Exporters Association of Sri Lanka

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

Chairperson's speech 2012 - 2013

ADDRESS AT THE 15TH ANNUAL GENERAL MEETING OF THE EXPORTERS ASSOCIATION OF SRI LANKA

Our Chief Guest Dr Koshy Mathai - Resident Representative for the International Monetary fund in Sri Lanka and the Maldives,

Mr Janaka Ratnayake - Chairman of The Sri Lanka Export Development Board

Mr Harin Malwatte Secretary General of the Ceylon Chamber of Commerce,

Mr Gulam Chatoor Past Chairman of the EASL, Distinguished invitees Past Chairmen and fellow Members of the Exporters Association of Sri Lanka.

Ladies and Gentlemen

The Annual Report of the EASL which has been circulated , comprehensively records the activities of the EASL for this last Committee Year . I will therefore not spend time presenting the details to this House, but, suffice it to say that all Sectors have shown tenacity in their respective approaches given the unprecedented dynamics of business in the year past.

When I assumed office as Chairperson of the EASL last year, I certainly did not expect that we would witness the manner in which global economies have crashed around us.

It was then expected that the US, UK and EU would eventually weather the storm, get their houses in order and sluggishly turn around. Unfortunately this did not happen and even relatively stable asian giants like India and China have also succumbed to the consequences of the global meltdown, albeit less dramatically.

Last year, I spoke about Exporters consolidating on the dividends of Peace. reinventing strategies and looking for conquerable challenges through identifying new markets,.... the non traditional untapped markets, perhaps looking vertically ( at India) and eastwards to South east Asia.

It was perhaps a simplistic solution, based on the assumptions that did not materialise.

It was assumed that if we were to revise our marketing stance through getting into and developing emerging markets, we would be able to sustain our Exports whilst building capacity at varied levels, thus being better positioned to bounce back when the western economies turned the corner, so to speak.

But in the same way in which the horizon moves as one perceives to have got close to it, so has the goal of the Export Sector moved away from the anticipated performance in 2011/12 for the majority of Exporters .

Dr. Kalpana Kochhar speaking at the recently concluded Economic Summit which was aptly titled 'Positioning Sri Lanka in the Global Economy' referred to the fact that 'global risks and vulnerabilities were high, largely due to inconsistent economic policies and the apparent lack of political will even in advanced countries'

This prediction is not a comfortable one for developing countries like ourselves.

Sri Lanka has done well to move up the development ladder ratings from being an under-developed country to a developing country. Likewise Sri Lanka's rating for Ease of Doing Business has taken us up ladder. I will leave it to Dr Mathai to expand on the basis and consequences of these ratings and the impact it could have on the long term interest of Exports or whether it refers to Sri Lanka's ability to attract much needed FDIs.

However arising out of the 'ratings' I referred to, is one that I believe will impact on Export Industry. Having reached the critical threshold of US$ 1,000 Per Capita income level in 2004, Sri Lanka crossed US$ 2,000 Per Capita income in 2008 and is well on the way to cross US$ 3,000 level this year and $4000 by 2015. How does this very aspect of rating, and indeed the way the world looks at Sri Lanka as a developing country, impact on Exports and its significant attendant cost of employment – an aspect that has consistently been brought up by every sector at the EASL through the year . Translating these numbers into how they will impact on the Export Sector, the immediate reaction is that it is going to cost us more to employ people to work in the Industry. We need to address how we can overcome this increased cost and yet grow.

At our AGM of last year it was opined that as a result of the control and the discipline the Government had imposed to reduce the budget deficit, we could look forward to a low inflation low interest rate regime in which businesses could grow. Stating from figures available then, the overall lending in the Banking sector was around Rs 2 Trillion and interest rates were around 10 % .

I do not have the relative banks overall lending figure today but reviewing only the interest rates applicable today ( which is what affects our businesses) the cost of finance at the best is no less than 15%, and often, more

A few years back, the recurrent appeal made by Exporters was for a realistic rate of exchange which we expected would be both predictable and stable and indeed this policy seemed achievable this time last year following the Government's pronouncements..

Unfortunately in February this year ,we were all taken by surprise,

Whilst depreciating the SLRs was , and is considered to have been the right thing to do for the overall economy of the country, the 'flexible rate of exchange' which overnight depreciated the SLR by between 14%and 18% and which continues to dog the finance markets has, besides impacting on interest rates, also resulted in an unhealthy rate of inflation.

Increased costs of Fuel and Energy and attendant raw material required for manufacture goods, plus the demand for increased wages in the light of inflation has thus far negated the ability/plan for Exporters to make use of the devaluation of the SLRs to become more competitive in the global market.

I believe I am right when I state that 100% of Export income is generated by the Private Sector. Breaking this number down, and even identifying how macro enterprises and large investors work, it is a fact that somewhere down the line, in most instances, the backbone of the supply chain is the SME sector, with micro entrepreneurs playing a significant role in generating produce particularly where Agriculture based Exports are concerned .

Issues arising from restricted access to ownership of large tracts of land remain unresolved hence the status quo for the supply chain, where SMEs and Micro enterprises are employed or sub contracted will not change in the short term. In the light of this fact, modalities to make access to finance at reasonable rates of interest for these sectors remains a priority.

Shrinking markets are definitely a reason for the decline in Export volumes and values (in Forex terms ) upto June of this year with the year on year/ month on month figures being disappointingly low. However we need to press on by identifying what steps we need to do take to work around this situation and, where possible, turn the current global adversity to our advantage?

Deliberations amongst the Managing Committee through the year have elicited thoughts, a couple of which I wish to share with the house.

Every industry whether large, medium or small recorded the problem of recruiting and retaining their work force, at both levels, unskilled and semi skilled. This is in addition to the fact that labour are paid good wages which can no longer be termed 'cheap'. One of the issues employers face is that no sooner workers develop a level of basic competency, they are attracted to seek employment overseas.

A solution suggested has been that continuous training programs in workplaces should be encouraged to ensure that the employee requirement is being kept topped up. Unfortunately there is a cost involved and this cannot be purely a mission for the Private sector but one which should be included in the Government's program. The program envisages upgrading worker skills at all levels, a bonus for any developing country. Some work has commenced in this area but it is not sufficient.

It is propsed that more vocational training should be undertaken amongst school leavers who have not qualified to enter University. This group is relatively large . They possess trained minds which need to be directed . Left untapped the greater number will simply drift through society as casual labour with no purpose in life except to earn a day's wage.

They will of course need to be sustained with some sort of a stipend/allowance being paid for them to enter a regulated program very much like what happens when students enter University.

This envisages that some percentage, which will grow incrementally as the scheme proves its worth, will be employable within the work force of specific industries. Universities across the country have commenced commercial apprenticeship programs, partnering with Private sector organizations in their undergraduate curriculum. Similarly, if methodology which makes School Leavers commercially employable is addressed, it will benefit the Export Industry as well as businesses across the board .

Exporters of Cinnamon the most recent internationally branded Export commodity have recommended that Cinnamon Factories to meet GMP/ISO 22000 standards are established in the relevant districts. ( I guess much like factories to which small tea holders and rubber holders bring their primary product) The shortage of labour in this Industry is critical, and needs to be addressed. This initiative will also regulate the industry to consolidate its leadership internationally

Another suggestion that has come up as a consequence of discussions on the problems arising from the shortfall in manpower has been that it is timely to place greater emphasis on developing technology based solutions and up-scaling the use of mechanization where possible, which in turn can reduce their significant dependence on labour whilst creating a functional awareness for the need for training of the work force to handle such equipment .

We have discussed that a constraint to developing this alternative, has been the high value of investment which companies will need to borrow to implement such a plan. The values are not small, and the financial benefit will not accrue immediately. It has been evaluated that the cost of such borrowings is not sustainable unless there is some form of assistance

Funding must come at a competitive rate of interest and with an extended period for repayment. This is vital for development of any nature. Such a concession will yield long term improvements as skills are developed and improved productivity will be tangible benefits.

If such a scheme which permits for this kind of borrowing can be determined, the burden on the borrower's cash flow will allow Exporters to continue to cost effectively run their business whilst servicing the facility. We will be happy to engage with the Export Development Board in working out a formula whereby development finance is linked to investment which in turn is performance related. .

New thinking and a fresh mindset are needed to overcome the aspects that need to be addressed in order to sustain, improve and grow Exports.

In the year past the Managing Committee has continued to engage with several Government Ministries, and Authorities, directly as also at different fora at which proposals and constraints have had to be discussed

The EASL truly values the dialogue it has had with these Organizations in the past year. (Details are reflected in the section covering the Review of Activities 2011-12 of the Annual Report )

Resolution has not always been an easy passage, but what has been evident is that there has been a genuine desire for us all to recognize that we are on the same side.

Discussions have been cordial and continued dialogue has been welcomed. It is therefore incumbent on me to particularly record the EASL's appreciation of the co-operation of the Officials of the Ministries and Authorities with whom we have shared dialogue. We look forward to more public/private sector partnership towards resolving Export related concerns, which inevitably arise on both sides..

I must also record that without the counsel of the Past Chairs I would not have been able to carry on the proactive mission of this Organization. I am deeply indebted to each one of them for their guidance.

The support I have received from Mr. Rohan Daluwatte and Mr. Sarada de Silva my 1st and 2nd Vice Chairmen respectively has been invaluable. The contribution of the representatives of the 18 individual companies and ten associations affiliated to the EASL at Managing Committee meetings and other events organized by the EASL has been up-beat even when the chips appeared to be down. I am deeply grateful to all of them. It has been a positive year although we have not been short on challenges , and I am grateful to my team for having made my passage easier and our mission achievable.

My sincere thanks also to the Secretariat of the Ceylon Chamber of Commerce with particular appreciation of the efforts of Manori and Manjula who take care of the details, to ensure that the important and sometimes even mundane work which is required to ensure that the EASL functions are accomplished.

Ladies and Gentlemen, the exponential growth and sustainable progress we anticipated this time last year may not be evident. However, I believe that Exporters have proved to be a resilient group, who have come through difficult times in the past. It will take patience and determination to overcome the forces over which we have no control, but I believe , with carefully planned development strategies, innovative thinking and keeping faith that there is a light at the end of the tunnel , we will achieve our goal .

Thank you.