An Echelon Media Company
Sunday December 10th, 2023

Sri Lanka’s Dipped Product seeks new markets as Western demand drops

ECONOMYNEXT – Sri Lanka’s Dipped Products Plc, a unit of Hayleys group producing rubber gloves is seeking new export markets as demand from Western buyers falter, an official said while domestic costs are also rising after a fall in the currency.

“We are doing diversification,” Managing Director, Dipped Products PLC, Pushpika Janadheera said.

“We are in the process of expanding to the Middle East, Asia, Africa, and India. We have already started setting up the facility in the Middle East – a sales office.”

There was strong demand for exports from Asia as the US and other Western nations printed money, straining supply chains.

The supply chain delayed in turn made buyers run up inventory. The Fed and the ECB is now tightening monetary policy taking away excess demand after inflation soared and demand for many products are falling.

“The other reason is, …..they are releasing their excessive stocks, so the purchases are not for us,” Janadheera said.

“Therefore, it has an impact whole glove industry and other industries as well.”

Sri Lanka’s export firms initially benefitted as the rupee collapsed from 200 to 360 to the US dollar and wages and utility prices did not go up. However eventually utility prices catch up. Wages also usually rise over time.

Sri Lanka hiked electricity prices twice. In August 2022 and also in February 2023.

“During the first hike we were on par with Thailand and Malaysia, but in the second hike we are above the region and that’s hazardous,” Janadheera said.

“And all these things will be added to the final price and we will not be competitive with the others.”

Sri Lanka has a higher electricity costs due to blocking of cheaper plants like coal, which are heavily used in competitor countries like Vietnam. However Vietnam’s power utility is also facing losses and has sought a price hike.

If the country is uncompetitive, Sri Lanka could see a worse than an average, Jandadheera saod.

“[If] he World slowing down 20 percent and everybody slowing down 20 percent is alright,” he said.

“But if we slow down more than that Sri Lanka’s export future is turning gloomy.”

In the December quarter, Dipped Products, which also has operations in Thailand, posted profits of 827 million rupees, up 2 percent from a year earlier. Rupee revenues rose 54 percent to 19.5 billion rupees.

Compared to the September 2022 quarter revenues were down from 21.2 billion rupees, and profits down from 1.17 billion rupees.

In the December quarter the group income tax provision went up from 186 million rupees to 666 million rupees.

Sri Lanka hiked corporate income taxes to 30 percent, up from 24 percent, after the country’s currency collapsed and it defaulted on its external debt. Many exporters were earlier taxed at 14 percent.

At the moment demand is low. However, the global economy is eventually expected to pick up. At the time Sri Lanka may not be a destination for capacity expansion.

“The tax rate is more than double, what will the repercussions of the tax rate be ?” Janadheera said.

“The reinvestment of the industries will be curtailed and the new investors will not be attracted therefore the industries will not grow and the industries might shift from Sri Lanka to other countries.”

Higher corporate taxes means will have less money to upgrade facilities.

“When the demand grows up and we they don’t grow the others start to invest in our economy scale which is going to be a challenge for the exporters.” (Colombo/Feb20/2023)

Leave a Comment

Your email address will not be published. Required fields are marked *

Leave a Comment

Leave a Comment

Cancel reply

Your email address will not be published. Required fields are marked *

ADB USD200mn loan for Sri Lanka economic stabilization efforts

ECONOMYNEXT – The Asian Development Bank (ADB) has approved a US 200 million dollar concessional loan to Sri Lanka to help stabilize the country’s finance sector.

The Financial Sector Stability and Reforms Program comprises two subprograms of IS 200 million dollars each, according to a statement by the ADB.

“The program’s overarching development objective is fully aligned with the country’s strategy of maintaining finance sector stability, while ensuring that banks are well-positioned for eventual recovery,” ADB Country Director for Sri Lanka Takafumi Kadono was quoted as saying in the statement.

“The expected development outcome is a stable financial system providing access to affordable finance for businesses in various sectors of the economy.”

The ADB statement continues:

“Subprogram 1 targets short-term stabilization and crisis management measures that were implemented in 2023, while subprogram 2 is planned to be implemented in 2024 and focuses on structural reforms and long-term actions to restore growth in the banking sector.

The program will help strengthen the stability and governance of the country’s banking sector; improve the banking sector’s asset quality; and deepen sustainable and inclusive finance, particularly for women-led micro, small, and medium-sized enterprises.

According to the International Monetary Fund’s (IMF) latest review, Sri Lanka’s economy is showing tentative signs of stabilization, although a full economic recovery is not yet assured.

The program is a follow-on assistance from ADB’s crisis response under the special policy-based loan that was approved for Sri Lanka in May 2023.

It is aligned with the fourth pillar of the IMF’s Extended Fund Facility provided to Sri Lanka to help the country regain financial stability.

It is also in line with the government’s reform agenda, including strengthening the operational independence of the Central Bank of Sri Lanka (CBSL) and its designation as the country’s macroprudential authority.

In designing this subprogram 1 loan, ADB has maintained close coordination and collaboration with the IMF to design targeted regulatory reforms for the banking sector—including the asset quality review—and with the World Bank on strengthening the deposit insurance scheme.

“The loan is accompanied by a $1 million grant from ADB’s Technical Assistance Special Fund to provide advisory, knowledge, and institutional capacity building for Sri Lanka’s Ministry of Finance and CBSL.”

Continue Reading

Sri Lank in blackout as power grid hit by cascading failure

ECONOMYNEXT – Sri Lanka suffered a blackout as Saturday evening as the state-run Ceylon Electricity Board grid was hit by a cascading power failure.

The cascading failure is believed to have been triggered by the failure of the Kothmale-Biyagama transmission line.

“The Ceylon Electricity Board wishes to inform our customers that due to the failure of Kotmale – Biyagama main transmission line, an island wide power failure has occurred,” CEB Spokesman Noel Priyantha said.

“Step by step restorations are underway and it may take few hours to completely restore the power supply.”

With hydro plants running flat out, a outage of the line tends to create a big imbalance in the demand and supply, leading to tripping of more lines and generators.

Lines can trip due to lightening strikes, or equipment failures.

Sri Lanka last suffered a cascading failure in December 2021, due to the failure of the same transmission line.

RelatedSri Lanka power blackout as grid hit by cascading failure

Continue Reading

Sri Lanka to host regional Food and Agriculture Organization conference

ECONOMYNEXT – Sri Lanka will host the 37th session of the Asia Pacific Regional Conference (APRC) of the United Nations Food and Agriculture Organization (FAO), from February 19-22, 2024 in Colombo.

The Conference will bring together agriculture ministers and officials from 46 countries across the region to discuss challenges in food and agriculture.

“The 37th APRC will provide a vital platform for regional collaboration, benefitting the agricultural landscape, fisheries sector and environment of Sri Lanka,” Minister Mahinda Amaraweera said at a press briefing on Friday (8) to announce the conference.

FAO has had an active presence in Sri Lanka for over 40 years. “FAO has supported the country in the implementation of Good Agricultural Practices (GAP), and the development of the fisheries sector for growth and climate resilience,” Vimlendra Sharan, FAO Representative for Sri Lanka and the Maldives said.

“The APRC conference will be an opportunity to highlight the innovative approaches introduced in partnership with the government.”

By hosting APRC, Sri Lanka hopes to demonstrate the country’s dedication to the growth of sustainable agriculture, and showcase its commitment to sustainable agricultural development.

The APRC agenda will include a forum on agritourism, especially requested by the Sri Lankan government.

Continue Reading