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)