Export or perish
If Sri Lanka is to overcome its debt repayment headache and get on the path to solid, homegrown economic prosperity, the only way to go about it is to produce more for export. This, however, is easier said than done due to the fact that successive governments have failed to get their priorities right.
Reliable, uninterrupted power at a reasonable price is a primary requirement for the manufacturing sector. If the Government is not in a position to provide this basic facility, then the discussion on increasing exports is as good as dead. One can argue that large scale manufacturers should be in a position to generate their own power requirement but that is not how it is supposed to be. Manufacturers should be able to focus on their core activities and not be distracted by being forced into the business of power generation. The good news is that despite the various issues, the export sector has performed well in the first month of 2019 as per Central Bank data released last week.
The Central Bank data showed that exports have grown by 7.5% in January on the back of a similar performance the previous month. On the flip side, the import control measures introduced in the recent past seem to have had the intended effect with a hefty 18% drop in imports in January compared to the same period last year.
The combination of increasing exports and declining imports has resulted in the January trade deficit narrowing down to $ 617 million, which is a noteworthy drop from the $ 1,049 million registered during the same period last year. Overall, exports have crossed the $ 1 billion mark in January 2019 which augurs well for the rest of the year, subject to no further political disruptions.
The scheduled repayment of the International Sovereign Bond of $ 1 billion, which matured in January, has helped to reverse the decline of the rupee, and as at the end of last week, the Sri Lankan rupee had appreciated 4.6% against the USD this year.
In fact, the rupee has appreciated against all major currencies in the recent past with the highest being against the Japanese yen (6.1%), followed by the euro (5.9%).
While a strengthening rupee may result in marginal losses for exporters in the short term, the greater benefit will accrue to the buyer making our exports more competitive. But as it happens every so often in this country, just when something is going right, the mandarins in government have to put a spoke in the wheel, bringing progress to a halt.
Now we hear that the two entities that facilitate export cargo are both contemplating price revisions which will invariably mean that the higher cost of logistics will be passed on to the importer at the other end, making Sri Lankan products costlier to import.
If the Sri Lanka Ports Authority goes ahead with its upward revision of tariffs, needless to say, it will be the exporters who are already struggling with thin margins that will be affected the most.
To make matters worse, the Aviation Authority is also considering increasing airspace and landing charges. There is a considerable amount of air cargo; especially apparel that is air freighted from the country. It is no secret that Sri Lanka’s once thriving apparel industry is now fighting for survival with intense competition from regional players such as Bangladesh and Vietnam. It will indeed be a sad day for the country if we price ourselves out of the competition due to bungling bureaucrats who don’t see very far beyond their noses.
Ministers Malik Samarawickrema and his Deputy Sujeewa Senasinghe have to speak up for the export sector and ensure other line agencies that facilitate exports, operate in symphony so that the country’s larger interest is protected. Export revenue is of great importance as the other main foreign exchange earner seems to be on the wane.
The appetite for foreign employment especially in the Middle East is on the decline. What this means is a decline in foreign remittances, and the shortfall has to be compensated with higher export earnings. Therefore, Sri Lanka needs to urgently get its act together to ensure export revenue continues to grow in order to sustain the gains that have been achieved.
The booming tourism sector has a lot to do with the declining number of workers seeking foreign employment. The opening up of the local hospitality sector has resulted in thousands of new job openings. Youth in rural areas are no longer interested in rushing to the Middle East and other parts of the world when the international hospitality brands operating in Colombo and other parts of the country offer standardised remuneration comparable to what they would earn elsewhere. Increased tourism earnings could well compensate for the loss in foreign remittances if nurtured carefully.
Likewise, with the restoration of GSP Plus, European markets are wide open for entrepreneurial Sri Lankans to manufacture and export a variety of products.
A vastly untapped market is the fisheries sector. It is a comedy of errors that has resulted in a country that is surrounded by an ocean teeming with fish, spending millions of dollars on importing canned fish from countries on the other side of the planet such as Chile and Brazil.
Most of our regular catch is processed for export while what remains is grabbed by the hospitality sector which now has 2.5 million tourists to feed each year. The result is that fish varieties such as seer have become a luxury item in supermarkets and priced out for the average middle-class family.
Two of our main agricultural products – tea and coconut – are still exported in bulk without any value addition. It is time that revenue from these sectors is maximised through value addition locally, rather than at the other end of the export chain.
Whatever strategy is put in place to develop the export sector, the fundamental requirement is for all government agencies involved with the sector to act in concert and not in their own interest.