Eurozone crisis could affect Sri Lanka

by Lalin FERNANDOPULLE

The Eurozone debt crisis could affect Sri Lanka's exports this year and in the next, according to leading exporters in the country.

They said that the sovereign debt crisis in the Eurozone could have procedural problems such the exchange rate differences and opening of LCs (Letters of Credit) which would affect exports to the region.

The Eurozone is a major market for Sri Lankan apparel which are purchased by leading brands such as Marks & Spencer, B H S, Gap, Tesco and Victoria's Secret. Sri Lanka Apparel Institute Chairman Prof. Lakdas Fernando said that currently apparel exports are doing well but exports in the future could be affected due to the decline in the purchasing power of European consumers. "Everything depends on the buying power of the consumer and how intense would the problem be in the future", Fernando said.

"Steps have been taken to market Sri Lankan apparel and promote the SME market in the Eurozone. We hope that the problem will ease off soon and the exports to the region will continue", he said. Sri Lanka Apparel Exporters Association (SLAEA) Chairman, Rohan Abeykoon said apparel industry has performed extremely well in spite of global recession that hit the world some years ago, the debt crisis currently confronting Sri Lanka's key apparel export markets, and the loss of GSP Plus facility.

"Sri Lanka 's target of achieving five billion USD in apparel exports by 2015 is on course", he said.

The figures for the period of January to October 2011 show 45 percent year-on-year rise in apparel exports, which is reflective of the relevance and perceptiveness of the industry, he said.

Trade experts said the crisis in the region will affect the purchasing power of middle-end consumers which will lead to spending cuts.

According to the Asian Development Bank the debt crisis affecting major economies in Europe will hit growth in Asia's developing economies this year and next as the key trade zone cuts back export orders.

In September, the bank forecast developing Asia, excluding Japan, Australia and New Zealand, would grow at a rate of 7.5 percent in both 2011 and 2012.

But that estimate may now be unrealistic given the lack of resolution to the Eerozone's debt problems, a top official of the bank said. "7.5 percent (growth) is probably going to turn out to be on the higher side given what's happened since our forecasts and now.

How much will depend on how soon the Eerozone crisis works itself out", he said.

Analysts said that steps taken to replace leaders in Italy and Greece and austerity measures are encouraging. Respected Corporate personality Rohantha Athukorala who was the Former Chairman of Sri Lanka Export Development Board and the National Council for Economic Development said, "I believe that the spirit of being American, will sure pull the economy out of the trouble that it is in and the vulnerability to Sri Lanka exports to the US is not that high especially with the re-introducing of GSP trade concession. But the EU, is a different issue given the political divide.

I feel Germany needs to do more to support the EU economy but it's a tough call.

There will be an impact on Sri Lanka's exports into this market(EU) and we need to develop an alternate export business of around a 750 million dollars from a combination of BRIC countries.

The Budget proposal of pursuing FTA with African nations and probably the BRIC will be a key strategy for Sri Lanka for 2012".

The European Union (EU) is suffering from its own dilemmas. Following the global economic crisis, the Single Market for the Euro has been under stress. Several countries are facing sovereign debt problems, and there is a crisis in the Eurozone. There is uncertainty about the outlook of the Euro area, and the duration of the debt crisis has exceeded the forecasts of certain key analysts.

Immediate Past President of the National Chamber of Exporters Rohan Fernando said the crisis will affect the buying power of middle and low end consumers who are hit by job reductions and pay cuts.

In the aftermath of the global economic crisis, there has been a noticeable shift in economic clout, moving from the USA and the debt-plagued countries of the Eurozone, to the emerging markets of Asia.