Dilrook Kannangara

As usual Sri Lankan policymakers and advisors have missed the woods for the trees. The pro-US and anti-Russian regime in Colombo has now resorted to begging to win back the Russian tea market. They cannot see beyond their cuppa. There are much larger issues at play in tea exports to Russia than an insect.

At the moment Sri Lankan tea exports are paid in US dollars and euro. Russia is moving away from these currencies. Global US dollar domination is challenged by Russia and China. They prefer their own currency. Aggravating this is the series of US sanctions on Russia since 2013. As a result, Russia has a dearth of US dollars or any other foreign currency for that matter to pay for its imports.

Since 2013 Russia entered into a number of agreements with other countries to trade in each other’s currency.

Sri Lanka will have to forego the luxury of receiving hard currency for its tea exports to Russia and get used to be paid in roubles. This restricts Sri Lanka as it has a trade surplus against Russia (more exports to Russia than imports). Where can Sri Lanka spend its roubles? If converted, the value is greatly lost as roubles is not a currency in demand especially since 2013.

Indonesia, for instance, has grasped the opportunity. Just August this year, Indonesia entered into a ‘barter agreement’ with Russia to buy Russian Su-35 fighter jets (considered best in the world) in exchange for tea, coffee and palm oil. It benefits both countries and complies with Russia’s rejection of US dollars.

https://www.rt.com/business/398874-tea-coffee-su-indonesia-russia/

This will establish Indonesia as a regular and constant tea exporter to Russia replacing Sri Lanka. Unlike Sri Lanka where tea plantations are running at a loss and tea plantation workers’ representatives are kingmakers, Indonesia manages the industry well. Indonesia has tremendous potential than Sri Lanka in tea trade even without the Russia deal. Bartering is set to become a new economics frontier.

Iran is another country that has agreed to Russian terms in avoiding US dollars and Iran is a rising tea grower. Russia and Iran tea trade has increased recently. India is also looking to increase tea exports to Russia as is a member of BRICS headed by Russia.

However, Sri Lanka doesn’t have even this avenue. To make matters worse in the trade front, President Sirisena implemented a policy to phase out cancer causing asbestos by 2020. Largest asbestos supplier to Sri Lanka is Russia. The already imbalanced trade between the two countries will worsen. Lifting the asbestos ban is even more disastrous.

One may argue that Sri Lanka should also diversify purchases from Russia and include weapons. Sri Lanka did try it by buying a Russian warship. However, the impact of this is losing all the tea earnings to mostly needless weapons! How can Sri Lanka pay for its massive trade deficit if no dollars or other import replacements are received from tea exports to Russia?

US sanctions on Russia is set to worsen as the two countries are becoming adversaries in many fronts. The latest is the Intermediate Range Ballistic Missiles (INF) Treaty signed in 1987. Both are in violation and blame each other. USA has already threated more economic sanctions on Russia over it. When it happens, Sri Lanka’s case will worsen.

Tea plantations industry is an unprofitable, destructive and worthless industry; a sad remnant from the colonial past of plunder, slavery and environmental destruction. This is the perfect storm to look at it critically.