The Sunday Times Economic Analysis

The Sunday Times Economic Analysis By the Economist

Tea and sympathy: Regaining Iraq's Tea market through aid
Sri Lanka has committed aid for reconstruction of Iraq. Being beggars ourselves it was not possible to give such aid in money. We have promised to give tea and garments. In fact such commodity aid is foreign exchange since we would be foregoing the export earnings from that much tea and garments.

The latter has a high import content too. Therefore the cost is even higher. Yet what is more interesting is not the pure economics of it, but the intriguing political economy of the aid.

It would be pretentious to think that our contribution was because of our heartfelt sympathy for the Iraqis. It was primarily to placate the United States that has been wanting other countries to help financially as it has now found it a massive cost, initially estimated to cost US$ 56 billion.

Therefore the US has sought assistance from other countries. This effort has met with only partial success. Our contribution is not going to make any significant dent on the finances of the operation. Yet lacking assistance from many countries of significance, adding Sri Lanka into the list of donors makes the number of countries giving aid to the US effort more respectable.

Hopefully the US would be grateful for that. What about Iraq? Are we thinking of the Iraqi people or the administration of coalition forces? That is a moot question that is best left unanswered. No doubt the government had an eye on the long-term sympathy of the Iraqis for Sri Lanka. The small shipment of tea, it is hoped, will 'further strengthen our mutual ties" to use a diplomatic phrase. More down to earth phraseology would be "We hope Iraq will buy more Sri Lankan tea".

Iraq has been an important market for tea. In 2002 Iraq purchased 17.79 million kilograms of tea valued at Rs. 2173 million. While these exports amounted to 6.1 per cent of total tea exports, they accounted for only 3.4 per cent of tea export earnings. This implies that most teas exported to Iraq are of lower value. However tea exports to Iraq have been underestimated, as there have been restrictions on imports.

Nevertheless, teas exported to other countries find their way to Iraq. According to the latest International Tea Committee estimate Iraq imports about 75,000 metric tons of tea and accounts for 5 per cent of the international trade in tea. This too may be an underestimate. What is however clear is that Iraq is an important importer of tea and likely to be an even better market for tea in the future, if political and economic conditions return to normalcy.

The political economy of Sri Lanka's tea aid has two dimensions: pleasing the United States, on the one hand, and eyeing the potential large Iraqi tea market, on the other. Whether this tea aid succeeds or not, in one or the other or both, it was an expedient strategy, an investment in the future of tea and politics.

Given the chaotic situation in Iraq it may take quite sometime for economic relations between the two countries to assume a normalcy. Still tea is a vital commodity for this tea drinking nation and larger imports of tea would indeed be necessary.

Iraq has the prospect of becoming one of the largest importers of tea and we must have an eye on this potentially large market. Meanwhile the aid we hope has pleased the Americans.

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