanka, Brandix Apparel Managing Director Hasitha Premaratne called on firm action to protect existing exports and support industries to achieve double-digit growth. He pointed to customer-backed investments, automation and value addition as potential quick-wins to boost productivity to realise these objectives.
“Last year everyone was behind exports because of the foreign currency crisis. I think after one year’s time, when things are a bit settled, we have lost the hunger to drive exports to double that number. Also, people are calling for diversification of exports and new things, and we are forgetting the ones we have which is the golden goose. That’s something we should not do, because those are probably segments we have mastered and have the opportunity to further harness at least over the short-term. We need to have a strategy to sustain longstanding exports like apparel, rubber and agricultural products. These are things we have the raw material, and systems in place. We need to transform these for the future, because if you expect things to stand as is, then they become dull resources and these industries will eventually die.”
Premaratne added this country is much more than what it is, but we’ve hardly harnessed that potential throughout our history. Sri Lanka must look forward and make changes looking at some of the competitive nations that achieved success, through technology infusion to boost productivity, he noted.
Discussing the manufacturing sector, Premaratne touched on the apparel sector – which he represents – that forms the biggest chunk with about 40% of total exports. He noted that over the past 15 years, apparel exports have slightly outperformed overall exports which grew at a compound average growth rate of 3.66%, while apparel has grown at about 3.75%. He added that whilst traditional exports have taken a step back, value addition especially in the rubber industry through tyres and then food processing brings more value to the economy a large. Premaratne felt this is the best way forward to boost GDP and asked exporters to constantly question the value proposition they offer to customers.
Last year everyone was behind exports because of the foreign currency crisis. I think after one year’s time, when things are a bit settled, we have lost the hunger to drive exports to double that number. Also, people are calling for diversification of exports and new things, and we are forgetting the ones we have which is the golden goose. That’s something we should not do, because those are probably segments we have mastered and have the opportunity to further harness at least over the short-term. We need to have a strategy to sustain longstanding exports like apparel, rubber and agricultural products – Hasitha Premaratne
“If we’re not competitive enough to offer a price that meets consumers’ expectation, you cannot win. One of the first things we need to offer is cost competitiveness. When you consider recent challenges the apparel industry is going through where global demand has dropped significantly, everybody got hungry and what you do in desperation is you bring prices down. When you do that those who could bring down more and still sustain have the best cost structures. So, Bangladesh had a cheaper cost structure compared to rest of the world, and they were able to offer prices which were unmatchable by the rest. It’s not only because their cost is low but their productivity has caught up. They have emerged with technology and they have many green factories, so Bangladesh has invested and gone beyond within a short period of time.”
The Managing Director of Brandix noted the falling exchange rate had helped exporters in the recent past, “but that’s not something to celebrate too much”, and stressed the real value addition must come from productivity. He said Sri Lankan exporters must focus harder on premium segments and products and ensure we offer innovative and appealing solutions to global customers. These will require investment but noted that even bigger companies could struggle with putting money in as returns are not immediate.
The other aspect to boost competitivity is duty-free market access, which contributes significantly to export growth. He pointed to the European GSP as a catalyst for growth in garment exports but noted the lack of a productive arrangement to our closest market – India – where only 8 million pieces of apparel are allowed in duty-free that amounts to about $ 45 million. In contrast, Bangladesh has full duty-free access to India and exports over $ 1 billion annually to the sub-continent alone, predominantly apparel. India’s domestic market is the fastest growing segment in the world, and their middle-class in now higher than the total population of the United States, Premaratne pointed out.
“Duty-free access to markets is something policymakers must support because that gives opportunity for our exporters to compete with rest of the world. But another big challenge in any industry is to have the supply chain to support that. If you are importing raw materials from somewhere, then that becomes a challenge. In apparel industry over the last few years, there is a significant drive towards localisation of supply chain. Fabrics, elastics, thread; a larger portion is now made in Sri Lanka or within the region, which helps us drive growth at a much faster pace. “
“Today, ESG is a big topic. Being at the cutting edge of ESG is very important. At one time, we were well ahead with ESG, but some of our competitor countries are catching up fast. So we can’t relax, we have to move up to the next level and see what we need to do to keep our track record ahead of the rest. That’s where the cutting-edge aspect must come in in terms of environmental practices. Labour practices apply in the same way. Again, we have a good track record historically and we need to maintain and improve that,” Premaratne added.
He also pointed to Singapore, which does about $ 870 billion in exports but has an import bill of about $ 700 billion given the nature of the country. However, this constitutes around 24% in value addition today, compared to 11% about a decade ago. Sri Lanka doesn’t need a significant amount of value addition, but anything in the range 5-15% through the industrial sector would make a huge difference for the country, he said.
Premaratne was addressing a discussion on Export Development at the conference, which also featured SLASSCOM Chairman Jehan Perinpanayagam, and Port City Director Investment Promotion Radika Obeysekere.
ICT eyes take sustainable lead
Perinpanayagam pointed out that despite the multiple shocks the IT-BPM industry has continued to grow, bringing in about $ 1.7 billion annually in exports, attracting renowned global brands. He noted the industry hoped to earn $ 5 billion by 2030, employing over 200,000 people and powering over 1,000 start-ups.
“We are stunned to see such great work is being done by Sri Lankan companies, and sometimes we don’t do a good-enough job telling the world this story. Our IT professionals can deliver to the highest standards in the world. IT-BPM as of March 2023 was the third largest exporter in Sri Lanka, contributing 8% of total exports. There’s a real war for talent in the finance and accounting space. Right here in Sri Lanka we have some of the best accountants in the world. We have excellent information security. Several other countries have had major scandals in information security, and we are one of the first in the region to introduce a data protection act,” he enthused.
However, India’s IT-BPM industry earns $ 194 billion employing 5.4 million Indians, whilst the Philippines earns $ 30 billion with about 1.2 million employees. This demonstrates the potential of the sector, Perinpanayagam says, and expressed confidence Sri Lanka could achieve its target of $ 5 billion. He added the industry hopes to become the world’s first green IT-BPM destination, with zero plastics and best practices in ESG with renewables, waste management and employee well-being.
In the short-term, acquisition of staff is a challenge and companies need to pay a lot of attention on employees; fair pay and fair play. I think the Port City presents a great opportunity. We want to create a pool of talent for the IT-BPM industry and accountancy and institutes likes the CMA have a leading role to play to bridge that gap
– Jehan Perinpanayagam
“We want to lead the world in this area. So, what are the challenges? What is holding us back from achieving our export aspirations? One is global demand. There is a slight slowdown these days in the Western economies in terms of uptake of IT services. There are changing skills that is in demand. We talked of AI and some of these technologies are now changing again. So, it may be ideal for companies or countries in charge of smaller talent pools to be able to produce skills the world needs today for tomorrow.”
Perinpanayagam added that several Sri Lankan IT-BPM companies have been certified as great places to work and also safe places for women. He added that close to 50% of industry staff consisted of women, with supportive policies. He praised the recent draft labour law that allows women to work what some people call non-sociable hours. This is coupled with the data protection act, which is one of the best such pieces of legislation in the region.
“In the short-term, acquisition of staff is a challenge and companies need to pay a lot of attention on employees; fair pay and fair play. I think the Port City presents a great opportunity. We want to create a pool of talent for the IT-BPM industry and accountancy and institutes likes the CMA have a leading role to play to bridge that gap. On one side you have companies crying out we don’t have enough people and we are losing our middle tier management. On the other side, particularly in some regions like the East and the, Southern Province there are some great talent looking for work. We are looking at quick programs that will make people Industry-ready. Developing regional talent is a core belief and also developing a career mindset amongst Gen Z professionals,” Perinpanayagam said.
The SLASSCOM chairman also stressed the need for a stable policy environment and encouraged authorities to keep up the reform agenda and expedite it. “Encourage the adoption of technology and education in a future-ready workforce. I would encourage reading about Rwanda. Rwanda is known for its horrific genocide. Today that country has started out to be a tech and they have a program called ‘A laptop for every child’. They’ve also gone greener, banned using plastics and is seen as a huge success story in Africa. If Rwanda can win, so can we,” Perinpanayagam said.
All hands on deck for FDIs
Port City Director Investment Promotion Radika Obeysekere said the project would be the incubator for a special economic zone, and hopes to put in place some of the world’s leading regulatory practices across various sectors. She added the Port City Economic Commission Act will serve as a single window for investment facilitation and regulation and will set it apart from other special economic zones in the region.
“This is possibly the single largest development since the Mahaweli project in Sri Lanka and first of its kind for the country and the region. Port City, on completion, will be one of the most liveable cities in the world; a business ecosystem through a multi-currency designated special economic zone dedicated for exports of services. You will be cut out from the volatility of the domestic economy by committing transactions in foreign currency. You’re permitted to renew your capital, you’re permitted to repatriate your profits, pay your employees in foreign currency, and we have now received the nod for tax incentives of up to 25 years of course, subject to certain eligibility criteria,” Obeysekere said.
Port City, on completion, will be one of the most liveable cities in the world; a business ecosystem through a multi-currency designated special economic zone dedicated for exports of services. You will be cut out from the volatility of the domestic economy by committing transactions in foreign currency. You’re permitted to renew your capital, you’re permitted to repatriate your profits, pay your employees in foreign currency, and we have now received the nod for tax incentives of up to 25 years of course, subject to certain eligibility criteria – Radika Obeysekere
One of the biggest challenges that investors have dealt in the past is retrospective legislation, she noted. As an investor or a business coming onboard Port City, as part of its agreement there will be inbuilt provisions that state all licenses, agreements and terms will not be changed by successive governments or policy. There is also a stabilisation clause, where in the event any regulation of policy has caused some sort of a loss or detriment to a business, the Port City Commission has the discretion to alter terms of engagement, to ensure adequate compensation.
“Whilst there have been concerns of tax benefits being offered under Port City, what also must be known is that because of economic activity created within this special economic zone, it really opens up new revenue streams. New revenue streams not in just terms of taxation, but several new revenue streams for Government and this will have significant impacts on the balance of payments and GDP,” she added.
