Economy

   New thinking required for Sri Lankan exports

By A  Special Correspondent

Sri Lanka’s exports industry which nets in a revenue of over US$ 8 billion is under serious challenge with overall exports declining by 18.4% in the month of February to US$ 524 million and the cumulative export earnings dropping by 15.2% to US$ 1015 million.

“With overall imports declining it is estimated that the trade deficit will decline to a value below US$ 2 billion from the 5.9 billion in 2008. However, an in-depth analysis reveals that overall economic activity will be slowing down  and the lower imports will have an impact on the employment levels and livelihoods of people,” said Economic Strategist, Rohantha Athukorala, speaking last week at The Rotary Club of Reconnections meeting under the theme ‘What next for Sri Lanka.’

Athukorala noted that the declining intermediary goods add to the challenges that the country will have to face up to as it is an indication of lower export revenue and manufacturing output that the country will have to face in the near future, but the good news is that overall the apparel industry that contributes  almost half the export proceeds of the country was seen growing by 15.4% to the European Union and 1.5% to the United States to date this year. It is seen as a positive sign that Sri Lanka must build on.  

New thinking?

Based on the post war scenario in Germany and the conflicts that were experienced in Rwanda and South Africa Athukorala observed that what the country requires is overall economic policy reform to move the country to a high performing growth trajectory and if this does not happen Sri Lanka will not benefit from the investment made towards eradicating terrorism.

FTA –fast tracking

Since opening its economy in 1977 Sri Lanka has been pursuing a multiple approach to integrate with the rest of the world. Firstly, Sri Lanka was committed to full participation in the global economy and supported an open, transparent and a rule-based global trading system and the Sri Lankan government pursued to improve market access for Sri Lankan exporters in global markets through multilateral trade negotiations in the World Trade Organization (WTO). 

Thereafter the Government of Sri Lanka actively engaged in pursuing the South Asian Free Trade Agreement (SAFTA). There have been questions raised as to its effectiveness with the inter regional exports being at a low ebb of below six percent as against the NFTA where inter regional trade is as high as 50 percent.

Given the slow development of these trade partnerships the Sri Lankan government also undertook to build the Sri Lanka exports sector by focusing on the bilateral negotiations with key trading partners through a comprehensive Free Trade Agreements (FTAs) with India and subsequently Pakistan.

Exports to India-declining

Overall exports between the time periods January - September 2008 to India declined by 13% while the processed food industry declined by -74%, pepper by -0.7% and woven fabrics by -15% whilst in the strategic sectors of tea and garments the quota utilisation was below 10%.

It has been pointed out that this poor performance was mainly due to the non tariff barriers that have been implemented by Indian authorities like tariff rate quantities (TRQs), delays in custom clearance of cargo, port restrictions, necessity for several tests to be carried out in India even though  certificates are accompanied by the relevant authorities that resulted in many Sri Lankan exporters losing confidence on bilateral agreements which are essentially designed to promote fair competition and equitable benefits.

The poor performance of Sri Lankan exports into India on the strategic sectors of tea and garments in 2008 was a repeat of the 2007 and 2006 performance, which means that there has been no result on the many representations made by Sri Lankan authorities. Athukorala said it is time that a proper analysis was done so that a fresh look at the issues that have taken place could be had so that at least in the near future, the huge opportunity that India provides with its 1 billion people will become accessible to Sri Lankan exporters who are world beaters in their respective industries.

Exports to Pakistan

It has been pointed out that working with the Pakistanis was easier due to the management culture with the FTA driving exports from just Rs. 4 billion in 2005 to a commanding Rs.8 billion in 2008. This is in fact a record performance for Sri Lanka  and now the challenge is how based on this performance Sri Lanka can make inroads into Pakistan so that each of the two countries can mutually benefit where living standards of people can improve and sustainable peace can be achieved.

Opportunity

As per the FTA with Pakistan, Sri Lanka received an immediate 100 percent duty concession for 206 products including coconut products, fish, vegetables, edible nuts, spices, fruits and fruit juices, graphite, essential oils such as cinnamon and pepper oils, rubber, leather, wood based articles. iron and steel, furniture and precious and semi precious stones. 

In addition, Sri Lanka was given quotas at zero duty for 10,000 MT of tea per year and 1200 MT of betel leaves and three million pieces of apparels at a reduced rate of 35% respectively.  Ceramics and cosmetic products of Sri Lankan origin are not subject to quota but a reduced duty of 20% and 50% respectively from the applicable rate was granted.

There are another 4000 products where duties will was phased out this year and in the first year, there would be a duty reduction of 34 percent and after two years, the reduction in duty would be 67% of applicable duty whilst after three years all products in this phasing-out category will come under zero duty which opportunity  should be grabbed by Sri Lankan exporters who aspire to drive business with Pakistan.

The issue

However, the issue at hand is that even though this opportunity exists a key area of focus should be to evaluate the Reveal Comparative Advantage (RCA) Index which indicates if  merchandise of a country is actually required by a country producing that same item in the local market. Athukorala said that on this premise we see that Sri Lanka enjoys a strong RCA in products such as coffee, tea, spices, vegetable planting material, vegetable textile fibres, knitted apparel, clothing accessories and apparel clothing accessories and the challenge is how Sri Lanka is to drive exports into Pakistan.

In the case of tea the quota utilisation is only 7-10% which needs to be addressed as in 2006 this figure was as high as 35% and the country earned 8.05 million dollars but today this business has crashed and it needs a re-look at the overall FTA arrangement.

Even though exports have doubled in value from Sri Lanka into Pakistan the trade balance that stood at US dollars 69 in 2004 has increased to 122 million dollars in 2007 which means that one can question if the FTA has really benefited the country. This needs to be strategically looked at a time when Sri Lanka needs to manage its Balance of Payments (BOP). Import-to-Export in relation to Pakistan has widened from  2.7:1 in 2004 to  3.2:1 in 2007 which needs to be corrected, said Athukorala.

Way forward

 Whilst the overall export numbers are encouraging in absolute terms Sri Lanka must press for diversification of the export items which carry preferential tariffs into Pakistan and India rather than these items being confined to commodities. Sri Lanka must also invest on building at least five brands in each market in the strategic sectors together with the support of the policy makers of India so that the spirit of the FTA can be maintained, said Athukorala.

It is time that Sri Lanka evaluates in a similar manner the markets of EU and US that account for almost 60 percent of exports so that obstacles are identified and a new strategic direction developed so that together with the specific industry-led plans we develop market based strategies so that Sri Lankan exports cross the 12 billion dollar mark within the next three years.

Vital water for IDPs in northern Sri Lanka

By Asanga Warnakulasuriya Water is an essential requirement for everyday life. This need is often heightened when one is displaced and dependent on others for the provision of daily needs. World Vision Lanka is providing thousands of Internally Displaced Persons (IDPs) in northern Sri Lanka with a daily supply of water.

The arrival of the World Vision water bowser at the camps is accompanied by a flurry of activity as IDPs rush to join one of the queues at a water tank.

Three World Vision trucks are distributing over 100,000 litres of water every day, making several rounds to the IDP camps in Manik Farm Zone 3, Muslim Maha Vidayala and Cheddikulam in the Vavuniya District.

The 25 year long conflict in Sri Lanka is nearing its end as Sri Lanka’s armed forces are engaged in what is expected to be the final thrust to flush out the remaining LTTE cadres holed up in a shrinking ‘no-fire zone’ in Mullaithivu.

Over 200,000 civilians have fled the conflict zone and crossed over into government controlled areas since the beginning of the year and are now housed in IDP camps in the districts of Vavuniya, Mannar and Jaffna in the north and Trincomalee in the east.

In recent weeks, World Vision has distributed packets of cooked food to more than 50,000 newly arrived IDPs but as more people arrive, the need for more food grows.

Over 100,000 litres of water is being distributed in three camp locations and World Vision plans to deploy additional bowsers to truck more water into the camps.

World Vision has also set up special enclosures in 23 campsites across the Vavuniya District to provide a private space for nursing mothers. A daily supplementary feeding programme is reaching 1500 children under five, and 127 pregnant and nursing mothers.

World Vision has been in Sri Lanka since 1977 and has invested more than USD 350 million in development projects across 22 districts in the country.