Sugath Kulatunga Director General EDB 1979 to 1987

It is very encouraging that all political leaders are today admitting that the only way to resolve the economic crisis is to increase exports. It is a national tragedy that the same politicians did not actively support the export drive launched by the Export Development Board (EDB) from 1979.  The Export Development Act provided for an independent FUND to meet the the comprehensive export incentives and assistance programs of the EDB. Among them were the assistance for product development and marketing and financial incentives for increase in export performance. The FUND could also act as a venture capital facility by acquiring shares in pioneering export ventures and providing subsidized loans.

The Fund was intended to have the independence and the capacity to meet the demands of the export drive. This was ensured by providing in the EDB ACT Section 14 (1) for a CESS on imports and exports.

By Sub Section 14 (5) it was required that the proceeds of the cess recovered under this section shall be paid monthly by the Principal Collector of Customs to the credit of the EDB Fund.

But on the insistence of the Ministry of Finance the Principal Collector violated this provision and remitted the cess collection in full to the Treasury.

The Minister of Trade lamented in 2020 that the Treasury had collected during the last10 years over 4000 billion rupees in cess payments but released to the EDB only a mere Rs 400 million which is just 10 percent of the cess collection. In September 2020 he requested the President and the Cabinet, that the CESS tax on exports, should be utilized for the promotion of entrepreneurs. Although the entire CESS tax revenue should be moved to the EDB as per the Act, it did not happen. Therefore, he proposed that at least half of the revenue be taken by the Treasury and the other half used to promote entrepreneurs through the EDB. An aberrant situation developed where the Treasury exercise financial control of the EDB by doling out small amounts of money where the Secretary to the Treasury is a member of the EDB Board.

But this has not happened and the EDB is starved of funds for supporting exporters and undertaking any innovative programs for diversification of the export base. In addition, a Chairman of the EDB who had no vision on export development did away with the specialized unit (Project Division) which was responsible for assisting in the formulation and approval of new projects and venture capital facility. He confined the EDB to the traditional function of trade promotion.

Meanwhile President RW in as Prime Minister in a Message in National Export Strategy ( 2018 said that He is confident that the National Export Strategy (NES) will provide Sri Lanka with the impetus and guidance to realise the country’s potential and drive the nation towards achieving the target of USD 28 billion in export earnings by the year 2022”.

This pie in the sky projection was made on an NES which was mainly an academic exercise based on Trade Statistics of the International Trade Centre. It was confined to market-based information ignoring resource base potential. Even on markets better UpToDate and refined information could have been obtained from our embassies and commercial representative who should have been active participants of the NES.  

With the intervention of the IMF the trade policies change according to their prime objective of trade liberalization the EDB Cess is due to dissipate in a few years. Sri Lanka Govt, in their Letter of Intent addressed to the IFM has said clearly that under

Advancing Growth-Enhancing Structural Reforms

We are fully committed to trade liberalization, which is critical for attracting investment and

boosting productivity growth. We have adopted regulations to rationalize the para-tariffs and will carefully implement the plan with due consideration given to its revenue implications and be complemented with measures to support local businesses in enhancing their competitiveness. We will pursue further trade reforms with technical assistance from development partners”.

At Page 24 of the statement, it is stated that more trade reform initiatives are underway including updating the National Export Strategy, expediting trade agreements, participating in global value chains, and tourism.

 On the export development cess the government states at page 30 that Sri Lanka is phasing out over a period of 3 years the Export Development Board Cess and reducing the Cess by 33 percent from April 1, 2023.

It is noted that the export cess is a creation of the Parliament, and any change has to be approved by the Parliament.

Every government likes to ignore even the best of policies of previous regimes and gain kudos by inventing a new model as  their tour de force. NES is a good example of disregarding institutions established by a previous UNP government of the Export Development Council of Ministers and the EDB and introducing and NES. The 1979 Export drive was led by a Council Of Ministers with the President of the country as the chairman of the Council which gave the drive political commitment at the highedt level. The Board consisted of the Secretaries of the key ministries responsible for the production and marketing of export and the principal functions connected with exports. The investment promotion body the GCEC was represented at the Board level. There was active private sector participation tooa at the Board level. There were Advisory Councils on products and functions and Producers and Exporters Associations. The EDB also had the cess to finance its activities. But that institutional arrangement was not good enough to the policy makers of 2018.

It is surprising that the Business community has not protested on this negative action. It is ridiculous to project massive increase in export performance while severing the lifeline for funding export development.

Sugath Kulatunga

Director General EDB 1979 to 1987