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Power and energy crises: Exporters hit badly, but export target unchanged

12 Mar 2022

  • Apparel buyers show signs of moving away
  • Ministry hopes to address fuel shortage immediately
  • Optimistic of achieving target without revision
  • 2022 target not finalised yet: Trade Secy.
  • JAAF worried about power cuts, air freight charges; seeks long-term solutions
By Vinu Opanayake Despite concerns raised by local exporters of a drop in productivity in the face of continuing power cuts and shortages of fuel, the Ministry of Trade is of the view that the export target of $ 20 billion set for the year does not need any revision. This is in the backdrop of the Energy Ministry once again saying that it will solve the fuel shortage in a couple of days.  Speaking to The Sunday Morning, Ministry of Trade Secretary Bhadranie Jayawardhana stated the Trade Ministry led by Minister Bandula Gunawardena had had several meetings with the relevant ministries and the Export Development Board (EDB) and had urged the uninterrupted supply of fuel and electricity for exporters.  “We discussed providing fuel through the Ministry of Transport for export vehicles. Stickers are being prepared at the moment for these vehicles. They need to get them signed by the EDB. The fuel issue will be solved within a couple of days,” Jayawardhana stated. According to her, the current issues the country is facing are not limited to Sri Lanka and are aftereffects of the pandemic. She assured that the Ministry of Trade was constantly in touch with the exporters and was solving issues in its capacity. “The target set for the year is $ 20 billion but we are yet to finalise this official target. We are discussing with the advisory committees and stakeholders on finalising this target,” she added. Power cuts and fuel shortages Meanwhile, the power cuts and fuel shortages have taken a toll on Sri Lankan exporters.  Sri Lanka Association of Manufacturers and Exporters of Rubber Products (SLAMERP) Chairman Ravi Dadlani during a press conference held last week stated that the export industry was finding it extremely difficult to keep factories running, with extended power cuts creating severe issues. Dadlani stated that several factories had machines that could only be operated utilising electricity and that generators could not power them. As a result, they were completely out of operation during power cuts.  “Another issue is fuel. Even if we choose to run on generators, the unavailability of fuel is again creating a major production issue. As of today, the issue is getting compounded, mainly due to foreign exchange unavailability. Sri Lanka should be driven to a free market economy if we are to escape this crisis,” Dadlani stated. He stated that the Government presently had very limited options to emerge from the crisis and urged the Government to take whatever necessary steps required urgently to address current issues as the export industry was all the more important as a revenue generator for the Sri Lankan economy, especially in the backdrop of worker remittances hitting a 13-year low in January this year and tourism earnings just beginning to pick up. Meanwhile, Free Trade Zone Manufacturers’ Association (FTZMA) Secretary Dhammika Fernando stated that power cuts had become a major hindrance to continue the manufacturing processes with no solution in the foreseeable future. “We have informed the relevant authorities about our issues and we have recommended several options too. We would like the Government to address these issues before they shatter the country’s export industry. Unfortunately, no decision has been taken so far. We are in need of an urgent solution,” Fernando stated. He added that the supply chain had been severely disrupted with transportation paralysed amidst the fuel shortage on top of the power shortage and dollar shortage. According to him, factories were unable to provide transport for workers as the vehicles had run out of fuel and transportation of raw materials to the factories had also been affected. Apparel buyers show signs of moving away Joint Apparel Association Forum of Sri Lanka (JAAF) Secretary-General Yohan Lawrence stated that apparel exports had recorded the highest-ever January performance in January 2022. However, the impact of the prevailing power cuts and fuel shortages have put the whole industry at risk. “These issues have put us and the revenue generation of the industry at risk. Fuel has a massive impact not only on generators but also on the transport of staff and raw material. To give you an example of the side effects, last week in the Seethawaka Zone when there was a power cut, factories could not run. Because of the power cut, there was no water, as the Board of Investment (BOI) could not pump water. When there is a power cut, it disrupts the whole process,” Lawrence briefed.  Lawrence stated that in the industry, timing was of the essence. He stated that the moment apparel orders got delayed, the first thing the buyer did was ask for air freight for the goods. “If air freight costs go up, it will impact the profitability of the business and the revenue the industry is earning. Our request is that we need a long-term solution,” he added. Lawrence stated that their concern at the moment was the country’s reputation. “Our reputation is going down now. Sri Lanka always had a reputation for delivering on time and now this is going down. We are not in a position to give a clear indication as to when these issues will be sorted. We were informed that by 5 March there would be no power cuts and the diesel issues would be sorted, but here we are, still going through power cuts,” he noted. He said when Sri Lanka’s credibility was in question, buyers would simply move orders to other countries, adding that they had already started showing signs of moving to other countries for their apparel needs. “Now is the time for us as a country to come forward with a credible long-term plan,” he added. Sri Lanka’s apparel export earnings rose to $ 487.6 million in January, overtaking the $ 452 million record in January 2019, prior to the pandemic, by 8%, and the growth over January 2021 export earnings was 23%, according to JAAF. Accordingly, Sri Lanka’s apparel exports in January 2022 achieved the highest level for that month in the last five years. This performance demonstrates the industry’s underlying strength as it bounced back from the shocks sustained from the impact of the pandemic over the last two years.  The industry’s 2030 vision is to transform Sri Lanka into a global apparel hub while an intermediate goal is to increase annual export earnings from apparel to $ 8 billion by 2025. The industry’s January 2022 performance also reflects the success of rigorously applied safety measures adopted by the sector, in close co-operation with health authorities, to minimise the spread of the pandemic among employees to zero. Tea is losing competitiveness in global market Colombo Tea Traders Association Chairman Jayantha Karunaratne stated that the tea trade had been badly affected by the power cuts and fuel shortages. “There are some factories that do not have the power to function. They also cannot bring their tea products to Colombo for tea auctions. We could not close the tea auctioning on Thursday because of this and we delayed it to Monday. We cannot keep doing this every week,” Karunaratne stated, adding that export factories in Colombo were also unable to work at full capacity. “The Government is talking about supplying us with fuel but we do not know whether we will get it at all. The dollar shortage is a major issue. Some of the things are imported by us, especially packing materials, based on long-term credit. Sometimes we have dollars to pay them, sometimes we don’t. This is affecting us. Compared to other countries, we do a lot of value additions. We were ahead of other countries like China, India, and Argentina. They used to follow us because we have a lot of value additions and branding but now we are losing that competitiveness because we cannot supply. This will have a long-term effect. We are losing our place in the international market,” he explained. Karunaratne also opined that the industry needed a long-term solution as they could not live in the moment and continue in this manner. He added that their business sustainability was deteriorating and they had shelved the plans of buying new types of machinery and expanding production facilities. “We need a solution from the regulators. We need to find a way forward for the industry,” he added. Rubber manufacturing process hindered Colombo Rubber Traders Association Vice-Chairman Manoj Udugampola stated that due to the prevailing issues, workers’ income had been significantly affected. “Fuel is the main problem. When you are tapping a rubber tree, the latex has to be transported to factories. Then from the factory, it has to be sent for auction. Sometimes we have to hold this due to a shortage of fuel. This affects the industry and its income and we are finding it difficult to pay daily wage workers. It is a vicious cycle,” he stated. Udugampola also noted that due to power cuts, factories could not run full-time, hindering the manufacturing process. “In our plantation sector, there is already a severe shortage of fertiliser, including agrochemicals. They are not available in the market even at higher prices. Effects of no fertiliser are expected to manifest next year. We anticipate a gradual drop in crops in another year. Leaf disease is also present,” he added. Difficult to get buyers back to Sri Lanka Sri Lanka Shippers Council Chairman Russell Juriansz stated that the Government should fix exporters’ struggles as soon as possible, failing which the industry would have to face severe consequences. “If the US decides to sanction Russian fuel, the price will move up sharply. Those who have credible facilities will supply us. If we don’t have a plan, we will be facing severe consequences. We urge the Government to have a plan to procure fuel,” he added. Juriansz further noted that credibility was of immense importance in the trade and buyers would move to other destinations if there was a lack of credibility, after which getting them back would be extremely difficult. “Policy planning should be vetted by professionals before it is put out to the public in an ad hoc manner because the current policies have so many repercussions on trade. The forex issue is the key issue that started all these problems in Sri Lanka. Home-grown solutions are not efficient. Restructure and negotiate the country’s debt over a period of time. That would be a preferable option instead of defaulting. We need to regain the confidence that we are a country that can settle the debt,” he added. Speaking further, he noted that because of the shortage of forex in the banking system, some of the vendors had not been not paid on time, discouraging them from providing supplies. “Losing credibility is very dangerous,” he added.  


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