| ||||||||||||
| ||||||||||||
| ||||||||||||
| ||||||||||||
|
Country Commercial Guides for
Report prepared by U.S. Embassy Colombo, Sri Lanka, released July 1999 |
Chapter VLEADING SECTORS FOR U.S. EXPORTS AND INVESTMENT
Best Prospects for Agricultural Products
(a) Wheat
Rank of sector: 1
Name of sector: Wheat
ITA industry code: WT
1997 1998 1999 (in $millions) Total Market Size 128 126 138 Local Production 0 0 0 Total Exports 0 0 0 Total Imports 128 126 138 Imports from the U.S. 47 71 70 Note: The above statistics are unofficial estimates.
The Sri Lankan wheat market is very price-sensitive and of late, more quality-sensitive. Sri Lanka has been a consistent market for U.S wheat, mainly due to concessional wheat sales under U.S. Government programs. The Export Enhancement Program (EEP), PL-480 and GSM credit programs have played a major role in developing and maintaining the U.S. market share over the years. With the scaling back of such programs (particularly EEP), U.S. wheat exports dropped from $142 million in 1995 to $80 million in 1996 and decreased further to $47 million in 1997. However, U.S. wheat exports increased to $71 million in 1998. Good harvests together with the lowering of freight rates from the U.S. were contributing factors for U.S. wheat exports to experience this significant increase. The USDA signed an agreement to donate 50,000 MT of wheat to Sri Lanka under the 416(B) program in June of 1999. In 1997, only 32 percent of Sri Lanka's wheat imports originated from the U.S., compared to 57 percent for U.S.-sourced wheat in 1998. Other primary suppliers are Australia and Argentina; wheat from these countries is often available at lower cost, though the quality of Argentinean wheat has not been consistent. Recently the government tender board responsible for appraisal and awarding of wheat tenders has withdrawn Argentina from its list of conventional suppliers. This means that Argentinean suppliers have to conform to additional conditions prior to obtaining approval for wheat shipments to Sri Lanka. In the most recent wheat tender the Australian Wheat Board also bid U.S. wheat, in an unprecedented move. The outlook for the second half of 1999 for U.S. wheat is very promising. The Government's Co-operative Wholesale Establishment (CWE) is responsible for purchasing wheat in Sri Lanka, almost always through competitive tenders. Suppliers have to be registered with the CWE or the Food Commissioner at the beginning of each year to be qualified to bid for the tenders.
(b) Cotton
Rank of sector: 2
Name of sector: Raw Cotton
ITA industry code: YRN
1997 1998 1999 (in $ millions) Total Market Size 31 24 30 Local Production 0 0 0 Total Exports 0 0 0 Total Imports 31 24 30 Imports from the U.S. 3 2 3 Note: The above statistics are unofficial estimates.
This industry is faced with difficulties due to the government allowing duty free textile imports. This tariff barrier was removed in order for the local garment industry to stay competitive in the international market, as there is stiff competition from regional countries. Although Sri Lanka is emphasizing domestic textile production, due to the declining European market and local garment manufacturers obtaining imports at cheaper prices, the industry has recorded little growth. U.S. cotton exports declined to $2 million in 1998. U.S. cotton exports to Sri Lanka had been expected to increase in 1998 due to the United States Department of Agriculture (USDA) authorizing a GSM 102 credit guarantee program for private sector cotton imports to Sri Lanka. However, as the approved local banks were not passing the incentive to local suppliers, this program has not been attractive to local cotton buyers. Tariff elimination for cotton imports has also forced more competition in this sector. Pakistan, South Africa and Hong Kong are America's major competitors in cotton exports to Sri Lanka.
(c) Fresh Fruits
Rank of sector: 3
Name of sector: Fruit & Nuts
ITA industry code:
1997 1998 1999 (in $ millions) Total Market Size na na na Local Production na na na Total Exports na na na Total Imports 25 10 14 Imports from the U.S. 0.5 1.5 3.0 Note: The above statistics are unofficial estimates.
The Sri Lankan market for fruit and nuts has experienced a reduction from $25 in 1997 to $10 in 1998. However, the U.S. market share has increased by almost 100 percent from $0.5 million in 1997 to $1.5 million in 1998. The market is expected to improve in the coming year as imported fruits, especially apples and oranges, have enjoyed a wide acceptance among consumers in Sri Lanka. Although this market has been restricted to the major cities, there is scope for this sector to expand. Australia, Pakistan and India are the other major suppliers of fruits to the local market. Sri Lanka's exports in the food sector consist mainly of fruit, cashewnuts and aquatic invertebrates. The main agricultural exports are tea, coconut and rubber.
Best Prospects for Non-Agricultural Products
(a) Telecommunications Equipment
Rank of sector: 1
Name of sector: Telecommunications equipment
ITA industry code: TEL
1997 1998 1999 (in $ millions) Total Market Size 70 118 130 Local Production 0 0 0 Total Exports 0 0 0 Total Imports 70 118 130 Imports from the U.S. 10 13 15 Note: The above statistics are unofficial estimates.
The telecommunications sector continued to expand in 1998, and has been one of the fastest growing sectors in the economy. The privatization of the telecommunication industry has had a major impact on the growth of the telecommunication sector. Presently there is an increasing number of sophisticated telecommunication devices and computer based methods of information transfer such as e-mail, Internet and wireless technology that has replaced the traditional products like fixed phones, telegraphs and cables. The re-organization of the Sri Lanka Telecom (SLT) by Nippon Telegraphic & Telephone Corporation, which has a 35 percent stake in SLT, has seen a significant improvement in overall performance. SLT commissioned 143,000 new telephone lines in 1998, an increase of 45 percent over the previous year. The performance of the competing private sector operators also improved in 1998. The number of subscribers of the 4 cellular operators increased by 52 percent. The total number of payphones installed in the country increased by 79 percent to 4,600 at the end of 1998. The two wireless loop operators provided 41,500 new connections during 1998, which resulted in a 158 percent increase in subscribers to 67,000. The SLT is currently implementing a number of projects under the "Telecommunication Development Program 1996-2000" at a cost of Rs.11 billion.
(b) Power and Energy
Rank of sector: 2
Name of sector: Electrical Power Systems and Energy
Conservation Technology
ITA industry code: ELPSri Lanka by its own estimates needs to add an additional 1000 MW of generating capacity between 1999-2005 to meet demand, which is growing at an annual rate of about 10 percent. The Government hopes to utilize concessional foreign funding (from OECF Japan, GTZ Germany) as well as private financing to build these projects. AES Corporation of the U.S. successfully tendered for a 150MW-combined cycle power plant on Build-Own-Operate (BOO) basis, though it is unclear how quickly this project will move ahead. Since the country's hydro power potential is nearly exhausted and is highly vulnerable to poor rainfall, the Government has no option but to develop thermal power plants. There is also potential for wind and solar energy given the desire to cut fuel imports. Both these sectors are open to foreign participation. Substantial opportunities exist for U.S. firms to supply combined-cycle, conventional oil, and coal fired plants. Given excess demand and rising energy prices, there are also opportunities for the sale of conservation technology. (A cautionary note: the GSL regrettably lacks a comprehensive, cooperative framework for project evaluation, approval and implementation by the different agencies involved--as a result, power policy tends to be ad hoc, heavily politicized, and subject to sudden reversals.)
(c) Electrical Machinery
Rank of sector: 3
Name of sector: Electronics and Electrical Machinery
ITA industry code:
1997 1998 1999 (in $ millions)Total Market Size 350 390 420 Local Production 0 0 0 Total Exports 0 0 0 Total Imports 350 390 420 Imports from the U.S. 35 45 55 Note: The above statistics are unofficial estimates.
In 1998, total electrical machinery and equipment imported to Sri Lanka was $390 million. The U.S. exported $45 million worth of electrical equipment to Sri Lanka. Static converters, inductors and parts continue to offer good potential within this sector for U.S. exporters, who in 1998 were the major supplier, with close to $2 million in sales. The electrical home appliance market is also growing steadily and there is a visible expansion in this sector over the last few years. There are over 30 major distributor/agents for electrical appliances, representing most international brands and over 60 small distributor/agents also competing in the domestic electrical appliance market. Electric heating elements, electric smoothing irons, and vacuum cleaners all offer good potential for U.S. exporters. The growth in the construction sector will also have an impact on the electronics and electronic machinery industry since more scope will be available to supply the construction industry. Competitive pricing will help U.S. exporters carve a fair share of the local market, as U.S. products in the home appliance market are perceived as superior in quality to the Japanese, Taiwan and Korean products which now enjoy major market share in Sri Lanka. The rapid growth of the telecommunications industry has also opened up the market for electrical apparatus for this industry. Switching gear for telephones and telegraphs, electrical apparatus for telephone lines and equipment for carrier signals present the best prospects for electrical suppliers to the telecommunications industry. Imports of boards, panels, consoles and related equipment for the industrial manufacturing sector (for domestic as well as export products) have continued to grow steadily, and offer good prospects to U.S. exporters. The future expansion of this sector will require technological sophistication, which presents technically-advanced U.S. suppliers with good opportunities in the medium/long term. The major suppliers in the electrical machinery and equipment market in Sri Lanka are Japan, U.K., South Korea, Singapore and Taiwan.
(d) Machinery/Mechanical Appliances
Rank of sector: 4
Name of sector: Machinery/Mechanical Appliances
ITA industry code: MAC
1997 1998 1999 (in $ millions) Total Market Size 545 490 520 Local Production 0 0 0 Total Exports 0 0 0 Total Imports 545 490 520 Imports from the U.S. 18 17 20 Note: The above statistics are unofficial estimates.
This sector recorded a decrease in imports in 1998. However, investment goods imports benefited from lower international prices. The growth in the investment goods category was as high as 20 percent, and was predominantly in garment and textile machinery, data processing machines, telecommunication equipment and construction related imports. This sector was also helped by the waiving of the duty component for plant and machinery for sectors identified as "thrust industries" which include electronics, light engineering, ceramics, rubber-based industries and any manufacturing or service industry of a pioneering nature as determined by the Board of Investment (BOI). U.S. exports in 1998 were $17 million.
The rubber products sector accounted for approximately 5 percent of total industrial exports. This sector recorded an overall growth of around 13 percent and remains a prospective sector for exporters of machinery and equipment related to this industry. Tires and tubes, non-surgical gloves, floor covering and mats, rubber bands and other rubber products are the key areas which performed well in 1998, thus enhancing potential for imports of investment and intermediate products for this sector. Opportunities exist for U.S. suppliers of specialized machinery for processing rubber. New products which have contributed to the expansion of this industry include solid pneumatic tires, footwear and footwear components, rubber apparel and clothing. Dipped and foamed products and extruded molded products already have a solid base in Sri Lanka. The vegetable and fruit processing industry demands slicing, chopping and dicing machines while the bottled food sector requires filling machines and labeling machines. Milk pasteurization and cream separation equipment for the dairy industry and deboning machines and incinerators for the meat industry are the primary prospects for U.S. equipment in the food processing industry. Building material imports have increased 12 percent over the previous year, reflecting growth in the construction industry related to expansion of commercial infrastructure as well as real estate development. The main suppliers for machinery and mechanical appliances are India, Taiwan, Japan and EU countries.
(e) Medical Equipment
Rank of sector: 5
Name of sector: Medical equipment
ITA industry code: MED
1997 1998 1999 (in $millions) Total Market Size 24 28 32 Local Production 0 0 0 Total Exports 0 0 0 Total Imports 24 28 32 Imports from the U.S. 5 7 8 Note: The above statistics are unofficial estimates.
Sri Lanka relies completely on imports to fulfill its requirements for medical equipment. The national health care system consists of 550 government hospitals and is responsible for over 80 percent of the health care provided. The total government expenditure in the health sector was Rs.14,419 million in 1998. Capital expenditure on the health sector was Rs.4,330 million. The government has traditionally provided free health care services for immediate and major medical problems, including maternity and geriatrics care, and as a result provides the majority of in-patient services. The government is also actively encouraging the establishment of private hospitals and have provided attractive incentives such as tax concessions for investments, duty free import of medical equipment, provision of free land etc. The decision to establish a hospital in Sri Lanka by the Apollo Hospital Group of India was a significant development in 1998. Currently, the purchase of supplies for the public health system is centralized through the Health Ministry's Bio-Medical Engineering Service. Only suppliers registered with the Ministry (which invites applications for such registration on an annual basis) can participate in government tenders. Government purchasing decisions tend to be price sensitive. Japan is the single largest supplier to the market.
U.S. exports of medical equipment to Sri Lanka increased by $1 million to $7 million in 1998. Diagnostic equipment, operating theater equipment, intensive care equipment, clinical analyzers and hematology equipment continue to offer the best sales prospects for U.S. firms.
(f) Textile Fabrics
Rank of sector: 5
Name of sector: Textile Fabrics (Knitted & woven)
ITA industry code: TXF
1997 1998 1999 (in $ millions) Total Market Size 397 461 516 Local Production 17 15 16 Total Exports NA NA NA Total Imports 380 446 500 Imports from the U.S. 24 18 20 Note: The above statistics are unofficial estimates.
The garment industry is Sri Lanka's most vibrant industry. In 1998, textile and garments exports generated $2.4 billion with approximately $1.3 billion in export sales to the U.S. alone, which is 60 percent of total exports. The U.S. continued to be the major buyer of Sri Lankan textile and apparel exports, the total value of which increased by 8 percent in 1998. Local production of export-quality fabric is limited, and as a result, Sri Lanka currently imports nearly $450 million worth of fabric annually. Recently demand has been strong for yarn, gray cloth and finished cloth, particularly from the EU and Middle Eastern countries. U.S. suppliers account for only about $18 million of exports to Sri Lanka in this sector. Sri Lankan demand for textile fabrics is often driven by the specifications of foreign garment buyers, so one key to penetrating the market is to make buyers and retailers aware of and interested in specific fabrics and textile products. The elimination of import duties on textiles helped to reduce customs delays and price increases of clothing in the local market, but exposed the local textile industry to import competition. The textile and garment industry also benefited from the incentives offered in 1998, which made all intermediate and capital goods duty free. Hong Kong, South Korea, Taiwan, and India are the major exporters of textile fabric to Sri Lanka.
(g) Paper and Paper Products
Rank of sector: 6
Name of sector: Paper products
ITA industry code: PAP
1997 1998 1999 (in $ millions) Total Market Size 266 244 270 Local Production 94 79 100 Total Exports 0 0 0 Total Imports 172 165 170 Imports from the U.S. 8 5.5 7 Note: The above statistics are unofficial estimates.
The paper and paper product industry continued its good performance, owing to growing demand for printed materials, labels, exercise books, the increase in circulation of newspapers and the introduction of new magazines. The expansion of other industries increased the demand for labels, corrugated cartons and paper boxes. Most paper products showed an increase in imports. The domestic production of school notebooks increased owing to the improvement of quality as well as being lower priced than imported books. The shortage of timber supply in Sri Lanka provides good opportunities for U.S. paper product suppliers to gain entry into the local market. Imports in 1998 were $165 million. Local production of paper and pulp is limited. More than 90 percent of Sri Lanka's current requirement is imported. The U.S. share of this market is about 5 percent, with considerable potential for expansion. In spite of the existence of government-owned paper mills, Sri Lanka relies heavily on imports to fulfill the requirements of the paper and paperboard industry. Writing and printing paper, news print paper, KRFT liner board and cartons, boxes and wrapping/packing paper are some of the items which were imported on a large scale in 1997. Domestically-produced paper products such as exercise books, labels, computer paper and related items, which have enjoyed a major share of the market, face increasing competition from imports at very competitive prices. In addition, importers believe there is much scope for investment in the paper converting industry in Sri Lanka. There are a few newly-established companies manufacturing value added products such as corrugated cartons and packing materials, but this production is not sufficient to meet demand. EU countries were the main suppliers of paper and paper products to Sri Lanka.
(h) Aircraft/Aircraft parts
Rank of sector: 7
Name of sector: Aircraft/Aircraft Parts ITA industry code: AIR
1997 1998 1999 (in $ millions) Total Market Size 13 15 18 Local Production 0 0 0 Total Exports 0 0 0 Total Imports 13 15 18 Imports from the U.S. 3 3 4 Note: The above statistics are unofficial estimates. The above figures do not account for military purchases.
Aircraft will be one of the sectors that will provide a substantial market for exports to Sri Lanka. Due to the north-east conflict the military will routinely purchase aircraft including ground support fighter aircraft, transport planes and troop support helicopters. Purchasing decisions are often price sensitive, and U.S. aircraft tend to be costly; therefore, the best prospects for U.S. suppliers in this sector are likely to be for used aircraft. The key to ascertaining the needs of the military is to have in-country representation or to establish frequent contact with the military. The national carrier, Air Lanka, uses exclusively Airbus aircraft.
Two local companies provide charter operations in-country to the military as well as civilians using leased aircraft from Russia and Belgium. Another local firm is planning to start up cargo flights, and also is arranging to purchase used aircraft. These charter/cargo companies offer small-scale but viable opportunities for U.S. firms selling aircraft and parts, as well as leasing aircraft to Sri Lanka.
(i) Textile Machinery
Rank of sector: 8
Name of sector: Textile Machinery
ITA industry code: TXM
1997 1998 1999 (in $ millions) Total Market Size 55 31 30 Local Production 0 0 0 Total Exports 0 0 0 Total Imports 55 31 30 Imports from the U.S. 1 1.2 1.5 Note: The above statistics are unofficial estimates.
The Sri Lankan garment industry accounts for over 45% of industrial production and therefore plays a major role in the country's economy. The increasingly competitive global market environment will push Sri Lankan garment manufacturers to try to source more fabric locally, for cost considerations as well as to minimize lead-time for production. However, with duties being abolished for imported fabric, local manufacturers are sourcing fabric from overseas due to lower costs and reduced lead-time. This has adversely affected the local textile industry and unless measures are taken to rejuvenate the industry, it will decline further. Already, two major textile mills have suspended operations and are facing an uncertain future.
At present import levels, computer assisted pattern design and cutting and sewing equipment and technology present good opportunities for U.S. suppliers, as superior technology gives the U.S. a competitive advantage over other cheaper but inferior quality products from Taiwan, Korea and India. Total U.S. exports of textile machinery remained at the $1.2 million level in 1998.
(j) Pollution Control Equipment
Rank of sector: 10
Name of Sector: Pollution Control Technology
ITA Industry Code: POLStatistics/estimates not available
The importance of the environment and long-term effects of industrialization have been increasingly recognized in project implementation and formulation of policy in Sri Lanka. Sri Lanka has been able to establish a relatively strong legal framework to protect the environment. A major step towards reducing pollution of the environment is a law which requires all new industries to obtain a Central Environment Authority (CEA) license prior to commencing operations. This ensures that proper pollution control systems are in place prior to commencing production. Existing industries have been given a specific period to install pollution control systems. Currently, serious environmental problems exist in the areas of municipal solid waste disposal, urban air pollution, deforestation and water pollution, which require urgent attention. These are areas that provide potential for U.S. environment companies to offer products and services. There is also a good market in Sri Lanka to install and commission pollution prevention and control technology for manufacturing facilities. Many Sri Lankan companies in the environment technology business are interested in U.S. products and technology. In addition, U.S. companies should be competitive bidders for solid waste removal and disposal contracts tendered by the Government. The USAID-funded United States-Asia Environmental Partnership (US-AEP) program office in Colombo is actively promoting U.S. environmental products and services here.
|
[end of document] Note* International Copyright, United States Government, 1999. All rights under foreign copyright laws are reserved. All portions of this publication are protected against any type or form of reproduction, communications to the public and the preparation of adaptations, arrangement and alterations outside the United States. U. S. copyright is not asserted under the U.S. Copyright Law, Title 17, United States Code.
Next Chapter | Table of Contents
|
