That magic $5 bn mark

So we have hit the 5-billion dollar mark in garments exports for 2018! Five billion dollars seems to be a magical figure in Sri Lanka’s economy, particularly in the area of exports and export services income. While it was garments that have now reached this figure, the next two targets on the horizon are achieving US$5 billion in tourism services income and $5 billion in the export of IT services.

It was one of those serene Thursday mornings and the garden was quiet; no conversation between Kussi Amma Sera and her friends – Serapina and Mabel Rasthiyadu.

Kussi Amma Sera was busy in the kitchen preparing breakfast. Bringing in the morning tea, she said, beaming: “Mahattaya ada honda dawasak (It’s a good day today, Sir).” It was at that moment that I realised that it was her birthday and wished her gracefully. Maybe the trio, including Serapina and Mabel Rasthiyadu, was meeting in the evening for a birthday bash!

As I pondered over what to write focusing on the export sector, the phone rang. It was Sammiya (short for Samson), my jolly-mood economist friend on the line.

“I say, garment exports seem to be doing well,” he said in his jolly-mood voice, continuing: “I wish some of the benefits of export earnings will filter down to the hard-working workers particularly women and the communities that depend on this income.”

The trickle-down effect in any key economic sector is very important if Sri Lanka is to grow horizontally without only a few people reaping the benefits.

Adding my own views to the topic, I told Sammiya, “Yes, this is a milestone in reaching this revenue target ($5 billion). The challenge is in sustaining this growth to reach the $8 billion garments’ export target in 2020.”

In a statement this week, the Joint Apparel Association Forum (JAAF), the umbrella body representing this sector, also said achieving 6 per cent annual growth to reach $8 billion in revenue is a challenging task.

“While the industry by itself will take all possible steps to meet capacity, technology and resource issues, the envisaged market access programmes through regional, multi-lateral or bi-lateral trade arrangements are also extremely important particularly with emerging markets such as India, China and Brazil. Sri Lankan apparel is looking forward to raising the bar to the next level with effective public-private partnerships with the Government on policy making issues,” it said.

According to JAAF, there are nearly 350,000 workers directly and twice as many indirectly in this sector. The total employment is estimated to be in the region of 15 per cent of the coun- try’s eligible workforce, mostly made up of women from rural communities.

According to the latest available figures (January-October 2018), textiles and garments earnings totalled $4.35 billion (end 2018 it was $5 billion) while workers’ remittances (the highest earner so far) was $6 billion, and tourism (rising fast to reach the top) was $3.5 billion. Old faithful tea (for many decades the highest foreign exchange earner but not anymore) recorded a revenue of $1.2 billion during this 10-month period.

Tourism revenue is estimated to reach $4.5 billion in 2018 and targeted to reach $5 billion this year with arrivals at 3 million in 2019 and an ambitious 4 million in 2020 (largely banking on a mega destination marketing campaign that hopefully would increase arrivals from new markets – India and China – while firming traditional Western European markets).

Moving into another space, the IT services sector is what Sri Lanka is focussing on to take the country to the next level of development. An ambitious target of $5 billion in services export in this sector has been set for 2022 from a current $1.8 billion worth of exports.

This may be achievable based, however, on many fundamentals like consistent policies (changing governments, changing priorities and with that inconsistent policies) being a key element. Consistent policies are one of the biggest challenges facing the country and would-be investors.

The IT industry also needs a larger workforce to achieve these targets from a current 7,000+ IT graduates to 16,000 + graduates, to make it work.

While IT sector exports have grown by around 19 per cent annually in the 2012-2017 period, experts say an annual IT growth of 33 per cent is needed to reach the $5 billion target, which is extremely challenging.

Having said that, there is rapid development in the IT industry space, with large-scale recruitment taking place by new and old start-ups. Many young people are picked up in this industry, starting off as interns while they are still in university preparing for a software engineering or a computer science degree or a related course of study. The plethora of educational fairs, in particular EDEX – the annual education and careers exhibition -- has led to many corporates signing up bright, young people while they continue with their university careers.

At the annual exhibition of the Department of Mechanical Engineering, University of Moratuwa, this week, there were 33 projects in the areas of Energy, Manufacturing, Mechatronics, Automation, Robotics, Automobile, Aeronautics, Biomedical and Industrial Engineering that drew the interest of the private sector. And a few organisations had sent scouts to hand-pick the best-out-of-the-best undergraduates.

Of all the economic spaces -- before the 1980s when traditional crops like tea, rubber and coconut were the main earners – it’s worker remittances, garments, tourism and now IT (which is making more money than tea earnings) that top the country’s export earnings’ list.

Particularly exciting in the IT space is the creation of many innovative products and this is one sector where the products are world class and can withstand any global competition. In fact, in terms of skills and capacity, Sri Lanka’s IT sector workforce is comparable with the best in the world.

A competent, skilled and efficient workforce alone is not enough to make things work. The Sri Lankan bureaucracy too needs to be up-skilled, innovative and not be mere pen pushers while Sri Lanka strives to achieve the magical $5 billion target in several sectors. In Kussi Amma Sera’s June 17, 2017 column, I wrote about how then Tea Board Chairman Rohan Pethiyagoda said the bureaucracy was slowing down exports with slow processes and delaying-tactics all encompassed in procedure. A slow bureaucracy coupled with policy inconsistencies will get Sri Lanka nowhere in the $5 billion earning bracket.

In fact, tourism is facing that at the moment with the 3-billion rupee-worth promotion campaign caught up in cumbersome bureaucratic procedures. A campaign that should have got off the ground last year (getting entangled in the October political crisis) is now likely to get off only by May this year, maybe even later. Like tourism, where the industry does a lot of promotion on its own, the IT sector is also geared towards self-promotion instead of waiting for the government to deliver the goods.

Like Kussi Amma Sera’s “Ada honda dawasak”, the secret to a ‘good day’ lies in the speed by which the state sector works together with the private sector in clearing bottlenecks, providing the right incentives to attract investment and maintaining policies particularly taxes that don’t change periodically like a taxi meter!