By: Staff Writer

Colombo (LNW): The Sri Lankan rubber product export industry is experiencing revenue decline by around 15-20% Year-on-Year (YoY) in 2023, amidst the economic troubles in the West.

This was mainly due to the economic troubles faced by the EU and the US, which were the main markets of the Sri Lankan rubber product export industry.

The Sri Lanka Association of Manufacturers and Exporters of Rubber Products (SLAMERP) forecast for the rest of the year is based on what has been observed in the actual numbers. Forecasts stand unless drastic changes take place, such as a market change. However, that is unlikely.

The (SLAMERP) in a statement said that the value-added rubber export sector has seen a 10% revenue decline in the first three months of 2023 from $ 251 million to $ 231 million.

The declining trend has been seen from 2022 in which year a near 20% revenue reduction to $ 1 billion was recorded from $ 1.2 billion in 2021.

SLAMERP DG Rohan Masakorala said forward order books too have dropped considerably, and the number of factories have reduced production capacity or are having temporary shutdowns, as both external demand and domestic demand has come down drastically.

Although the input costs too have gone down, the buyers are continuously asking for price reductions to place new orders, he added.

According to Masakorala Europe has seen a drastic downturn in orders, while the US remained stagnant in the first quarter of 2023.

On the global front, the demand is coming down due to high inventory with buyers and also the recessionary pressures linked to inflation and interest rate hikes which are affecting the total global supply chain.

SLAMERP also expressed concern that the only positive factor they had was the global freight which peaked in the last two years, was coming down due to market forces, but locally the shipping ministry has taken decisions to artificially inflate freight rates by allowing unbundling of the freight to avoid market forces by removing a competition Gazette that was originally introduced in 2013.

SLAMERP said that they are confident that President Ranil Wickremesinghe whom they have spoken to will fix this issue.

The industry also said that the Government must focus on supporting the export industry to grow, encourage new export diversification and make the national export strategy be implemented along with the rubber master plan which had been neglected.

The country’s economic problems have to be resolved by strengthening the export sector with every possible support extended by all line ministries, SLAMERP DG emphasized.

By: Staff Writer

Colombo (LNW): ‘China Merchants’ to invest US$ 392 million in SA’s largest logistics hub in SL.

A Chinese state-owned firm said on Monday it plans to take its investment in Sri Lanka to US $2 billion by building South Asia’s largest logistics hub.

The investment by the China Merchants Group in a large logistics complex at Colombo Port, with an estimated construction cost of $392 million, is the first major foreign investment in Sri Lanka since the default.

The logistics centre project will take CMG’s “accumulated investment in Sri Lanka to… over 2 billion US dollars, making it the largest foreign investment enterprise in the island”, the company said in a statement on Monday.

CMG will have a 70 percent stake in the company set up to build the logistics complex at Colombo, the only deep-sea port between Dubai and Singapore.

Describing the project as South Asia’s largest logistics hub, CMG said it expects to complete it by the end of 2025. CMG also manages the port complex at Hambantota on the southern tip of Sri Lanka.

That port was considered among the white-elephant projects launched by former president Mahinda Rajapaksa, who ruled the country for a decade until 2015.

Rajapaksa borrowed heavily from China for projects that many criticised as a debt trap that led to the worst economic crisis in Sri Lanka’s history.

Unable to repay a huge loan taken from China in 2017 to build Hambantota port, Sri Lanka handed it over to CMG for $1.12 billion on a 99-year lease.

Neighbouring India as well as the United States have also expressed concern about China gaining a naval advantage in the Indian Ocean with its access to Sri Lanka’s ports.Sri Lanka has insisted that its ports will not be used for any military purposes.

Sri Lanka’s strategic location among the main marine and air navigation routes within the South Asian region makes the country a lucrative destination for entrepot and logistic development.

The country’s close proximity to emerging markets, and it’s already developed air and seaports in Colombo and Hambantota makes it an important logistics hub in the region providing entrepot and transhipment services to leading shipping lines and exporters.

During the last five years, the World Shipping Council has consecutively ranked Sri Lanka’s Colombo Port among Top 50 World Container Ports above other South Asia ports based on the volume of the containers handled.

Sri Lankan logistics services contribute 2.5% of gross domestic product, which represents around USD 2 billion. Logistics services include container trucking, warehousing, ports and shipping, but exclude domestic transport of passengers, fisheries and interregional domestic cargo transportation.

The total share of logistics in national exports is estimated at 7%. The industry provides full-time direct employment to over 40,000–50,000 people.

Around 70% of registered service providers are of local origin while the rest are multinational. Currently, there are 130 shipping agencies and 120 freight forwarders in associations, and 500+ companies registered with the Merchant Shipping Secretariat (MSS), which also includes clearing agents.

By: Staff Writer

Colombo (LNW): Sri Lanka’s exporters to Germany will need to comply with the requirements requested by the importers in Germany to assure supply chain due diligence, through traceability, site-level audits and company reporting mechanisms.

This situation has arisen following the enforcement of German Act on Corporate Due Diligence in Supply Chains (GSCDDA) that came into force in Germany from 1 January 2023.

Considering that the EU is Sri Lanka’s second-largest export region, and Germany is the fourth-largest export destination for Sri Lankan exports, it is pivotal for Sri Lankan companies to be prepared to adhere to the conditions imposed by the German and the upcoming EU Supply Chain Act.

AHK Sri Lanka Chief Delegate Marie Antonia von Schönburg said: “The implications of the GSCDDA are to ensure free and fair trade.

This includes transparent value chains, sensible trade agreements that enable lasting good economic relations, and the observance of fundamental human rights and international conventions in commerce.

In short, it is to guarantee economic standards across value chains when doing business with Germany.”

United Nations Industrial Development Organization (UNIDO) and the Delegation of German Industry and Commerce (AHK Sri Lanka) together with the Sri Lanka Export Development Board (EDB) organised an awareness program for Sri Lankan exporters.

This was aimed to create awareness on preparation for the forthcoming German Act on Corporate Due Diligence in Supply Chains (GSCDDA) that came into force in Germany from 1 January.

The initiative also aims to outline the challenges and opportunities for Sri Lanka’s export industries.

Over 75 guests including exporters, Sri Lankan agencies, professional associations and relevant stakeholders attended this event which was organised on 25 April at the Mövenpick Hotel.

The German Supply Chain Act (titled Act on Corporate Due Diligence Obligations in Supply Chains) is an effort on the part of the German Federal Government to work with enterprises towards improving the human rights situation around the world.

The European Union (EU) is also preparing similar legislation that goes even further than the German Act.

For example, while indirect suppliers will not be affected by the German Supply Chain Due Diligence Act, the European Supply Chain Act will monitor the entire value chain.

German Ambassador to Sri Lanka and Maldives Hoger Seubert said: “The GSCDDA is yet another example to showcase Germany’s commitment towards social and environmental standards.

These guidelines have been implemented to make supply chains more transparent, boost human rights and protect the end consumer.

By: Staff Writer

Colombo (LNW): Sri Lanka’s Banks and Non Bank Financial institutions (NBFI) will be facing hug and grave losses with significant capital and and forex shortfall as result domestic or sovereign debt restructuring.

Moreover, banks net open foreign exchange position would deteriorate significantly as a result of sovereign debt restructuring, an independent expert analysis on IMF program divulged.

The depreciation of the rupee has increased the share of forex assets from 16 percent at the end of 2021 to 23 percent of banks assets.

Restructuring of public forex debt, or repayment in rupees could cause bank’s forex liabilities to significantly exceed their forex assets, the report revealed.

These forex shortage could lead to more losses if the rupee depreciates further and the banks are unable to secure sufficient forex inflows, it added.

Therefore banks and the authorities will also require a plan to close the net open forex position in the banking sector.

The Sri Lanka Banks’ Association (SLBA) has raised concerns over a possible Domestic Debt Restructuring (DDR) urging a proper evaluation and warning that additional risks to industry stability and public confidence must be avoided.

“The banks believe that all stakeholders involved in structuring the restoration of Sri Lanka’s Balance of Payments to a sustainable equilibrium must necessarily take a careful look at the resulting outcomes.

It is also essential to consider the impact to the banking sector capital and liquidity in a potential Domestic Debt Restructuring (DDR) and minimize the risk to the sector.

A further escalation of the situation we are in must be avoided,” SLBA said in a statement adding that banks have consistently supported the Government’s and CBSL’s efforts over the years through severe economic hardship that led to both public anxiety and political upheaval.

The impact should be assessed arising of debt repayment moratoriums, rescheduling of viable businesses and necessary recovery arrangements on generally disadvantageous terms predicated by the many incidents of inclement weather, post Easter Sunday 2019 attacks, COVID-19 pandemic, political, and social unrest.

“Credit impairments have hit an all-time high hitherto unseen. Taking further impairment costs on top of these strains on capital and liquidity is not sustainable especially with the tax deductibility of these necessary costs of being in business being uncertain,” SLBA warned.

“The banks reiterate that maintaining stability of the banking system is paramount at this time when extremely difficult decisions are being made,” it added.

SLBA said its members have asked for clarity on what is meant by “voluntary” debt optimization, is there a non-voluntary element and to whom does this apply (limited to the larger Treasury Bills/Treasury-Bond holders such as the superannuation and pension funds and State-owned banks).

More disclosure is essential on proposed Domestic Debt Optimization (DDO) and International Sovereign Bond (ISB) restructuring terms, what is the IMF’s view of Sri Lanka’s economic growth prospects over the duration of the IMF Extended Fund Facility (EFF).

It also asked whether the proposed DDO would resemble the experience of some other countries who have taken this route before us.