Discussion Brief for the Export Strategy-Maker

Sri Lanka

A focal point approach to export promotion

Pre-requisites to success and lessons learned by the Sri Export Development Board (EDB)

1. Pre-requisites for export promotion and development 

Meaningful export promotion in developing countries entails the following pre-requisites: - 

• A dynamic institutional structure with clearly demarcated responsibilities and functions to ensure effective contribution to the Export Promotion and Development process. 
• Mechanisms for sound export policy planning and designing, policy advocacy, policy implementation and policy adaptation, based on feedback of results, to achieve sustainable export growth. 
• A focal point Trade Promotion Organization (TPO) or Export Promotion Organization, (EPO) which is, vested with adequate powers and resources, to effectively co-ordinate both public sector and private sector contributors to the export development effort, in order to deliver result oriented assistance and services to entrepreneurs and exporters. 

In Sri Lanka. the Export Development Board (EDB) was set up in 1979 by an Act of Parliament as the focal point EPO, at a time the economy was liberalized with state recognition of the private sector as the "engine of growth." 

At the time the EDB was set up, the network of institutions which provided specialized export support services were considered to be adequate. However, it was not the same with the provincial or regional institutional structure providing export support services for export oriented enterprises in regional locations in the country. 

The policy making structure of the EDB consists of a Board of Directors, which has both public sector and private sector representation at the highest level. Public sector representatives are the CEOs (viz. Secretaries or Additional Secretaries) of Ministries whose functions relate to exports in one way or another. There are generally nine such Ministries covering the subjects of Trade, Shipping, Industries, Agriculture, Plantation Industries, Textile Industries, Fisheries, Finance, Foreign Affairs, Planning and Rural Industries. 

Private sector representatives consist of 6 members who are experienced and have proven capacity in industry, trade or finance or in any other field connected with export development. Additionally, the CEO of the Board of Investment (BOI) of Sri Lanka which is the state agency responsible for approving foreign direct investment (FDIs) in Sri Lanka and for the management of the Free Trade Zones, is an ex-officio member. 

The Chairman of the Board of Directors of the EDB who is also the CEO is appointed by the Minister in charge of trade. The Minister also appoints the private sector members. 

The Export Development Act also provides for the constitution of an Export Development Council of Ministers (EDCM) chaired by H.E. the President of Sri Lanka and comprising the Ministers of the Ministries represented on the Board of Directors of the EDB. 

The EDB is responsible for the formulation and implementation of the National Export Development Plan (NEDP), as well as policies and programmes for export development, with the approval of the EDCM. 

The EDB is vested with wide powers and functions, the salient features of which are as follows: 

• To advise the EDCM on National Export Development policies and programmes ; 
• To recommend to the EDCM policies and measures for export-oriented investments ; 
• To formulate, and monitor the implementation of. the NEDP, after approval by the EDCM ; 
• To administer the Export Development Fund and implement programmes of assistance for export production and marketing in close co-operation with the various agencies of Government, Trade and Industry ; 
• To function as a focal point where exporters could deal with all their problems ; 
• To recommend to Government the adoption of trade agreements and the negotiation of inter-country commercial policies as well as financial and other related arrangements that will facilitate the development of exports from Sri Lanka ; 
• To direct and co-ordinate market development activities of trade representatives and trade agents of Sri Lanka, abroad ; 
• To act as implementing agency for technical co-operation in the field of export development, with organizations and bodies outside Sri Lanka. 

According to the Act which set up the EDB, every decision made by the Board in the exercise of its powers has to be implemented by every Ministry represented on the Board. 

Within the scope of the above powers and functions the EDB was assigned responsibility to implement specific programmes and activities encompassing market development and supply development, for export. 

The EDB was set up with qualified and experienced core professional staff to fulfil the needs at that time related to the various functional disciplines of exports. Financial resources to implement export development activities arose principally from two sources. 

• An annual government budgetary allocation 

and 

• A charge raised from high-duty imports 

Additionally technical assistance was received from several foreign donor agencies. 

The Export Development Act vested the EDB with the responsibility of formulating and monitoring the implementation of the National Export Development Plan (NEDP). This is a strategic five year rolling plan which details strategies, action plans and targets on a sectoral basis covering all export products. The EDB co-ordinates the preparation and implementation of the NEDP with all related public and private sector institutions including NGOs. 

Private sector inputs for the preparation and implementation of the NEDP arise from several sectoral Exporter Associations and Advisory Committees which are also set up by the EDB as provided for under the Act. These sectoral Exporter Associations and Advisory Committees also assists the EDB in the formulation of Export Development policies and programmes for recommendation to the EDCM for consideration and approval. 

At the time the EDB was set up as the national focal point EPO, the support provided for export promotion and development at the highest levels was manifested in a Exporters Forum. This Forum which met once in two months was chaired by the Minister of Trade. It enabled all problems of exporters to be discussed freely with the relevant public sector institutional representatives and other connected agencies with a view to speedy resolution of any constraints that were encountered. 

The broad range of services provided to exporters encompassed (a) market promotion and development (b) supply development, (c) trade information and (d) trade facilitation and simplification. 

The emphasis was mostly on market promotion programmes. Market research, supply development and provision of timely and up-to-date trade information received much less attention. 

Nevertheless the EDB adopted a sectoral approach for product and market development, with the focus on certain priority product sectors with potential for development. As a result, exports of apparel, gems, jewellery and diamonds, fisheries products and agricultural products achieved substantial growth and expansion in the early 1980s. For instance, textiles and garments developed as the largest export sector, displacing tea. Today this sector constitutes more than 50% of Sri Lanka’s total exports. 

In regard to supply development, direct investment assistance provided by the commercial banking system in Sri Lanka to export-oriented ventures was considered to be inadequate. Banks usually considered investment in export ventures riskier in relation to investment in other areas of economic activity. 

Therefore, in keeping with its role as the State EPO, the EDB adopted a facilitatory and supportive role to stimulate investments in export-oriented production and services by providing direct assistance to entrepreneurs in the form of "seed capital" (a) to augment the investment capital entrepreneurs were able to provide and (b) to encourage the banking sector to provide the balance investment capital required on a commercial basis as the EDB shared part of the risk. Subsequent evaluation of direct assistance provided by the EDB on the above basis showed substantial returns in terms of overall exports generated by the assisted ventures. Such assistance also enabled many small time entrants to the export field to develop into large exporters. 

Similarly the EDB also provided direct assistance on a cost-sharing basis for individual exporters’ own market development efforts as well as for participation in international trade fairs. Further export performance-based incentives were also provided. 

Most of the direct assistance schemes were terminated in the early 1990s, mainly due to shortages of financial resources. Also, policy-makers were of the view that the role of the commercial banking system was to support investment in export ventures purely based on their commercial viability while State institutions should move away from such activity. However, this approach is known to have affected many small and medium enterprise (SME) entrepreneurs as they are (a) unable to raise the total quantum of capital required, on their own and (b) provide collateral demanded by commercial banks to support investments. 

The EDB has been able to establish only two trade promotion offices overseas, in the Netherlands and Maldives, due to financial constraints. Each office is staffed by a single officer. Additionally, Commercial Secretaries are based in some Sri Lankan Missions overseas, covering important markets. However, they are attached to a separate State agency viz. The Department of Commerce, within the purview of the Ministry of Trade. Their duties relate mainly to bilateral and multilateral trade agreements and duties assigned by foreign missions. As such, they are unable to focus their attention on market intelligence and trade development functions, to the desired extent. 

It is therefore apparent that the overseas trade support network is far from adequate, in relation to the needs of the modern competitive trading environment, including entry into new markets. 

Locally the EDB has representative offices in three out of nine provinces. They too have very limited staff. The network of other specialized trade support agencies in the Provinces is also inadequate. This has placed limitations on the expansion of the entrepreneurial and exporter base. 

State administrative controls and related rules and regulations have also placed constraints on the delivery of flexible, timely and meaningful export support services. Although the Act of Parliament which set up the national EPO provided for some independence from State administrative controls, this has not really happened due to dependence of the institutions on state financial resources, as a result of its failure to develop alternative fund flows, through the provision of specialised services. 

The EDB has been unable to retain core professional staff due to its inability to offer an attractive emoluments and incentives package along private sector lines, and also due to the lack of well planned career development opportunities. This factor is also linked to overall rules and regulations of the State. 

There is an apparent deterioration of professionalism and leadership that has been made available to the Institution. 

Since the establishment of the national EPO in the early 1980s exports grew at an average of over 10% per annum in dollar terms. However, during certain years of the last decade the rate of growth has reduced as seen from the export performance data in the annexure. 

.However, the deceleration of growth could be primarily due to global recessionary conditions and other international financial crises. 

There is a reduction in the availability of state financial resources, due mostly to national priorities such as defence expenditure and social support programmes. Additionally, donor technical assistance has dried up substantially. 

On the other hand it is strongly felt that the EDB itself has failed to formulate new meaningful export development programmes, to convince authorities to allocate financial resources, in relation to competing demands. 

Some important direct assistance and incentives hitherto offered to exporters have been withdrawn due to financial constraints. 

Inadequate co-ordination and integration of services provided by specialized institutions to exporters under the leadership of the EDB has led to erosion of the image and superior role played by the EDB over the years as the national EPO. A major factor that has led to this situation has been the non-functioning or dormancy of vital structural links such as the EDCM, Exporters Forum, Exporter Advisory Committees and the NEDP. However, action is now being taken to revive these vital structures once again. 

There has been an erosion of the quality of services provided by the EDB in relation to their adequacy, flexibility, timeliness and effectiveness. This could be attributed to the rather rigid administrative controls that have been imposed as well as the adequacy and timely availability of financial resources. Administrative drawbacks that have surfaced within the Institution over the years could also be linked to the available professionalism and leadership. 

There is inadequate implementation of new export development programmes that are designed to meet the aspirations of exporters in relation to needs arising out of the modern world trade scenario. However, some vital new services such as IT and E Commerce services are being developed, albeit with limited financial resources. 

The following approaches could add dynamism and vigour to a meaningful new export development programme: 

• Administrative reforms and structural reorientation in the EDB to reflect a private sector orientation of its services and also for the implementation of new services. This approach should also preferably entail a relaxation of state controls. 
• Self-reliance of the institution to the best possible extent, through the provision of income generating professional services. This approach will reduce dependency on state financial resources, to some extent. 
• Implementation of new export development programmes which will create an impact in relation to the modern world trade scenario should be embarked upon in earnest. Some identifiable new approaches are (a) Export of Business and Professional Services and (b) Entrepot Trade (c) Enhanced focus on a wider range of export product sectors, as the focus has been on a limited number of sectors hitherto. 
• Strengthen the overseas trade support network. This approach will enable consolidation of existing markets and exploitation of new markets. 
• Strengthen the provincial export support services network through the setting up of branch offices with adequate staff. This approach will enable creation of export awareness, and also to effectively harness local raw materials and human skills at the provincial level for export development. It should also facilitate an expansion of the exporter base and export production capacities, leading to economic benefits, such as employment creation and improvement in rural incomes and standards of living. 
• More emphasis on market research and market surveys with a view to develop new markets and expand existing markets. This approach should be linked to the strengthening of trade information services utilising modern technologies. 
• New supply development programmes, formulated and implemented, to increase the product range on offer in order to link with identified export market opportunities 
• Exporter training programmes should be broadbased and strengthened to develop a high quality and ethical exporter base that meets the demands of competitive world trade. 
• Create an export awareness and entrepreneurship among the younger generation, through the identification and implementation of suitable programmes in collaboration with universities and other relevant educational institutions. 
• A well-planned Human Resources Development Programme should be formulated and implemented to retain existing professional staff and also to attract new professional staff who are capable of providing services that meet the aspirations of exporters. 

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