As Sri Lanka seeks to reclaim its historic status as an international trading hub, its exporters are exploring new markets to bolster existing trade with the West. World-renowned for its ethically- produced garments, dazzling precious gems and luxurious Ceylon tea, the island is defying gloomy global economic conditions with impressive growth – though balance of payments concerns suggest challenges ahead.
June 6th, 2012
The Silk Route, an ancient network of trade routes that stretched thousands of miles though Africa, southern Europe, the Indian subcontinent and China, helped many great civilisations evolve. And at its heart, a small island – enviably situated – became an intercontinental trading centre.
In the modern era, Sri Lanka is determined to reclaim its formerly privileged position. Recent signs have been promising. In 2011, exports totalled more than the targeted $9.1bn (£5.8m); this year the goal is $12.5bn (£8bn). To enhance its reputation as a hub for commerce, the country has worked resolutely to develop its infrastructure: expanding its roads, airports and ports, setting clear goals for renewable energy, and modernising its legal and regulatory systems.
But there is a problem: the cost of imports is growing fast, raising serious concerns about a growing balance of payments deficit. To try and ease this imbalance, Sri Lanka announced a 3 per cent currency devaluation in November 2011.
That had an effect – but only to a certain extent. Dawn Austin, chairperson of the Exporters Association of Sri Lanka, points out: “Since the currency devaluation we are competitive but everything else has hit us as well. There’s the oil crisis, the global financial crisis and uncertainty in the world markets.”
A grim economic climate in the West may force Sri Lanka to reduce its reliance on trade with its two biggest partners, the EU and the US. Indeed, the former withdrew preferential tariff benefits to the island in 2010 over human rights concerns – though this proved to have little impact on its flagship garments industry.
And there is no shortage of interest elsewhere. Expo 2012 – the island’s biggest trade fair since the war, held in March – attracted 1,385 international buyers, well surpassing expectations. That included more than 550 participants from China and India, the world’s two most populous countries.
Austin sees potential in smaller emerging economies, too. She notes: “There are trade missions, fact-finding missions and people coming in. The export development board has started looking at places like South East Asia. There is also a small segment going into Africa, for less sophisticated manufactured goods. Because Sri Lanka isn’t a huge country, it has the capacity to cater to markets that don’t need huge volumes.”
The ‘Made in Sri Lanka’ brand is not confined solely to agricultural and inexpensive manufacturing products, though. The country seeks to promote its burgeoning industries higher up the value chain, to be recognised for its technological prowess and to ease its dependence on low-cost exports as it grows more prosperous. Its fast-emerging nano-tech sector is just one example of this.
Nirmali Samaratunga, co-chairman of the mercantile firm Mackwoods, sees big potential in the IT industry – particularly in business process and knowledge process outsourcing. As she points out, she is not alone. In a recent report, A.T. Kearney, the global management consultants, called Sri Lanka “a hidden gem for outsourcing.” Its take on the country? “Among the safest, lowest risk, emerging markets, both in terms of personal safety and business security.”
Coping with global problems
Sri Lanka is no longer at war – but political turmoil in its major export markets inevitably troubles its industries. Dilmah Tea exports to 104 countries. “In the Middle Eastern countries Ceylon tea is like gold,” says Merrill J Fernando, its founder. “The present disturbances in Iran, Syria, Egypt and Libya are really affecting us”.
Still, with more than 8 per cent GDP growth last year, the island has avoided the economic sluggishness that infected much of the world after the global financial crisis.
Shirendra Lawrence, managing director at MAS Active, describes how the clothes retailer – accounting for around a third of Sri Lanka’s apparel exports – used the crisis to improve its business practices.“We came out of the recession in a better place than we were when we went in,” he says. “A lot of that came from our focus on lean enterprise, which started in the mid 2000s”.
“Sri Lanka is an exciting place to be. We change gear, we adjust, we flex and make opportunities out of challenges,” Lawrence adds. Fernando agrees, despite concerns about the Middle East. “Every time I go into the city I can’t recognise the place. There are so many opportunities which never existed before and people who take the chance today will be multimillionaires in five years,” he said.
“Nobody believed that we could achieve what we have achieved, and we did it our way. That’s been the key to our success.”
Basil Rajapaksa, younger brother of President Mahinda Rajapaksa, has held his current role since 2010. He was involved in fostering political stability in Sri Lanka after the civil war.
Two years ago Sri Lanka was importing rice, Basil Rajapaksa points out – whereas it recently gave a donation of 500 metric tons to the World Food Program.
The minister describes how he prioritised food security in rural areas after the war. “We developed backyard economic units in 2.5m households, to ensure the individual family is guaranteed their nutrition and an income”, he says. “Now it is time to try to export some of these products.”
Rajapaksa cites Sri Lanka’s educated workforce, its health system and controlled inflation as reasons for the country’s rapid post-war economic development. Its balance of payments deficit, he argues, is largely down to high global oil prices.
Made in Sri Lanka products
After water, tea is the world’s most widely consumed beverage – and Sri Lanka is the world’s fourth biggest producer, thanks to the optimal tea-growing conditions in its highlands.
Sri Lanka is renowned for its ethical textiles industry, with child labour outlawed. The sector makes up around half the island’s exports, most going to the US and Europe.
A popular spice derived from the bark of a tree native to Sri Lanka – by far its number one producer – cinnamon is used across the world in hot drinks and sweet and savoury dishes, and has been linked with numerous health benefits.
Regarded as among the highest quality in the world, Sri Lanka’s precious gems include diamonds, emeralds, rubies and sapphires.