Sri Lanka’s economy grew by 4.4 percent during the year 2016, although slightly low compared to 2015, amidst internal and external shocks that impacted on the economic growth of the country. As a whole, the external sector contribution to gross domestic product (GDP) was little less, mainly due to the poor export performance of products such as tea and garments and the apparel sectors. However, economists have commented that the year ended positively due to the reduced fiscal deficit, high earnings from tourism, an increase in remittances and the growth recorded in construction and other services sectors. Against this background, it would be pertinent to examine and compare the performance of exports in the first quarter of 2017.
The merchandise exports from Sri Lanka during the period January to March 2017, valued at US $ 2.7 billion, reported a growth of 2 percent when compared to the same period in 2016. These observations were made after analysing the recently released customs provisional export statistics for the first quarter of 2017.
The export values of essential oils showed the highest growth of 41 percent, followed by the electronic/electrical and machinery products and parts. The spice exports showed a growth of 39 percent and the exports of fruits, ornamental fish and seafood grew by 27 percent, 22 percent and 17 percent, respectively. The combined value of these sectors was
US $ 258 million.
However, tea, coconut and rubber and rubber-based sectors with a combined value of US $ 701 million, grew only by 7 percent while the apparel sector, the highest export revenue contributor to the economy, performed negatively, with a total value of US $ 1274 million during the period under review, a decrease of US $ 90 million.
The US continued to be the leading export destination with a share of over 25 percent. Shares of India, Italy, Singapore, the UAE, China, Russian Federation, Canada, Australia and Turkey increased during January to March 2017 when compared to 2016.
The tea exports increased during the first three months of the year. The main markets served were Russia and Turkey. Further increases in exports of tea can be expected in 2017 as the main markets such as the Middle East and Northern Africa (MENA) have projected a 2.4 percent economic growth in the region. The World Bank expects a 1.4 percent growth in the Russian market in 2017, which together with the oil price stabilization in the region, is expected to show a positive impact on tea exports.
On the supply side of tea, the sector experts have indicated that tea production has improved since November 2016. High prices in the international market and the expected growth in the eurozone too, will contribute towards the industry’s further growth in 2017.
The value of seafood exports increased by 18 percent in the first quarter of 2017, compared to same period during the previous year. During January to March 2016, the industry’s exports were affected due to the ban of fish imports from Sri Lanka into the European Union (EU). However, with the removal of the ban from June 2016, the industry has performed well in the European markets as well as in the USA.
Exports to markets such as Italy, United Kingdom and Germany resumed during the period under review. The main exports to these markets are mainly frozen and fresh fish, crabs, lobsters and prawns, all of which are exported under the category of seafood. The exports of seafood together with ornamental fish contributed around US $ 70 million to the total merchandise exports of the country.
The removal of the ban on exports of fishery products to the EU was a success due to strong lobbying of the relevant authorities such as the Fisheries and Aquatic Resources Development Ministry, Export Development Board (EDB), Commerce Department along with the relevant trade associations. Seafood exporters are expected to see increased volumes in the coming months, with the reinstatement of the EU GSP Plus concessions.
The exports of cloves increased significantly in 2017. The main markets are India and Saudi Arabia, while cinnamon moved to its traditional markets such as Mexico, Columbia and Peru. The spice manufacturers are closely related to the essential oil industry as well. The main essential oil products are cinnamon leaf and bark oil, clove, nutmeg and pepper oil, which are exported to markets such as the United States of America, Germany, France, India, etc.
Ceylon cinnamon, the spice item which is obtained from the inner bark of the Cinnamomum zeylanicum blume tree or famous ‘Kurundu’, is a well-known and reputed spice all over the world. The EDB obtained the Pure Ceylon Cinnamon (PCC) certification mark, which has been registered in main markets such as Europe, the USA, Peru and Colombia, in addition to being registered at the World Intellectual Property Organisation (WIPO).
The EDB is in the process of obtaining the geographic indication (GI) for cinnamon in collaboration with the relevant public, private stakeholders such as the National Intellectual Property Office, Export Agriculture Department and Spice Council in order to gain a competitive advantage in commercialization of Ceylon cinnamon while protecting it internationally.
Products such as electronic, electrical and machinery products/parts were exported to variety of markets such as Ghana, the UAE, Cyprus, Thailand, Germany and the United Kingdom, in smaller values. Electronics and electrical products have been identified as future potential products to expand Sri Lanka’s export basket, after extensive analysis carried out by a team of the EDB officials under the guidance of Harvard Business School experts.
Under the category coconut and coconut products, items such as coconut oil, activated carbon, liquid coconut milk and coconut cream exports have been made to markets such as the United States, Germany, China and Pakistan.
The export of textiles and garments, food and beverages, gems, diamonds and jewellery and mineral and non-metallic products recorded a decline during the period. The apparel exporters attribute the decline in exports to the sluggish economic growth and in particular, the economic slowdown of the United States - the main market for Sri Lanka’s apparel industry. Exports of apparel to the EU and Germany also recorded reduced volumes.
As a whole, the first quarter exports fared well, despite unfavourable global conditions which continued from 2016. However, there are signs of recovery during 2017, with the global positive economic forecasts available to date. The export performance of Sri Lanka remains stable compared to the other regional competitors such as Malaysia, Thailand and Singapore, where a five-year export growth was negative, while Sri Lanka’s performance has been positive with a five-year average growth of 10 percent.
The export-related industries are expected to have better times ahead, as Sri Lanka has regained the EU GSP Plus status and with the United Kingdom affirming that it would continue to extend this facility to Sri Lanka despite its decision to leave the EU.