American and British consumers prefer Lankan products

By Rohantha Athukorala

Even with all the issues that Geneva has brought on to the country, the World Bank and ADB had forecast an economic growth of around 7.5% for 2014 and 2015 while Cofarce last month ranked Sri Lanka as a top growth economy globally.

In this background, Sri Lanka has demonstrated vibrancy in exports with a brilliant performance in March an all time record which crossed the US $ 1.06 billion mark, that shows the love of the global consumer for Sri Lankan merchandise.

The performance in the first quarter of 2014 was powered by US and UK driving growth at 20.4% and 10.7% over last year which demonstrates the preference of the American and British consumer for Sri Lankan products.

About 35% of export proceeds to Sri Lanka in the first quarter of 2014 come from the US and UK which happen to be countries that pioneered the resolution against Sri Lanka in the UN.

Some research is needed to understand why markets like Belgium, Iran, South Korea and Syria did not demonstrate the growth momentum that the other key markets have shown so that corrective action can be initiated.

Record exports

The product categories that have performed exceptionally well are agricultural exports at 22.6% powered by tea, growing by 13.6% and industrial products with a staggering growth of 74.4% which was essentially driven by textile and garments at 44.8%.

This can be attributed to the upturn in the US and UK economy that we have seen in the last quarter that has increased the purchasing power of consumers. Research reveals that demand for lingerie related products tend to increase even in economies that have a down turn which Sri Lanka experienced when the US economy was reeling around five years ago.

While the performance of exports was positive in the first quarter of 2014, way back in 1990, Sri Lanka, Bangladesh and Vietnam were all at US $2 billion export mark level. However, Vietnam has now crossed the US $ 100 billion mark while Bangladesh is touching US $ 50 billion.

Sri Lanka is targeting US $ 11 billion by the end of this year which demonstrates the challenge that we are up against. The debate right now is, were the FTAs the driving force or was it innovation. Be that it may we have a lot of work to do on both fronts.

While the next wave of growth for the export business can be the FTA with China, there are many other areas within our control that need to be managed through private-public partnerships.

Even though quarter one export performance was a record, the two FTAs are not growing at the rate that Sri Lankan exporters want. The key issue being the non-tariff barriers that Sri Lankan exporters are up against in India. February exports to India was at -27.7% and Pakistan at -6.3%.

Though the India market rebounded in March to end with a positive trajectory, the fact of the matter is that FTA is not driving Sri Lanka's agenda on the export front. This must be addressed with a joint trade commission given that a new government was elected in India recently.

One of the key cries of the private sector is to clear the backlog and reduce the time lag on VAT refunds. Many exporters said that they do not need any hand outs and that VAT refunds due to them can ease out the working capital issues.

EDRS scheme

While the EDRS scheme was discontinued in 2009, there were payments due to exporters prior to discontinuation of the scheme, which have been invested by exporters. If this issue can be addressed we will be in line with the South Korea export model where winners were selected and supported by the government rather than a blanket approach of financial schemes.

There were many claims and counter claims on gaps in procedure that is making the TIEPS scheme more of a hassle than an enabler. As technology is developing rapidly there is no option but to go online. It will bring in a positive vibe given that it will have to be anyhow paid on a later date. The question is will the available cash flow make the online strategy feasible.

Given that almost 73% of the exporters are SMEs, all trade fair participation and any technology transfer training should be notified to the Industrial Zone coordinators. Apparently there are 47 industrial estates that house around 18-20 SMEs.

The business chambers can play a bridging role. With the tea sector nearing the US $ 2 billion mark a key strategy sought by exporters is the launch of the Ceylon Tea campaign. With all the bureaucratic issues of a government institution, the Sri Lanka Tea Board partnering Dialog in sponsoring Sri Lanka Cricket is a big win.

The Ceylon Tea Moments restaurant that has brought in a new dimension to the tea experience has potential to be franchised globally. But the launch of the Ceylon Tea campaign is a must as it can have a positive rub off on Brand Sri Lanka too. The process followed can then be replicated by the rubber, cinnamon and Ceylon Sapphire business.

ICT

More focus must be made on the ICT sector given that it is growing strongly. This includes software development, 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.

The strong private-public partnership in developing this industry is encouraging. We must make this a US $ 1 billion business in the future.

Export bank

It may be a good idea to have a dedicated bank for the export industry which can channel development finance targeting the SME sector. This can also drive strategies such as the Export Oriented Investment Support system (EOISS) which will be based on incremental export earnings.

This mechanism can also ensure that the export trade brings the money earned, into the country, though it may not be popular.

In simple terms, we have to make the export business the key agenda of Sri Lanka. If we can make this business around 30% of GDP by 2020 the objective of Sri Lanka crossing the US $ 4,000 per capita income will naturally happen given that 73% of exporters are SMEs.

This demands a micro perspective like the points discussed and a more macro perspective in the area of innovation and trade agreements with nations.

The writer is a marketeer by profession. He serves on many private and public sector boards as a Director. The views expressed in this article are strictly his personal views.