Money Matters

Trade with Sri Lanka

Money Matters
By Engr. Hussain Ahmad Siddiqui
Mon, 03, 21

Last month, Pakistan has announced a new credit line of $50 million for the purchase of defence products by Sri Lanka, whereas another LKR 52 million (equivalent to about $263,000) credit would be available for promotion of sports in Sri Lanka. Various agreements were also signed to further strengthen bilateral relations between the two countries in trade, investment, tourism and agriculture, in particular.

Last month, Pakistan has announced a new credit line of $50 million for the purchase of defence products by Sri Lanka, whereas another LKR 52 million (equivalent to about $263,000) credit would be available for promotion of sports in Sri Lanka. Various agreements were also signed to further strengthen bilateral relations between the two countries in trade, investment, tourism and agriculture, in particular.

These measures would accelerate multi-sectored cooperation with Sri Lanka, and, at the same time, help in implementing Pakistan government’s priority to increase its total exports, further diversifying in the areas of value-addition and non-traditional items. It has also been decided to broaden and diversify the Pakistan-Sri Lanka Free Trade Agreement (FTA), thereby expanding the existing base of bilateral trade, both in scope and magnitude. Target for bilateral trade has been set at one-billion dollars, to be achieved in medium-term.

Currently, the volume of two-way trade is about $500 million, and trade balance is in favour of Pakistan. Major items of export from Pakistan are cotton, textile yarn and fabrics, pharmaceutical products, cement, salt, cereals, fertilisers, chemicals (PVC), rice and others. Imports from Sri Lanka include ships and boats, tea, spices, fruits and vegetables, rubber and rubber-based products, and wood and wood-based products.

Sri Lanka has been a long-standing trading partner to Pakistan. The FTA enables the two countries to grant duty-free, or to allow concessionary duty, to the respective exports / imports of the identified commodities and products. Under these provisions, Sri Lanka may export spices, rubber and rubber products, coconut, paper and paper products, cane and wooden furniture, raw silk, silk yarn, copper products, precious stones and jewellery to Pakistan. Yet, Sri Lanka’s exports in the past remained at low level, less than $100 million in any year.

Sri Lanka, second largest trading partner of Pakistan in South Asia, is a promising market for Pakistani products, and its high potential has not yet been realised properly. Sri Lanka is the region’s vibrant export hub. The ‘Spice Land’ can significantly increase its exports to Pakistan in spices, food and beverages, essential oils, herbal cosmetic products, gems and jewellery, and personal protection equipment and sanitisation products. Pakistan, the world’s largest tea importer in 2019, buys about 255,000 tons of tea every year valuing $528 million. Once Sri Lanka’s famous Ceylon tea dominated the Pakistan market, but over the years it lost to other sources. Ceylon tea is the second highest export item earning billions of dollars for Sri Lanka every year. At present, the share of Sri Lanka, which is ranked the third largest tea producer in the world, is nominal in Pakistan’s tea market. Sri Lanka can make efforts to regain the attractive and growing market here. Likewise, Sri Lanka can increase export of its computers to Pakistan that have been well introduced already.

There is also the need to shift the present pattern of commodity-based trade to capital goods and industrial sector. For quite some-time Pakistan has been supplying defence hardware to Sri Lanka in competition mainly with the Chinese and Indian sources. This is primarily due to superior quality and better performance of Pakistani defence products, which are being supplied in various markets of the world, and because of established credibility of its manufacturers. Our share of exports in this sector can be increased manifold.

Likewise, we may have benefit for export of oranges, apples, dates, fruit juices, rice, potatoes, welded pipes, iron and steel products and motorcycles and accessories to the Sri Lankan market. Similarly, Pakistan manufactures a variety of engineering goods. Over the years the industry has produced and sold sizeable products in the domestic as well as international markets, at highly competitive prices. And Sri Lanka is no exception. Heavy Mechanical Complex has designed, supplied and installed 27 Nos Dam Gates for Sri Lanka’s reservoirs and irrigation canal projects.

In the recent past, Pakistan Machine Tool Factory, besides having supplied a variety of defence products, has delivered a reasonable number of tractor parts and components to private parties in Sri Lanka, whereas private sector has exported water meters, fans, air conditioners and other domestic appliances. Pakistan Railways have delivered 40 Nos broad-gauge railway wagons to Sri Lanka in the past. Other railway equipment of interest to Sri Lanka includes axles, hydraulic screw jacks, surface traverser, steel bridges and railway electrification.

The above facts demonstrate future prospects for enhancing and widening our exports to Sri Lanka that at present has a marginal share of even less than one percent of Pakistan’s total exports. Besides consolidating on export of our conventional products, market for new products and services is to be explored there. The manufacturing sector of Sri Lanka accounts for over 30 percent of the GDP, major industries being textiles, apparel and leather products. Other industries include food, beverages, tobacco, chemicals, rubber and rubber products, plastic, paper and paper products, cement, sugar, and non-metallic mineral products.

Investments, domestic as well as foreign, are being made in light engineering, electronics, rubber-based industries, ceramics and glassware, and in the SME sector. There are seven sugar mills producing about 500,000 tons of refined sugar. Huge imports meet the gap in demand that is estimated to be double of domestic production. The country produced about 375,000 tons of cement in September 2020 at its five plants set up in private sector. Yet, Sri Lanka is the fourth largest importer of cement globally. Interestingly, Pakistan’s DG Khan Cement Limited and Thatta Cement Co once had plans to establish cement plants in Sri Lanka but these proposals did not materialise.

There are identified opportunities for export of Pakistan’s machinery and equipment for sugar, cement, chemical, and petrochemical plants in Sri Lanka. A variety of light engineering goods are also required, such as irrigation pumps, machine tools, power transformers, electricity transmission lines, construction machinery, mining equipment, environment-related equipment, tractors and agricultural implements, air-conditioning equipment and domestic appliances.

In recent years, Sri Lanka has embarked upon plans for rapid industrialisation, having adopted policies of establishing basic industrial manufacturing facilities, on one hand, and, on the other, expanding and diversifying the existing manufacturing capacities with focus on export-oriented products.

The nation is thus in need of the design and consultancy services, progressive transfer of technology and training of personnel, besides plant machinery, which we can provide in selected areas. For example, Pakistan can extend technical assistance for developing and modernising engineering, textile and cement industries of Sri Lanka, and train its engineers and technicians in different fields related to these sectors.

There are enormous possibilities for collaborative partnership through establishing joint ventures in Sri Lanka in manufacturing, information technology, engineering services, banking, insurance, tourism and others. At one time Sri Lanka had shown interest, and Pakistani investors responded positively, to form a joint venture in Pakistan for the blending and marketing of tea. It was also proposed to undertake tea cultivation in Pakistan with their assistance. The interest of Sri Lanka can be revived in these areas. Sri Lanka has earlier identified steel, sugar and textile sectors for direct foreign investment by Pakistani entrepreneurs.

The two countries are already implementing Agreement on Promotion and Protection of Investments. At the regional level, the Agreement on South Asian Free Trade Area (SAFTA) has been effective. SAFTA entails adopting various trade facilitation measures through elimination of tariff and non-tariff restrictions in the region.

If the existing strong political will continues to prevail on both the sides, bilateral trade is poised to grow and strengthen in coming years, thus cementing the existing friendly relations between Pakistan and Sri Lanka. Nonetheless, the two sides have to devise strategies to explore the opportunities in respective markets, effectively availing the duty concessions under the FTA. Potential for increasing bilateral trade is estimated to be $2.7 billion, which need to be exploited optimally.

The writer is retired chairman, State Engineering Corporation