• Reducing non-tariff barriers is vital
• SVAT must continue or be replaced with VAT refund
• Must implement National Export Strategy

“We should not sugar-coat these few months of sporadic increases in exports,” asserted National Chamber of Exporters of Sri Lanka (NCE) Secretary General/Chief Executive Officer (CEO) Shiham Marikar in an interview with The Sunday Morning Business, while emphasising the statistics of the past 10 years.

“The exports have been stagnant and it is clear we are losing the competitiveness of our exports. The number of exporters in Sri Lanka has remained the same and there has been no addition to the export product basket. Our export figures are not dynamic,” he pointed out, adding that although exporters were trying their best, only national-level policies could change this stagnation.

During the interview, Marikar also spoke about the vital challenges that Sri Lankan exporters faced locally and how they engaged in the international export arena, suggesting solutions for all these challenges.

Following are excerpts:

Could you provide an overview of Sri Lanka’s export performance in the recent past? 

The NCE is a private sector chamber with over 500 members, ranging from the extra large to the Small and Medium-sized Enterprises (SMEs), covering almost all the merchandise production service sectors. The NCE is around 35 years old and is governed by a council that consists of around 40 members. Each member represents a particular export sector, and we meet monthly to discuss issues faced by exporters. 

To give you an overview of Sri Lankan exports in general, if we were to examine Sri Lankan exports during the last decade, the important feature is that exports have been stagnant and solid growth in any sector cannot be seen. If we look at the statistics, the merchandise exports have a history of reaching from $ 10 billion to $ 13 billion during this period. In 2023, it was $ 11.85 billion. 

It needs to be pointed out that there have not been any solid policies that have been introduced to support exporters by the consecutive governments in the past, even if they have discussed the need for the country to focus on exports and how Sri Lanka should be an export-driven economy . We wouldn’t have seen export stagnation if the Government had implemented such policies. 

During recent months, there has been a sudden increase in exports, especially a sudden peak in January and a significant increase in March. However, this is different from how we should look at it. We should look at the overall Sri Lankan exports. What has our journey been? 

As a chamber, we are trying to assert the fact that the policies introduced by various governments in power have yet to support export growth. That’s the main reason why we have been stagnant. 

What are the anticipated agreements between Sri Lankan exporters and other countries? What are the challenges the FTAs face, and what are your suggestions for overcoming these challenges?

In addition to China, a few other delegations came to Sri Lanka. We are signing many Free Trade Agreements (FTAs). We have one with India, which we are now trying to renegotiate. We have another with Pakistan. Recently, we signed an agreement with Indonesia. As a chamber, we are 100% supportive of FTAs. They are a good move and will create many opportunities for Sri Lankan exporters.

Meanwhile, we need to ensure that these FTAs are correctly negotiated because when the Sri Lanka-India FTA was negotiated a couple of years ago, it resulted in a benefit to the Indian side rather than to Sri Lanka. Even though reports state that Sri Lanka’s exports increased under these FTAs, many exporters will deny it. 

We are facing many non-tariff barriers. There were quota restrictions, vote restrictions, and various other obstacles. The negotiating team is doing an excellent job. They are consulting the private sector, we are having regular meetings, and they are now trying to renegotiate the India-Sri Lanka FTAs, clearing all these non-tariff barriers. In addition, the future FTAs that are being discussed involve collaboration with the private sector.

We must commend the work being carried out by the negotiating team, where the public-private dialogue is continuing very strongly. While we fully support our FTAs, we must ensure that our house is in order. For example, are we very clear about the anti-dumping laws? Are we very clear about the products of large countries? For instance, if products begin to enter Sri Lanka from a developed country like China, how will that affect our industries here? 

When you sign a three-year agreement, there will be winners and losers. The losers could be Sri Lankan industries that have operated for many years, invested a great deal of money, and created many jobs. We need to ensure that there is a support package introduced to such industries that would enable them to upgrade themselves in order to meet challenges when dealing with countries like Thailand, China, and India, which are giants in trading. We need to identify the weak links in Sri Lanka and introduce relief packages so that Sri Lankan companies facing threats due to FTAs would be strengthened to meet such challenges. 

What are the challenges faced by the export industry of Sri Lanka and what measures must be taken to navigate these challenges?

Exporters have been resilient. Despite the country going through a 26-year war, tsunami, Easter attacks, and Covid-19 pandemic, the exporters still survived. A few of them have decided to open their offices in other parts of the world, like Kenya and the UAE, because they don’t feel the policies in Sri Lanka favour them, leading to their moving out of the country slowly. However, most exporters have still supported the export industry and have sustained their business by being resilient and bringing in US Dollars for the Government. 

I want to highlight the fact that Sri Lanka exporters generate the greatest US Dollar income, followed by tourism income and foreign remittances. In addition, there are many avenues and opportunities to increase or double our merchandise exports, or even earn $ 20 billion during the next two or three years should there be favourable policies. Ad hoc policies are not supportive towards this end. This is one significant issue that exporters face.

A second issue is the corruption and lack of transparency at various board agencies. It could relate to the Sri Lanka Customs, armed forces, Inland Revenue Department (IRD), or Forest Department, where exporters need various types of approvals. We don’t see a transparent method in their processes which leads to multiple forms of corruption. 

This not only increases the costs of exporters but also takes a toll on them in terms of time, money, and growing frustration. We receive many complaints from our member exporters informing us about corruption taking place at various small agencies because of the lack of transparent methods in their processes. 

How are Sri Lankan exporters positioned compared to regional competitors like India, Bangladesh, and Vietnam? What challenges do exporters encounter while striving to gain a competitive advantage in the global export market, and what strategies can be implemented to address these challenges?

We can compare ourselves with the regional players surrounding us. Other countries have overtaken us with a significantly higher percentage of exports, yet we have been stagnant. We must remember that a significantly high portion of Sri Lanka’s income over the years has come from the apparel, tea, and rubber sectors, ahead of the remaining products. More contribution from the agriculture, food, and spice sectors is needed, yet these lack growth. There has always been stagnation in these sectors. 

Regarding the cost of energy, especially when it comes to the electricity tariff here in Sri Lanka, we are around 10-12% higher than countries like Bangladesh and Vietnam. This too creates an issue regarding the competitiveness of Sri Lankan export products in the international market. Export enterprises should be provided some support – perhaps in the form of tax relief – to compensate for their higher expenditure on energy in order to be more competitive in the international market. 

We are trying our best to brand our products in the international market. If you consider Sri Lankan tea exporters, Ceylon Tea has penetrated many countries. However, these individual exporters also have their respective brands, which they have invested heavily in, and some have registered the brands in various countries. 

For example, consider a few of our leading value-added tea exporters who have registered their brands in Russia in the process of exporting to such countries. However, they should be able to do so when they go to other countries as well. 

I wish to highlight that there is a protocol called the Madrid Protocol, which is a global mechanism for registering trademarks outside one’s home country. A Sri Lankan brand or exporter can register their brand through this protocol, which covers around 10-15 countries in one go. Therefore, it reduces the exporters’ costs, whereas otherwise, they would have had to register in each country individually. 

We have discussed the Madrid Protocol with relevant stakeholders for many years, yet up to now, Sri Lanka has still to gain accession to it. We have spoken to the appropriate department handling this work, the National Intellectual Property Office (NIPO), which has completed all the studies and paperwork and submitted the documents to the Ministry of Trade. From there onwards, it has not been moving. This is the excuse they have been giving us for the past two years. 

The Madrid Protocol is a high priority for Sri Lankan exporters. Action has yet to be taken by the authorities to move forward.

As exporters, we rely heavily on Sri Lankan missions overseas. While some countries where there are Sri Lankan missions are working with their own exporter committees robustly, many missions are not progressing. 

We have met with the Ministry of Foreign Affairs and suggested introducing a web portal whereby every Sri Lankan mission will be reported on that platform monthly, especially in relation to their trade work. If there is a particular Sri Lankan mission in a country that has not progressed significantly during a specific month, they can make a note on it. 

This will create healthy competition among trade officers worldwide. We currently have around 52 Sri Lankan missions overseas; apart from doing their diplomatic and political-related work, they also have to work very hard on obtaining investments, bilateral trade, and Sri Lankan exports to the particular country. 

We need promotion as well. As a chamber, we organise many trade promotional events. We go overseas with 10 or 15 exporters to participate in Business-to-Business (B2B) meetings and exhibitions, but the support we receive from some of these trade missions is unsatisfactory. 

There are many improvements that need to be made there. We have informed the Ministry of Foreign Affairs and spoken to the Department of Commerce as well. The best solution is to introduce an online web portal where all trade-related work carried out by Sri Lankan missions can be updated. We haven’t taken any action to date.

The cost of doing business in Sri Lanka is very high compared to our neighbouring countries. We are under considerable stress, starting from energy costs, wages, and other export expenses. Our company revenues have declined. One other suggestion is to improve our railway network so that raw materials and producers from various regions can be transported cost-effectively. 

We have not seen any developments, and our railways have not been used to transport producers. For example, farmers in areas like the Northern and Southern Provinces must transport their produce to various export enterprises and their factories and plants. Presently, land transport is used, which costs a lot of money. One way to reduce costs is by improving the railways. 

We export significantly to countries such as the US and Japan as well as countries in the EU region, where the buyer requires many standards and certifications for their products. Sri Lankan exporters need help with their financial burdens in order to obtain such certification. 

We know many SMEs need to be able to export to buyers in European countries, and even though they have the required products, they are letting go of those particular orders because the cost of obtaining the required certification is high. This is something that the authorities need to look into and introduce appropriate support services, especially for the benefit of SMEs, in order to enable them in obtaining the certification required to reach the European market. 

Usually, certifications of this nature are provided by organisations like Control Union, SGS Sri Lanka, Bureau Veritas, and a few others. There are many inspections to be done, but these certifications are costly. That is where we need the Export Development Board (EDB) or any other agency to come forward and provide this support to the exporter in terms of covering half of the cost. We request the relevant agencies to support these exporters in obtaining the certifications to meet the demands specified by their buyers. 

Ceylon Cinnamon received the Geographical Indication (GI) certification in 2022. Such a certification is useful in promoting Ceylon Cinnamon in the global market. The EDB launched Ceylon Cinnamon with the GI certification at the Anuga fair held in Germany. But ever since, we haven’t seen many programmes being carried out to create awareness about Ceylon Cinnamon despite its GI status. 

We need the Government to look into this and launch a programme creating awareness among the international market about the product called Ceylon Cinnamon as the best in the world, and also highlight some of the benefits and characteristics of Ceylon Cinnamon, which would hopefully see its exports increasing. 

Currently, Ceylon Cinnamon is exported primarily to South American countries. We need to penetrate European countries as well. We also need support through the EDB to promote Ceylon Cinnamon through the GI certification that it has received. 

How has the recent appreciation of the Sri Lankan Rupee affected exporters and what are their views on the current mandatory conversion rule?

Rupee appreciation overall is a good thing for the country, but the mandatory conversion rule still applies to exporters. We supported this law when it was introduced during the financial crisis, when we lacked dollars and the Government needed them. But we do not consider it a necessity any longer. 

While exporters are not saying much about the Sri Lankan Rupee’s appreciation even though it negatively impacts them, they are requesting the Government to relax mandatory conversion requirements. 

How accessible is export financing for SMEs in Sri Lanka? What steps are being taken to improve access to finance?

The contribution of SMEs to the export industry in Sri Lanka is meagre. It is around 20% of total exports whereas if you look at other countries, they have reached 30% or even 40%. SMEs play a vital role not only in their own businesses but also in creating many jobs. Supporting the SME industry and ensuring that their exports reach 30-40% of the total can be done only through proper policies. Therefore, national-level policies should be introduced. 

In addition, the Central Bank of Sri Lanka (CBSL) needs to introduce monetary policies that will favour the export sector, because when most SMEs wanting to finance export orders depend on commercial banks to obtain financial services like loans, they are always based on collateral. SMEs may have a limited amount of assets, so financing exports and receiving support from these commercial banks takes time and effort. 

We request that CBSL look at this favourably and introduce suitable monetary policies to commercial banks that could benefit SME exporters especially. A large-scale exporter can provide collateral and obtain the required funding. However, for SMEs or Micro, Small, and Medium-sized enterprises (MSMEs) that want to start doing exports, this is very difficult because borrowing in Sri Lanka is based on collateral. We need the CBSL to introduce some appropriate policies. 

Also, it has been noticed that even though some commercial banks want to support exporters, they cannot move beyond that due to the stringent rules and regulations that the CBSL has introduced. Therefore, especially at a time like this when the country is trying to obtain more foreign exchange through exports in order to motivate exporters to go for these orders, a little bit of relaxation or even some new policies that will support the SME exporter will be highly appreciated by the export sector. 

What financial challenges have you observed exporters facing in recent years, and what strategies do you recommend for overcoming these challenges?

Some time ago, the Government announced it would remove the Simplified Value-Added Tax (SVAT) given to exporters. As a chamber, we saw ‘removing the SVAT’ as a very ad hoc policy introduced by the Government. Therefore we, as a chamber, joined with other chambers and represented ourselves at many forums. 

Finally, the Government agreed to postpone the removal of the SVAT to January 2025, which again will cause many problems because we don’t have a proper VAT refund scheme. Refunds, which the exporters are yet to receive, are going to take about 10 years. 

Considering the absence of an appropriate VAT refund scheme, we urge the Government to consider retaining the SVAT being used by exporters, especially because removing the SVAT while not having an efficient VAT refund scheme is going to create a huge burden, especially on the exporters’ cash flow. 

Why do national export strategies consistently become mere plans without adequate execution? What are the primary obstacles? What progress has been achieved thus far in implementation, and what steps are anticipated for this year?

Before Covid-19, we prepared the National Export Strategy for Sri Lanka with the guidance and support of the International Trade Centre (ITC). There were many private sector businesses, associations, and chambers involved. From the Government sector, almost all the board agencies and the Ministry of Finance contributed. Yet, when the Government changed, this policy was not continued. 

After everything was completed, we identified six focus sectors – Information and Communication Technology/Business Process Management (ICT/BPM) services, wellness tourism, the boating industry, electricals and electronics, processed food and beverages, and spices and concentrates – all of which had full potential to double their exports. It was not taken into consideration, however, and the file is now buried. 

We engaged in a considerable amount of research and identified that these six sectors have a huge growth potential. We identified the concerns we were facing and the bottlenecks to be expected. A detailed plan was prepared through this strategy, but when the government changed, it was discarded. 

We need to reconsider this and bring the National Export Strategy back to the attention of all stakeholders. We are urging the Government to look at it very positively because most exporters we know, and even the trade chambers, would say with one voice that they want to see the National Export Strategy implemented. 

All the private sector members, trade chambers, and associations coordinated a great deal, and we all came together to implement this strategy, even though it ultimately did not take off because of the change of government. We have gone to the EDB and the relevant authorities and repeatedly requested them to implement the National Export Strategy. We support this completely. 

What is your stance on integrating digitisation into the export processes to enhance efficiency?

A single-window system is critical. We have been asking for a single-window system where many board agencies can come together; to introduce a digital platform where exporters can get all their approvals and other requirements in a one-stop shop. There are many consultations and points we are putting forward at numerous meetings, but nothing is happening. These are the key demands that exporters are urgently seeking to address.

Furthermore, recently, there was an announcement that the wages of tea plantation workers should be increased. Increasing wages in the tea plantation sector, as an overall move, is a good idea. It reflects upon improving the livelihood of the people in the sector. We have no objection to that. 

However, the method utilised where there was no consultative process is the issue. The tea industry should have been involved in discussions. As part of the private sector, it is based on productivity whenever increments or increases in wages are offered to its workers or employees. Tea exporters are working on skinny margins. They need help to sustain their businesses. 

While increasing wages is a good move, we must ensure it will not create a problem in the industry. Therefore, a proper consultative process should be done before a policy like this is finalised. It should not be a decision made for political benefit. Any increase should be based on productivity.