Exports play an important role in a country’s economy as they influence the level of growth, employment and balance of payments. For Sri Lanka, the focus on exports is now more important than ever, as the island nation looks to bring in foreign currency to boost the economy.
The Export Development Board (EDB) has been trying to diversify the export basket and market for many years and only recently it was seen making some progress in this regard.
However, the pandemic that crippled economies across the world did not spare the island nation and has delivered a crippling blow to the top export sector of the country. Now the export sector requires renewed thinking and strategies to move forward.
Mirror Business recently sat down with EDB Chairman Prabhash Subasinghe, who shared the developments and prospects for the local export sector.
He stressed the export sector should be placed as a national priority and much required is an export-friendly policy framework.
Following are the excerpts from the interview.
While certain sectors have shared the estimated losses, what is the overall financial impact from the pandemic?
This has been assessed. We gave a revised forecast for 2020 and that was US $ 10.75 billion. Our original target for 2020 was US $ 18.5 billion and we achieved US $ 16.2 billion of actual exports last year. These figures relate to merchandise exports plus service exports.
In terms of actual loss, it could be anything between US $ 6 to 8 million in both merchandise and service exports.
In terms of sectors that were more impacted than the others, apparel would be one but having said that, there is change in that stance now. At the beginning we thought the apparel business would reduce by 40 percent but now that the apparel sector has been able to manufacture personal protective equipment (PPE), it might be able to do about US $ 1 billion there.
The sector might only lose about 20 percent. It depends on how fast more companies get on to manufacture PPE and the orders they are able to get. The figures here are interesting and things for the apparel sector are moving in the right direction.
The other that is impacted is the boat building sector. That was a target sector for the national export strategy. Of course, it is not a big sector within our exports but it certainly was an inspirational sector.
The third is the gem and jewellery sector, which is one of the key industries for our national exports. With the pandemic, the global slowdown of business and the changes in buying behaviour, the gem and jewellery sector will be hit.
Sri Lanka’s export sector has a fundamental problem; it is highly dependent on imports. This has been the case for the last two decades. For example, for us to produce apparel, we have to import fabric. What is the EDB doing to correct this?
Absolutely. Since I joined the EDB, this has been a focus point for us. We have been working with the Board of Investment (BOI) for this. For the apparel sector, we are working towards establishing a fabric park and the leadership of this is with the BOI. There seems to be traction on this endeavour and we are supporting that.
This is a good wake-up call for Sri Lanka so we can experience the supply chain issue. That will only motivate us to fast-track the setting up of a fabric park and that we become more dependent on our own fabric. We are working towards expediting this. This is an integral building block for the apparel.
How about packaging? We do rely heavily on imports for this as well.
I think the packaging sector is quite mature in Sri Lanka. We might be importing raw materials but in terms of manufacturing, most of the value addition is done locally.
As Sri Lanka becomes bigger in terms of our export base and the requirement increases, then we will be able to build businesses to produce our own raw materials. We need economies of scale. That is a longer than a shorter cycle. This is not the priority.
Sri Lanka needs to prioritise where it is going to focus. If we are going to focus on every single sector, then honestly, we are not going to get much done. We need to pick and choose where we need to focus on.
Since you mentioned the importance of setting priorities, according to you, what are the top three areas the export sector should focus on, keeping in mind the lessons learnt from the pandemic as well?
First and foremost, I must say that exports should become a national priority in Sri Lanka. That is extremely important. Up to now, exports have been born and built by entrepreneurs and businesses.
We don’t have a lot of raw material in Sri Lanka, so our value addition is really using our manpower and we need to take that up the scale. The only way we can do that is increasing the value chain. For me, first and foremost, is to make exports a national priority; that is number one.
Number two and I don’t say this negatively against the apparel industry but we are overdependent on that sector. It has been around for 30 years and we are totally overdependent on it. The sector can continue as it is but my goal is to create new export sectors, which could have the potential to become bigger than the apparel sector.
Diversifying our export basket is a top priority. Again, this cannot be done overnight. We need to plan this. We need to do more of that to go down the line.
If you take Vietnam, they were able to diversify their export base over the last 30 years. Even Thailand, rice exports was one of their key sectors but over the years, the percentage of rice exported reduced. Today, it is a lot lower and the percentage of value-added items is much higher.
Setting up realistic export targets has been pointed out as very important, instead of wishful thinking. What is your take on this?
It is not fair for me to comment on the past as I was not involved. I can comment on what I did. When I came in, we had an export figure for 2019. That was US $ 16.2 billion. We thought, with the economy where it was and the economic indicators at that time, we felt US $ 18.5 billion was a realistic target.
Now the pandemic has hit us and we are where we are. We then took the decision to downgrade the target. I don’t think anybody up to now has downgraded a target and published it. For the first time in the history of the EDB, we have done that. No sooner Sri Lanka and the global markets were hit, the EDB took the decision to downgrade.
The EDB is proactive and transparent in sharing information and we are also being realistic in what we are doing. On top of that, the export sector has requested us to publish the export figures on a monthly basis. Sometimes the figures are great and sometimes they are not but we do it.
The April export figure was not the best number to look at but we still published it. There is now more transparency at the EDB and we are realistic. We also need to have an aspirational path.
Do you see a decline in services exports along with merchandise exports this year?
We expected it to go down. We see a higher decline in the merchandise than service exports.
Are you planning to take any measures to get an accurate estimate from the services exports to the country? Sections of the business community say the figure is highly manipulated. What is your take on this?
I don’t think any of the figures we publish are manipulated. We are working with the Central Bank to get the information on service exports. Because the service exports are service in nature, the only way to formally track it is by looking at the remittances we receive. For that we rely totally on the Central Bank.
I would not say the figures are manipulated and I have no interest in manipulating any figure. If I did, I wouldn’t have published the April export figures. I disagree with this and I am happy to look into this if anyone puts forward a concern.
How does the EDB plan to help the exporters hit by the COVID-19 crisis?
In the last two months, at the beginning, our focus was on getting businesses back into play and that is where we spend most of our time. We were even working on New Year, to try to get exporters back on.
Slowly the sector started picking up and I commend the government for considering many of the export sector as essential services. That was extremely helpful. Then the government was also quite open about the export sector functioning.
At a Task Force meeting with Basil Rajapaksa, he established a unit with the BOI and EDB, along with a DIG of Police to work with us to organise curfew passes. A senior officer of the MOH was also assigned to work with us to manage all the PHI and health-related issues.
Also, we don’t different between big and small companies, as that is not the way we look at exports. We have 4100 exporters in Sri Lanka, as per my database in 2019 and only 352 companies export more than US $ 10 million. That is just under 9 percent of the total number of companies in Sri Lanka.
That 9 percent gives us 87 percent of the total exports in the country. My job is to create companies which can go to a million dollars, then five million and move up that chain. I want more exporters in play. I want more smaller companies to become medium companies and the medium companies to become large.
So, we are trying to work with all the different sectors. We work closely with associations and we have advisory councils for most of the sectors. So, even during the lockdown, we were able to have online meetings to find out the assistance that is required.
Now we are looking at what each sector wants and how we can help them. In certain places, it is mostly policy-related matter that impacts business functions. In other cases, it is about backward support or to help to increase production and similar areas.
As far as the EDB is concerned, an exporter is our customer, so my job is to help them build business.
We also have a knowledge-sharing session that happens every week for an hour, where the upcoming exporters can gain insights from successful businesses.
Now that you have seen the impact on the industry, how vulnerable is the export sector to such shocks? What could have been done differently by the sector, minimising the impact?
I don’t think the entire world was prepared for the pandemic. No industry or any country was prepared and if anyone was, then the reaction would have been much better than what we are seeing from the most developed countries.
A less developed country like Sri Lanka seems to have shown a stronger resilience in dealing with a pandemic. Our numbers are exceptional. We, as a country, have done better than most people.
The last recollection of what we have of something similar was the Spanish flu. Now that the pandemic has hit us and we are going to learn to live this, we are going to be more cautious of situations like this. It is a great opportunity for businesses.
I am not talking about exports per say but all businesses. It is an incredible time for businesses to reset themselves. It is an incredible time for the leadership of countries to reset themselves and look at what they can focus on, how value can be created and how things can be done better than before.
It is an incredible opportunity and the winners of this will be countries and businesses that will look at this positively and look at growing their businesses.
You mentioned sometime back, a threefold strategy focusing on the short term, medium term and long term, is being formulated by the EDB. How is that progressing and when will it be put to action?
We are in the midst of finalising the strategic plan. We had a strategic plan, which we publicly shared. That was created end of last year and regretfully, that had to be scrapped due to the implications brought about by the pandemic.
We are nearing the end of finalising the revised plan and we have not taken a call if it would be made public as yet but for sure we will be working with the strategy.
Some of the plans are already activated and once we formally publish it, at least internally, we will be using it as a tool.
We want to focus on the short term, three to six months, medium term, six months to a year and the long term, which is beyond a year. That is what we want to do.
There is a need for a supportive policy environment for any strategy to work. Does the export sector have that?
The policy improvement should be more favourable to the exporters. We don’t score very much in the Ease of Doing Business but we need to improve in that space. Same way, I think the policy framework needs to be friendlier towards exporters.
I go back to my point of saying exports should become a national priority. I, as the EDB, can say exports are important and we need to do what it takes to take it forward and make bigger companies but I have to work with 164 line agencies.
If they don’t understand the importance of what I am doing, if they don’t realise the value Sri Lanka is creating and the importance of bringing foreign currency to the country and they are not going to help me, then I cannot do my job.
That is what I stress that exports have to become a national priority. It should become everybody’s priority, so we work towards making things easier for exporters.
Also, COVID-19 is an incredible opportunity for government institutions to make things easier for people to work. I come from the private sector, so I understand how business works but it is not the same for bureaucrats whose entire career has been in the government sector.
Using COVID-19 as an excuse is a great way for Sri Lanka to digitise everything we do. If all the line agencies made it easier for exporters move to forward, be it to import raw materials or to get the necessary approvals, if all the red tape can be reduced, we can move far ahead.
The policy framework needs to move towards creating an enabling environment for the export sector and that is something that we need to do more work on.
What are the challenges the sector as a whole should get ready to face in the post-COVID-19 scenario, in the local and global contexts?
My opinion is that we are not going to be done for a long time. I stand to be corrected. I think it will take about 18 months. We need to learn to live with COVID-19. So, the number one challenge would be for businesses to transform themselves, so they are able to operate in the new environment.
The only solution for COVID-19 is a vaccine and that is one year away. It would take time to vaccinate the whole world. Some wouldn’t even want to be vaccinated. This is a two-year story.
Businesses need to have the mindset to be ready to go through this. It is a long gain rather than a short gain.
They should look at how they can adapt their businesses, make them agile and flexible to meet the environment that is going to be in front of us from now to the next two years.
Businesses should also understand which markets are coming out earlier, which products are going to be more accepted. They need to take time to think through this and understand how they can survive though the crisis.
The recession post COVID-19, whenever we find the solution, is going to be long. That means businesses need to be more efficient and agile to face this.
This is an opportunity for businesses to redefine themselves. You can only become stronger when you realise what is in front of you.
What are the fundamental changes you foresee in the export sector in the next three to five years?
There will be some incredible opportunities for Sri Lanka, due to supply chain disruptions. My feeling is that most businesses globally and most countries will realise they were too dependent on their regular supply chains. We are seeing supply chain diversification and Sri Lanka should step up and tell the world we are ready to take over any supply chain movement across the globe.
Sri Lanka has a fantastic geographic location, our logistics are fantastic. So, we need to position Sri Lank as an alternative. The opportunity is incredible. All of us, businesses and the government, should work at putting Sri Lanka on the map.
How we handled the COVID-19 is an example of the strong leadership in Sri Lanka. If that’s the case, businesses should invest here.
I would love to see export diversification in the next five years, much bigger value chain in Sri Lanka and the country to take a pivotal role in promoting itself as a destination for manufacturing for re-exports. That is the path to go on. I sincerely hope and wish we don’t lose this opportunity, as we did many others in the past.