Access to credit linchpin for govt.’s export target
15 Sep 2015 - {{hitsCtrl.values.hits}}
By Chandeepa Wettasinghe
Improving access to export credit facilities for small and medium enterprises (SMEs) remains the crux of accelerating Sri Lanka’s exports and the government must intervene to maintain set targets, experts said.
“Exporters prefer immediate payments and buyers want to pay as late as possible. There’s a mismatch. SMEs are the most affected. If they wait months for the payment of one batch of exports, they can’t finance other export production,” Verite Research Economic Research Head Subhashini Abeysinghe said.
National Chamber of Exporters President Sarada de Silva expressed that governments in the past had been lazy, converting import facilities into export processes without looking at the requirements of exporters.
Abeysinghe noted that since SMEs do not have securities or the credibility to leverage for loans to use as working capital, commercial banks view them as risky opportunities, charging penal rates even during the current low interest regime.
Verite’s numbers showed that only 5 percent of exports are done by a paltry 3,000 SMEs, while 81 percent of the exports are done by a handful of mega corporations, which have export revenues running over Rs.1 billion.
Over 80 percent of Sri Lanka’s businesses are SMEs and the country’s population of 20 million is not a large enough market for SMEs to grow through domestic consumption.
Exports is the buzzword in the local economic dialogue today, with the government setting targets such as US $ 50 billion exports or receipts worth 100 percent of gross domestic product (GDP) from the current 12 percent and planning to set up export development zones.
“We’re very good at setting tall targets but the gap between the target set and the realities tend to be very large. To fill this gap, it’s not enough to have policies alone but identify what types of interventions are required,” Abeysinghe said. She expressed that the government should create favourable regulations nudging commercial banks to give loans to SMEs, provide information on company and country risks in export markets and create institutions such as an Export-Import Bank (Exim Bank)—which the government is contemplating to set up.
She noted that every developed and developing nation provides all of these services to its exporters.
She added that another solution would be for large companies or associations, which have goodwill with commercial banks, providing guarantees for entire value chains. Verite Research Executive Director Dr. Nishan de Mel said that as product innovation takes place, export credit becomes even more crucial. “Innovation will allow SMEs to reach smaller buyers in smaller segments, which means more risk. So then export finance becomes even more important,” he added.
Harsha could boost exports
Economist Dr. Harsha de Silva being appointed as Deputy Foreign Minister could boost Sri Lankan exports, according to the Verite team. Both the business world and the population at large expected Dr. de Silva to be awarded a Cabinet portfolio primarily concerned with the economic policy.
But they have now taken solace in thinking that Dr. de Silva could promote trade relations and bring in much-needed foreign direct as the Deputy Foreign Minister.
Dr. de Mel said that Dr. de Silva could reorient and expand the role of Sri Lankan Commercial Attaches.
However, this is under the assumption that Dr. de Silva would be vested with the powers to make a difference.
Dr. de Mel noted that Commercial Attaches in Sri Lankan embassies abroad were not mandated in the past to conduct economic research and provide information as a public good to reduce export risks. “Information is a public good. Once you pay and get it, everybody can benefit from it. It doesn’t make sense that every single exporter and small exporter should go and spend all their money, time and effort so that each one gets the same information,” Dr. De Mel said.
He said that if the government provides such information, the export business will become easier and cheaper.
Abeysinghe said that most developed countries provide their companies with information, particularly pertaining to foreign companies which they most interact with, as well as country-risk profiles, which include political and macroeconomic trends, warnings and other information.
Under the current situation, Commercial Attaches are provided by the Department of Commerce.
Only 23 Commercial Attaches are currently operating in 19 countries—mostly in the US, Europe and India.
Abeysinghe said that Attaches are distributed according to the volume of trade between Sri Lanka and foreign countries.
“They need to have more Attaches in developing markets like Brazil, India, South Africa and Vietnam for them to help our exports penetrate into the markets. Commercial Attaches of other countries are very proactive. Ours are not proactive,” she added.
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