Exports In Downturn Mode
Export Development Board last week summoned software exporters and wanted to know what could be done to uplift such exports, a participant at this meeting told this reporter last week.
The source further said that the reason for this meeting was because exports were on a decline. The software industry however is one of the few industries which is still growing, albeit at a slower rate because of the major economic crises facing its key markets, namely the USA and EU.
These two markets are also the primary markets for Sri Lanka’s tangible exports which have taken a beating because of these unfolding developments.
The US$ 400 million software/ITES (IT enabled services (BPO)) export sector is expected to grow by 10% this year.
The source said that one of the biggest reasons for a downturn in exports was the protection of the rupee, a previous action of the Central Bank of Sri Lanka (CBSL), “whereas our competitor India kept on devaluing its currency during this period,” he said.
The source further said that at a forum last year where President Mahinda Rajapaksa was also present and during a period the local currency was being defended, exporters had asked for a devaluation of the local currency. At that time the rupee was being defended at the Rs. 110 levels to the US dollar ($) in interbank trading. But after CBSL limited its intervention in the foreign exchange market in February, the exchange rate (ER) has since slid to the Rs. 131 levels.
CBSL Governor Ajith Nivard Cabraal who was also present at this forum had then allegedly asked this exporter what then the value of the ER should be? He had then said Rs. 120, which was at once allegedly shot down by Cabraal who had said that exporters only wanted to make more money.
But now the ER has even gone past the Rs. 120 mark. This exporter said that Sri Lanka four main exports, namely, “housemaids,” garments, tea and tourism are in essence low skill exports. What Sri Lanka needs to do is to move up the value chain, he said. And one of those high value chain exports is software exports, the source said. His company employs some 120 IT professionals where turnover has been growing exponentially.
“As we cannot compete with India on pricing, the secret is to go for niche markets and once established, one could demand one’s price from the consumer, virtually asking for annual increases,” he said. “That’s the secret of our success.”
The garments industry has adopted this strategy and it’s upto other industries such as the gems and jewellery sector to export value added processed jewellery to niche market international brands such as Cartier, he said.
The source further said that former Trade Minister Lalith Athulathmudali’s slogan “Export or Perish” never sounds truer as it does so now. Meanwhile IMF’s Resident Representative Koshy Mathai told reporters last week that CBSL’s then policy of defending the rupee was on the expectations of inflows, which, if such had materialised in large quantities, would have had given buoyancy to the rupee. But in the process, CBSL’s reserves came down sharply from $ eight billion to $ five billion, forcing CBSL to review its position of defending the local currency, he said.
Meanwhile a spice exporter said that exports were down, the only silver lining being the rupee depreciation (see also page34).