Exporters Association of Sri Lanka

No: 50, Nawam Mawatha, Colombo 02, Sri Lanka.

2010 - 2011 Past Chairperson's speech

Our Chief Guest - Hon Rishad Bathiudeen, Minister of Industries & Commerce

Guest of Honour & Keynote Speaker– Hon. Dr. Sarath Amunugama, Senior Presidential Adviser on Economic & Monetary Affairs, and Deputy Minister of Finance

Secretary General- Ceylon Chamber of Commerce, Mr. Harin Malwatte,

Other Distinguished Invitees,

Past Chairmen, and Members of EASL,

Ladies and Gentlemen,

Let me at the outset extend a special welcome to our distinguished Chief Guest and Guest of Honour. We are extremely privileged to have you both with us on this important occasion , which is an indication of your support and interest in the Export sector. We greatly appreciate your presence.

Sri Lanka is, today, poised for exponential growth and sustainable progress and development. The peace we yearned, for almost 3 decades and the political stability, fundamental for strong economic growth is today a reality. With this firm foundation now in place, it is for us, as citizens of this country, and particularly as the Private Sector, to, in partnership with the Government, build on this foundation so the country may realize its true potential to achieve double digit growth, double per capita income, reach middle income status, and most importantly, achieve social equity for all.

In this context, I would like to reiterate the words of Ceylon Chamber of Commerce Chairman, Dr.Anura Ekanayake who at the recent CCC AGM stressed the need to ‘Act Fast’. We need to seize this window of opportunity and reap the dividends of this new found and hard earned peace and stability, consolidating it to ensure longterm peace and prosperity.

It is an undeniable fact that exports play a pivotal role in the economy of Sri Lanka. Not being dependent on the domestic market, it presents unlimited opportunities for growth and diversification. In addition it is the major foreign exchange earner and as such, due recognition and priority is necessary to safeguard this Sector.

The Sri Lankan economy is essentially a trade dependent one, and therefore vulnerable to international economies and subject to external shocks. Being a small economy with a limited domestic market, as well as a limited raw material base, this external dependence is inevitable. Products and services are therefore greatly dependent on international markets, thus making them also vulnerable to external factors. Thus there is the need to act fast to address key issues impacting the Export Sector, as we will otherwise be overtaken by competitors and lose the lucrative markets built up over the years which also have potential to significantly grow with the improved global economic conditions expected in the future.

The Annual Report in your hands comprehensively details the export performance and product sector performance, in the year under review. I will therefore make just a few brief comments – The 2008 Global economic recession which caused demand in international markets to significantly contract, continued into 2009, Export earnings declined by '3% to USD 7bn in 2009, due to the lower demand from the Sri Lanka’s major trading partners, stemming from the rapid contraction in the respective economies. The largest decline in overall exports was from industrial exports which contracted by '4% compared to 2008. Meanwhile, the other key sector, Agriculture exports which also suffered badly during first quarter of 2009, regained the lost momentum in the latter part of the year, and recorded an overall contraction of 9%.

Today the Export Sector continues to face the effects of the devastating global economic crisis. The impact of the continuing downturn experienced in 2009 has resulted in loss of markets due to contraction of overseas consumer demands. This calls for aggressive action to regain these markets which are being fiercely targeted by competitors. At this juncture, the withdrawal of EU GSP Plus facility could further aggravate the situation. Whilst over dependence on preferential trade facilities is not advisable, in the current scenario withdrawal would be a setback.and action is needed to gear the Sector to face these challenges.

Meanwhile the current exchange scenario indicate a gradual strengthening of the rupee following the large inflow of remittances and other capital inflows. At this point in time, where exporters are bracing themselves for the fall out of the withdrawal of EU GSP Plus, together with the global economic downturn, we urge that Central Bank continues to intervene in the foreign exchange market as it did in 2009, to ensure that the competitiveness of the export sector is not eroded further by an appreciation of the rupee.

The EASL believes that the target of 20bn USD by 2020 is not unachievable, provided that a suitable environment conducive to exports is available. For this, the key areas that need to be addressed are Competitiveness and the Ease of doing business and an enabling environment.

Keeping costs down is critical, notwithstanding the quality and other product features. Price remain the key factor as we do not enjoy the economies of scale of large competitors countries. In this context cost control becomes the key. For example, the 40% wage increase in the plantation sector, a major contributor to exports in 2009, without a corresponding increase in productivity, was a regressive step. It is hoped that high energy costs, will be resolved with the coal power plants coming on stream at a very early date. Meanwhile, we welcome the reduction in interest rates and the cost of finance, particularly, as it will have a positive effect on the SME Exporters for whom the cost and access to finance remains a serious impediment. Meanwhile, although interest rates, have considerably reduced, they still remain at a high level for Dollar borrowing. Other issues include high transaction costs, which are considerable, compared to some of our competitor countries. The delays in receiving VAT refunds and other disbursements such as, EDRS and Dahas Diriya payments, have resulted in depletion of working capital and increased finance costs.

It will be difficult to achieve the projected step change in export growth by depending on the existing trading models, channels and the traditional banking sector 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. would need to be set up to assist exporters to have easy access to cheaper and more competitive trading and financing options. In this regard, we welcome the proposal to set up an EXIM Bank dedicated to supporting exporters and importers. It is important to integrate the Sri Lankan economy with the global economy by promoting financing and facilitating international trade and investment.

Competitiveness also needs to be accompanied by greater ease in doing business, for the sector to perform and achieve targets. We were heartened to note in the mini budget just announced, the proposal to appoint a committee to identify obstacles to doing business. It must be mentioned that, with regard to the various issues, the EASL has actively highlighted these and intervened to facilitate resolution of many of these matters through forums such as, Export & Enterprise Forum and the Export Cluster of NCED, which directly interacts with the Finance Ministry. Details of our activities are outlined in the Annual Report , but to mention a few key initiatives in the period under review- at macro level- The EASL, as Co-Chair of NCED, together with the EDB, spearheaded the formulation of a National Export Strategy initiated to provide direction for the Exports Sector. Submissions were also forwarded for the 20'0 National Budget. We also focused attention on the need for greater ease in doing business especially at Customs and Port, and the need for e-commerce and computerization in the relevant Departments, including expediting electronic data inter-change, and the need for on-line payments. Progress was achieved on releasing outstanding VAT refunds following several very productive meetings with the Inland Revenue Officials.

We have also been closely involved in implementation of the Export Development Reward Scheme, introduced to stimulate the sector and help exporters face the effects of the recession. We are also making submissions for a scheme which is more representative for the sector, especially for affected exporters who need assistance at this difficult time.

In our many activities and initiatives I must make special mention of the close dialogue we have maintained and co-operation received from the key export related institutions. Primarily, Ministry of Export Development & International Trade (as it was known at that time), the Export Development Board, Department of Commerce, Department of Inland Revenue, Department of Customs, the Ministry of Finance, particularly, the National Council for Economic Development and the Central Bank.

Having outlined the needs of the sector and emphasized its importance I must acknowledge the several positive measures introduced and being proposed by the Government pertaining to Exports. Some of these have already been referred to. These, once implemented will further strengthen the Sector.

We must commend the Government’s for its far reaching programme to rehabilitate and develop the country’s infrastructure, namely ports, airports, power, roads, railways, irrigation and water supply which will increase the productive capacity and support export led growth. Particular mention must be made of the programme for development of the port infrastructure where several development projects are in progress.

The 20'0 mini budget laid down the policy direction and thrust of the government. Several proposals to support the export sector were also included, such as, creating a level playing field between BOI and non BOI companies, encouraging greater value addition, as well as greater focus on agricultural products. Apart from reduction in interest rates, the removal of duty on raw material imports will also ease costs of the exporter. Meanwhile the steps taken to relocate customs and port related operations in close proximity is a welcome development, which will save time and improve efficiency for wxporters. Meanwhile the recent announcement that the Presidential Export Awards are to be scheduled for November is also welcome as in today’s scenario exporters need to be motivated and recognized for performing under difficult conditions.

Special mention must be made of the governments intention to simplify the tax structure through comprehensive tax reforms resulting in a simple and efficient tax procedure and a plan to move from multiple taxes to a lower tax regime.

Looking at the future, what then, is the outlook for exports in the coming year

From a global context, economic growth is expected to be around 3.9% having contracted by 0.8% in 2009 . Consumer demand is gradually picking up following the monetary policy and fiscal stimulus adopted to boost spending. International trade is expect to increase, with the World Trade Organization just announcing that world trade would grow by '0% in volume this year, against the decline of '2% in 2009. For Sri Lanka, what is pertinent to note is that the recovery of advanced economies will be slow and it is the emerging economies who will continue to drive global economic recovery an indication of where we should focus. The Sri Lanka economy continued to demonstrate its resilience. We have already seen 2 quarters of high GDP growth of 6% in the last quarter of 2009, followed by 7% in the first quarter of this year, signaling an upward trend.

For the Export Sector despite these positive local and global projections at a macro level, it faces its own specific challenges which calls for action in the short term in the areas already mentioned. The first four months of 20'0 show a growth in total exports of '0% compared to the previous year. Whilst Agri Exports have picked up, what is of concern are the industrial exports which have shown only a marginal improvement of just over 3%, and where a major contributor Apparel, has shown a decline of ''%. With global recovery expected to be slow, achieving a target of US$ 8 bn in 20'0 will require immediate steps to address the issues and facilitate improved performance in the short term.

Looking at these global & local developments and its impact on the sector, ‘ The Way Forward’ is clear.

In the light of rising cost of production and supply constraints, we can no longer depend on commodity trading and bulk exports. Sri Lanka needs to carve a niche for itself preferable at the high end of the market-which calls for greater value addition accompanied by a strong branding and specialization, to differentiate our exports.

Our vision should be, to exceed the 20bn USD export target by 2020, and take Sri Lankan exports to a higher level, where we can demand a premium, rather than be a supplier of intermediate goods. We need to enhance the image and consumer perception of exports from Sri Lanka, and seek our own identity. The best example is Ceylon Tea, and in more recent times, Cinnamon, where Sri Lanka is the worlds largest exporter catering to 90% of the world market.

I would like to specifically comment on Agricultural Products particularly agri business, which opens up lucrative and viable opportunities for sustained exports. It has been reported that Agriculture represents important and absolute advantage for many developing countries. A growing and increasingly differentiated demand in Agri Business opens opportunities to place a variety of goods in local, regional and global markets. Organic agriculture products is also an important area to develop in view of the growing potential overseas markets. The proposal by EDB to develop on local certification body indicates the importance being placed on this sector.

In the context of our Agricultural Exports, I would also like to make specific reference to our tea exports which have historically been, and continue to be, one of our key exports next to Garments, and where, for the third consecutive year, has succeeded in crossing the USD One Billion mark. We need to, as an ongoing strategy, retain Sri Lanka’s unique position, in the scenario of increasing competition from other key global producers. The Tea Industry is indegenous and thus local value addition and net earnings are extremely high. In this regard, every measure needs to be taken to safeguard this position by meeting the needs of the Sector to compete effectively.

Another area to focus on would be the IT and Software sector including Business Process Outsourcing. Despite the global downturn, this sector has performed well and Sri Lanka today ranks among the top twenty IT/BPO destination countries in the world. The strategy should be to identify the niche markets where the country has strengths, and move towards Knowledge Process Outsourcing in areas such as Accountancy and Healthcare, and concentrate in developing these. This is a sector which has one of the highest value addition, whilst having the potential to become a billion dollar industry for Sri Lanka.

As with product diversification selective diversification of export markets for expansion of revenues and reducing over dependence on few key markets, is essential for the future. This calls for looking more closely at our regional markets. Despite the global downturn and recession in our traditional markets of Europe, USA and Japan, we have two giants – India and China, whose economies have been showing greater resilience and are recovering much faster than the rest of the world. It is necessary for exporters to focus on these markets and exploit them, which will also enable the sector to reduce the impact of the global recession.

Of paramount importance is to explore the potential in the newly liberated areas of the country. With the North and East opening up, there is tremendous scope for the Fishing, Agriculture & Livestock Industry.

It must be stressed that , in all the many initiatives undertaken, if we are to achieve sustained growth and competitiveness of our exports, these measures must be demand driven. This calls for effective market intelligence, which will enable continuous improvement and identifying potential products for export.

Underlying all these measures and strategies, is a need to put into place a framework, to ensure consistency and continuity of policy, to guarantee strong and sustainable growth of the sector. There is a need for a National Export Strategy. As Co-chair of NCED Export Cluster, EASL has spearheaded the formulation of such a strategy together with EDB and with the participation of key stakeholders. A National policy would set the direction for export growth and facilitate optimum benefit of global opportunities.

In this context, we welcome the initiative taken by the new Hon. Minister of Industry and Commerce, to develop strategies through the Export Development Board aimed at achieving USD 8 bn turnover in 20'0, and a detailed plan of action to register strong growth in exports in the next 3 years.

Ladies & Gentlemen, the year under review has been an active and successful one for the Exporters Association and I must acknowledge the active participation and support of the Management Committee, and the Office Bearers. Our 'st Vice Chairman Mr.Lasantha Wickremasekera will not be continuing on the Committee this year, and on behalf of the EASL, I must convey our sincere gratitude to him for the very valuable contribution he made. My thanks also to second Vice Chairperson Mrs.Dawn Austin who contributed with her wealth of experience in exports and shared the burden with me of heading this important Association which is the apex body for the export sector. Special mention must be made of the valuable input from the Past Chairmen and for their advice and guidance. My thanks also to the CCC Secretariat, particularly our dynamic Secretary Irangika for her co-operation and support

Today I welcome our incoming Managing Committee and extend my good wishes to my Vice Chairperson Mrs.Dawn Austin, (MD Nidro) who commences her second term and Vice Chairman Mr.Rohan Daluwatte Senior Manager at Tea Tang, with long experience in the export trade who was elected at today’s AGM.

Let me conclude by extending our very sincere appreciation once again to our distinguished Chief Guest Hon.Rishad Bathiudeen, and Guest of Honour Hon.,Dr.Sarath Amunugama, for their presence and for the excellent and informative address.

Ladies and gentlemen, the era ahead is an exciting and challenging one. With peace and political stability in place, the export sector can be a key driver of the economy. The EASL looks forward to playing a role in facilitating this quantum leap and exceeding the target of USD 20 billion by 2020. We welcome the initiative of the government to work hand in hand with the private sector in this effort and pledge our fullest support to take the export sector of Sri Lanka to greater heights.