Financial Times - Success through exports: Impact of policies and politics

Sri Lanka is a small island economy yet it is struggling to find its feet to stand up to emerging global trends.

The policies of growth by exports pursued since 1977 has obviously shown the direction for the future. Manufacturing exports of which garments play a leading role has emerged as the leading foreign exchange earner.

Since the plantation reforms of 1992 when the ownership and management reverted to the private sector tea exports too have demonstrated a healthy trend after nearly two decades of state ownership which cost the country dearly and saw a formidable competition building up in Africa.

Most significant is the growth of value addition as displayed by tea bags, packets, green tea and instant tea. 2005 was a landmark year for the tea industry with production, exports and earnings reaching unprecedented levels.

The Colombo auction prices also reached highest levels notwithstanding the appreciation/stability of the Rupee.

This healthy trend continues to date giving producers good returns. Recently the government rightly moved to grant a full tax exemption for profits on tea bag exports, however this has been confined only to exports of pure Ceylon Tea.

If Sri Lanka is to progress and expand its volumes in value added sector they cannot underestimate the importance of large global brands who hold a dominant market share in the world markets.

Blends for these mostly comprise in multi origin form with teas from different producing countries forming the brand. Obviously Sri Lanka exporters too are stakeholders in these ventures and any incremental volume gains from these will enrich the national economy, and given this background there’s little argument to exclude these exports from the tax exemption.

In 1982, in the wake of many liberalisations and reforms, the government permitted the import of tea for re-export anticipating Sri Lanka to become a major hub for value addition and also encouraged leading global brands to set up their packing plants in Sri Lanka, while some progress was achieved inconsistencies of the policies hampered its growth.

Today, given the importance attached to off-shoring business and the natural tendencies of developed countries to move production to low cost countries Sri Lanka must relook its strategies. Dubai is a classic example of successful of-shoring of tea bag production which originally came from the packing plants in UK.

Required ingredients for successful off-shoring for manufacturing are availability of skills, infrastructure (ports/transportation) and fiscal incentives and Sri Lanka seems a good candidate to provide these.

The importance of exports in pursuit of growth remains largely valid; what is emerging now is the concept of export of services supported by technological advances.

The principle of outsourcing is confined to transfer of one or few activities or functions to another party while off-shoring is activity of outsourcing to another country. Given the improvements in Computer Technology and Telecommunication, markets are now developing for the service sector off-shoring particularly from developed to developing countries.

Sri Lanka too in the last few years has experienced a boom in the expansion of the services sector. In Sri Lanka we originally witnessed the entry of Business Process Outsourcing (BPO) with the entry of institutions like HSBC and WNS which catered to data entry and call centre operations while companies like Amba Research are now providing services to processes that demand higher skill levels, this is a huge market which is well developed in India.

English medium education and high proficiency in IT has provided the necessary background.

Off shoring draws its resources from a well educated work force in contrast to bottom end low skilled work force in out sourcing.

University education in Sri Lanka is very much a monopoly of the state and yet caters to only around 6 percent of those who seek entrance and falls well below the intakes of south and south eastern countries. Even the graduates suffer from deficiency in Englsh language though this situation is now changing gradually. Politics should not hamper the economic potential of a skilled work force.

Considering the availability of resources in accounting and legal professions, Sri Lanka must make a strong effort to market these services to win their share of the Asian off-shoring market currently dominated by India, China and the Philippines.

In the area of accounting Sri Lanka boasts of high availability of UK qualified accountants with CIMA and ACCA qualification, perhaps the number exceeds what any other country outside UK could have.

Additionally the Institute of Chartered Accountants of Sri Lanka too boasts of a world class qualification in accountancy. All these represent the private sector.

The recently released World Bank Report “Economic growth in South Asia” states that building on recent growth countries in South Asia can dramatically reduce poverty by embracing policies aimed at increasing investment and productivity and improving the quality of labour while addressing pervasive income inequalities and poor service delivery.

The report concludes that Sri Lanka and Nepal need to address the ongoing civil conflict to accelerate growth. Pakistan and India topped 8 percent last year while Bangladesh another crisis laden country had averaged 5 percent growth for the past five years.

It’s a pity that politicians and policy makers in Sri Lanka have not been able to end the conflicting environment that has caused enormous amount of damage to every Sri Lankan for the past quarter century.

Thoughts for the week
The whole world is gripped in football fever with World Cup now being held in Germany, Local viewers for sure would have seen the enthusiastic participation of teams from troubled Eastern European countries as well as the Latin American and Arab states.

War or no war life must go on and countries must forge ahead to conquer the conflicts.

Sri Lanka cricketers clinched the Natwest ODI series in England certainly giving their motherland a morale booster in difficult times.

At home in the hill capital a spectacular rugby match was witnessed between Kandy and CR & FC, this event too displayed tremendous enthusiasm above ethnic divide and the whole town was in a festive mood. These moods must be converted to healthier relationships to eliminate the negativity brought about by conflicts.