Tea industry brews highest ever exports

Daily FT - 28/01/2015

Turkey displaces Russia as the single largest market for Sri Lanka
In a major boost, the country’s tea industry has achieved an all-time high export performance both in volume and value.

Ceylon Tea Brokers said yesterday that cumulative Sri Lanka tea exports for the period January/December 2014 recorded 327.87m kgs thus recording an all time high surpassing the previous highest of 327.41m kgs in 2006. January/December 2013 recorded a quantity of 319.66 m kgs.


The total quantity of tea exports for December 2014 was 30.28m kgs vis-à-vis 29.00m kgs in the same period in 2013 (+1.28m kgs)

“Cumulative tea export earnings for 2014 was Rs. 212.91b thus recording an all time high surpassing the previous high of Rs. 199.44b recorded in 2013. In dollar terms the value of exports in 2014 was $ 1.63 b vis-à-vis $ 1.54b in 2013,” Ceylon Tea Brokers added.
Turkey replaced Russia as Sri Lanka’s top export country with an export volume of 44.74m kgs in 2014. Russia along with the other CIS countries continues to be our biggest export market.

IJT Tokyo expands Lanka’s foray into diamond trade

Daily News - 27/01/2015

International Jewellery Tokyo (IJT-2015) show concluded successfully with the participation of more than 1000 exhibitors, buyers and other stakeholders. This was the 25th IJT event and people from all over the world visited the show.

IJT had many faceted and diamonds and diamond jewellery are at its forefront of the industry. The abundant stock of high quality diamonds in the Japanese market makes Japan one of the most attractive places to source for quality diamonds and diamond jewellery.

Several officers from the Sri Lanka Gem and Jewellery Authority and several Sri Lankan gem traders participated for the event. IJTis a gateway to expand Sri Lanka's business in Japan and the Asian region A wide variety of products in the jewellery industry gathers under one roof, at the world trend-setting city, Tokyo.

Participating in this event will help to activate proactive business discussions and attract new business into Sri Lanka. Several top gem exporters in the country participated at this year's gem and jewellery exhibition.

Sri Lanka exported 330,318 carats of blue sapphire to the value of US$ 53.20 million in 2013. Sri Lanka should market its precious stones through various international exhibitions which will help attract international buyers, its sources said. The Export Development Board (EDB) targets revenue of US$ one billion from exports of gem and jewellery in 2015 and US$ 15 billion by 2020 from all gem exports. Sri Lanka's export revenue currently is around US$ 10 billion.

India seeking mutual benefit through strengthening of Indo-SL FTA

The Island - 26/01/2015
By Zacki Jabbar in Jaffna

India says it is looking to strengthen the Indo-Lanka Free Trade Agreement in a manner that would be mutually beneficial to both countries.

The Consul General of India in Jaffna, A.Natarajan who was the Chief Guest at the opening ceremony of the  sixth edition of the Jaffna International Trade Fair (JITF) held at the Jaffna Library on Friday said that with an ever increasing number of  Indian companies doing business with Sri Lanka, it would be an opportune time to strengthen the Indo-Lanka FTA, which if tapped to its true potential would serve both nations well.

With  around fifty percent of the  exhibitors who participated in JITF 2015 being Indian affiliated, he assured the presence of   more industrialists and entrepreneurs from his country at next  years edition of the event. "I will  encourage more of our    businessman to  individually or in partnership with their Sri Lankan counterparts invest in the Jaffna Peninsula."

The three day event which was held at the Municipal Ground, in close proximity to the Jaffna Library concluded on Sunday.

Commending the organizers of JITF, the Presidential award winning Lanka Exhibition and Conference Services (LECS) for hosting the event for the sixth consecutive year, Natarajan observed that it had become  a one stop shop for  servicing industries in sectors ranging from construction, hospitality, food and beverage, packing , automobile industry, ICT, financial services, apparel, agricultural , consumer goods and many others.

Chairman of the Northern Provincial Council  C. V. K. Sivagnanam said that he welcomed more industrial and  trading partnerships between the North and South of the country and even with India and other nations in a conducive environment that had been created by the installation of a new government headed by President Maithripala Sirisena.

President of the Chamber of Commerce and Industries of Yarlpanam, K. Vignesh urged the  northern industries to make maximum use of the  vast opportunities that JITF had presented them with. 

Managing Director of LECS, Arjun Dharmadasa said that their trade exhibition had made great strides since it was launched six years ago." We, are happy that JITF has contributed to the development of Jaffna and are working towards taking it to a higher level."

Founder Chairman of JITF, Kosala Wickremenayake recalled that when they first hosted the exhibition, infrastructure in the region including the  main road was in a poor state, but had since improved mainly due to the demand created by JITF, resulting in a large number of goods, machinery and equipment and people having to be transported to and fro.

India, he noted had at that time contributed Rs.100 million for initial infrastructural development.

Chief Executive Officer of LECS Asim Mukthar said they were happy that many of the pioneer exhibitors associated with JITF continued to come back year after year, which indicated that  they had received a good response for their products.

The Kalvi or Education Pavilion at the JITF had contributed to many campuses and educational institutes being established in Jaffna, he added.

The exhibition had been  organized with the prime objective of helping various industries to make inroads into the peninsula, Mukthar observed. "The doors are wide open for entrepreneurs and businesses to operate in an environment which is conducive for long and short term investments."

With a clear mandate and a road map for development, there were many opportunities for a wide range of industries to thrive in the northern most tip of the country , General Manager of LECS Husine Rauff noted, adding that  the over 200 exhibitors who had offered their wares and services at JITF included around 100 Indian affiliated  businesses representing various sectors.

The event was supported by the  Consulate General of India in Jaffna, Federation of Chamber of Commerce & Industry of Sri Lanka, Ceylon Institute of Builders, Sri Lanka Convention Bureau, and the Jaffna Municipal Council. It, has been endorsed by the  Ministry of Traditional Industries and Small Enterprise Development and the Sri Lanka Export Development Board.

Top European trade delegation in Sri Lanka to initiate US$ 8 million project

A top European trade delegation has arrived in Sri Lanka to formulate a trade-related capacity building project, which will enhance the overall performance of the export sector of Sri Lanka.

The proposed US$ 8 million project, which is scheduled to implement from 2016, will be funded by the European Union, the Minister of Commerce and Industries Rishad Bathiudeen said.

"This latest initiative matches very well with our new government's vision and a great start! Therefore on behalf of the President Maithripala Sirisena, I extend our thanks to the EC (European Commission) for interacting very quickly with us in this event as well as all our trade initiatives and issues," the Minister said addressing the delegation.

The European delegation from Geneva's International Trade Centre (ITC) led by Xuejun Jiang, Chief-Office for Asia and the Pacific, ITC, Geneva, met the Minister and Commerce Ministry officials on 21 January at the Export Development Board in Colombo.

The delegation also included top officials of the United Nations Industrial Development Organization (UNIDO) in Geneva.

The head of the delegation Xuejun Jiang said under the Joint Commission's Working Group on Trade at Brussels meeting last year, possible EU assistance for capacity development was inquired into and EU responded positively. Subsequently a proposal was followed through EU Embassy in Colombo resulting in a grant in the range of Euro 2 to 7 million for a capacity development exercise in Sri Lanka.

According to Minister Bathiudeen, Sri Lanka has picked ITC for as coordinator for the entire program. Other economic agencies of the country including government agencies and various trade chambers are stakeholders in this exercise. The concept will be developed and implemented by Geneva's ITC. The Department of Commerce is the local coordinator of the project. UNIDO is also extending its expertise. The new project is expected to commence within a year from now to span three to four years.

EU is Sri Lanka's single largest export market and has also been SL's second largest trade partner for a long time. Total exports to EU in this year's January-November provisional exports stood at US$3.21 billion-huge 32% of the period's total exports at US$10.1 billion. Total trade with the EU in 2013 was a steady US$ 4.95 Billion, slightly rising from 2012's $4.94 billion.

The Minister said the European Commission (EC) has given Sri Lanka continued and strong support in this project as well as to boost the trade capacity in general. The consultation process got started very recently, in October and already the work has moved to next phase, the Minister said. ITC has already extended its support to the Ministry of Commerce and Industries in 2012 in its EDB benchmarking test and more recently in 2014 July, formulating the 'Performance Improvement Roadmap' for EDB. Sri Lanka's bilateral trade with EU, which provides Sri Lanka with the GSP facility, in the first eleven months of 2014 stood at US$ 3.2 billion. In 2013, Sri Lanka's exports to EU stood at US$ 3.28 billion rising from 2012's US$ 3.billion, while imports from EU fell to US$ 1.67 billion from 2012's US$ 1.79 billion.

Apparel industry will maintain growth momentum

Sunday Observer - 25/01/2015 
By Sanjeevi Jayasuriya

Sri Lanka’s apparel industry has shown continuous growth over the years, Joint Apparel Association Forum, General Secretary Tuly Cooray told Sunday Observer Business.

An export centric agenda and a favourable policy framework will pave the way for the apparel industry to maintain the growth momentum while retaining the number one slot in export revenue generation, he said.

The industry will be in a position to achieve the targeted export value for last year. Exports for the first eleven months of the year recorded a value of US $ 4,302.4 million. The target set for 2014 was US $ 4.8 billion.

"Our target is to become a five billion dollar industry this year and we are confident of achieving it," he said. Sri Lanka is no longer a mass producing country.

"We are striving to become an industry benchmark such as China and Turkey. Our production quality and standards are far superior to many other countries.

Two major markets for our products, the USA and EU, account for around 85 percent of total exports," Cooray said.

"However, our share in the USA and EU market is below two percent at present. There are ample opportunities to increase the market share of these traditional markets.

At present the country does not enjoy any concessions and it is necessary to enter into new trade partnerships," he said.

Wheels have been put in motion in this regard and will bear fruit within the next two to three years and afford favourable conditions for local apparel exporters, Cooray said.

"We need to lobby to re-gain the GSP+ concession from the EU to grow our market share.

The measures in place will result in increased export volume and value while being competitive in the global market," he said.

"Sri Lanka also exports apparel to Japan, China, Russia and Brazil which accounts for 12 percent of total exports.

We have improved on our buyer solutions as today, unlike in the past we provide them with the total solution," Cooray said.

"With more concessions from emerging markets, Sri Lanka’s apparel industry could sustain over 12 percent growth on a year-on-year basis," he said.

Munchee largest exporter of biscuits in Sri Lanka

Daily FT - 23/01/2014

Munchee, the flagship brand of Ceylon Biscuits Ltd (CBL) the nation’s premier food and confectionery manufacturer, reaffirmed its leadership as the largest exporter of biscuits in Sri Lanka. Munchee accounted for more than 70% of the country’s export according to Mclloyd Business Intelligence.

The Conglomerate’s global footprint covers seven continents and over 55 markets.
Munchee routinely participates at all the major trade fairs and exhibitions such as Anuga, Sial, Gulfood and many others. Noteworthy amongst them is their recent participation at Foodex in Japan, the largest annual food and beverage tradeshow in Asia, and at the Hotel Asia exhibition in the Maldives.

Commenting on this special milestone, CBL Export Manager J.F. Rubera said, “We have managed to penetrate into the world market with our product. We have a high quality product, not just in biscuits but in chocolates, cakes, soya and cereals including our organic range.”

Responding to the growing exponential growth of exports, Munchee recently built a new factory, dedicated for biscuit exports in the Avisawella Free Trade Zone. This is the first time a biscuit manufacturer in Sri Lanka has set up a factory exclusively for exports. The new factory brings in much-needed foreign revenue contributing to the local economy by generating new job opportunities. Munchee also engages as a private label supplier carrying out production for leading supermarket chains and airlines. The Munchee range is available in international supermarkets such as Tesco and as a private label supplier for supermarket chains in North America, Middle East, Europe, Australia and New Zealand. The Organisation also undertakes private labelling of their food products for several leading airlines in the USA, Europe and the Middle East.

As Sri Lanka’s major force in biscuit exports, Munchee has proven its leadership in both the export and local markets. Whilst continuing its export-driven expansion, CBL persists in bringing new innovations to market and has been the recipient of many prestigious awards. Ceylon Biscuits Limited has excelled at the National Chamber of Exporters (NCE) Annual Award winning the prestigious Gold award for ‘Most Outstanding Exporter of the Year’ four consecutive times.
In addition, CBL has won Presidential Export Awards on three successive occasions, the Presidential Award being the highest accolade an exporter can receive in recognition of exceptional export performance.

Leading gem firms showcase at Japan's IJT Fair

Daily News - 23/01/2015

Leading gem and Jewellery exporters from Sri Lanka will participate at Japan's largest international jewellery, which begins in Bigcity in Tokyo today. This event is known as IJT International Jewellery Fair 2014.

The wide variety of products in the jewellery industry will be showcased under one roof, which is in the world trend-setting city, Tokyo.

IJT is the largest jewellery trade show in Japan and is a gateway to expand business in Japan and the Asian region is expected to participate with local gem business persons, which will be held from today to January 25 at the Tokyo Big Sight, Gem and Jewllery Authority sources said.

"Sri Lanka could increase the US$ one billion overall export target in 2016, if the local gem and precious stone exports were encouraged and developed targeting international markets. Therefore, participating for international trade shows should help to capture new markets, a top officer of the National Gem and Jewellery Authority, told Daily News Business.

"We are now looking at increasing gem exports to China being the biggest buyer in the recent past and intend to promote countries like Japan and USA, which were one time biggest markets for Sri Lanka,"the official said.

The demand for Sri Lankan unheated blue sapphire is very high and Sri Lanka is unable to cater major markets demand.

However, the demand from European Union (EU) countries for gemstones has been shrinking due to the financial crisis. Gem and jewellery exports have increased with Russia, China, Italy and many Middle East countries showing tremendous interest in Sri Lankan gems, its sources said.

The authority is planning to participate for all leading trade shows in the world including China, Japan, USA and many more.

This event will help to have proactive business discussions and attract new business into Sri Lanka. Several top gem exporters in the country are expected to participate at this Asia's largest gem and jewellery exhibition, she said. Sri Lanka exported 330,318 carats of blue sapphire to the value of US$ 53.20 million in 2013.

JITF 2015 to enhance northern economy

Daily Mirror - 22/01/2015

The Jaffna International Trade Fair (JITF), the most comprehensive and ‘looked forward to’ exhibition in the North, will be held for the sixth consecutive year in the heart of Jaffna from January 23-25, 2015. The exhibition, which was the first of the kind to be held in the northern region of the country in 2002, has throughout the years been renowned as the best and most potent platform for the meeting of investors, businesses and the masses in the region.JITF 2015 will also comprise over 270 stalls from various sectors including construction, hospitality, food beverage and packing, automobile, ICT, financial services, apparel, agricultural, consumer goods and many others along with an education pavilion named ‘Kalvi’ with some of Colombo’s and Jaffna’s most sought-after education service providers exhibiting.

Furthermore, a pavilion of 30 stalls has been offered to the northern producers and industrialist to promote and exhibit their products and services themed ‘Made in Jaffna’.JITF has been hailed to be the common platform under which networking and expanding of investments, business ideas, existing businesses and sharing of knowledge occurs. The North is yet to be fully penetrated by private investments and remains ‘virgin territory’, with many of the resources in the area yet to be fully utilized.

Chamber of Commerce and Industries of Yarlpanam President K. Vigneshthe said, “There is no event of this kind for the entire northern region and all businesses and locals of the region look forward to this event. The exhibition is considered the best meeting point between them and the rest of the country and the world. Therefore, each and every visitor to the exhibition is focused in order to harness maximum value during the three days.” The exhibition will feature the construction, hospitality, food beverage and packing, automobile and I CT industries, financial services, apparel, agricultural, consumer goods and many others, which will be on show during the three days.

Concurrently with JITF 2015 the National Chamber of Exporters (NCE) together with the International Labour Organisation (ILO) will be conducting a special programme for the producers in t he northern region by conducting one-to-one meetings with some of the main exporters in the country with the “objective of educating and supporting the northern producers to the export market,” commented NCE Secretary General/CEO Shiham Marikar.Presidential Award winning event organiser Lanka Exhibition and Conference Services CEO Aasim Mukthar said that all exhibitors have throughout the years gained maximum benefits at the JITF.

“It is a historic event where the North meets the rest and is considered by everyone who participates as the best and most comprehensive destination to further their knowledge, investments and businesses. We have left no stone unturned in order to make the 2015 edition the best that the peninsula has ever witnessed and are of the belief that it will be one of a kind,” he said. 

Apparel exports top US$ 4.3 b upto Nov 2014

Daily News - 19/01/2015

The value of Sri Lanka’s total apparel exports for the first 11 months last year reached US$ 4302.4 million, registering 11% per cent growth. In 2013, Apparel exports had generated US$ 3876 million during the period January to November.

Joint Apparel Association Forum (JAAF) Secretary General M.P.T. Cooray, speaking to Daily News Business said the industry had set a target of reaching US$ 4.8 billion by the end of 2014. “If we can have an export figure of US$ 400 million in December, we can presume we are well within the target for 2014. The industry is also expecting to achieve US$ 8.5 billion apparel exports by 2020 , nevertheless ,the industry needs to record 12% per cent growth rate Year on Year to achieve this target.”

Highlighting issues relating to apparel sector in Sri Lanka, Cooray said new policy frameworks should be formulated, creating new avenues to penetrate into emerging markets particularly China.

“We’re expecting the proposed Sri Lanka- China FTA may be continued. Sri Lanka’s apparel sector accounts for less than 2% market share in the global apparel industry and necessary measures should be taken to address the issues relating to the industry particularly to improve delivery mechanism and market access. To do this, it’s important to implement brand promotion activities to reach set targets in the apparel sector. We’ve so far catered to top brands in the world and our quality is unquestionably one of the best in the world. I believe these factors would definitely help boost apparel turnover in the future,” Cooray said.

'Lanka-China FTA will be very big news back home in Yunnan Province’

The Island - 15/01/2015

Li Jiming (Deputy Secretary-General of Yunnan Provincial Government and Director General of Yunnan International Exposition Bureau-far right) seen with a part of his delegation to Sri Lanka on 13 January at EDB in Colombo.

As bilateral trade topped $ 3 bn, Sri Lanka's exports sector is readying one of the strongest ever delegations to this year's Kunming international expo while Lanka's second largest global supplier voiced that it is increasingly upbeat on the prospective FTA between both countries-and the $ 190 Bn Yunnan province is keen for a Corporate Agreement with Lanka's apex export entity, a first, as revealed on January, 13 .

"The pending Sri Lanka-China FTA will be very big news for Chinese buyers and media. China is the only country stipulating imports from its trading partners! This is specially so towards South Asia since we are good neighbours" said the top Chinese official Li Jiming (Deputy Secretary-General of Yunnan Provincial Government and Director General of Yunnan International Exposition Bureau) on 13 January in Colombo.

Deputy Secretary-General Jiming was speaking at his delegation's meeting with Ms Sujatha Weerakoone (DG-EDB) and other top officials of EDB in Colombo. Yunnan Province' Deputy Secretary-General Jiming, who is in charge of tourism, international trade and investment facilitation, is currently leading an eight member trade delegation to Colombo. Joining Secretary-General Jiming on January, 13 were reps from Yunnain Provincial Energy Investment Group, Yunnan Jinmayuan Real Estate, Hong Kong Oriental Phoenix Development, and reps from Yunnan International Exposition Bureau. Also taking part in the discussions were Ms Jeevany Siriwardene (ADG-EDB), Dr Yousuf Maraikkar (ED-EDB), Macky Hashim (immediate Past President of the Federation of Chambers of Commerce and Industry) and reps from Sri Lanka Gems & Jewellery Authority, and the Chamber of Commerce.

‘Future Careers’ in Jaffna attracts overwhelming crowds of keen youth Jaffna IT Week

The Island - 08/01/2015

In an attempt to educate the budding youth of Sri Lanka about the myriad of opportunities available in Sri Lanka’s growing IT/BPM industry, the Jaffna IT Week – an industry initiative for inclusive growth and reconciliation – hosted the ‘Future Careers’ programme on 3 and 4 December at the Vembadi Girls’ High School in Jaffna.

Held on the first two days of the Jaffna IT Week, it was organized by SLASSCOM, ICTA and the Ministry of Education, and attracted over 2,500 schoolchildren from schools across the Jaffna Peninsula. It was one of the biggest events of its kind to be held in the North.

Targeting schoolchildren in the North, the ‘Future Careers’ program functioned as a career guidance session to educate the youth about the IT/BPM industry both globally and locally, and open their eyes to the wide range of possibilities and job opportunities available within the sector. It is a highly successful programme that has been carried out in various parts of the country over the years.

The program in Jaffna received tremendous feedback from all the attendees, which included important industry stakeholders from both the private and public sector, schoolchildren, teachers and parents, all of whom agreed that the initiative was a pivotal one for the students. It also included a teacher training programme a week prior to the ‘Future Careers’ event itself, from which the teachers of the participating schools benefited greatly.

Sri Lanka’s IT/BPM industry is now the fifth largest exporter in the country and keeps growing exponentially year-on-year. Programmes such as ‘Future Careers’ encourages students to pursue IT degrees once they leave school and further deepen the talent pool available to the industry in years to come.

The fair in Jaffna consisted of two main sessions – the first, a general introduction to the IT/BPM industry, followed by counselling sessions, where students were divided into groups of around 10 and assigned to a counsellor (from private sector companies), who provided them with more in-depth information and clarified the students’ issues.

"As we know, there are traditional jobs like engineers, doctors, lawyers and so on. IT is becoming a new trend; a new career path is emerging. My take is this: If you don’t know IT, and if you don’t learn it within the next 2-5 years, you can’t ever emerge," statedSampath Information Technology Solutions Ltd. General Manager S. Muralidharan when commenting on the programme. "I think that there should be continuity for this kind of awareness session. I think this is excellent and I think sessions like this should be done long term, and the progress should be monitored: Otherwise there’s no point coming here, spending our time without seeing how well this is working out."

The ‘Jaffna IT Week’, held from 3 to 6 December 2014, was an IT industry initiative for inclusive growth and reconciliation, driven by SLASSCOM, and supported by the Export Development Board (EDB), Information and Communication Technology Agency of Sri Lanka (ICTA), Ministry of Education (MOE), University of Jaffna (UOJ) and the Yarl IT Hub, with NDB as Official Bank and Mobitel as Exclusive Mobile Communication Partner.

Over four days, the Jaffna IT Week featured key Government stakeholders, Sri Lanka’s top IT industry thought leaders and tech entrepreneurs.

Sri Lankan Handlooms gets foothold in the competitive international market

Sri Lankan handloom textile industry is one of the country's oldest traditional crafts. The industry has helped showcase the undying creativity of generations of Sri Lankans taking them to the international arena.

The modern design trends combined with traditional designs and the influx of new processing techniques has given a new life to Sri Lankan handlooms. The industry has gained a dominant identity and a foothold in the competitive international market.

Sri Lanka is capable of producing various handloom textile products to foreign markets. There is an increasing demand for Sri Lankan handloom textile products in foreign countries. Italy, Germany, France, UK, Norway, Netherlands, Maldives and Thailand are the main export markets for Sri Lankan handloom textile products.

Sri Lanka exports curtaining, table linen, bed linen, kitchen linen, upholstery and dress fabric and other products to foreign markets. The products in demand in the local market are curtaining, table linen, bed linen furnishing, cushion covers, sarongs and sarees.

Currently, cotton and silk yarn is imported from India and Korea, monthly. Around 900 private handloom producers inclusive of small, medium and large-scale are operating in the country.

The handloom textile industry is a highly labour intensive, export oriented rural based industry. However, lack of weavers and the high production cost has hampered the growth of the industry considerably. There is a slight decrease in the current workforce in the industry as it is labour intensive.

Handloom textiles are produced in Sri Lanka within the confines of a small-scale industry that generate employment to rural women. Among the Handloom textiles produced are household linen such as bedclothes and towels, upholstery materials, furnishing materials such as curtaining, cushions covers, saris and sarongs. Books, notebooks, albums, and even writing pads are now clothed with this handcrafted material of textile. The handloom woven cotton and silk textiles of vibrant colors have been popular among the locals as well as the tourists.

Many countries are looking for environmental friendly, handmade products made with sustainable supply chains. Handloom products are completely sustainable and use eco-friendly raw material or recycled material with minimal environmental pollution. Thus, there is a great scope for the Sri Lankan handloom industry to flourish. Further, development of the industry would reduce the flow of imported material to the local market and save valuable foreign exchange.

Russian Market Critical For Sri Lanka Tea

The Sunday Leader - 04/01/2014

Behavior of the Russian market would be critical for Sri Lanka tea this year, notes a Sri Lanka Tea Market review 2014 and Outlook 2015.

Weakening of the Rouble would place Sri Lankan Tea Exporters and Russian Importers under extreme pressure. Sri Lankan Exporters who have shipped on credit could have complications with receipt of full payment; whilst brand marketers of teas packed in Sri Lanka could see a sharp erosion of margins if tea prices do not reflect the changes.

More than 90% of Sri Lanka’s tea exports are shipped to the Middle East, North Africa and Russia / CIS Countries. Many critical markets have significant domestic issues that will impact on prices at the Colombo Tea Auctions.

The impact of crude oil prices on the price of tea has been studied by the FAO and confirms a linkage, which has been known by the trade for some time.

On the demand side for Sri Lanka however, the impact is more significant. Markets such as, Russia, Iran, Saudi Arabia, Iraq, and Kuwait and to a lesser extend Libya and some of the Gulf countries are all major oil producers, consumers of Ceylon Tea. The impact on their currencies and other domestic factors resulting from sharp drop in national income could be significant if oil prices continue to weaken in the medium term. Additionally social unrest in Syria, Ukraine and Libya has already had its impact on tea prices at the Colombo auctions.

2014 Round Up - ‘Sri Lanka and the Colombo Stock Exchange’

The Island - 01/01/2015

Service sector dominated Sri Lankan economy grew 7.3% in 2013 despite challenging 1H13. However 1-3Q14 saw 7.7% growth led by construction, apparel and recovery in agriculture sector.  Thereby we expect the economy to end the year with a GDP growth of 7.8%.

Annual average inflation remained in single digit level for the past 65 months ending 2014 with an inflation of 3.3%. Given the lower inflationary environment, interest rates continued to decline during 2014 where the prime lending rate stood at 6.3%. Despite the declining interest rates, credit growth was rather slow during 1H14. However credit demand showed signs of recovery recording 5.1% YoY in the month of October.  Rupee against the US Dollar was stable at LKR130.0 levels during 2014 largely due to lower oil prices and recovery in exports. 

During the first 10 months of 2014 exports grew 9.7% YoY. Recovery in European and US markets saw the apparel exports grew by 13.9% YoY. Further exports from the agriculture sub segment also grew 10.3% YoY. Import expenditure rose 7.3% YoY during the first 10 months of 2014 largely due to 16.7% YoY growth in fuel imports.  Thereby the trade deficit widened 4.3% YoY which is c.9% of GDP.  However with strong remittance growth and other financial and capital account investments drove the overall BOP to a surplus of USD1.7 bn during Jan-Oct 2014.  Further gross official reserves stood at USD8.8 bn which is sufficient to finance 5.6 months worth of imports.

Continued efforts towards fiscal consolidation saw the budget deficit as a % of GDP brought down to 5.0% (expected) in 2014 from 5.9% 2013. Further government plans to bring it down further to 4.6% of GDP in 2015E. During 1-3Q2014 government revenue grew 6.0% YoY whereas government expenditure grew 3.7% YoY. Government expects to further simplify the tax structure thereby broadening the tax base.  Further debt to GDP stood just above 80% in 2012 narrowed to 78% in 2013 and the country expects to bring it down below 75% level in the medium term.

After a dull 2013 the equity market rallied in 2014 to end the year with ASPI up 23%. Further average turnover levels (LKR1,411.0 mn) and trading volumes (66.8 mn) also picked up in 2014 whilst we saw a foreign net inflow of LKR21.6 bn . Construction, Banking, Finance & Insurance (BFI) and Telecommunication were the top performing sectors whilst the market witnessed 5 major transactions in JKH, ODEL, HHL, HPWR and EXPO.  4 companies made its debut on the Colombo bourse during 2014 raising LKR2.7 bn whilst 18 debenture issues were seen in the market raising LKR48.1 bn. Further corporate earnings also grew 17.5% YoY during 1-3Q2014 BFI and Diversified sectors.

The broader market is trading at an overall market PE of 14.9x four quarterly earnings while corporate earnings denote strong growth potential amidst the favourable economic environment.

Thereby the easing of interest rates, improving external sector performance coupled with reductions in fuel and electricity pricing witnessed during 2H2014 are likely to stand as a steady platform for improving performance of listed corporates in the year 2015.

Nevertheless the presidential election announced in November 2014 stalled the market momentum while investors were wanting to ride off the uncertainty. The presidential polls which would take place on 8th January 2015 is likely to be a closely fought battle. Also with a shift in parliamentary support towards the opposition having taken affect as at end 2014 the intensity is further increased. However with both candidates making strong reference to economic growth and expected to follow free market strategies the overall economic outlook seems positive. If the incumbent, president Rajapaksa wins the election he is likely to continue the economic policies he practiced since 2010 and if the opposition wins they will have to better the incumbent presidents track record, at least that is what is mention in their election manifesto. Therefore there would be limited downside triggered by the election outcome while we remain bullish on the medium to long term market performance despite a period of lull in and around the presidential election week.  

Hence we remain bullish on, John Keells Holdings, (JKH), Aitken Spence (SPEN), Hatton National Bank (HNB.N,HNB.X), , Seylan Bank – Non Voting (SEYB.X) and NDB Bank (NDB). Aitken Spence Hotel Holdings (AHUN), Richard Pieris and Company (RICH), Tokyo Cement (TKYO.N,TKYO.X), Royal Ceramics (RCL), Chevron Lubricants (LLUB), Hemas Holdings (HHL),  Distilleries (DIST), Laugh Gas (LGL.N,LGL.X), Sunshine Holdings (SUN.N), Textured Jersey (TJL.N), Dialog Axiata (DIAL.N), Access Engineering (AEL.N).