Garment Exports to USA Worth a Paltry $350 Million Net Export Earnings While Measly USAID Has No Benefit for Most
Posted on April 15th, 2013

Dilrook Kannangara 

US Secretary of State John Kerry has proposed a cut of 20% in USAID to Sri Lanka. It is obviously good news to Sri Lankans as USAID amounts to a worthless aid value going only to Tamils and next to nothing to ethnic Sinhalese. May be it is time Sri Lankan government said no to USAID which is racially discriminatory.

However, there is a bigger misconception about USA which is Sri Lanka’s largest export destination. Most exports are garments. According to US data, 40% of Sri Lankan garment exports go to USA. With total garment exports about $3.5 billion in 2010, exports to USA was approximately $1.4 billion. This is a huge amount at a glance.

What isn’t well known is the cost structure of the garment industry. Close to 50% of export value is imported textiles and accessories. Corresponding to $3.5 billion is an import bill of $1.8 billion. In addition, other inputs that are locally sourced including electricity and fuel for transport have a large component of import cost via petroleum imports. Garment machinery is also imported which is a substantial cost. After factoring all these costs, the net export earnings of garments are only 20% to 30% of export value. Further, after 1998 all textile and garment accessory imports don’t earn anything for the government as they are import tariff free.

Therefore, the net export earnings of garment exports to USA are only a paltry $280 million to $400 million a year. Losing this paltry amount of money has no impact on Sri Lanka.

To put into context, the failed provincial council system costs the country $1.3 billion a year. Import of vehicles, fuel, computers and other material for the day to day running of provincial councils run to approximately $300 million a year. Importation of Tamil Nadu films, artwork and religious artefacts cost more than $300 million a year. Net drain on foreign reserves from payments to south Indian skilled and unskilled workers is substantial.

What requires is a nationally beneficial economic policy that cuts waste while making the economy resilient of colonial threats. Although exports to EU countries have increased, things will go downhill with the losing of GSP Plus facility in 2014. Now is the time to put the house in order, cut down needless imports and diversify into profitable industries that rely on resurging Asian markets instead of dwindling western markets. Garment industry employs around 400,000 people. New industries should be found that can employ a similar number.

Making Sri Lanka a regional commercial hub is the way forward. Towards this end, construction work of Hambantota Port must be accelerated, Colombo Port must be expanded to handle more freight and expand other connected industries. Food production should be expanded scientifically with the creation of large farms. Fisheries is another industry that has huge potential with proper orgnisation. Seeking what China, India, South East Asian nations, Japan and Latin American nations demand is the way forward in export trade. Import restrictions must be introduced to curtail needless luxury consumer goods.

LIOC recorded revenue of $400 million and its profit, management fees, senior executive salaries and other administration charges are repatriated to India. If LIOC weren’t operating in the island, petroleum usage would not be affected. Instead, many local small-time investors would invest in highly profitable petroleum retail and distribution industries while Ceypetco making large investments. In such an event millions of dollars will stay within the country.

Replacing IMF and World Bank with large Chinese banks has multiple advantages from lower interest rates, no irrelevant conditions relating to human rights, no demand for privatization and no messing with domestic affairs of governance.

Structural changes to the economy are needed immediately to face growing colonial and separatist threats.

Sources relating to garment industry:

http://www.eastwestcenter.org/sites/default/files/private/IGSCwp009.pdf

http://srilanka-apparel.com/index.php?option=com_content&task=view&id=119&Itemid=103

 

 

 

US Secretary of State John Kerry has proposed a cut of 20% in USAID to Sri Lanka. It is obviously good news to Sri Lankans as USAID amounts to a worthless aid value going only to Tamils and next to nothing to ethnic Sinhalese. May be it is time Sri Lankan government said no to USAID which is racially discriminatory.

However, there is a bigger misconception about USA which is Sri Lanka’s largest export destination. Most exports are garments. According to US data, 40% of Sri Lankan garment exports go to USA. With total garment exports about $3.5 billion in 2010, exports to USA was approximately $1.4 billion. This is a huge amount at a glance.

What isn’t well known is the cost structure of the garment industry. Close to 50% of export value is imported textiles and accessories. Corresponding to $3.5 billion is an import bill of $1.8 billion. In addition, other inputs that are locally sourced including electricity and fuel for transport have a large component of import cost via petroleum imports. Garment machinery is also imported which is a substantial cost. After factoring all these costs, the net export earnings of garments are only 20% to 30% of export value. Further, after 1998 all textile and garment accessory imports don’t earn anything for the government as they are import tariff free.

Therefore, the net export earnings of garment exports to USA are only a paltry $280 million to $400 million a year. Losing this paltry amount of money has no impact on Sri Lanka.

To put into context, the failed provincial council system costs the country $1.3 billion a year. Import of vehicles, fuel, computers and other material for the day to day running of provincial councils run to approximately $300 million a year. Importation of Tamil Nadu films, artwork and religious artefacts cost more than $300 million a year. Net drain on foreign reserves from payments to south Indian skilled and unskilled workers is substantial.

What requires is a nationally beneficial economic policy that cuts waste while making the economy resilient of colonial threats. Although exports to EU countries have increased, things will go downhill with the losing of GSP Plus facility in 2014. Now is the time to put the house in order, cut down needless imports and diversify into profitable industries that rely on resurging Asian markets instead of dwindling western markets. Garment industry employs around 400,000 people. New industries should be found that can employ a similar number.

Making Sri Lanka a regional commercial hub is the way forward. Towards this end, construction work of Hambantota Port must be accelerated, Colombo Port must be expanded to handle more freight and expand other connected industries. Food production should be expanded scientifically with the creation of large farms. Fisheries is another industry that has huge potential with proper orgnisation. Seeking what China, India, South East Asian nations, Japan and Latin American nations demand is the way forward in export trade. Import restrictions must be introduced to curtail needless luxury consumer goods.

LIOC recorded revenue of $400 million and its profit, management fees, senior executive salaries and other administration charges are repatriated to India. If LIOC weren’t operating in the island, petroleum usage would not be affected. Instead, many local small-time investors would invest in highly profitable petroleum retail and distribution industries while Ceypetco making large investments. In such an event millions of dollars will stay within the country.

Replacing IMF and World Bank with large Chinese banks has multiple advantages from lower interest rates, no irrelevant conditions relating to human rights, no demand for privatization and no messing with domestic affairs of governance.

Structural changes to the economy are needed immediately to face growing colonial and separatist threats.

Sources relating to garment industry:

http://www.eastwestcenter.org/sites/default/files/private/IGSCwp009.pdf

http://srilanka-apparel.com/index.php?option=com_content&task=view&id=119&Itemid=103

 

18 Responses to “Garment Exports to USA Worth a Paltry $350 Million Net Export Earnings While Measly USAID Has No Benefit for Most”

  1. Ananda-USA Says:

    Dilrook,

    What you point out …. that the NET export earnings from garments exported to the USA is quite small is very interesting, if it is in fact TRUE.

    I was getting CONCERNED about the potential loss of the US as an export market, if the current trend of US-Sri Lanka relations continues, because the US apparently is Sri Lanka’s biggest export market.

    In 2011, Sri Lanka bought 18.9% of its imports from India, but India bought only 4.5% of our exports.

    China came second with Sri Lanka buying 12.4% of our imports from that country, but bought zilch from Sri Lanka.

    The US (22.1%) and the UK (12.1%) imported the most from Sri Lanka.

    Therefore, although India is the closest market for our products, India buys very little from Sri Lanka!!!

    Here are the figures from Wikipedia.com:

    Exports
    $10.89 billion (2011 est.)

    Export goods
    textiles and apparel, pharmaceuticals, tea, spices, diamonds, emeralds, rubies, coconut products, rubber manufactures, fish

    Main export partners
    United States 22.1%, United Kingdom 12.1%, Germany 5.2%, Belgium 4.9%, Italy 4.8%, India 4.5% (2008)

    Imports
    $20.02 billion (2011 est.)

    Import goods
    textile fabrics, mineral products, petroleum, foodstuffs, machinery and transportation equipment

    Main import partners
    India 18.9%, China 12.4%, Iran 7.7%, Singapore 7.5%, South Korea 4.8% (2008)

    Gross external debt
    $19.45 billion

  2. Lorenzo Says:

    BREAKING NEWS

    Terrorist attack on USA – Boston.

    3 bomb explosions.

    2 dead 22 injured.

    Tea partiers? Taliban? North Koreans? Iranians? Tamils? Saudis?

  3. Voice123 Says:

    John Kerry is trying to “help” us.

  4. Dilrook Says:

    Dear Ananda:

    As your analysis shows, largest exports are textiles & apparels and largest imports are textiles needed for those garments!

    Please refer to the first source document I have listed at the bottom of the article which identifies the Net (emphasised) export value of garment exports to be 30%. But even this 30% is exaggerated because all machinery, spare parts, freight, local transport cost (fuel, lubricant, vehicle cost, spare parts) and trade visits are outgoings in foreign currency.

    A large percentage of local T&A investments are from foreign entities which means senior management salaries, management fees, head office charges and net profit are all repatriated abroad. Most foreign investments enjoy tax holidays up to 10 years which means no revenue for the government. To top it all, when most import goods including essential foods like milk carry import tariffs, textile imports don’t carry any since 1998 which means no income for the government either. All in all I fear if the garment industry is actually creating a negative foreign exchange situation overall for the country. But we are addicted to it because it employs 400,000. It is a basic economic principle that every industry has opportunity costs. We must diversify.

    Our exports are only $10 billion and imports $20 billion. This huge gap is covered by domestic workers, etc. working in the Middle East, etc., and government borrowings. Anyone can see this is a precarious situation. Our earnings are from highly unstable and unpredictable economies that have no future. Import industries are owned by minorities who are not concerned about national interests. Its time to regulate them and state commercial entities take over most imports.

  5. Ananda-USA Says:

    Lorenzo,

    Our prayers are with the victims of this bomb blast.

    We Sri Lankans know only too well the pain and suffering of terrorist bombings, having sacrificed over 150,000 innocents on the Altar of Tamil Racism.

    No, I don’t think Tamils Terrorists had any hand in this atrocity; they reserve that special torture for their fellow Citizens of Sri Lanka.

    May the Noble Triple Gem Bless and Protect these innocent people in Boston.

  6. Voice123 Says:

    Trade and investment should be diversified as much as possible. Let this be a lesson to us.

    Lorenzo, Tamils (terrorists) are careful not to target the west because it is their suppost base. They are stupid but not that stupid! However other terror groups are “catching up” with their deadly technology and methods. I predict India will get a taste of dastardly and despicable Tamil terror shortly unless they liberate TN. Jihadis, Maoists and Naxalites are also waiting in the wings with the latest “technology”. India has created many enemies. Terrible for the innocent victims. So sad. This is karma unfortunately.

  7. Fran Diaz Says:

    It is best that Sri Lanka does NOT lose any export markets of any items, clothing included.

    The challenge to Lanka is to manage to carry on with already established markets whilst looking for new markets too, for both exports and imports.

  8. Fran Diaz Says:

    We condemn terrorism anywhere in the world.
    Why kill and maim innocent people for any reason ???

  9. Leela Says:

    We must thank Dilrook for his timely article. I think the government knew the situation very well by the time European neo-colonialists made their threat to withdraw GSP on flimsy charges. It was obvious that government emphasis is not the garment sector. That may well be the reasons why the government ignore the GSP threat though neo-colonialists and their NGOs did every thing to blow the would be impact out of proportion. I think the government’s worry has been that 400,000 or so workers.

    Whether they come from minority or majority community, all businesspeople are robber barons and they start ventures with one aim. They want to earn money for themselves and for their shareholders. No business would work let alone thrive if not for that principal. To my knowledge very few people have started businesses here for the sake of developing this country. However smart they had been, seemingly, no such business to have flourished. Whether we like it or not, this is the reality of dirty capitalism. This is where the government comes in.

    If the government wants to capitalize the capitalist system, it should indentify the lines of business that would work and is most beneficial to the country, list the priority projects and offer incentives to attract them. All types of robber barons would jump and grab the opportunity to make money. That’s what has taken place in Malaysia albeit successfully. It’s the minorities who is doing the job there. But the government knew the art of keeping them at their place. Government restricted them to business domain they did not allow them to induce cultural invasions. So I am afraid, I cannot buy that ‘we cannot rely on minorities’ theme at this instant.

    On all other points, I fully agree with Dilrook. Until the country develop its selected service and industrial sectors, Sri Lanka should send only skilled and professionals like tradesmen and nurses and not domestic workers, as an interim measure to fill the trade gap. Indeed we should ban the sordid ‘house maid job’ enterprise asap. Aged population is increasing fast in the Middle Eastern and developed countries. Consequently, there is a great demand for hospitality sector or looking after old people there. Poor Muslims families can be encouraged to send theirs to Arab countries and we can send ours to Israel and other countries where the pay is higher and are welcomed. Pay for a nurse is over five times the domestic worker.
    Leela

  10. Dilrook Says:

    Thanks Leela for your input.

    I was talking to a Chinese policy expert yesterday and he said China is rapidly phasing out unskilled work although it was unskilled work that brought China to what it is today. Highly skilled work is introduced with incentives for and investments in business and education. This follows rural areas attaining a better lifestyle progressively. This is something that will not happen in Sri Lanka. Most of our earnings still come from near slavery type industries including tea, domestic workers in the Middle East and in terms of employee numbers, garment factories.

    Our education spend is not equitable. We allow disproportionately more univerisity opportunities to a community that has the highest brain drain! That affects the country in two ways. It derepives those who are more likely to serve the nation university education. And it is outright waste of taxpayer money. It is better to train fifty potential domestic workers in nursing than train one Tamil medical undergraduate to become a doctor in Toronto. Unless our policymakers start thinking in terms of capital and cost/benefit, it will never change.

    I see more learnings from Singapore than Malaysia as the former is more comparable to Sri Lanka in terms of resources, its journey to where it is today and domestic appeal. Under the Bumiputhera law, Malaysia has offered a disproportionately large higher education and job opportunities to its majority community. It has enhanced their economy as well. Of the minorities the Chinese community and the Indian community are poles apart in their economic strength.

  11. Dilrook Says:

    Fran:

    I would agree with you if not for opportunity cost. Every industry has opportunity cost. By sustaining an industry that actually contributes next to nothing to net foreign reserves, we are actully killing the industries that can flourish. In the case of the garment industry it is worse because the industry taken in isolation is very profitable because the losses are sustained by other industries, banks and the government. Same goes for the tea industry. These industries are the primary reason why the service industry and highly productive agricultural practices cannot take off. Investments go to the garment industry, government incentives also go into it (at the expense of other industries), people get trained for it and support services build up arround them depriving other industries.

    Public service is another economic blackhole. As long as the massive public sector remains, it disallows all opportunities for productivity gains. Present focus is “provide employment to the maximum”. Focus should be “employment to a minimum, highest customer service and productivity”. But the government is afraid to let this go fearing for the million jobs. On the other hand, unless it is done, things will never improve.

    People and industries respond to incentives. Incentives are limited. When given to one industry it deprives another.

  12. S.Gonsalkorale Says:

    “I was talking to a Chinese policy expert yesterday and he said China is rapidly phasing out unskilled work although it was unskilled work that brought China to what it is today.”
    I suppose it is almost impossible for China to do this althogh Singapore said the same thing in 1980s, even they have not achieved it. It depends on the demand outside China.

  13. S.Gonsalkorale Says:

    Everyone agrees that 13A and Provincial Council nonsece is the poison India has injected us with, growing the “political industy” which brings in zero income and export billions to foreign bank.
    There should be DO OR DIE drive to force the governement to kick out this 13A , carrying our “cordial” relationship with Endia together with it.

  14. Ananda-USA Says:

    Jeyaraj’s widow compares Weliweriya blast with Boston attack

    By Shamindra Ferdinando
    Island.lk
    April 16, 2013, 10:09 pm

    UPFA MP Dr. Sudarshini Fernandopulle, yesterday said that the terrorist attack on the Boston marathon was the first attack on a sporting event in the world since the assassination of her husband, Minister Jeyaraj Fernandopulle, as he was about to flag off a marathon at Weliweriya, Gampaha on the morning of April 6, 2008.

    The Weliweriya blast claimed the lives of 12 persons, including Minister Fernandopulle, who held the highways and road development portfolios at the time of his demise and athlete K. A. Karunarathne, the former national and South Asian gold medalist. Among the wounded were a number of children.

    In a brief interview with The Island, Dr. Fernandopulle stressed that the Boston attack was a grim reminder that terrorists could strike in any country, regardless of its political and military might.

    The Gampaha District MP pointed out that the international community had reacted angrily to the latest terrorist outrage with the US vowing to track down those responsible. But unfortunately, Western powers had conveniently ignored the Weliweriya suicide blast, she said, adding that the Colombo based international media and a section of the local media, too, failed to highlight the LTTE taking advantage of a sports event to eliminate a high profile target.

    An irate MP pointed out that those demanding accountability on the part of the government for alleged atrocities committed during the conflict had been silent on sordid LTTE operations.

    Responding to a query, the MP said that until the government had eradicated the LTTE leadership in May 2009, attacks on civilian targets had been a common occurrence. Those who had been preaching to Sri Lanka on democratic rights and free and fair elections had never condemned the LTTE when it targeted political rallies, political events and prevented Tamil speaking people from exercising their franchise, the MP said. It would be pertinent to mention that since the government’s triumph over the LTTE, there hadn’t been a single terrorist attack, though some predicted the LTTE could wage a guerilla campaign for many years. Those shedding crocodile tears for LTTE combatants and Tamil speaking civilians had been mum during the reign of LTTE terror, she said.

    Dr. Fernandopulle contested the last parliamentary polls in April 2010 on the SLFP ticket. She represents the Katana electorate, previously nursed by Jeyaraj.

    MP Fernandopulle said that those who had carried out the Boston bombing would have reached their target as ordinary civilians. “May be they were there as spectators or perhaps as competitors. What we have to realise is that even the best of security measures in place can be manipulated by those masquerading as civilians. We experienced on many occasions the horrors caused by terrorists in disguise. They were never in uniform during clandestine operations in the city and its suburbs,” Dr. Fernandopulle said. Referring to the Weliweriya blast, Dr. Fernandopulle said that the suicide cadre had been in civilian attire.

    Commenting on US Ambassador Michele Sison’s recent address to the Colombo based Foreign Correspondents’ Association, Dr. Fernandopulle said that the US envoy had quite rightly acknowledged that the US was suffering due to terrorism. Sison was quoted by a US embassy as having said: “We, too, have faced terror. We know how it can tear at the very fabric of state and society.” Unfortunately, the US had failed to realise that some of those demanding a war crimes inquiry against the government had been directly supportive of the LTTE throughout the terror campaign, Dr. Fernandopulle said.

    Sri Lanka had never been an issue at the United Nations Human Rights Council (UNHRC) sessions until the conclusion of the conflict, the MP said. Had the LTTE somehow managed to survive the military offensive, Sri Lanka would never have been the subject of discussion at Geneva, Commonwealth or any other international forum, she said. In fact, those who had sided with the LTTE during the conflict were now campaigning against the country both here and abroad.

  15. Lorenzo Says:

    I did it before in Lankaweb!!

  16. Fran Diaz Says:

    Dilrook,

    If we have a PURELY Capitalist system driving our Economy where the private sector actors are the main EMPLOYERS, then we are headed toward a crisis. Pure Capitalism is driven by the Profit motive. Under such a system competition for JOBS would be enormous.

    Sri Lanka is a Socialist country (Socialist Republic of Sri Lanka). This affords security and comfort levels to the masses. Lanka has survived because of such a system.

    Pure Capitalism is money oriented rather than People oriented. Therein lies the fault lines. The Father of Capitalism, Adam Smith, in his book “Wealth of Nations” advocates that LABOR be looked after. But, in modern day Capitalism tied to the STOCK MARKET, Labor needs fall into the cracks !

    None of the pure -isms work, as proven in the Economics of the world. The right balance has to be found for Sri Lanka, with Socialism taking the front place. After all, systems ought to feed the Needs of the People, not the Needs of the Money Market. The modern day Money Market is flawed.

    GoSL is right in being concerned about Jobs for the People. The private sector will never be able to play that massive role. That is why some countries are floundering.

    Pres. Obama recently suggested a mechanism whereby the Federal govt. combines with the private sector for business. That is already happening in our Tea Sector, isn’t it ? Is it a success ? Are the Tamil tea workers happy with their lot ?

    I am not an expert in the subject of Economics – merely an observer who is concerned and somewhat sad …. Above written with offense to none.

  17. Fran Diaz Says:

    P.S.: Let’s bear in mind that Money & Power go hand in hand. Unless the Entrepreneur is exceptionally Altruistic, Money power corrupts, and countries can even crash, as we can see as ‘near events’ in some countries.

    It appears that books ‘Small is Beautiful’ (Schumacher) and Rachel Carson’s “Silent Spring” will help Lanka Economists to take the right directions re the Economy.

  18. Fran Diaz Says:

    PPS: In my humble opinion, Co-operatives may work well for a small country like Sri Lanka. Co-op rules can be applied to many spheres of human activity.

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