Sri Lanka to take 18 months to near normalcy
Sri Lanka needs to restructure its exports basket as the country is likely to take a minimum of 18 months to achieve some level of normalcy.
Sri Lanka needs to redefine itself on the export products basket, Export Development Board (EDB) Chairman Prabash Subasinghe said on Thursday during a webinar on the ‘Impact of COVID -19 on SL export industry”.
He noted that the country is likely to take a minimum of 18 months to come to some level of normalcy as the EDB and the Board of Investment are to facilitate the opening of the economy.
“Reality is that we are not going to have business today that we had yesterday,” he explained noting there should be a restructuring of the way and type of businesses that are carried out.
It was pointed out that people should be considerate in that the government needs to prioritise on health under the circumstances.
Given the ban on imports of certain items, the EDB is currently the authorising agency that could allow for any imports should they be used in exports. “We have a blanket authority on allowing imports if it is meant for exports,” he said.
During the discussion Mr. Subasinghe said that the seafood exports are today being carried out via air cargo as ships are not sufficient that call over at the Colombo Port.
He noted that while historically the markets for seafood have been the US, UK and Japan, today there has been a shift to Dubai, Malaysia and West Asia as demand has increased and these markets have become more important.
In opening up the economy there would be more controls exerted in the red zone areas; and close monitoring on inter district movements, he said.
Triple whammy
Brandix Managing Director Ashroff Omar highlighted that the industry suffered a “triple whammy” first with the shutdown in China, the Sri Lankan factories had to shut down since they were not able to source their raw material.
Next came the impact from the closure of retail stores in Europe and the US that has resulted in a virtual standstill and this had a huge impact on the industry’s working capital, he explained. Mr. Omar noted that buyers cancelled orders and pushed back purchases for next year resulting in a “huge cash crunch.”
Under the circumstances the industry is working with a skeletal staff and trying to ship out what has already been produced or to produce the Personal Protective Equipment (PPE) while some factories are shut.
The apparel industry expects a 40 per cent reduction in production compared to China, Bangladesh and Indonesia that are already working, he noted.
Moreover, Mr. Omar pointed out that they have been advising the government there will be a massive unemployment starting from end April as the economy and society will face a number of issues going forward.
Some companies have already stated that they will not be able to pay the salaries to workers for April and thereafter but the bigger ones have agreed to pay basic salary.
“We expect 30-40 per cent of factories will not be able to open and the bigger problem is the smaller and medium sector that has categorically said they will not be able to pay the April salaries,” he noted.
According to the law of the country this is not possible and it calls for the question of whether there will be liquidations and some companies have openly stated so, he said.
“The government is working very hard and they are trying to come up with some assistance so there won’t be mass scale hunger,” Mr. Omar said. He explained, “I believe May will be a rough month, June will be tough and if the West opens up there will be demand by September.”
Terminals go slow
All terminals at the Colombo Port have taken a decision to provide free storage from March 16 to April 16, SAGT CEO Romesh David said at the discussion.
During the first quarter upto March 31 a minor drop was expected and March alone will have a minor drop with a 23 per cent drop in volumes due to the shutdown in India, he said.
“We will see a certain tightness of space for exporters – West bound but more importantly is that as a direct result there is an issue with moving goods in and out of the ports,” he said.
Post COVID-19 the industry has seen some developments with a shift to ecommerce that have happened in the past two weeks. As a result, Mr. David explained export cargoes can now move with zero physical interface.
At the moment terminals are not making money and there is a massive pressure from shipping lines to cut prices further. The industry sees the next 12 weeks to be a challenging period when India starts production aggressively and Bangladesh before that.
Tea gets bagged
The issues faced by the tea industry is not particularly in the demand as this is high but mainly concerning currency volatility and price increases as consumers are becoming more value conscious and the persistence of the dollar devaluations, Dilmah CEO Dilhan Fernando said.
Backed by a strong demand the industry expects last week’s 3 million kg transaction at the auctions to increase to 5 million kg, he noted.
Another area of concern is in printing and packaging as printers are unable to get their workers back due to the fear of the current situation and there is also an issue for a clarity on the labour law and the new definition of holiday.
He noted that consumer behaviour is fundamentally changed and with the quarantine process people have come to realise “what we need and what we want and we suddenly realise we don’t need a lot of stuff.”
With the continued reliance on China for the production of tea caddies, it is now important to look not for the substitutes but on how “we can redefine packaging” and in this respect find local capability, he said.
The online discussion was organized by the Advocata Institute and moderated by JB Securities CEO Murtaza Jafferjee.