Some Lankan exporters shifting manufacturing to West Africa
Some exporters, in the wake of the currency exchange crisis, are contemplating or have already decided to shift their manufacturing businesses to countries in the burgeoning West African region depriving Sri Lanka from earning export dollars.
“Unless there is a viable policy to retain and encourage them to remain here, we will lose the little chance of earning export dollars in the future as well,” an industrialist cum economist pointed out.
The exchange rate crisis has brought about this new situation with more and more businesses opting to balance their eggs. Already major garment manufacturers are in Africa and other regions. “Other manufacturing firms will follow suit sooner or later,” a second economist said.
He pointed out that the US dollar exchange rate gap between the published rate by the Central Bank and the going rate in the black market has widened to unprecedented levels over the past month. Generally, it is 1 to 2 per cent but now it stands at nearly 25 per cent. The rupee is depreciating at a rate which we never saw in our life time.”
On Thursday the regulator’s published US dollar selling rate was Rs. 203.89 while the informal rate was an alarming Rs. 260.
This situation has made a compelling case for local exporters looking to go out and start in Africa – especially in countries like Ghana and Kenya which stand out for their relative political stability and economic diversification. “Many local manufacturers seem to prefer these destinations,” the first economist added. Together, the two countries produce about two-thirds of global cocoa output and certain confectionery industries are interested in going there, an analyst confirmed.
“The African Continental Free Trade Area (AfCFTA) agreement creates the largest free trade area in the world,” the second economist noted. AfCFTA aggressively promotes trade facilitation measures that cut red tape and rationalise customs procedures enabling US$292 billion of the $450 billion in potential revenue, he added noting that this is too much of an opportunity for exporters exacerbated by the exchange rate crisis here to pass.
The rupee has fallen by 7.5 per cent against the US dollar this year. Sri Lanka’s foreign exchange reserves fell to $2.8 billion at the end of July. The Central Bank recently increased interest rates to support the local currency.