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Wednesday, 3 March 2011

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Export outlook positive

*SL exports grow 14 percent last year

*All sectors bounce back in record time

The country's export sector is performing well and targets US $ nine billion revenue this year. The Sri Lankan export sector has performed creditably in 2010, closing the year with revenue of USD 8.173 billion based on provisional Export Development Board (EDB) figures. This is an encouraging 14 percent growth on the previous year, Exporters Association Sri Lanka Chairperson Nirmali Samaratunga told Daily News Business.

It is noteworthy that exports have regained the 2008 levels which was the benchmark set, following the downturn in 2009, she said.

Excerpts of the interview:

The sound macroeconomic conditions in the country have contributed to achieving this result. The economy registered a strong growth of 8 percent in 2010 accompanied by low interest, low and stable inflation, revived credit flows, fiscal consolidation and stable exchange rates.


 Nirmali Samaratunga

The recent release of the sixth tranch of USD 216 million by IMF as part of the USD 2.6 bn loan, signifies the confidence in the economy. Meanwhile the economic outlook for 2011 is healthy with 8.5 percent growth estimated.

Globally too, Exporters benefited due to the recession easing, and improvement in world trading conditions compared to the year before, with world trade registering a 4.8 percent growth.

However, this is expected to slow down in 2011 with IMF estimating world trade to grow by 4.2 percent and advanced economies slowing down to 2.2 percent and emerging economies to 6.4 percent.

The key challenge for exports in 2011 will be, this slow pace of global economic recovery, particularly in our major markets, coupled with rising competition in international markets. Remaining globally competitive is therefore critical.

The prevailing concerns of food security, in the light of rising food and commodity prices globally, accompanied by the effects of climate change leading to destruction of crops, could impact the export sector, in terms of availability of supplies as well as the possible inflationary effect on cost of production.

Sufficient fiscal space would have to be created by the Government to address these issues so as to prevent macroeconomic stability getting affected. The export sector also needs to gear itself to address concerns of high energy costs, and ward off possible impact of the appreciating rupee, although appreciation has been gradual. This calls for strategies to mitigate the effect of these developments, and maintain competitiveness.

In this scenario, the recent five-year strategy launched by EDB is timely. The strategy which outlines the role of EDB as the key driver of exports, also addresses key needs in the product sectors and ways of addressing this, with a view to achieving the target of USD 15 bn by 2015.

The EDB in its mission, identifies achieving global competitiveness as a key element which is welcome, as export growth depends on achieving this.

We also welcome the appointment of the several Advisory Committees drawn from the Private Sector, which closely interact with the EDB officials in planning and implementation of Sector strategy, thus facilitating a close public private partnership to drive the Sector forward.

We look forward to the finalization of the National Export Plan which will set the direction and plan for the strong resurgence of exports aimed at US$ 20bn by 2020.

Looking ahead, with a target of US $ 9 billion set for 2011, the Export Sector is well placed to achieve this, following the healthy performance in 2010, an indication of the resilience of the sector.

Despite the many challenges, with careful planning and speedy implementation of focused strategies, coupled with strong Government support, this target for 2011 could be exceeded, whilst also facilitating the medium term target of USD 15 billion by 2015.


It is noteworthy that exports have regained the 2008 levels which was the benchmark set, following the downturn in 2009.

Amongst the several measures called for, is the need to immediately broadbase our present export product range and markets, and spread the risk so as to avoid over-dependence on a few products and markets, especially in view of current global conditions.

This is illustrated by our top two exports, tea and garments, which account for 61 percent of total exports, whilst USA and EU the top export destinations account for 59 percent of total exports. Whilst these will continue to be key products and markets, and should therefore be maintained, the need is to build up other products and markets to offset this imbalance.

Already seven key product sectors have been identified by the EDB, each having the potential to contribute US $ 1 billion to the total export target, and making up 80 percent of total exports.

Meanwhile greater focus on service exports is needed in this scenario. IT and Offshore Outsourcing services where Sri Lanka enjoys a significant comparative advantage needs to be expanded.

The IT, software, and particularly offshore outsourcing services has the potential to be a US $ 1 billion industry in view of the comparatively low costs and where a quality service can be offered, not just Business Process outsourcing, but also at a higher level, Knowledge Process Outsourcing extending to fields such as healthcare, finance, legal and ICT.

In fact it has been reported that Sri Lanka has, in 2010 - 2011, been identified amongst the top nine countries in the Asia-Pacific region for globally outsourced activities.

With advanced economies facing rising costs in the wake of the recession, this provides a very viable opportunity for Sri Lanka to position itself as a low cost source for these processes, also supporting our effort to position ourselves as a knowledge hub.

Furthermore, in view of the country's strategic location, services such as cargo handling and transshipment could be developed as a key foreign exchange earner, especially with Sri Lanka positioning itself as a maritime hub.

Surviving and growing in the present, fiercely competitive global market, and looking at the future, we need to differentiate our products through specialization and strong branding, exporting goods where we can demand a premium rather than be a supplier of intermediate goods.

The present need is to enhance the image and consumer perception of Sri Lankan exports, globally, as high quality and reliable, and conforming to laid down standards.

This may call for re-positioning our exports, such as the strategy adopted by the garments industry - marketing their products under the label "Garments without Guilt" whilst also moving into the high- end of the market for designer clothing, through the recent initiatives to promote 'Ethical Fashion'.

Moving up the value chain, with increased value addition, innovation, specialization and technological improvements is essential, whilst focusing on high end niche markets, wherever possible where a premium can be gained. The proposals in the 2011 Budget to support this drive to upgrade and add value is welcome, and is an indication of the recognition by the Government of the need to support Exports.

Accompanying such product related strategies, markets too need to be immediately re-examined and broad based. With Asia emerging as the economic powerhouse of the future, Sri Lankan exports need to target the region and focus on greater regional trade to achieve higher growth.

This would involve expanding Sri Lanka's trade through both bilateral and multi lateral agreements. Focusing on trade expansion with China and India would be to Sri Lanka's benefit, in view of their high consumption patterns, and economic strength, and appropriate strategies need to be developed to capitalize on the concessions granted by the Trade Agreements such as the Indo Lanka FTA, Asia Pacific FTA and other Free Trade Agreements. For example, present exports to India account for just five percent of Sri Lanka's total exports, despite the existing Trade Agreement.

Other key areas to address to achieve a sustainable growth in exports, would be, improving productivity, development of human capital, whilst also addressing the growing trend of scarcity of labour, not only in the apparel sector but several other industries.

Underlying all this, is the need for an enabling environment for exporters, with greater ease of doing business. We are happy to note that this vital area is receiving attention by the Authorities.

We look forward to the Single Electronic Window at an early date, which will facilitate documentation of imports and exports speedily and efficiently. Meanwhile, integrating the Sri Lankan economy with the global economy by promoting financing and facilitating international trade and investment is necessary.

In addition to the existing trading models, channels and the traditional banking sectors with bank loans as the main source of funding, a whole gamut of innovative enabling infrastructure such as corporate bonds, debt markets, financial instruments, commodity futures and auctions etc need to be in place to assist exporters to have easy access to cheaper and more competitive trading and financing options.

In this regard we also welcome the proposed Exim Bank dedicated to support exports and imports.

As a trade dependant economy with low resources and small domestic market, the vital role played by exports need to be borne in mind at all times, being the key foreign exchange earner, also providing employment and facilitating greater inclusive growth for the country.

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