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MoU boosts burgeoning Hong Kong-Sri Lanka trade

Photo: MoUving closer: the signing of the Hong Kong and Sri Lanka trade agreement in April of this year.
MoUving closer: the signing of the Hong Kong and Sri Lanka trade agreement in April of this year.

Following the signing of a Memorandum of Understanding (MoU) between Sri Lanka and Hong Kong earlier this year, the first indications of the likely implications of the agreement are now beginning to appear. The deal was struck by Sri Lankan Government's Export Development Board (EDB) and the Hong Kong Trade Development Council (HKTDC) in April of this year and is certain to boost trade between the two.

Key features of the MoU are the exchange of trade-related information; the implementation of joint trade promotional activities and the adoption of training and exchange programmes aimed at the promotion of bilateral trade. Speaking after the signing of the agreement, Sujatha Weerakoon, Director General of the EDB, said: "The MoU will enhance closer co-operation between EDB and HKTDC, while strengthening and improving trade between Hong Kong and Sri Lanka.

"As part of our market diversification strategy, we have identified Asia as an area with high potential and we see Hong Kong as the gateway to that market and, in particular, to China."

In more specific terms, Weerakoon believes the MoU will raise Sri Lanka's export levels, while increasing trading and investor participation from Hong Kong companies.

Explaining the opportunities on offer, she said: "Sri Lanka is one of the fastest growing economies in the region and saw a 6.4 per cent rise in its GDP in 2012. Hong Kong companies will now have numerous opportunities to establish links here as buyers or investors."

According to figures released by EDB, Hong Kong is Sri Lanka's 19th largest trading partner in terms of total exports. In 2012, exports to Hong Kong were US$105 million, a slight drop from the US$108.93 million seen in 2011, but still well above the 2010 figure of US$94.3 million.

Sri Lanka's exports to Hong Kong are dominated by sapphires and other precious stones, a sector which increased in value by a massive 134.5 per cent last year, rising from US$7.11 million in 2011 to US$16.69 million in 2012. The second largest export is tea amounting to US$16.56 million last year, down from US$20.15 million in 2011 and US$19.62 million in 2010. Among the emerging categories also starting make an impact are ready-to-wear clothing and frozen seafood.

By comparison, Sri Lanka is Hong Kong's 44th largest trading partner. According to the EDB's figures, exports from Hong Kong were valued at US$582.8 million in 2012, down from US$717.33 million in 2011, but slightly up on the 2010 figure of US$580.4 million.

Major products imported from Hong Kong to Sri Lanka include woven fabrics and accessories for the ready-to-wear industry. In 2012, woven fabric and other clothing items totalled US$329 million, accounting for more than half of all imports from Hong Kong. Other imported Hong Kong products include electrical and electronic products, notably mobile phones, and plastics and chemical products.

Photo: Hong Kong and Sri Lanka: fast-tracking trade and closer business co-operation.
Hong Kong and Sri Lanka: fast-tracking trade and closer business co-operation.

The aligned interests of the two territories were highlighted back in March this year. In the run-up to the formal adoption of the MoU, EDB and HKTDC jointly organised a seminar in Colombo, Sri Lanka's commercial capital. Billed as The Fast Track to Expanding Business with China and the International Markets via Hong Kong, it attracted more than 300 leading businesspeople from a range of trade sectors.

Explaining the thinking behind both the seminar and the MoU, Weerakoon said: "As Sri Lanka's traditional markets – the US and Europe – are both struggling, we are pushing into Asia. Hong Kong is the best way for us to access these markets. We see the benefit of using the city's strong promotional platform to not just reach buyers in Hong Kong and China, but also in terms of accessing a host of other international markets."

Following the Colombo seminar, the move was reciprocated with Sri Lanka hosting a national pavilion at the Hong Kong Houseware Fair in April this year. This showcase featured many of the country's most successful export products, including porcelain dinnerware, high-end coir [a natural fibre extracted from coconut husks] products for the spa industry as well as several speciality handmade items.

The porcelain dinnerware manufacturers, in particular, had a good show. Royal Fernwood Porcelain Limited, for instance, secured a production deal with an Eastern European company as a result of its representation in Hong Kong.

Shahnooz Ozeer, the company's General Manager for International Marketing,   said he was particularly pleased with the reception the business received. As well as signing the production deal, its representatives also met a number of prospective buyers, including a sizeable delegation from Scandinavia.

Although the company had exhibited at the fair before, Ozeer said the 2013 event had a few surprises in store, particularly in terms of the level of interest from the Mainland. He said: "The lifestyle changes in China, according to the buyers at this year's event, are increasingly seeing consumers there looking for simple seasonal products. There is now a distinct demand for modern colour-glazed products in a range of natural shades."

He also maintained there is now greater demand for Sri Lankan products following the EU Anti Dumping duty imposed on the imports of Chinese tableware earlier this year, saying: "We actually had a surprising number of inquiries from European customers."

Gem sector dominates Sri Lankan trade with HK and China

Photo: HKTDC's Benjamin Chau – welcoming closer trade ties with Sri Lanka.
HKTDC's Benjamin Chau – welcoming closer trade ties with Sri Lanka.

Despite the growth in other sectors, it is still the trade in gemstones that dominates transactions between Hong Kong and Sri Lanka. Hong Kong is the third largest market for Sri Lankan gemstones, after Thailand and the United States. For many years the Sri Lankan industry has viewed Hong Kong as the gateway to China and a number of other difficult to access international markets. This has seen many of the country's jewellery companies keen to participate in Hong Kong's precious stone trade events.

Sapphirus Lanka Pvt Limited, a company backed by Hong Kong investors, specialises in precision-cut sapphires and has seen its sales to both Hong Kong and China increase in recent years. According to Andre Tissera, its managing director, demand for fine sapphires is growing, leading the company to up its production levels following a recent investment in its in-house heat treating facilities.

The company is not alone in finding increased success in China. Two other Sri Lankan jewellery businesses – Zam Gems and Gem Paradise – have opened new outlets on the Mainland, while also increasing their overall sales activity there.

Zam Gems now has a franchised store in a jewellery mall in Shanghai, a dedicated outlet for its branded sapphire products. The company's Managing Director, Ahsan Refai, says its growth in China is coming via Hong Kong. It is seeing particular demand for its range of blue sapphire jewellery, ranging from one to three carats and commanding a starting price of around US$1,000.

Rafai sees China as both a value and volume market, with the increasing sophistication of consumers boosting jewellery sales into new sectors. This has seen chrysoberyl cat's eye, alexandrite, rubies, emeralds, aquamarine and Tsavorite garnets now number among the company's most popular offerings.

Photo: EDB's Sujatha Weerakon – Hong Kong is the 'gateway to China'.
EDB's Sujatha Weerakon – Hong Kong is the "gateway to China".

This demand for diversity has also been noted by Gem Paradise, which now has a wholesale outlet in the Tianya jewellery shopping mall in Beijing. The company is seeing demand focussing on loose polished sapphires and other less traditionally favoured gemstones, such as alexandrite and chrysoberyl cat's eye.

Sri Lankan companies lure Hong Kong investors

While trade is looking up for many Sri Lankan businesses, many Hong Kong entrepreneurs have also been quick to spot potential opportunities in the country. This has seen a number of Hong Kong businesses step up their investment in Sri Lanka, particularly in sectors such as ports, shipping, aviation and logistics. Other investors, meanwhile, have targeted in the country's burgeoning hospitality and ready-to-wear industries.

As of last year, some 74 Hong Kong companies had invested in Sri Lanka, representing a combined spend of US$964 million. Many of the largest investments were made over the last two years, with the most substantial funds coming from Hong Kong-based China Merchants Holdings (International) Company (CMHC). This has seen the company engage in a joint venture project aimed at developing and operating container terminals at the new Colombo South Port facility. China Merchants has a 55 per cent stake in this US$500 million project, alongside the Sri Lankan shipping company Aitken Spence (30 per cent) and the Sri Lanka Ports Authority (SLPA) (15 per cent). The consultants on the project come from AECOM Hong Kong and construction work is expected to be completed by April 2014.

The second largest Hong Kong-backed project is the development of two luxury hotel sites by the Shangri La Group – one in Colombo and the other in Hambantota, the southern city proposed as Sri Lanka's second urban hub. The Colombo component of the project is scheduled for completion in 2015.

Despite the understandable prominence accorded these major construction projects, it is actually Sri Lanka's ready-to-wear industry that has attracted the greatest number of Hong Kong investors. In total, some 33 Sri Lankan businesses in the sector – manufacturing a range of items, including knitwear to men's, children's and casual wear, as well as sophisticated intimates and sportswear – have benefitted from Hong Kong backing. The largest such player is the Crystal Martin Group, a company that is looking to expand its manufacturing capacity still further.

Hong Kong companies are also among the top buyers in the sector. Li & Fung has recently increased the range of products it sources from Sri Lanka, via its Delhi and Bangalore subsidiaries.

With investment growing and exports increasing, this has inevitably also been good news for those shipping agents charged with conveying goods between the two. Iqram Cuttilan, Vice President and Director of Colombo-based Aitken Spence Shipping, believes the shipping routes between Hong Kong, China and Sri Lanka have a huge potential for growth.

Photo: Good fortunes in store: wishing good luck to new trading partners.
Good fortunes in store: wishing good luck to new trading partners.

He says: "As there are many international electronic brands produced in China and/or Hong Kong, there has been a huge increase in the quantities shipped to Sri Lanka as a result of the growth in domestic consumer spending. There is also an increase in the transhipments from Hong Kong to Southern India via Colombo and vice versa."

At present, the total volume of imports to Sri Lanka is around 600,000 containers, with more than 50 per cent originating from Hong Kong or China. Again, the main products here are fabric and accessories related to the ready-to-wear sector, as well as an increasing proportion of electronic items.

Above all, EDB's Weerakoon remains confident that Hong Kong will become an important platform for Sri Lankan products, saying: "Our forecast is very upbeat for the next five years and beyond." Her optimism is shared by many analysts, the majority of whom believe the business partnership will only continue to grow, nurtured – in part at least - by the strong relationship between the Sri Lankan and Chinese governments.

from special correspondent Jennifer Henricus, Colombo

Content provided by Picture: HKTDC Research
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