Sri Lanka plays a crucial role in the world of global trade and its exports act as a measure of economic health. Taking a closer look at the past year is essential to understand the ups and downs faced by Sri Lanka’s exports.
As per the ‘Export Performance 2023’ statement by the Export Development Board (EDB), Sri Lanka’s total exports reached $ 14.94 billion in 2023, including merchandise exports worth $ 11.85 billion and estimated services exports worth $ 3.08 billion. This constitutes a 0.39% decline when compared to the value recorded in previous year, which stood at $ 14.99 billion.
‘No growth’
Speaking to The Sunday Morning Business, National Chamber of Exporters (NCE) President Jayantha Karunaratne said that there was a slight decline in export values. However, the services sector has shown improvement, while the non-services sector has experienced a slight increase. Overall, there is no significant growth; the situation appears to be relatively static.
Karunaratne said that the major challenge lay in the apparel sector, which had not performed well due to the recession and issues in the US and Europe. “In apparel exports, several internal issues have arisen, such as the increased cost of production, electricity, labour, and tax. However, the primary concern stems from the reduced demand in overseas markets, leading to fewer orders. This decline is attributed to intensified competition from other countries seeking more business in the apparel trade,” he said.
He added that the apparel industry was expanding not only in traditional locations such as Bangladesh and Vietnam but also in Africa, where the industry was experiencing a noticeable rise. Many countries are venturing into apparel manufacturing, intensifying competition. Additionally, some Sri Lankan companies are establishing operations in Africa.
Karunaratne noted that the tea sector had shown a modest improvement compared to the previous year. Overall, there appeared to be a marginal decrease with no substantial growth, he said.
“There is no significant change when comparing this year to the previous one. The only observation I can make is that there is no growth,” he concluded.
According to the EDB, although the US remained a key export destination for Sri Lanka, absorbing 23% of the country’s merchandise exports in 2023, the exports to US decreased by 0.96% to $ 253.74 million in December 2023 compared to November 2022. Further, exports to the US decreased by 16.91% to $ 2,758.57 million during the period of January to December 2023 compared to the same period in 2022.
For instance, apparel and textiles decreased by 18.02% to $ 4,864.53 million, rubber and rubber finished products decreased by 8.66% to $ 930.24 million, and coconut and coconut-based products decreased by 13.27% to $ 708.7 million.
Decline in apparel exports
Export earnings from apparel and textiles have decreased by 8.64% Year-on-Year (YoY) to $ 438.78 million in December 2023 compared to December 2022, as per the EDB.
Joint Apparel Association Forum Sri Lanka (JAAFSL) Secretary General Yohan Lawrence noted that there had been a slight increase in December 2023 as the markets had improved. Overall, however, exports for 2023 had stood at $ 4.5 billion, which was an almost 20% decline compared to the previous year.
“The primary internal reason is a decline in Sri Lanka’s competitiveness as a manufacturing location. We are currently burdened with unnecessarily high energy costs, which significantly undermine the competitiveness of our products. Sri Lanka’s power costs are nearly 20% higher than those of our competitor countries.
“Moreover, countries like Bangladesh and Vietnam enjoy the advantage of more generous market access programmes, especially with the EU and the UK, providing buyers with a more affordable product once they land in those destinations. Currently, price is the key determining factor and we need to enhance our competitiveness,” he explained.
Addressing the external reasons for the decline in apparel exports in 2023, he said: “The situation primarily arose due to excess stocks of apparel in these markets coinciding with a decline in domestic demand. Brands, understandably, are reluctant to lower selling prices merely to clear stock and prefer to weather the storm until demand begins to recover.”
“We must regain a competitive position as a country. A recent report ranked Sri Lanka as 116 from among 156 countries, encompassing various areas, including freedom to trade internationally and regulations. Our track record in trade facilitation is poor and these are all areas that require improvement to instil confidence in buyers placing orders in Sri Lanka,” he said.
Competitor countries are gaining market share as they provide customers with a better overall proposition than Sri Lanka. Addressing policy consistency is another crucial aspect that Sri Lanka has often been criticised for and which requires immediate attention. According to Lawrence, in order to boost exports, it is essential to translate the rhetoric about building an export-led economy into actionable measures.
Although the earnings from export of tea, spices and concentrates, electronics and electronic components, and food and beverages show positive growth for 2023 in comparison to 2022, the cumulative merchandise exports during the period of January to December 2023 decreased by 9.54% to $ 11,856.3 million compared to the corresponding period in 2022.
Optimistic forecast for tea exports in 2024
Sri Lanka remains optimistic about generating around $ 1.3 billion in revenue from Ceylon Tea exports in 2024, Sri Lanka Tea Board Chairman Niraj de Mel revealed.
According to de Mel, the anticipated revenue is expected to fall within the range of $ 1.2-1.3 billion. This projection underscores the significant role Ceylon Tea continues to play in Sri Lanka’s economic landscape, showcasing the country’s continued prominence in the global tea market.
Struggles to maintain current trend in spice exports
Speaking to The Sunday Morning Business, EDB Director – Export Agriculture Janak Sanjeewa Badugama shared that the current challenge for spice exports was in sustaining the existing trend rather than increasing revenue.
Exporters and processors are struggling with numerous difficulties, making it a significant challenge for them to keep up the momentum. Badugama pointed out that although the EDB aimed for revenue growth, spice exporters faced serious issues such as the current 18% VAT imposition, concerns about raw material security, electricity tariffs, and labour rates.
Therefore, he emphasised that maintaining the previous level was the primary challenge for the EDB.