The world economic downturn could hit Sri Lankan exports with the loss amounting to anything between US$ 300 to 500 million and the tea sector is already feeling the crunch, Economic Affairs Director of the Government Peace Secretariat, Rohantha Athukorala, said. Athukorala, a professional marketer and former chairman of the Export Development Board, said that the state should provide strategic incentives for industries to exploit existing regional free trade agreements which can bridge the gap caused by declining consumer spending in the EU and US. "The budget can be used to come up with these incentives and the state should take steps to mediate and remove non-tariff barriers that impede trade rather than tinker with exchange rates to adjust to inflationary pressures," he said. According to the Asia Pacific Free Trade Agreement, 12 percent of Sri Lanka’s export lines are eligible for preferential tariff lines to China, but Athokorala says that only 5 percent is being utilized while 15 percent to the whole Asia Pacific region is not touched. "Forget the media hype of doing business in India. The private sector should be ruthless and aggressive and win in the Indian markets," he said. Consumer spending in the US was based on borrowed funds and after the housing bubble burst, consumption dropped. "Consumer spending is estimated to decline by 3 to 5 percent and sector wise volumes can drop by almost 15 percent depending on the product range and the impact on the basket of goods on US households. In September alone, 156 thousand people lost their jobs in the US," he said. The decline in US consumption, and of Europe, where the US led credit crunch spread, could threaten Sri Lankan exports significantly. Exports to the US and EU accounted for 59 percent of total exports amounting to US$ 3.8 billion in the first half of 2008. Athukorala said that 23 percent of total export proceeds came from the US with apparels dominating with 77 percent of total export revenue from the US amounting to US$ 692 million. "Apparel exports have already declined by 11.6 percent as at June 2008 with exports to the US market declining by 8.2 percent," he said, adding that a decline in US consumer spending could lead to a further decline in apparel exports. He said that analysts forecast zero to negative growth in the US economy for the first quarter of 2009 and Sri Lankan apparel exporters are bracing themselves for a tough year. "The private sector should aggressively focus on opportunities available within the region to bridge the gap. Under the free trade agreement with India, 3 million pieces of garments have duty concessions and this is yet to be utilized," Athukorala said. "Decline in consumer spending in the US, and the rest of the world, is sure to hit Sri Lankan exports, which is estimated to be around US$ 300 to 500 in lost revenue," he said. On the positive side, he said that diamonds and frozen fish are less vulnerable to the economic slowdown in the EU while apparel exports to the region grew by 16 percent during the first half of the year compared with the previous year. "However, this needs to be monitored because even with all the rescue packages in place if they are not backed by reforms to their financial markets lending may not happen in the levels that could foster economic growth in those countries," he said. The tea bubble Athokurala said the tea industry is the first to get hit by the global economic downturn. He believes Sri Lankan teas were out priced in the recent past and that the market correction was bound to happen after world commodity prices took a hit due to the credit crisis. He said that tea exporters ought to accept this reality and sell existing stock and absorb the negative impact on profits rather that incur additional stock holding costs. He urged the tea producers to reduce manufacturing costs but maintain high quality and capitalize on the fact that quality has not suffered due to the crisis. "We must develop the value added tea sector with strategic incentives to the Industry and perhaps the next budget could allocate the required moneys to the Sri Lanka Tea Board," Athukorala said. "The Industry must also inform the labour unions on the new reality so that one cannot push for unreasonable wage increases," he said. "Sometimes I feel it’s a blessing in disguise," Athukorala said, " but, the situation needs to be carefully monitored and a bail out package be prepared for the small timers and bought leaf manufacturers in the event the market does not stabilize. "We can use the strong links we have with Iran and China and ask for priority orders on a government to government basis so that we can clear the backlog. Accountable CFOs Athokorala made these observations at the National Conference of the Institute of Chartered Accountants. "What Sri Lanka requires right now is not a rubber stamp accountant who signs anything and everything but a person who is vocal to good governance and protects the company from adverse risks. "If this does not happen, Sri Lanka may also see many a Lehman brothers or Merryl Lynches of the world. The private sector must be aware that the country will not be able to take that kind of shock in the event of a financial crisis," he said. |
