The Tragedy of Export Development
Posted on July 14th, 2022

Sugath Kulatunga

A positive contribution of the JR regime was the establishment of two lead institutions on investment and export namely the Greater Colombo Economic Commission (GCEC) and the Export Development Board (EDB). It must be noted that the concepts on these institutions were developed during the previous SLFP government.

The EDB was not limited to traditional trade promotion but was vested with powers for export development including a venture capital capability. It derives its power from the highest echelons of political power in the country and has the active participation of the private sector and the Ministries responsible for the production or servicing of exports.

EDB was made financially independent where its activities are financed by a Cess on imports. The following is an independent opinion on the EDB Act.

This Act is truly visionary; I wish other countries had this in their export development framework!”, remarked a senior official of the Geneva-based International Trade Centre to me some months back. He was referring to the ‘Sri Lanka Export Development Act No. 40 of 1979’, which marks 40 years this month. He had found it to be an institutional arrangement that was far ahead of its time, and is still having relevance today – not just for Sri Lanka, but also for other developing countries. And he would know, having worked on export development strategies for over a dozen countries around the world.” https://www.sundayobserver.lk/2019/08/11/news/four-decades-%E2%80%98visionary%E2%80%99-export-development-act

Even after the creation of a model institutional set up under the Export Development Act of 1979, governments after 1987 ignored and underutilized the provisions under the act and sometimes misused them. EDB Board itself has been responsible for this delinquency

At the beginning the EDB was fortunate to be guided by one of the more dynamic ministers of that regime Lalith Athulathmudali and the former Head of the ITC (UNCTAD/WTO) Victor Santiapllai as the Chairman of the Board of Management and was able to break new ground in the exports of the country. But after the change of Ministers and the departure of Victor the contribution was retarded even under the JR regime.

Although President Premadasa had the correct perspective on earning foreign exchange when he said on April 4th, 1973, in as speech to a Colombo Rotary Club, that to earn foreign exchange, we must increase production; to increase production we must develop our national resources, and if we are to develop our national resources, we must harness the human potential that we have in abundance. It is futile to go on bended knees to foreign countries begging for assistance,” when he became president in 1988, he focused on populist schemes like Gam Udawa (village awakening) and housing with the noble objective of poverty alleviation. His much publicized 200 garment factories program also had the primary objective of providing rural employment.

It is noted that many of the new factories (185) started under this program have now closed down. It is also revealed that 65% of all new garment factories are located in Colombo and Gampaha Districts and that the top ten per cent of exporters accounted for more than 70 per cent of total garment exports. Out of this ten per cent 39 exporters (top 3.9 per cent) supplied 50 per cent of the total garments exports. The bitter truth is that the original project has not realized its objectives.

The Project had been conceived without the identification of the real needs of the sector. An urgent requirement was for the industry to go up market which required investment in modern equipment and technology. The factories that were able to do that have survived and prospered.

From the point of grasping opportunities, the energy and the funds directed at the 200 garment factories could have been used far better in encouraging and supporting a few business agencies and entrepreneurs to venture into high technology industries. Most of the big garment factories were owned by large business houses which could have been given this option. This was the successful strategy adopted by Asian Tigers like South Korea where the Chaebols (trading houses) were directed and supported by the government to go into high-tech industries.

While the EDB was not liable for the wrong political decisions, after Lalith Athulathmudali as the Minister in charge, EDB itself has been responsible for dismantling many useful instruments supporting export development introduced by the first Board of management.

The popular Exporters Forum which was an effective monitoring and trouble shooting mechanism was not conducted. The prestigious Presidential Export Awards was not held, and the National Export Plan which is a statutory requirement was not formulated. It is not clear whether undoing the good things done by previous regime was a political one-upmanship or sheer lack of understanding and interest of the EDB leadership. Well, a minister had suggested that the EPV scheme be revisited under a different name.

The sad decline of the EDB was mainly due to the poor leadership of Chairmen who were merely time servers in retirement. There were a few professionals who adorned the post, but they sought for inspiration from Western models. They were not interested in the developments of excellence in the Far East. There were others whose appointments could only be justified with the Premadasa philosophy of preference for the mechanic over the engineer.

The tale of what happened to the EDB is a disgrace and borders  on criminal negligence.

The Council of Ministers was not convened for 35 years as EDB had no policy innovations to take up with the Council and the Ministers after Lalith and the first Chairmen of EDB were diffident to face the Council.

Succeeding Chairmen of the EDB had no Export development vision as their background was only Trade Promotion. The result was that not only the venture capital concept was rejected, the Projects Division with trained and dedicated staff was disbanded. EDB abandoned the long-standing ITC project which supported marketing and product development activities. The close association with the Marketing Division of the Commonwealth Secretariat with which the EDB pioneered the Buyer/seller meets was not continued.

We also had a Minister who terminated export incentives well before the mandated time of the WTO. He also is alleged to have allowed the import of Kankung from abroad. He was so cussed that when exporters of gherkins requested for a short-term incentive to retain their markets in the face of an advantage gained by their Indian competitors due to a currency devaluation in India, the Minister advised them to take their business to India. The first Board gave the Sri Lanka tea machinery makers an incentive which matched the incentive granted by the Indian Government to Indian tea machine makers to compete in a large World Bank tender.

While the shortsighted Chairmen of the EDB abandoned the Pioneering Project Scheme and the scheme to reward exporters on performance over the previous year, recently India announced an outlay of INR 1.97 Lakh Crores for the Production Linked Incentive (PLI) Schemes across 14 key sectors, to create national manufacturing champions.

Another unique program discarded by the management of the EDB was the Export Production Village EPV) program which was aimed at mobilizing rural production potential to produce for export and linking the production collective with exporters. This was a very imaginative and popular scheme which inspired the global program on Export Led Poverty Reduction Programme (EPRP) of the International Trade Centre’s (ITC), which covered countries in Latin America, Africa, India and even China.

The EPV program in Sri Lanka was implemented under the patronage of the Assistant Govt Agent (Divisional Secretary). When the Gamudawa program of President Premadase was launched the AGAs were made to understand that their priority should be only the President’s pet scheme GamUdawa. Thus, the EPVs lost the leadership of the AGA and the EDB too neglected them. In later years the EDB which also had a financial stake in the EPVs were not even aware of the location of most EPVs. What was good globally was considered irrelevant by the EDB which originated the concept.

During the last government the EDB under the leadership of the Chairmanship of a former Director of the EDB played a vital role in formulating a National Export Strategy. There were a few shortcomings in that strategy in not consulting the previous Directors of the EDB who were involved in formulating the 5-year Export Plan and Pioneering Projects. NES also did not have a trouble shooting mechanism like the Exporters Forum. The main weakness in the NES is that the products selected for promotion are based on market statistics. Production potential is totally ignored. For example mineral based products are not considered. But with all those weaknesses which could be rectified the fact that the present government has ignored the NES is the continuing tragedy. It is again political one upmanship at the cost of national interest.

It is only through the development of industrial and high-tech exports that SL can have a healthy balance of trade and payments and provide productive employment to the younger generation. Politicians and policy makers are yet to realize his simple truth.

Sugath Kulatunga

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