The dependency syndrome
View(s):Last week’s ‘tiff’ with Russia over tea shows the power a single country can have on a particular export from Sri Lanka.
While Sri Lankan authorities have begun negotiating with Russia’s agricultural safety office Rosselkhoznadzor (the Federal Service for Veterinary and Phytosanitary Surveillance) and other agencies, a team of Sri Lanka officials was arriving in Moscow by the weekend for extended discussions to lift the ban.
The Russian agency suspended all agricultural imports from Sri Lanka with effect from December 18 after it says an insect, known as the Khapra beetle, was found in the packaging of one consignment of tea from Sri Lanka.
The Khapra beetle is only found in grains and seed and Sri Lanka’s vigorous defence is that it may have already been in the container at the time of loading and shipping the tea from Colombo.
The entire tea trade has lent its support to Sri Lankan authorities to resolve the ‘ban’ crisis which would have a huge impact on Ceylon Tea once the auctions resume in January. The tea auctions in Colombo this week were not impacted by the Russian tea ban since much of the pre-Christmas buying had already been done.
The engagement of the private tea trade in the crisis and their concerns which are equal or even more than state agencies reflect the long-standing partnership between the private and public sectors in this sector.
The same can be said of tourism which is driven by the private sector and facilitated by the government. This also applies to garments where private sector umbrella group – Joint Apparel Association Forum (JAAF) works closely with government agencies, a partnership which came to the fore in the recent, successful negotiations to restore GSP+ which had been suspended over alleged human rights abuses.
In a way these are effective public-private partnerships working towards one goal – enhancing exports, earning foreign exchange and increasing employment.
The same should apply to IT (Information Technology) and other newly-emerging industries where the government plays the role of a facilitator while the private sector drives the country’s export agenda.
On the flipside however, the need to have many eggs in many baskets instead of dependence on a few markets is clearly reflected in the latest tea saga. While Russia is now Sri Lanka’s biggest buyer of tea, its tea purchases at the Colombo auction also have a huge impact on prices. Russian buyers active in the market can push prices up, while the reverse happens if they are not there.
A similar scenario in terms of dependency occurs in tourism. While for many years, Western Europe – the UK, Germany and France – was Sri Lanka’s main source markets, the decisive moment came when arrivals from this source, though they kept coming, shrank during the 30-year long conflict. At that moment, Indians began discovering Sri Lanka (largely due to the growing affluence of the middle class and a penchant for travel) with numbers rising to record exponential growth. And at the same time, as China’s economy started growing, the affluence of the middle class also grew resulting in millions of Chinese seeking new destinations to visit. And with long-standing relations between Sri Lanka and China enhanced with the rubber-rice pact in the 1950s (in which the 65th year of the signing of the pact was celebrated in Colombo this week), the island was a natural attraction for Chinese visitors.
India and China are now Sri Lanka’s biggest tourism source markets, upstaging the West. However, Sri Lankan authorities continue their engagement with the earlier, main generating markets like the UK, Germany and France through advertising and marketing and also since concentration on a single, sizable market may not be wise, as seen during wartime Sri Lanka. Apart from the conflict which saw reduced numbers of tourism from the West, the recession in Europe has also affected travel over the years with Europeans opting for short-haul, cheaper travel.
Dependency on the West and the US in garments exports also nearly killed the apparel sector after losing GSP+ concessions some years back and when the US textile quota era ended in 2005. A joint public-private partnership has been largely responsible for the restoration of GSP+ concessions. However, these setbacks over the past decade to the garments trade saw large producers like MAS, Brandix or Hirdaramani go upmarket and tap into the high value garments’ segment, which was unaffected by the concessions, and succeeding.
In the case of tea, West Asia and Russia came to Sri Lanka’s rescue when buying from the West became more blend-centric and over the years these markets have largely strengthened the demand for the Ceylon Tea brand.
However, occasional disturbances in key markets – be it tea, tourism or garments – have proved beyond doubt that having all your eggs in one basket is not only economically unsustainable but endangers the country’s export earnings potential. Another side of the story is that diversification of Sri Lanka’s exports is desperately needed but woefully inadequate.
In all three sectors – because of traditional affluence of the West against the East – dependency has been on these markets be it tea, tourism or garments, which are Sri Lanka’s main revenue earners.
However, the dependency factor – Russia and West Asia in the case of tea, the West in the case of pre-war Sri Lanka tourism and Europe in the case of mid-and-low range garments exports – is something that has to be avoided as vividly portrayed by recent hiccups in dependent markets.
There is a single thread that runs across the three sectors which needs to be followed by the trade closely. Producing bulk and cheap is not the way to go for tea or garments. The same applies in the case of tourism: Offering an upmarket product along with mass-market products.
While Sri Lanka is no longer a cheap labour producer of tea or garments, tourism pricing has also become an issue as our mass-market product is costlier than those in the region.
Thus while spreading the net far and wide instead of dependency on some markets, going upmarket, tapping into niches and creating a product that Sri Lanka can be proud of, is the only route to the top. And Sri Lanka has niches that no other country has; its tea is the best in the world and fetches the highest price. So rather than sell bulk and be just a part of a pack that for example sells in a UK or German store as blended tea, that pack on the shelf should be ‘Pure Ceylon Tea’, not blended ‘Ceylon Tea’.
Similarly, producing high-value upmarket garments create that niche that the country sorely needs and instead of being dependent, the trick is to create a dependency from the buying side. Tea and garments from Sri Lanka should be products that foreign buyers and consumers need and depend on, instead of vice versa.
Likewise tourism should be either 50:50 mass market and upmarket or a higher percentage of upmarket, high-value products though this may not be easy given the surfeit of new rooms in the market and incoming ones serving the mid-and-low budget traveller. A mix of upmarket and mid/low market would also help to sustain the carrying capacity of the country and control over-visitation to cultural and nature sites which are being threatened by increasing footfall.
A diversified export structure which many Governments have tried and failed over the years with dependency on a few sectors and largely from foreign remittances of Sri Lankan migrant workers, is the critical element in the economy that has eluded Sri Lanka.
Thus while the Russian tea crisis will come and go, in the sense that it would be sorted out as the tit-for-tat battle (asbestos ban versus tea ban) peters out, spreading the eggs in the tea, tourism and garments baskets is the way forward.
Meanwhile, the silence in the house, as these thoughts are furiously typed for this week’s column, is golden. Kussi Amma Sera’s noisy chatter and gossip – sometimes welcome I must admit – are missing today. That’s because she is on holiday in the village for the long Christmas weekend.
She was missed, not too much however as a discussion on tea, garments and tourism would have gone over her head and led her running to our neighbour’s domestic aide and comrade-in-arms Serapina with a “Mey gollo monawada kiyanne, mata therenne naha”. On that note we wish all Business Times readers a peaceful and blessed Christmas.