Taming the tiger: New Zealand's Sri Lankan opportunity

Sri Lanka is opening up for business as it recovers from a 30-year civil war. Photo: Getty

With its bloody civil war put to rest, Sri Lanka is stepping onto the world stage with confidence. Shane Cowlishaw travels to the island nation to discover what opportunities await New Zealand businesses bold enough to enter the market.

It’s a nerve-wracking experience, sipping tea with Merrill J. Fernando.

Amid marble pillars in the tropical setting of the tea baron’s Colombo villa, an attentive staff member enquires about drinks.

What are you supposed to say?

This is the man who single-handedly built a globally-recognised brand on a hunch, becoming one of Sri Lanka's most successful exporters His face is associated with tea in more than 100 countries, thanks to the famous ‘Do Try It’ catchphrase.

I don’t take sugar with my tea, so there’s one potential disaster averted. But what will his response be if I ask for milk?

I take the risk, and there’s a smile as he orders his black.

Fernando has agreed to be interviewed at his home, on a public holiday, for a few reasons.

Firstly, he was asked by his friend Senaka Silva, who is New Zealand’s honorary consul in the South Asian country.

But he’s also keen to discuss his love for the country that was one of the first to embrace his product.

After working in the bulk-tea market Fernando launched Dilmah, named after his sons Dilhan and Malik, into Australia and New Zealand in the late 1980s.

The pure Ceylon tea was a superior product, but the company faced stiff opposition from local tea companies as its influence grew.

Despite this, Fernando remembers his experience fondly and continues to visit regularly.

“New Zealand consumers have really fallen behind the bat. When I walk the streets people come and ask if I can take a picture with you, thousands. They come and say ‘Mr Dilmah, how are you?”

Today, Dilmah is the sixth-largest tea brand in the world and number one in New Zealand.

It’s not an exaggeration to say the company has been a Sri Lankan trailblazer and until recently was one of the few local companies sending significant product to our shores.

It has been a solitary beacon, however, with an almost 30-year civil war crippling the country’s economy.

Putting those dark days behind it, Sri Lanka has signed free-trade agreements with neighbours India and Pakistan.

Fernando is critical of aspects of those deals, describing them as beneficial but the “subject of abuse”.

He points to the country’s paper industry. A lower-quality paper is now being imported from Vietnam and mixed with the local product to be sold to India but at a lower price.

But Sri Lanka is emerging from a period of isolation, and Fernando knows these deals will continue.

“I would hope things would be better with New Zealand.”

A new market, with new friends

Stepping off the plane in Sri Lanka feels much like arriving on a Pacific island.

There’s the same tropical, humid weather and the island nation boasts some stunning beaches.

A laid-back approach to life is apparent, with even the capital Colombo seeming pleasantly sedentary compared to many of the cities of nearby neighbour India.

But appearances can be deceiving. Despite those pleasant smiles and beautiful vistas the country is still healing from a brutal history.

For 26 years, the Sri Lankan government and the Liberation Tigers of Tamil Eelam waged a conflict that killed more than 150,000 and left a country wallowing in allegations of war crimes.

While the civil war officially ended in 2009 the north of the country where the militia, better known as the Tamil Tigers, fought to carve out an independent state has only recently started to reopen itself to the world.

With rebuilding underway in the region, construction is also brisk around the rest of the island. Cranes litter the Colombo skyline with luxury hotel chains lining up to cash in on a destination primed for a tourist boom.

Sri Lanka is hoping for an economic boom similar to New Zealand’s.

Those beautiful beaches are beginning to attract attention, while the easy accessibility and rich cultural history have put the country on many must-visit lists.

The country also has a fledgeling whale-watching industry, another similarity linking the two countries.

Despite this, trade between the two countries remains insignificant.

In 2016, New Zealand sent $254 million in dairy products and fruit to Sri Lanka, while $55m in tea, retreated tyres and clothing flowed back.

While our exports have doubled since 2000 both sides believe there is room for much more growth.

Two years ago then Prime Minister John Key visited Sri Lanka with a business delegation, where he was promised the gift of a second elephant for Auckland Zoo.

That now looks unlikely, but soon after Key's visit, his counterpart Ranil Wickremesinghe returned the favour to finalise the mutual openings of high commissions in each other’s countries.

In a briefing provided to its Minister before the state visit, New Zealand Trade and Enterprise pointed out that Wickremesinghe had been a useful friend by reducing dairy tariffs that had threatened Fonterra’s continued profitability in the country.

It also noted an interest in a free trade agreement, or possibly a trilateral agreement including Singapore dubbed ‘3i’, or ‘Three Islands’, from Sri Lanka’s Deputy Foreign Minister Harsha de Silva.

A multi-country agreement is a likely option, but also of interest to New Zealand businesses is the rare free trade deal Sri Lanka holds with India.

While officially still on the table, New Zealand’s negotiations with the second most-populous country on the planet are effectively dead in the water.

But gaining access to Sri Lanka, or setting up a springboard there, could open up the larger lucrative Indian market to enterprising companies.

One of the people to accompany Key on his foray to Sri Lanka was Len Thomas, managing director of battery-monitoring company Powershield.

As a globally-focused company, Thomas says Powershield sees some opportunity in Sri Lanka involving government infrastructure but he points to the country’s location and temperament as the biggest attraction.

“Sri Lanka seems to be a fairly neutral place, a bit like New Zealand. I think looking for a regional base, sometimes it’s easier to be somewhere else rather than the larger place with more complications.”

‘A risk, but great potential’

Heading north out of Colombo, the skyscrapers quickly give way to more traditional vistas.

Coconut plantations (Sri Lanka is one of the world’s largest producers) line the well-paved roads, interspersed with colourful villas and family homes.

Nestled about an hour from the capital is Taprobane Seafoods, run by an enterprising New Zealander most people will never have heard of.

Tim O’Reilly left his home country at the age of 10 for Australia, but there’s little doubt which country he identifies with.

“I’m from Temuka and I still carry a New Zealand passport, don’t worry about that.”

In 2010, after a decade in Asia working in the food business, O’Reilly arrived in Sri Lanka.

The war had just finished, the country was a shambles. But he saw only opportunity.

Partnering with a local family, O'Reilly launched Taprobane Seafood, which today has a turnover of US$25m and sends crab meat, tuna and shrimp across the world.

With six factories spread across the country, the sustainably-focused company employs 1000 staff and has plans to quadruple turnover with the introduction of a new, fast-growing species of shrimp.

O’Reilly lauds Sri Lanka as an amazing hub for his business, partly because of its location and access to shipping routes, but also for the ease of access to lawmakers.

Of course, it was a gamble to set up in such an uncertain time but the move has paid off.

“You’re better off going into these places. I always like to risk a little bit, but there’s always rewards; for our crab market we’ve got like 90 percent share and that’s because we were first bus in.

“We can call the Minister of Fisheries and say we want to meet him on Friday and we can, in other countries I’ve lived in it would be almost impossible to do something like that.”

Taprobane have been a pioneering company in investing in northern Sri Lanka following the end of the war.

Heading to a relatively untouched part of the ocean was an attraction, but O’Reilly says there were also altruistic intentions.

Many of the company’s staff are war widows or people left disabled by the conflict, finding employment for the first time in the manufacturing plants.

Giving back to the country and immersing itself in the culture is essential for any New Zealand company looking to enter Sri Lanka, he believes.

“If you come here and find a couple of people and don’t want to live here I think you’re asking for trouble. I think you need to be here at least part of the time, if not full time.”

Hearing O’Reilly talk about the initiative he took to set up Taprobane reminds me of some words of wisdom imparted by Silva, the man who put me in touch with Dilmah’s Fernando.

“The Kiwi is a very genuine person but to get them kickstarted is not as easy as with others. The thing is to get the engine started.”

I’m also reminded, sipping yet another cup of milky tea in the Taprobane offices, of the initiative shown by one of New Zealand’s largest companies

In 1977, Fonterra entered the Sri Lankan market and today dominates its dairy industry.

A rising consumer demand for its product has seen it gain an enormous market share - almost three-quarters of the milk powder sold in the country is from Anchor or its local brand Ratthi.

It’s a relationship that has worked well for both the company and the country.

Sri Lanka is now one of Fonterra’s most important markets, which means it is a large employer.

But things have not always been smooth sailing for the company.

In 2013 the company was forced to shut down its factories for a week and the sale of its products temporarily banned when Sri Lankan authorities discovered traces of nitrate dicyandiamide in milk powder.

Subsequent tests came up negative but it was a huge scare for Fonterra, who responded with efforts to become more engaged with the community to rebuild its reputation.

My arrival at Fonterra’s headquarters is quite different to the casual, low-key response encountered at Taprobane.

A communications specialist has arrived from Singapore to shepherd me around for a day of planned activities, including a factory tour, a visit to a local sharemilker’s farm and a taste-test at the company’s food service kitchen.

But first is a sit-down with Sunil Sethi, the man charged with keeping Fonterra in pole position.

A slight yet enthusiastic presence, Sethi bounces authoritatively from one topic to the next.

One moment we’re talking about the launch of Kapiti Hill into the market, an aspirational brand that will “seed supremacy” in dairy, the next it’s plans to boost the country’s average milk consumption from three-quarters of a glass a day to two.

Sethi, who hails from India, says he sees similarities in Sri Lanka’s economic recovery to the leap forward taken in his home country 15 years ago.

While there were still challenges ahead opportunities were opening up, with the country now an option equal with the likes of Vietnam and Cambodia.

“One of the stark insights is this country, having been at war for 30 years, is very, very keen that their country does well.

“You look into the eyes of a common man, irrespective of what income group he is: do you see optimism or not? If you see optimism, you know that country will go far.”

That means the sooner New Zealand companies entered the market the better, but Sethi agrees with Taprobane’s O’Reilly that if you want to succeed, you must be prepared to contribute.

“Every organisation needs to understand one thing. If we as a business are cognisant of what we can do for the country then we will be able to build a good business here.

“If you don’t take care of that and only deal with the commercial part, it’s going to be tough. You need to strengthen the ground you’re standing on.”

‘The time is right’

So, where does the Sri Lankan government see its relationship with New Zealand heading?

Firstly, Foreign Affairs State Minister Vasantha Senanayake tells me, we should ease up on the cricket demolitions.

“You must really stop beating us, it’s not very nice.”

Joking aside, the young United National Party member, whose grandfather was Prime Minister of the country, says the country shares much in common with New Zealand.

Aside from a passion for cricket and rugby (Sri Lanka’s second favourite code), he points to the booming tourist industry.

Sri Lanka could benefit greatly from a closer connection with New Zealand, which could share its expertise in environmental protection and building a successful national air carrier.

Under the previous government Sri Lanka prioritised its relationship with China above all others, becoming an eager participant in Beijing’s ‘Belt and Road’ global infrastructure project.

Things have begun to shift, however, as Sri Lanka looks to other countries such as neighbour India, which recently entered talks to take over the operation of the country’s deserted southern airport.

“I think in the previous government the relationship with the rest of the world, apart from China, deteriorated tremendously," Senanayake says.

“That’s why our investments were limited almost to China but the scenario has changed and we are now negotiating and enjoying friendly relationships with almost all countries in the world.”

That, naturally, includes New Zealand.

While he hasn’t been briefed directly on the finer points of any free trade deal, Senanayake expects work to accelerate once the high commission opens in Colombo.

The lack of a diplomatic presence was the main reason a deal had not already been done, he says.

Once New Zealand officials do arrive in the country, their success will largely depend on the country’s political climate.

Sri Lankan governments have never been the most stable, with the recent local elections deflating the coalition and throwing a lifeline to former president Mahinda Rajapaksa.

Whether Senanayake will be around to shepherd through a trade deal is unknown.

But his message to both New Zealand, and the rest of the world, is clear.

“The time is right now, when a country emerges immediately after a war it can be chaotic.

“Now is a time we’ve settled, now is a time the doors are open to all the world, now is the time investment has started to come in, so this really is the moment.”

Shane Cowlishaw travelled to Sri Lanka with the assistance of Asia New Zealand.