Crunch time for confectionery

Tuesday, 22 August 2023 01:33 –      – 201

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  • Exporters seeking greener pastures abroad amidst challenging business climate in Sri Lanka
  • Already three leading companies have set up facilities in Ghana, India, Bangladesh
  • More eyeing similar pathways to sustain their presence in international markets
  • Key reasons for $ 275 m worth industry to move out include raw material monopoly, abnormal prices, high taxes, no incentives for exporters 
  • Industry says favourable policies and business-friendly environments are found attractive overseas for companies seeking sustainable growth
  • Opines tax incentives for raw materials, comprehensive policy framework to encourage exporters will significantly ease situation

By Charumini de Silva

With the challenging business climate persisting in Sri Lanka, the $ 275 million-worth confectionery exporters have shifted to overseas production facilities to ensure their continued success on the global stage.

“In the wake of a challenging business environment exacerbated by multiple crises, around five top confectionery export companies took the bold step of relocating their production facilities to more investor-friendly overseas destinations,” industry sources told the Daily FT.

They asserted that these strategic choices present companies with an opportunity to navigate the current uncertainties while sustaining their presence in international markets.

“These companies have moved to countries like Ghana, India, and Bangladesh as viable alternatives with conducive business policies and more affordable operational costs to secure their competitive edge and safeguard their profitable international market share,” they said, confirming that more companies are eyeing on the similar paths as the cost of doing business within Sri Lanka has risen substantially, while the overall outlook remains gloomy.

The key reasons to move out include; raw material monopoly, abnormal prices, high taxes, no incentives and other cost factors including high utility costs for exporters.

“From finding land to investments to finding markets; are all done by exporters without any encouragement from the Government. In addition, 30% of income taxes are also imposed on export firms, whereas in other countries, export-oriented companies are given multiple concessions to boost exports and to recognise their valuable contribution to the economic development,” they claimed.

The Daily FT also learns that a growing number of businesses are actively exploring opportunities for manufacturing partnerships with overseas counterparts or establishing their production facilities in South East Asian countries. Such regions are known for their favourable policies and business-friendly environments, making them attractive options for companies seeking sustainable growth.

Emphasising the challenges faced by confectionery exporters in maintaining their competitiveness they said that despite having secured contracts, the exporters find themselves struggling to match the pricing expectations of buyers in the international market.

Taxes on raw material prices have surged significantly, making it difficult to renegotiate prices when cheaper alternatives or raw materials are readily available for other competitive countries.

They suggested that tax incentives for raw material supply and a comprehensive policy framework to encourage exporters would significantly support the situation for these companies, adding that if more companies leave the country, it would lead to a rise in unemployment.

They highlighted that member firms collectively invested over Rs. 10 billion to introduce advanced technology and machinery for producing world-class confectionery products within Sri Lanka. Additionally, substantial costs were incurred for promotional activities to establish ‘Made in Sri Lanka’ brands in the European and African markets.

He underscored the industry’s growth trajectory, noting how products initially targeted at specific ethnic groups are now prominently featured in renowned supermarkets such as Tesco, Lulu, and Walmart. “This expansion is a testament to the export success of Sri Lankan confectionery products, which are now shipped to more than 50 countries worldwide,” they added.