Sri Lanka a major automotive component supplier

As an island economy with persistent balance of payment issues Sri Lanka lives within a export or perish environment. This situation is further compounded by insurmountable increases in the world oil prices threatening every aspect of the economy. The current account deficit is managed by worker remittances, an unsustainable resource. Our euphoria of high growth and a sound economy must be converted into reality.

The country must grow at a faster rate to contain poverty and unemployment-- two major sources of unrest. In this background there were some very positive developments the other day when leading figures of the motor trade, rubber goods manufacturers and a host of SMEs met at the BOI auditorium for a initial dialogue on the growing Indian automobile manufacturing market and its opportunities for Sri Lanka. JICA has already made some study on this subject and a basic analysis is already in hand.

Leading the discussion was veteran motor trade personality Suren Abeyagoonasekera, President of the Ceylon Motor Traders Association (CMTA) for well over five years. Abeyagoonasekera explained to the gathering that this concept has already received the bessings of President Mahinda Rajapakse who has now directed the Minister of Enterprise Development Rohitha Bogollagama to move the project forward. Up to some years back India was concentrating only on a few indigenous brands.

The recent industrial upsurge and the growing Indian economy have seen a major expansion in the Indian automobile industry. Sri Lanka too has had a legacy of assembling motor cars like Mitsubishi Colt, Upali Fiat and the very recent Micro brand thus possessing a history of component manufacturing. In fact at present Sri Lanka is already a supplier to the Indian market -- filters by Dimo, tyres by AMW/CEAT while Micro too has developed a local supplier base. This clearly shows that Sri Lanka has a sound skill base in the component manufacture. Sri Lanka’s labour skills have been rated quite high, and its no secret that the Ceylon German Training School that was set up to train and develop required mechanical skills to support the then government owned transport sector is today a major feeder to the needs of other countries and in particular Australia,

Ranjan de Silva, AMW Director and Chairman of the CMTA was optimistic of the project vision and felt that there’s a large number of small suppliers who are relatively little known and they should be brought in for discussions. AMW is also a major importer of motor vehicles from India

Kulatunga Rajapakse, Director DSI, a highly successful conglomerate with high concentration rubber goods felt that it will not be easy for Sri Lankan firms to venture on their own and the right way forward is to seek joint venture alliances with existing Indian suppliers to benefit from their experience backed up by research and development.

Considering the geographical location of Sri Lanka, its proximity to South India and the concessions already available in the Sri Lanka /India FTA which has been in successful operation for quite some time, industry analysts clearly see a major export opportunity for Sri Lanka, to make a significant contribution to much needed foreign exchange earnings as well as the creation of employment. Export led growth policy of the successive governments since 1977 has paid rich dividends through rapid economic growth. According to a recent World Bank study off-shoring or the process whereby one company delegates responsibility for performing a function or series of tasks to another company based in another country is now confined not only for goods but also for services.

India being a huge country it will certainly be sensible for manufacturing plants located in the South Indian cities such as Chennai, Hyderabad, Karnataka etc to obtain their components more economically from Sri Lanka as against from other parts of India located thousands of miles apart.

Abeyagoonasekera said the project has been welcomed by SIAM (Society of Indian Automobile Manufacturers) and ACMA (Automotive Components Manufacturers Association) of India, whose representatives were in Sri Lanka recently.

The World Bank estimates off-shoring now represents a US$100 billion market and is growing at a rate of 30 per cent annually. Sri Lanka possesses ideal attributes for a good off-shoring base due to it’s highly skilled labour force, good managerial support services in engineering, legal and financial services and an efficient port operation.

There is a very clear business case for all the stakeholders in the automotive trade /industry to pursue this idea and find niches in the Indian market. Growth of industries, development of infrastructure and increasing middle class purchasing power will necessarily create a demand for more automobiles to be produced in India.

Sri Lanka has all the potential to build capacity to meet excess Indian demand. Now that the project has received the blessings of the first citizen of Sri Lanka it is up to the private motor trade and government’s investment promotion arm BOI to get together and build a successful feeder industry.