|
Mr. Ismail Radwan, Private Sector and Financial Specialist
of the World Bank, Officers of the Managing Committee
at the Head Table, distinguished invitees, Members of
the Exporters’ Association of Sri Lanka, ladies
and gentlemen. It is my privilege to welcome all of
you to this 9th Annual General Meeting of the Exporters’
Association of Sri Lanka.
On assuming the duties of this office last year, I
addressed you at the Annual General Meeting in July
2005 and indicated to you that waiting on successive
governments and their agencies to resolve our problems
was an exercise which was unlikely to result in any
positive outcomes and my proposition to the Export Community
was that we formulate on our own, policies, strategies
and programmes for our own growth and development. After
one year in office, I am now, even more convinced that
we should determine our own future and not look for
assistance and handouts and be disappointed later that
there was no favourable response. It is my view that
far too much of our time and energies are spent in looking
for help that will just not come from the sources we
look to receive relief and support.
As a result of the combined effects of expanding global
demand and improved domestic conditions, the export
sector of Sri Lanka registered an encouraging growth
rate of 10.2 % in USD terms in 2005 over the previous
year. Sri Lanka’s economy meanwhile demonstrated
its resilience by growing at the rate of 6% despite
high oil prices and other constraints during the same
period. The growth rate achieved by our sector is commendable
when compared to the average growth rate of only 3.46%
in USD terms for the ten-year period 1996 – 2005.
When examining the most recent figures for the current
year published for the five months to end May 2006,
the growth percentage recorded in USD terms is 5.76%.
It is hoped that the coming months will prove that the
direction of growth in exports has not been reversed.
The increase in total exports last year is reflected
in all major export sectors, i.e. Agricultural (8.4%),
Fisheries (10.3%) and Industrial (9.7%). Within the
Agricultural Sector, earnings from export of Tea (9.62%),
Coconut Fibre Products (19.8%) and other export crops
(14.5%) increased substantially during this period.
However, exports of natural rubber (-8.8%) and dessicated
coconut (-27.9%) dropped in 2005. We are happy to note
that in the first five months of the current year the
situation with regard to exports of natural rubber have
been remarkably reversed with a percentage growth of
120% and a less dramatic reversal in dessicated coconut
has been achieved this year with a percentage growth
of 37.61%. Getting back to the previous year’s
statistics, inspite of the sharp drop in export of prawns
(-25.5%), earning from fisheries exports grew due to
increased exports of aquarium fish (1.7%) and other
fish products (24.7%).
Industrial exports which accounts for 77% of the total
exports grew by 9.7% in 2005. Increased exports of diamonds
(6.8%), gems (10.8%), textile and garments (3.1%), manufacturers
(23.7%) and petroleum products (31%), contributed to
the overall positive growth regeistered by industrial
exports in 2005. Within the manufacturers sub sector
almost all the products; food and beverages (168%),
leather products (0.96%), wooden products (17.2%), paper
products (41.9%), rubber products (39.4%), chemical
and plastic (23.8%), toys and sports requisites (11.7%)
and footwear (0.22%) registered positive growth rates
during the year 2005.
In 2005, nearly 72% of total export earnings of Sri
Lanka were derived from 10 products. Garments and tea
in bulk alone contributed to 50% of the total exports.
Sri Lanka’s high reliance on a few export products
reflects the vulnerability of Sri Lanka’s export
earnings to the changing market conditions for these
products.
A destinational analysis of exports reveals that nearly
72% of our total exports were absorbed by only 10 countries
dominated by the USA (31%), UK (12%), which reflects
the high market concentration geographically speaking
of Sri Lankan export products. However, exports to India
has been increasing since the signing of the ISFTA where
the share of exports increased from 1% in 2000 to 8.7%
in 2005. It is hoped that with the FTA with Pakistan
more trade opportunities for Sri Lanka would be generated
in the region.
However, it is important to recognise that to take
maximum advantage of the benefits from these trade opportunities
it is a sine qua non to enhance the competitiveness
of the export sector, which is both affected by a series
of external and internal factors. By far the most important
challenge the country is constrained to contend with
next in importance to the fragile peace process is the
oil shock of 2005 with the price of petroleum crude
oil reaching the heights of USD 75/- per barrel last
week. We read in this morning’s business pages
that the oil import bill had soared 54% to USD 822 million
and as a result, the trade deficit has ballooned to
a yawning 63.1%. It is therefore an imperative that
plans and designs are urgently formulated and more importantly
implemented for accelerated growth in export performance
which is the only way that the country could contend
with an emerging, worsening overall economic scenario.
The government has set up an economic growth target
of 8% in the medium term with the objective of resolving
the economic issues faced by the country including poverty
alleviation. Experts have determined that it is necessary
for exports to grow at a rate of at least 15% in order
for the country to achieve an annual growth rate of
8% in GDP terms. Notwithstanding the fact that the export
community has been resilient and quick to grasp opportunities
and as a consequence have performed admirably in the
immediately preceding period, it would be extremely
difficult for exporters in a small country like Sri
Lanka facing stiff competition in the international
market to achieve the target of 15% growth unless there
is a well coordinated export promotion effort with government
initiatives.
The government in it’s budget for 2006 presented
in November last year, proposed a series of export related
measures to achieve growth in exports. There was overall
emphasis on agriculture and specific provisions were
allocated for dedicated agricultural product zones and
quality improvements in agriculture. In the plantation
crop sector which includes, Tea, Rubber, Coconut &
Sugarcane a Revolving Fund for development was to be
established with a transfer of Rs. 1.6, billion lying
in the Stabilization Fund and the proposal was to have
the Fund increased to a level of 10 billion from the
sale proceeds of excess urban land. There were also
proposed under this category, allocations for coconut
cultivation in Mahaweli areas viz., Galle, Matara &
Hambantota and for 20,000 hectares of Rubber in the
Moneragala district.
We are grateful to the Government for fully exempting
from income tax the profits earned from exports of non-traditional
agricultural exports. A further welcome measure in relation
to the Tea Sector was the reduction of the Economic
Service Charge from 1% to 0.25% for any Tea Processing
Factory and the more recent measure of totally exempting
from income tax the profits from the exports of tea
bags. We are confident that these measures will directly
contribute to the growth of Agricultural Exports including
plantation crops in the ensuing period. The concessions
granted will undoubtedly lead to a much greater investment
in the tea bag sector which can make a quantum change
in the foreign exchange earnings per kilo of tea exported
from this country.
The Apparel & Textile Sector accounted for 46%
of total exports last year and grew by 3% reflecting
the higher volumes. Garment exports to the USA the largest
buyer grew by 6.1%. Several measures including Textile
Processing Zones, a College of Textile and Clothing,
Regional Apparel Hub and plans to improve the Handloom
Industry were proposed in last year’s budget which
undoubtedly will give a further impetus to an already
vibrant industry. Western countries which mainly receive
the products of our Apparel Industry have commented
that the strides taken by Sri Lankan exporters in this
sector who are now classified as world-class suppliers,
have truly impressed both buyers and consumers in those
countries surpassing all expectations.
Our Association has been actively pursuing with the
Secretary to the Treasury and the Department of Inland
Revenue the unacceptable situation with regard to outstanding
VAT Refunds. As a consequence several proposals to improve
the Refund System have been introduced:
1. A separate account opened at the Central Bank where
10% of the VAT collections at the point of import are
directly credited to this Account
to be applied by the Commissioner for the purpose of
making refunds without having
to wait for funds to be released by the Treasury.
2. The fifteen-day VAT Suspended Scheme for those exporters
who provide a bank guarantee. This scheme became
operative in January this year and while the scheme
provided refunds within the agreed period in the first
two months, exporters complain that the cheques are
sometimes received after a period of three weeks.
3. The VAT Deferred Scheme for Exporters similar to
that which prevails for the Apparel Sector. The scheme
has been launched but is not
yet operational.
Despite these several measures, I regret to place on
record that it is becoming increasingly evident that
the Department of Inland Revenue is not geared to cope
with the overload of work that the VAT Refund System
entails. This has resulted in serious cash flow deficiencies
in member Companies and payment of interest at penal
rates as a result of legitimate dues of exporters not
being received in a timely manner. The knock-on effect
has been a reduction of competitive strength as a result
of higher interest and administrative costs. The emerging
picture is that the whole system of value-added tax
has been a failure in this country due to the breakdown
in the administration. THE VAT SYSTEM IS BADLY IN NEED
OF REVIEW. The very purpose of zero-rating exports have
been negated as a result of the breakdown of the refund
mechanism which is an integral part of any successful
VAT regime.
Regular meetings have been held with the Director General
of Customs and our attendance at the Exporters’
Forum has resulted in resolving many micro issues concerning
individual exporters. The Association is also represented
on the Joint Business Forum, the Committee of the Ceylon
Chamber of Commerce, the Sri Lanka Shippers’ Council
and the Employers’ Federation of Ceylon. The regular
dialogue with these institutions have been instrumental
in disseminating relevant information to our members
on a timely basis.
EASL launched its website in April 2006. The objective
of this Site is to create awareness with regard to the
Association’s activities, alert the export community
of any issues of concern and provide an opportunity
for visitors to easily access information relating to
exporters from the product classification listed on
the home page.
The Site provides a series of options for members to
market their products and services to the many local
and overseas visitors.
The Site is hyperlinked to websites of the Sri Lanka
Export Development Board, Board of Investment of Sri
Lanka and the Ceylon Chamber of Commerce.
Several workshops and seminars which were of direct
interest to the export community were organised by the
sub-committee appointed for this purpose. Our thanks
are due to Mr. Lasantha Wickremasekera of Hayleys Ltd.
for the excellent work under this initiative. Details
of the programmes conducted are outlined in the Annual
Report which is in your hands.
The Exporters’ Association of Sri Lanka was inaugurated
in 1997 with the merger of the Federation of Exporters’
Associations of Sri Lanka and the Export Section of
the Ceylon Chamber of Commerce.
I am privileged to serve as your Chairman for another
year and thank the members for the confidence you have
placed in me. I owe a debt of gratitude to the two Vice
Chairmen, and the Managing Committee for the excellent
support and cooperation which has always been extended.
The vast knowledge and experience of the past Chairmen
have been of tremendous help in our decision making
process. I am also deeply grateful to the Ceylon Chamber
of Commerce for the secretarial support it has afforded
our Association during the last year. I consider it
necessary to place on record the excellent work performed
by Ms. Nilika Ariyawardena who was the Chamber Executive
servicing our Association’s needs and Mrs. Puvi
Domingopillai for her overall guidance at our meetings,
programmes and activities.
I am confident that I will have your fullest cooperation
in the forthcoming year and it is with that confidence
that I have accepted this office for a second year.
Thank you.
|
Circular
No: 1 of 2006
