New Thinking Needed On Exports: Ms. Dawn Austin - EASL Chairperson

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, said Ms. Dawn Austin, Chairperson of the Exporters' Association of Sri Lanka.

Exports have declined and according to Central Bank statistics during January – May 2012, the decline is 5.4%. Agricultural items declined by 11.8% (tea by 10.8%) and Industrial exports declined by 6.6% (textile and garments by 4.9%), she said.

Addressing the Association's annual general meeting recently at the Cinnamon Lakeside hotel, Ms. Austin observed that shrinking markets were definitely a reason for the decline in Export volumes and values (in Forex terms) up to 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," she said.

Following are excerpts of her speech:

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 ours.

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.

The Sunday Leader Article on Sunday, 12 August 2012

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