Trade Tip Tuesday (3rd August) – Covid-19 related trade-restrictive measures are being eased by most countries, except in Sri Lanka.

A majority of trade-restrictive measures taken by countries in response to the Covid-19 pandemic have been rolled back as at May 2021, according to the latest ‘Trade Policy Review’ by the WTO Director General. This is a revealing insight at a time when Sri Lanka continues with trade-restrictive measures undertaken since March last year.

Since the outbreak of the pandemic, 384 COVID-19-related trade measures with regard to goods (merchandise) trade have been implemented by WTO members, of which 248 (65%) were trade-facilitating in nature and 136 (35%) were considered trade restrictive. The majority of trade measures by countries were restrictions on exports (around 84%) (and specifically relating to the health sector – medical equipment and health-related items), unlike in Sri Lanka where the majority of trade measures were restrictions on imports (and were largely across the board than specifically in a sector).

The reduction or elimination of import tariffs and import taxes accounted for 60% of trade-facilitating measures taken, and several countries reduced tariffs on goods such as personal protective equipment (PPE), sanitizers, disinfectants, medical equipment and medicines/drugs.

Many of the trade measures taken by countries during the pandemic are now being rolled back. As of mid-May 2021, around 21% of COVID-19 trade-facilitating measures and 54% of the COVID-19 trade-restrictive measures had been terminated, suggesting a faster normalizing of trade policies by most countries. Sri Lanka, however, continues to maintain most of the trade restrictions (on imports) introduced at the onset of the pandemic and associated economic troubles and balance of payments constraints, while continuing to make frequent changes by way of gazettes and notifications by the Customs and the Department of Import and Export Control.

TRADE TIP TUESDAY (27th July) – Rising freight rates affecting South Asia; squeezing smaller exporters

Tight container capacity and hikes in long-haul freight rates are becoming a defining feature of trade in 2021 so far. While earlier it seemed to be more concentrated on the East Asia-US routes, it is now beginning to pinch in South Asia too, according to latest insights. Hapag-Lloyd has announced a General Rate Increase (GRI) of $1,200/twenty-foot equivalent unit and $1,500/forty-foot-equivalent unit for all shipments from the Indian subcontinent to the US and Canada, from August 15. While larger exporters with better margins might be able to withstand the hikes, smaller exporters are being squeezed. Already there are instances where smaller exporters are postponing shipments as the cost of freight is exceeding production costs, making shipping unviable. As noted by a maritime expert,

Rising freight costs over the last year due to shortage of shipping containers have reportedly had a detrimental impact on small and medium-sized exporters. Drewry’s Composite World Container Index — a global index for container spot market freight rates on all major routes — peaked at $6,727, up by over 300 per cent since the emergence of the pandemic in December 2019. Drip Capital, a California-based digital trade finance , in its analysis on the global shipping crisis has stated that small and medium businesses globally account for more than 25 per cent share of the $18 trillion maritime trade.

– Jose Paul, ‘Global trade runs into choppy waters’, Hindubusinessline

TRADE TIP TUESDAY (13th July): ‘Back to Normal’ Signs of US Economy, Positive for SL Exports

A new index by Moody’s Analytics and CNN provide a quick and useful snapshot of the economic recovery in the US – one of the most important economies for Sri Lanka from an export market perspective. The index, called the ‘Back to Normal Index’ measures the recovery in economic activity today, from a baseline of 100 in March 2020, at the onset of the pandemic. It also gives this data across states. Below is the latest picture, as at 7th July (bear in mind that economic activity was muted during the July 4th national holiday weekend). Economic activity is at 91% of the baseline, and all states are above 80% (and most are above 90%). Jobless claims (those continuously filing for two weeks) has been on a secular downward trajectory and has now plateaued just above the pre-pandemic mark. Job postings – based on LinkedIn data – are now sharply up, signaling that businesses are hiring and expanding.

This matters for Sri Lanka’s exports. The US economy accounts for over 22% of Sri Lanka’s total exports, and has been a steady market through the years. Especially in key export categories like apparels (nearly 70% of exports to US), as well as rubber products, tea and process food and beverages.

TRADE TIP TUESDAY (29th June): The recovery of ‘dining out’ in advanced markets bodes well for SL exports

I’ve been looking for alternative data points that signal economic recovery and activity normalization in key advanced markets, especially those that matter for Sri Lanka (US, UK, EU). One such data source is from OpenTable, an online platform for restaurant reservations. They have a great ‘state of the industry’ data set, which tracks seated dining in the seven countries they operate in.

The chart below shows the recovery in seated dining in these markets, a useful proxy for the normalization of economic activity (as opposed to delivery/take-out during the pandemic).When consumers start dining out, it will drive consumption demand in segments that matter for Sri Lanka’s exports – from tea and spices, to processed food and beverages and seafood.

It is also expected that price margins will recover as dining increases, unlike in a lockdown environment where consumers would access products only through grocery delivery and prices would be tight.

Sri Lankan seafood exporters have told me that they faced this very phenomenon – while demand for seafood remained buoyant during 2020 despite the lockdowns in key markets, prices were under a lot of pressure.

Moreover, when people start dining out it can also drive apparel demand as people get out of their pajamas and start buying other fashion – this is good news for Sri Lankan apparel exports. Already other data points show that American shoppers are buying more ‘going out clothes’. Chains like H&M, Anthropologie and Macy’s are seeing a surge in demand (18% up YoY), especially for dresses upwards of US$ 150.

the full OpenTable dataset is available here – https://www.opentable.com/state-of-industry

Low Interest Rates Are Driving Property Demand

While a low interest rate regime helps MSMEs get cheaper credit to weather the Covid crisis, it also drives higher income folks looking for better investment options to invest in the property market. The latest CBSL condominium survey provides some interesting insights on one part of the property market – apartments/condominiums.

In Q1 2021, a much higher share of people bought apartments for ‘investment purposes’ (not ‘immediate living’ or ‘future living’) than the previous quarter or a year earlier. Buying for rent has fallen off significantly.

And the share of those using ‘own funds’ for purchases fell, while ‘bank loans’ increased. According to the latest survey, the “prevailing low interest environment, as well as the increased supply of comparatively affordable condominium projects beyond the city limits of Colombo have led to the increased number of transactions during the period”. Most interestingly, the segment to see the most growth this year, compared to last year, is condominiums outside Colombo – in Gampaha and Kalutara.

Full survey is here – https://www.cbsl.gov.lk/sites/default/files/cbslweb_documents/statistics/condominium_market_survey_2021_q1.pdf

European Approaches to Digital Transformation – Reflections from a German Study Visit

In 2019 I was invited by the German FNF to attend a visiting program on ‘Digital Transformation and ICT-centric Innovation’ with other South Asians in Berlin and Munich. I recently came across some notes from the visit, and thought of sharing some extracts of these on the blog. 

• There are challenges faced in German society when it comes to driving digital entrepreneurship. While German young people are happy to consume the latest in technology like Netflix and Instagram, the momentum for entrepreneurship and starting own digital-based businesses is still at a nascent stage. 

• There is a growing acknowledgement among German experts that digital transformation is not just about technical possibilities and applications, but also about a vision for what you want the future to be with digital – society, education, political representation/participation. 

• A German academic in Management Sciences, Maria-Christina Nimmerfroh provided a useful framework for thinking about the aspects that have to go together in order to create digital transformation in a society
  • Economic framework and profitability
  • Technical possibilities (e.g.internet access and speeds)
  • Legal framework (national or European)
  • Needs and demands of individuals (e.g. autonomous driving and mobility – all aspects above may be met but without the demand by individuals, it won’t work)
  • Individual skills
  • Acceptance (society and individuals) – again example of autonomous driving. Also it’s more about collective acceptance, i.e., you can have the individual demand or need, but might not have the wider acceptance of society.

• A reflection from interactions with fellow Souh Asian participants was that in our countries we cannot simply rely on fully digitized end-to-end technology solutions (in considering inclusive usage), we need to consider ‘assisted technology’. What this means is a mix between online and offline, mix between using digital platforms and grass roots level individuals helping users leverage on the platforms. 

• We looked at the importance (for firm- and policy-level decision making) of differentiating between process digitization versus process digitalization. While the former is simply going from analog to digital, the latter is converting old processes into processes that are more efficient and productive, profitable, and greater customer satisfaction of the digital and physical experience with a company. Meanwhile, digital transformation involves doing things completely differently, creating new business designs by using digital technologies, changing the value chain and creating new supply of products and services, or creating a business model that cannot exist without digital.

• Several meetings provided fresh perspectives on new areas, for instance the role of digital technology in the trade-off between liberty and security; the role of education to promote how to access and evaluate information; and education on tolerance; regulating without stifling innovation; digital transformation and disruption but in a ‘socially responsible’ way; digital privacy; and the need to invest more in cybersecurity skills and systems.

• Meetings at the Humbolt Institute for Internet and Society were especially rewarding given the evidence-based insights they were able to share with us. I plan on engaging with some of the researchers there to explore collaborative work possibilities, with a focus on Sri Lanka and/or South Asia. Their work on innovation, entrepreneurship and society is of particular interest.

• It was interesting to hear from resource persons about Germany’s, and Europe’s, approach towards digitalization – almost a ‘new European approach and values’ for digitalization – one that respects individual rights, respects data sovereignty, pays taxes in the country where revenue is generated, etc., which is distinct from what is seen in other ecosystems like the US.

• An interesting realization was that even though Germany is known for tight financial sector regulation, there is a burgeoning Fintech startup ecosystem. There’s a lot of collaboration among bigger banks and fintechs in Germany, and the reason for this is that in a highly regulated environment, bank and older school partners feel more comfortable to engage with Fintechs because they know it has gone/will go through a rigorous system. But also, Berlin-based Fintechs have also succeeded in skirting around the margins of regulation, to explore new business possibilities. 

• The visit to the Bavarian BioTech Cluster BioM was particularly informative, in light of Sri Lanka’s own attempts to create a Biotech Park in Horana (alongside the the SLINTEC Nanotech Park). The role of the Government in catalyzing innovation in life sciences was unique and bore many useful lessons for creating similar ecosystems in South Asia. 

• Another overall takeaway was the different ways in which the German Government supports and engages in the digital ecosystem – both directly and indirectly. There were many examples of how the German public sector doesn’t attempt to do things itself, but finds capable partners in the private sector, universities, and other institutions to implement it with state funding, in order to have better impact. One area we weren’t able to discuss much, however, was on how to measure the efficacy of public funding that goes towards entrepreneurship support and accelerating digital transformation – something that at the Ministry of Development Strategies and International Trade we initiated with the World Bank (a ‘public expenditure review’), as part of the implementation of the National Innovation and Entrepreneurship Strategy.

TRADE TIP TUESDAY (22nd June) – Asia’s Impressive Export Recovery, Shipping Shortages, Positive PMI, and Sri Lanka’s Export Prospects

– With the expansion in economic activity, Asia’s exports to the US and Western Europe have soared in recent months, with countries across ASEAN like Vietnam, Singapore, Malaysia, Philippines seeing strong export growth in electronics, consumer, and other non-oil sectors. Vietnam grew its exports by 30% YoY during Jan-Apr,

– This has also created bottlenecks for shipping due to container shortages, and consequently caused a spike in freight rates on key Asian routes. Average US East Coast-Asia container freight rate are up by over 50%. This is due to the spike in demand but also some slowdowns in key ports in China, due to Covid-19 cluster outbreaks and tight health control measures. It is expected to remain high through Q3.

– Sri Lankan exporters will have to face these higher freight rates, even as margins in key exports like apparel have become quite tight. Sri Lanka’s apparel competitors have now picked up production and regaining orders, at a time when SL’s own production is affected by lockdowns and a third-wave of infections. The competitors coming back on stream are also being more aggressive on pricing, in order to win back business they lost over the last year.

– Exports in April showed an uptick YoY to reach US$ 818Mn (mainly due to the base effect of the total lockdown in April last year). Monthly export earnings remain buoyant and resilient, but well below the average US$1bn per month that was regularly seen since 2018 up to the pandemic.

– Global economic prospects – and in turn Sri Lanka’s export prospects – remain positive for the rest of the year, with the IHS Markit PPMI showing a strong uptick (see image). PMI (Purchasing Manager’s Index) is a forward-looking outlook that indicates whether firms are expecting expansions or contractions in their businesses.

– Unless Sri Lanka focuses on factors affecting export competitiveness, we will fall behind in the recovery and not ride the recovery wave as strong as other Asian countries will, and already are. In this, the current import protection regime and hyper-regulated stance needs urgent revision, as imports matter for exports.

Impacts of Economic Downturns in Sri Lanka: Can TRC Data Give Us Interesting Clues?

Sri Lanka has had 3 successive years of economic shocks – the Easter Sunday attacks in April 2019, nearly exactly a year later the onset of the Covid-19 pandemic, and then a year after that the outbreak of the deadly third wave of Covid-19. It is not surprising that the economic impacts on households and firms have been sharp. While there is no ‘one stop shop’ piece of information on the impacts – a survey or research report – there are plenty of reports that capture/analyze different aspects of it, everything from the CBSL Annual Report of 2019 and 2020, IPS State of the Economy 2020, the CCC-USAID survey on trade impacts, and the IFC survey on employment impacts. Yet, I am yet to see any analysis that used telco data to get a sense of the impacts – not necessarily to quantify the impacts, but rather to give us a clue/hint/additional perspective of the impacts.

While checking the Telecommunications Regulatory Commission (TRC) public releases for a different piece of work, I came across their monthly statistical updates providing key industry numbers. I became curious about a few data points and whether they could provide a different dimension/additional corroboration of the economic impacts of the multi-year economic downturn Sri Lanka has now been in.

Take for instance the mobile subscriber numbers. Between December 2009 and March 2019, the number of mobile subscribers (essentially, SIMs) increased from 11.1 Mn to 32.6 Mn – a near 3x increase in just over 9 years. It went from 69 mobile connections per 100 people to 150 per 100 people, with many folks having dual SIM phones, and also using multiple pre-paid SIMs – common dynamic SIM usage behaviour seen in developing markets. Yet, by December that year, mobile subscriptions had grown only very modestly to 32.89 Mn. How do we know it was modest? Well, in the period referenced earlier (111 months, between Dec 2009-March 2019), an average of 193,700 new mobiles subscriptions were added every month. But in the months immediately after the Easter Sunday attacks, between April to December 2019, only 32,200 new subscriptions were added every month. So, we see a structural break after April 2019.

By end March 2020 and the onset of the pandemic and the first harsh curfew, mobile subscribers stood at 31.9 Mn – more than 1 million fewer than just three months prior. This means that each month around 336,000 mobile subscribers were being shed – for the first time in recent history. Fast forward to where we are today. The latest data – for March 2021 – suggest total mobile subscribers are at 29.2 Mn. This means that in two years, Sri Lanka had a 3.4 Mn decline in mobile subscribers.

I am not a telco market expert, so I spoke to a few friends in the industry, in a couple of different operators, to get some interpretation. There could be several factors driving subscriber/SIM behavior. During a pandemic and lockdowns, pre-paid customers find it extremely difficult to access mobile top up services (‘reload’) – at local corner stores, communication shops, and operators’ own outlets. Familiarity and willingness to use online top up options is very low. Additionally, it often requires using a credit or debit card – which most pre-paid customers may not have. Many of those I spoke to acknowledged that the reduction in subscribers certainly does indicate that users that may have had multiple SIMs may have given these up as they are unable to top up several, and instead focussed on 1 or 2. Given the impact on the tourism sector, it could be that tourism sector informal players that maintained multiple devices with multiple connections, began to cut down. What I was unable to find out (yet) was 1) at what point does a subscriber get ‘removed’ from an operators database as being considered as a subscriber (I believe this varies by operator – some have 90 days, some have 120 days, etc) and 2) what the reporting basis for TRC is, since this data is compiled by the TRC based on the numbers that operators send to them.

Going beyond the national aggregates, I wanted to check for any regional disparities/geographical differences. This could give an indication of where the changes happened more sharply than others. The TRC’s monthly reports from a couple of years ago have started to report the ‘Provincial Distribution of Mobile Cellular Phones’ (typically the last page, in a SL map). Sense check: Although the title indicated ‘mobile cellular phones’ and not ‘mobile subscribers’, a bit of cross checking of the numbers showed that this indeed was the same as mobile subscribers.

So, what does the province-wise analysis reveal? In the two-year period between December 2018 and December 2020 (the latest available), the Eastern Province saw the sharpest percentage fall in mobile subscribers of 15.8%, and the Uva Province the smallest of 6%, from among the nine provinces. The Western Province saw a decline of 13.4% (60,416 each month), the Southern Province saw a decline of 12.8% (20,416 each month), the Northern Province saw a 13.7% decline (8,750 each month) and the central province a 9.9% decline (15,41 each month). It was interesting to see that, after the Western Province, the second monthly decline in absolute terms was from the Southern Province. This could possibly be due to the high dependence on the tourism sector there, and the deep impacts of the successive shocks during the two years.

I also thought of looking at how the average monthly decline stacked up against the total subscribers at the start of the period – a ratio, sort of a measure of ‘decline intensity’. Higher the ratio (closer to 1) stronger the intensity. This was sharpest in the Eastern Province at 0.66, followed by the Northern Province at 0.57, Western Province at 0.55, Southern Province at 0.53, and North Central Province at 0.48. The lowest ‘decline intensity’ was the Uva Province at 0.25.

Another set of numbers that I thought would be interesting to look at are the monthly traffic generation and termination data. In this, I thought of looking particularly at the international incoming and outgoing call duration data, as a possible proxy for Sri Lanka’s international business activity like trade, exports, and tourism. There is an implicit assumptions being made here – that the majority of household/personal/family and friends overseas calls is more likely to be on data/VoIP rather than voice, and its likely that the majority of voice calls still being made is by business. So, aside from the general steady reduction in international incoming and outgoing voice calls anyway (with the increasing use of data/VoIP – WhatsApp, Viber, Telegram, Skype, etc), there has been a sharper decline following the onset of the pandemic. Monthly outgoing international calls went from an average of 13-13.5 Million minutes during 2019 and early 2020, to sharply dropping to 10.8 Mn by June 2020, and 6.7 Mn by September 2020. This is explained not just by the likely drop in business activity, but probably more by the fact that with most firms deploying work-from-home (WFH) practices, employees did not have access to their office phones for international voice calls, and used their personal phones to call internationally using data services instead. Interestingly, international voice calls had picked back up to 7.2 Mn by March 2021, with firms shifting back to working in offices, and presumably the temporary recovery in business activity). (By the way, international incoming calls follow more or less a similar trend). The next few months would be interesting to see – with the third wave and impacts on business activity and work from home, how will the numbers change?

I think its important to look at these TRC numbers alongside some other numbers to see what it adds to the picture. Operator-specific data is hard to come by, and we only have Dialog Axiata releasing comprehensive data in annual reports and quarterly financials as they are listed on CSE (and some insights on Mobitel, because SLT is also listed). Dialog’s latest financials show that Average Revenue Per User (ARPU) has fallen from a high of LKR 390 in Q1 2019 to LKR 364 by Q1 2021.

Having said all this though, the ‘data usage’ numbers certainly suggest rising usage overall. Monthly broadband data usage (compiled by the Central Bank from four operators), which had been growing steadily from 60 Million Gigabytes in January 2019 to 90 million in February 2020, reached a peak of 120 million Gigabytes in April 2020 as Sri Lanka went into its first lockdown. Data usage since then has risen and fallen alongside Government imposition of lockdowns, to reach 150 million GB by December 2020. Year-on-year growth in broadband data usage stood at 80% by end 2020. 

Dialog’s data usage per subscriber per month topped 8.2 GB in 1Q 2021, from 3.3 GB in the same period three years ago. And overall, revenue is up. Dialog registered a strong 12.3% YoY rise in revenue in Q1 2021 to LKR 32.85 bn. Mobitel’s revenues in Q1 2021 rose 8.1% YoY to LKR 11.6bn. 

What we can’t tell from all these data usage numbers is any level of disaggregated by income/socio-economic group, by occupation type, and geographical location.

In summary, looking at the TRC data was interesting. I don’t know what major conclusions can be drawn from it. While the findings are not conjecture, they are not conclusive either. It just provided someone curious with an additional way of exploring the economic impacts of recent downturns. I will keep talking to folks in the telco sector to dissect this dat further, and understand the dynamics a bit more to see if more curious conclusion could be drawn. No doubt, the micro-data that telcos have would provide much richer insights, with all sorts of analytical ad research possibilities. I hope that the government and/or think tanks partner with them to conduct these; it could potentially inform policy making around Covid-19 relief, stimulus and recovery efforts.

image caption: A pre-paid mobile customer gets a ‘reload’ at a corner communications shop in Mutwal, Colombo, Sri Lanka. Copyright – Anushka Wijesinha, 2016

Update 1 (17/06) – some operator-specific data and CBSL data on broadband usage.