Opening Up Opportunities for SMEs in the Government Supplies Market (‘Smart Future’ Article #7)

This article originally appears in the ‘Smart Future’ column of Daily Mirror Business on Wednesday 25th March

During the half way mark on a recent flight from Colombo to Jaffna on Helitours, the passengers were given a packet of wet wipes (refresher tissues) along with the snack box. I flipped the back to see who had produced the tissues and I was disappointed to see that they were imported from a Chinese wet wipes manufacturer. While I’m sure the supplier offers an attractive price point, I couldn’t help but wonder why a government operation couldn’t support a Sri Lankan small enterprise to supply this item, despite continued rhetoric by successive governments on the desire to support the Small and Medium Enterprise (SME) sector. For the longest time, the support to SMEs by the government and donors writ large has been focussed too narrowly on the issue of access to finance. While this is a critical aspect of SME growth, too much of a focus on it overlooks other paths to SME development, including opportunities in the government supplies market.

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The $1 trillion Global Health Food Market Offers New Opportunities for Sri Lankan SMEs (‘Smart Future’ Article #6)

This article is the 6th in the ‘Smart Future’ series, and originally appears in the Daily Mirror Business of 18th March 2015

 

Globally, consumer trends towards healthy and more natural foods are beginning to offer lucrative new markets for producers. The global healthy foods market set to hit $1 trillion by 2017, according to industry forecasts. The World Consumer Rights Day 2015, marked this weekend (15th March), was on the theme of ‘Healthy Diets’, and it is interesting to look at how the heightened focus on eating healthier and ‘eating natural’ is influencing the emergence of new opportunities for products that cater to these shifting preferences.

Concerned Consumers

Consumers are increasingly concerned about foods that have been treated with antibiotics or hormones, produce that has had heavy application of poisonous chemical fertilisers, pesticides and weedicides, and foods that contain artificial ingredients including numerous ‘E-number’ preservatives. There’s also a heightened consciousness around the health consequences of transfats, which are in hydrogenated vegetable oils used in many processed foods. All these have stimulated demand for healthier foods, to accompany healthier lifestyles.

A big driving force of the changes in consumer preferences around food, globally but particularly in the West, is the demographic shift that is taking place. Both the large ‘baby boomer’ cohort of the population and the growing ‘millennial’ generation are, for different reasons, undergoing a serious rethink of their health and dietary choices. The baby boomers are looking to extend their youthfulness and vigor as they age, and the millennials are keen to be smarter about what they eat and how it is grown or made.

Growing Trend, Lucrative Market

According to the ‘Global Health and Wellness Survey’ by market research firm Nielsen, half of all consumers that were surveyed around the world say they are actively trying to lose weight, and 75% of them said they plan to achieve that goal by changing their diet. Over the last two years, Nielsen found that foods that are ‘all natural’ (43%), made from fruits/vegetables (40%) and ‘organic’ (33%) were among the most favored preferences among global consumers. This presents a huge new market opportunity.

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Over the last five years, the consumer segments of ‘organic beverages’, ‘organic packaged food’, and ‘naturally healthy’ each grew at over 6%. In the US alone, sales of natural, organic and ‘better-for-you’ products grew at close to 8%. Interestingly, though, this trend is seen not only in Western markets. Much of the recent growth (between 2012-2014) in the healthy food category has been driven by demand from developing countries. Over this period, demand from the Middle East grew at 20%, in Latin America at 16% and in Asia Pacific at 15%. The growing middle class in these regions, particularly in Asia, affords more and more people the space to be more ‘picky’ about their food choices.

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The Global Trend Towards Healthy Diets Can Bring Healthy Profits for Sri Lankan Producers

As the world marks this year’s Consumer Rights Day today on the theme of ‘Healthy Diets’, the global consumer trends around health and natural foods offer lucrative new markets.

The increase in awareness on healthy diets and demand for health and wellness food products globally opens a great opportunity for producers from Sri Lanka. With a heritage of  natural and ayurveda products, we should be well placed to cater to this growing consumer segment. A segment that values authenticity and ‘all-natural’.

 

The global healthy foods market is set to hit $ 1 trillion by 2017. This presents a huge new market opportunity for early movers. According to the ‘Global Health and Wellness Survey’ by market research firm Nielsen, 50% of consumers around the world say they are actively trying to lose weight, and 75% of them said they plan to achieve that goal by changing their diet. Much of the recent growth (2012-2014) in the healthy food category is coming from developing countries; in the Middle East (20% growth), Latin America (16%) and Asia Pacific (15%). Sri Lanka must tap into these markets, and maybe new FTAs with ASEAN in Asia and Brazil in LatAm can help boost this market access.

 

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Over the last two years, Nielsen found that foods that are ‘all natural’ (43%), made from fruits/vegetables (40%) and ‘organic’ (33%) were among the most favored preferences among global consumers. Sales of products classified as  “natural” and “organic” grew 24% and 28%, respectively, during this period. The same goes for the rising demand for pharmaceuticals and nutraceuticals that use more natural ingredients and reduce (or eliminate) the use of chemical compounds.

 

Already, new producers are emerging among the SMEs sector, catering to this trend, locally. A great example is The Good Market, operating twice a week in two locations in the city, and now with a outlet store as well. In just 2 years it has become the launching pad for many of Sri Lanka’s small entrepreneurs who embody the natural foods ethos and a marketplace for them to reach out to conscious consumers . Many of the small producers (SMEs) that started off as market stalls have now gone grown up.  Saaraketha, the leading organic foods retailer, recently opened its first physical store. These are examples of new enterprise opportunities for SMEs emerging from the new awareness around healthy diets, and is certainly an area to push even in the global market. Time for institutions like the EDB to embrace these new trends, and help product categories breach international markets, beyond our traditional ones that are struggling to maintain market share and margins.

Shri Narendra Modi’s Address to the Private Sector in Colombo

Sri Lanka has the potential to be India’s strongest economic partner in this region, asserted visiting Indian Prime Minister Narendra Modi in a special speech to a packed audience comprising of the Indian and Sri Lankan private sector in Colombo on Friday. He opened by remarking that “no matter how far back our relationship dates, it is continued economic cooperation that will be the locomotive that drives this forward”.

His brief speech covered all the key areas of Indo-Lanka economic relations, including a committment to expand bilateral trade while ensuring concerns of Sri Lankan stakeholders are addressed; making stronger efforts to ease trade barriers; helping to overcome the large trade imbalance; and cooperating on mutually beneficial ‘ocean economy’ initiatives. He wished for both countries to be “more open to each other” and enhance travel and tourism connectivity. The new direct flights between the two capitals to be launched by Air India shortly, together with the visa on arrival facility for Sri Lankans travelling to India, both agreements inked during this visit, will no doubt go a long way in achieving this enhanced connectivity. Interestingly, he didn’t mention “CEPA” anywhere in his speech, although he alluded to cooperation on all the areas that usually make up a Comprehensive Economic Partnership – trade, investment, ideas, people.

I managed to make an audio recording  of his full speech (except for about a minute at the very beginning).

 

(image courtesy Indian Press Informatjon Bureau http://pib.nic.in/)

To Truly Overcome the SME Finance Challenge, Lets Look Beyond the ‘Quick Fix’ of Special Loan Schemes (‘Smart Future’ Article #5)

This is the 5th article in the ‘Smart Future’ column, originally published in the Daily Mirror Business of Wednesday 11th March.

 

With their wide geographical spread within a country as well as their wide sectoral coverage, SMEs are often an important source of inclusive economic growth and job creation. But Sri Lanka’s SMEs have not made great progress in recent years. Although in terms of the number of industrial establishments nearly 95% are small and medium-sized, these only contribute about one-fourth in value added and a third in employment. While it certainly isn’t the only factor, the ability of SMEs to access and manage finance does determine their ability to develop, grow, sustain and stay resilient in a competitive economy. Yet, despite rounds and rounds of special SME loan schemes over the past several years, SMEs still struggle with tapping bank finance. Half of all respondents in a recent survey by IPS and the National Chamber of Commerce reported access to finance as ‘the most significant constraint’ in growing their business. This echoes other studies (IFC Banking Survey, World Bank Enterprise Surveys, for example) that have reported similar results in the past.

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What is unfortunate is that its been over twelve years since the path-breaking ‘SME White Paper’ (2002) clearly articulated what needs to be done to grow Sri Lanka’s SME sector, and pointed to several important areas in access to finance that need to be tackled. Yet, little real progress has been made. SMEs and banks continue to make the same complaints about each other. And neither donors nor successive governments have been very imaginative in their interventions to address them. They keep turning to what they believe is the ‘quick fix’ option – concessionary loan schemes.

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Sri Lanka Must Leverage its Diaspora for Development, But It’s More than Just the Money (‘Smart Future’ Article #4)

This is the 4th article in the ‘Smart Future’ column originally published in the Daily Mirror Business on Wednesdays.

Sri Lanka has struggled with engaging its diaspora. The protracted conflict polarized diaspora communities abroad and created negative perceptions at home. Yet, a conference held last week attempted to reverse this. Titled ‘Our Sri Lanka: Engaging Persons of Sri Lankan Origin Overseas’ the Consortium of Humanitarian Agencies (CHA) and International Alert brought together inspiring and committed individuals from the UK who are demonstrating how diaspora communities are already positively engaging with Sri Lanka. Over the two-day conference, I shared some thoughts on diaspora engagement, anchored to a draft paper titled ‘Leveraging the Diaspora for Investment and Knowledge in Sri Lanka: Challenges and Policy Options’ I co-authored with a member of the Sri Lankan diaspora community in Canada. Interestingly, she was part of a successful diaspora engagement initiative called the LankaCorps Fellowship (The Asia Foundation). While there is much debate on what constitutes “the diaspora”, here is it taken to generally mean persons of Sri Lankan origin who are living overseas, regardless of when they went or how long they’ve been away for.

 

Unpacking the Motives for Engagement

 

Diaspora groups are not homogenous. They not only vary in terms of their ethnicity, religion, and political views, but also in their interests in and motives for engaging with Sri Lanka. According to the literature, motives forpeople map engagement are classified as financial, social, and emotional (or sentimental); sometimes these motives overlap no doubt. The paper revealed a few key findings that are interesting in this regard. Firstly, those born in Sri Lanka have a greater frequency of re-visiting and 77% of them are likely to return on a visit or short stay at least once every five years. Secondly, of those who do engage with Sri Lanka 50% said they do so purely due to sentimental connections; a further 21% for philanthropic reasons; and 11% for social recognition of their efforts. Only 14% said they do so for financial gains. Thirdly, engagement in terms of ‘sending money to friends and family’ and ‘donating to charities’ are the most popular forms of engagement among the 45-64 age-group, but the highest proportion of those who ‘donated professional time to a Sri Lankan institution’ were among the 25-44 age-group. So, when devising policy approaches for diaspora engagement, we must be acutely aware of such heterogeneity in motives; it has implications for the success or failure of any programme.

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Future of Sri Lanka’s Apparel Exports to the US: Losing To Vietnam Or Winning with Innovation? (‘Smart Future’ Article #3)

This article originally appears in the Daily Mirror Business paper of 25th February 2015, and is the 3rd in the ‘Smart Future’ series.

In recent years, Sri Lanka has not been as serious and aggressive about forging trade agreements as many of its competitors. As global agreements like the Doha Development Agenda have stalled, many countries have resorted to signing bilateral and regional free trade agreements to expand the market for their exports. In this, the Trans-Pacific Partnership – commonly known as ‘TPP’ – stands out for its mega-regional nature. The TPP is led by the USA and brings together 12 pacific-rim countries (Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the US and Vietnam) covering over 40% of global GDP. Parties to the TPP stand to gain through greater duty-free access to the US market, while others who are not parties to it but still depend on the US – like Sri Lanka and Bangladesh – stand to lose. This was the gist of a report by Standard Chartered Bank released last month. The report – ‘Trans-Pacific Partnership (TPP): Winners and Losers’ – focused particularly on the apparel sector and argued that the TPP will make Sri Lanka’s apparel exports to the US less competitive compared to Vietnam’s. This has big implications for Sri Lanka, as the US is the largest single-country market for our apparel exports, accounting for over 40%.

 

TPP Risk to Sri Lanka

 

Smart Future Article 3 IMAGEThe size of the loss to countries like Sri Lanka and the gain for Vietnam is contingent on how the Rules Of Origin (ROO) regime is drawn up, and this is still being discussed. A flexible ROO regime would require that only the ‘assembly of the final product’ be done in a TPP country in order to gain preferential access to the US market. Under this scenario, Vietnam’s market share in apparel exports to the US by 2024 could rise to about 11% from the current 4%. This would result in Vietnam’s apparel exports coming close to US$ 115 billion, overtaking Bangladesh to become the largest emerging market apparel supplier after China. According to the SCB analysis – Sri Lanka’s share could decline to 0.8% from the current 1%, equivalent to around US$ 2 billion. The report argued that, “To cushion against the negative impact of the TPP, Sri Lanka’s apparel industry will have to continually move up the value chain with respect to its product offering. Investment in the latest technology and know-how and continued training and up-skilling could help achieve this”. Yet, the report was optimistic about our capabilities, and observed, “Sri Lanka outperforms Vietnam and Bangladesh across a range of metrics that measure value addition and quality”. Sri Lanka was ranked an impressive 3rd out of 14 countries for capacity for innovation, mainly due to skills (Vietnam: 11th), 2nd for high supplier quality (Vietnam: 10th), but 9th for sophistication of the production process (Vietnam: 13th).

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‘Speakonomics with The Curionomist’ 1: Today – “GAME THEORY”

For a while now I’ve wanted to have a special segment on this blog that picks out a key jargon-y word or phrase in economics from time to time and help to unpack it, and advance the knowledge on it among non-economists. So, welcome to ‘Speakonomics with The Curionomist’!. You’ll see me posting these from time to time. The first one is on Game Theory. A concept I first learnt in my first year of an economics undergraduate, in a microeconomics module. I later went on to learn a little more about it in the context of decision making around wage setting at the firm level, in Labour Economics. So why did I think of Game Theory this week? This week was a tough week for Greece, as it attempted to play a game with Eurozone authorities and try to postpone its debt commitments in exchange for very weak conditionalities on austerity and other reforms. And interestingly, the new rockstar Greek Finance Minister is a student of Game Theory and has written books on it! While of course he claims that he won’t use such stratagem in his discussions with European authorities and creditors, I’m sure his awareness of game theory-based decision making does come in handy when warding off demands of belt-tightening from one group and demands of cancelling austerity on the other.

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So, what is Game Theory? A lot of definitions exist, but they all point to the same idea. Its the mathematical study of decision-making, of conflict and strategy in social situations. It’s also been described as an “analysis of strategies for dealing with competitive situations where the outcome of a participant’s choice of action depends critically on the actions of other participants.”

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