Fourth Annual General Meeting of the Sri Lanka - France Business Council:

‘Plans to mitigate impact on apparel sector’

Fourth Annual General Meeting of the Sri Lanka - France Business Council was held recently at Colombo. Patron of the council Michel Lummaux, Ambassador for France was the chief guest of the event.

The newly appointed president, Nirmali Samaratunge highlighted the challenging role of the France Business Council in her speech. The Council has, before it, the task of promoting bilateral trade particularly with a focus on exports, as well as promoting Inward Investment and Tourism. Whilst the French economy had shown a solid performance and around 2% GDP growth in the previous year, in the light of the current global economic turmoil which has now spread to Europe as well as other key economies, the Council now has a challenging task before it. - The Eurozone economy. Of which France is a member, has fallen into its first recession.

What is feared is that this is only the beginning and the crisis can expect to worsen. The G20 industrialised and emerging economy nations gathered in Washington to discuss ways of alleviating a world economic downturn, and prevent the repeat of a financial crisis which set this off. French President Nicholas Sakorzy, currently heading the European Union, featured prominently in this regard, strongly calling for increased economic regulations and major reforms of the monetary system. Renewed growth is not expected till the second half of 2009, which is bleak news for Sri Lanka in terms of the outlook for business with Europe including France, which has already started laying off several hundred workers in its affected industries, she said.

As the global economy heads into a recession, with ensuing contraction in consumer spending and decline in demand, Sri Lanka too can expect to be adversely impacted with increasing pressure on foreign exchange reserves and balance of payments, accompanied internally, by rising cost of living and inflation, which, though reported to have marginally declined, is still in double digits

Uncertainty regarding continuity of the EU GSP Plus Facility poses further challenges to Sri Lanka. Almost 40% of exports go to the EU, primarily apparel, a US$ 3.2 billion Industry, which accounts for approx-imately 10% of the GDP, and employs over 270,000 people. France, is in fact, a major market for this sector. The possible discontinuation of this facility poses a serious threat to the economy of Sri Lanka, with a potential loss of several thousand livelihoods and much needed foreign exchange earnings. Plans by the Government are under way to mitigate the potential adverse impact on the apparel sector, should the concession be lost.

We have a sound base to work from, as already trade has reached certain levels with bilateral trade between France and Sri Lanka standing at around USD 337 Mn. The performance of trade for the period under review has shown steady growth, with exports, where France is our 9th largest Export Market, in 2007, standing at USD 179 Mn with a year on year increase of 21%. Whilst apparel is the main contributor, there is room for sectors such as tea, particularly in value added form to expand from the present 3% of total exports to France. Imports in 2007, at USD 158 Mn have also shown an increase of 17% over the previous year.The trade balance continues to be in favour of Sri Lanka, she also said.

In this context there is much room for improvement as there is still untapped potential which needs to be focussed on. France account for just 2.26% of Sri Lanka’s total exports, and 1.36% of total imports. In view of France being the 6th largest economy globally, the need is for a strategy to proactively identify sectors hitherto untapped, where there is emerging potential for Sri Lankan products, and where, our products, notwithstanding the impact of possible loss of the duty concession, can hold its own.

These include high end, value added products, marketed particularly through niche marketing and branding. Of course this calls for an improvement in our domestic business environment as well, particularly reduction in high energy costs and other factors, which have adversely impacted cost of production. The unfavourable exchange rate, which, though marginally depreciated, continues to be managed, has further impacted competition in exports. We need to be optimistic - We have several success stories of entrepreneurs who have made significant headway in developing business with France.

Though the number is small, there is room for growth in the long-term. France’s strength in key industries also need to be exploited to a greater degree such as in the areas of telecommunication, machinery and pharmaceuticals, through greater awareness, and linking Sri Lankan businesses with French counterparts. The key factor here, is quality and technology.