Sri Lanka export financing can drive export growth: Verité Research

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Sep 15, 2015 (LBO) – Sri Lanka should recognize the importance of export financing especially with regard to the small and medium scale sector to expand existing exports to the world, Verité Research said.

Sri Lanka’s share of exports to GDP was 15 percent last year and has been on a declining trend since 2000.

The research firm in a recent study has highlighted export financing as a key factor to reduce export oriented risks which ultimately allow exporters to attract more buyers and increase exports.

The small and medium scale exporters usually face added risks to the normal risks of business including a range of commercial and country risks.

Commercial risks can be explained as risks associated with the default payments by buyers due to various reasons and country risks are a result of laws and actions by respective foreign countries.

Head of Economic research at Verité Research Subhashini Abeysinghe said export financing can mitigate these risks through credit schemes specially designed for exporters.

“But government policy and action is required to enable and expand the reach of export finance instruments,” Abeysinghe said.

The small and medium scale exporters are currently contributing below 5 percent of total exports.

“The lack of export finance instruments is one explanation for this low level contribution,” she said.

The difficulty of expanding exports stems from the fact that Sri Lanka does not have many products to export and over 50 percent of country’s exports comprise of apparel and tea.

More than half of Sri Lankan exports also end up in the hands of traditional buyers like European Union and United states.

Verité Research has outlined four types of interventions in order to expand exports using export finance instruments.

Introducing new export financing solutions such as export factoring, insurance and guarantee schemes to reduce finance costs have been highlighted as a key step.

The second point is to improve the access to reliable and updated information about buyers and markets to mitigate commercial risk and country risk.

Sri Lanka’s Credit Information Bureau will also have an opportunity to share credit information with other countries to improve a reliable credit information system.

Currently export finance is largely provided by the commercial banks and export credit insurance is provided by the Export Credit Insurance Corporation of Sri Lanka.

Two to four percent of Sri Lanka’s exports are currently covered by credit insurance while the world average is between 10 to 12 percent.

Improving capacity, professionalism and credibility of export financing institutions has also been identified as an important intervention.

Lastly, establishing an export and import (EXIM) bank; as having a specialized agency of this nature will help better execute the interventions.

“EXIM banks literally take away the risks that the primary financial institutions are unwilling to take,” Abeysinghe said.

“So thereby they encourage commercial banks to lend to the export sector,” she said.

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Bernard De Livera
Bernard De Livera
6 years ago

Export financing being “a” problem is correct. But that is only a minor component of the complex problems with the big picture. Facilitating better export financing instruments is not a panacea to fix all that is going wrong with our export sector. What Sri Lanka has is a “syndrome”
I have had the opportunity to meet with officials from EDB, NCE, and numerous other stakeholders including large and small exporters to study the issues and challenges Sri Lanka is faced with regarding the declining exports. I have told Minister Bathiudene during the period of the last government of the multi faceted issues that must be addressed to put the export market development activities of Sri Lanka back on its rails.
The current government has its work cut out for them if they believe that injecting new energy to “Develop a Sustainable Export Program” is something they want to do early. Sri Lanka has no choice other than going back to the drawing boards and putting together a strategy and plan that is in line with the modern day competition from everywhere in the globe. All countries big and small, developed and developing are seriously trying to win new export markets and thereby new revenue. In my opinion, Sri Lanka SMEM’s are being left behind due to outdated policies, lack of a proper achievable long term plan and not being connected to the new world order of doing International Business & Trade.
The good news is, judging from the meeting the Prime Minister very recently had with Minister Daya Gamage, the Prime Minister himself has identified the necessity or may I say critical need for value addition as one important step that must be taken. The current situation could be turned around to achieve the diversification, modernization and growth of the Sri Lankan Export Development Project.
Bernard De Livera
http://www.export2theamericas.com
export2theamericas@bell.net

Yohan
Yohan
6 years ago

Yes sir you are correct on the government needing to go back to the drawing board on export policy not only financing instruments.

Imposing laws against bulk exports and issuing tax/other benefits to those with value added G&S, look at less time consuming procedures to assisting an organisation get its G&S to a market without delay than having to pay some official under the table and making available industry related information of new world trends with experts on the subject to advise those who want to enter the market “get it right the 1st time round”.

A clear example is the demand for Virgin Coconut Oil (VCO) and Organic Virgin Coconut Oil (OVCO).

SME’s did not have readily available information on the processes and requirements fast enough to construct facilities according to best practices for production. What happened was they did their own research, built factories and were later informed by the CDA of their non conformities causing added costs and no production till they were addressed. In this time other countries were able to enter the market.

There is also the issue of industries thinking only of them selves and not as a whole as one nation and supporting other industries.

Desiccated Coconut (DC) Mills hold a monopoly over other industries that require DC to produce value added products (VAP’s) such as VCO, Creamed Coconut etc.. They manipulate price as and how they want stating this is the world price hence not making prices competitive to attract buyers for DC based VAP’s.