Helping exports

SRI LANKA’S exports in October declined year-on-year for the first time in 16 months whilst higher imports saw the trade deficit double, according to the latest Central Bank data. Earnings from exports declined by 13.7%, year-on-year, in October 2014 to $ 899 million. Even though the decline was attributed to the base effect, exports still need significant assistance from policymakers.
High electricity costs, unproductive labour laws, high finance costs and low budget allocations for investment in research and development are among the main reasons for flagging exports. Despite the 2015 Budget introducing many handouts and tax concessions for industries willing to move out of the Western Province, exporters remain largely unaffected. A knotty regulatory framework, unstained policies and even complicated EPF and ETF systems are all among the bottlenecks highlighted by experts at various times.
Exporters have also lamented the absence of an effective incentive regime, pointing out that the Export Development Rewards Scheme (EDRS) is not operative and that the cess collected from the tea, rubber and gem industries, which were supposed to be ploughed back to develop those sectors, were diverted to the Treasury instead.
They stress that despite repeated appeals to use these funds to develop markets for key exports, no progress has been made. The main Opposition raised similar concerns in Parliament on Wednesday, slamming current practices of diverting money to a Consolidated Fund, which the UNP charged was used to paint Government buildings rather than assist exports.
Anti-dumping practices are also not implemented. The tenuous exchange rate, together with high overhead costs, means Sri Lanka’s exports are not competitive in the global market – ills that Government policies have not adequately addressed for a long period of time.
After growing nearly 100% in 2011, the country’s trade deficit declined by 4.1% in 2012 to $ 9,313 million as at end December from $ 9,710 million a year earlier. Imports fell 5.8% to $ 19,086.5 million while export earnings fell 7.4% to $ 9,773.5 million. In January 2013, export earnings fell 18.2% year-on-year to $ 726.7 million.
Against this backdrop, January 2014 numbers are impressive as they show an extra $ 171.3 million, but it does little to dent the fact that overall export earnings, which were at 30.58% of GDP in 2001, declined gradually to 16.44% in 2012.
Economists also argue that fiscal policy and monetary policy needed to undergo a structural shift so as to create a macroeconomic environment that would be conducive to both exports and FDIs, as heavy borrowings-led economic growth cannot be sustained for long. Upholding the rule of law was also cited as a critical ingredient.
Overall improvement in governance and transparency is also needed for attracting Foreign Direct Investment (FDI), which is another aspect that has not garnered much support from the Government. In fact, 2013 figures still languished at the $ 1.4 billion mark, only marginally better than 2012 and a far cry from the $ 2.5 billion mirage presented by the Government.
With falling exports, the Government has little choice but to encourage FDI within a short term via any means necessary, as the wooing of casinos has showed. As debt racks up, the Government has to find ways to develop exports as the only viable measure for meeting repayment schedules. Undeterred, it is banking on remittances and tourism to fill the gap left by exports, but this will not result in significant growth.
The Government that spends billions building highways, airports and ports has the capacity to provide better assistance to exports but so far has fallen short of expectations.