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Economic crisis and exports: Revisiting economic fundamentals

26 Mar 2022

By Asiri Fernando In the backdrop of the current economic climate, Sri Lanka should revisit economic fundamentals governing exports in attempting to increase critical dollar inflows and to remain competitive in the international market, National University of Singapore Non-Resident Senior Fellow Dr. Ganeshan Wignaraja told The Sunday Morning. He said that this involved raising worker productivity to world levels, stabilising the macroeconomy, significantly cutting red tape crippling business, and sorting out constraints hampering traditional exports. Sri Lanka is today facing an unprecedented crisis with our foreign reserves as low as $ 2 billion and nearly $ 6-7 billion of debt servicing is to be met this year. For the first time since Independence, Sri Lanka is at risk of defaulting. Even if Sri Lanka enters into an International Monetary Fund (IMF)-led programme for debt restructuring, a significant time will need to pass for its impact to be felt in Sri Lanka. As such, Sri Lanka desperately needs to improve and expand its exports and services sector, find new markets, and remain competitive in a global marketplace which is prone to disruptions. Rising cost of fuel, daily power outages, restrictions on raw material imports, and constraints on US Dollars have made it hard for Sri Lankan exports to remain competitive. Some apparel producers have already relocated or are planning to relocate to other countries where ease of doing business and profits are better. To keep Sri Lanka’s exports competitive in the international market, the Government needs to ensure that the cost structures of the export industries remain as competitive and stable as possible, University of Colombo Professor in Economics Sirimal Abeyratne told The Sunday Morning. “This means that power, energy, and the cost and quality of inputs (material) used for export industries need to be better managed by Sri Lanka in order for our exports to remain competitive,” Prof. Abeyratne said. “Exporters should be able to have access to the best quality primary and intermediate inputs,” Prof Abeyratne opined, adding that Sri Lanka needed to have a flexible but relatively stable exchange rate and a better managed fiscal policy to aid export industries. Sri Lanka should also put its weight behind traditional exports such as tea, rubber, and coconut, and emerging export crops, thereby ensuring they maintain high standards and not lose the market share already gained, Dr. Wignaraja explained. As such, the Government should revisit the controversial fertiliser policy and work to ensure the workforce and services the crop export industry needs are sustained. Other export crops like Ceylon cinnamon need to be better regulated as they hold greater export potential.   According to Prof. Abeyratne, finding new markets should be carried out by investors and entrepreneurs as they know their products and services best. “The Government must remove or reduce the bottlenecks that exist to find markets and trade with them easily,” he said. Sri Lanka’s proximity to India and the existing Free Trade Agreement (FTA) with the regional giant are plus points that work in Sri Lanka’s favour to attract investors. Currently, both the European Union and the UK (two of Sri Lanka’s major markets) are trying to enter into FTAs with India. Sri Lanka, which already has an FTA with India, should move to capitalise on the opportunity. To do so, Sri Lanka may need to update the Indo-Lanka FTA and reduce bureaucratic restraints to make Sri Lanka a more investor-friendly and favourable destination for FDI and business partnerships. However, Prof. Abeyratne opined that Sri Lanka needed to take concrete steps to resolve issues with the island’s poor track record in order to attract the investments needed to boost the export sector.   A key factor in remaining competitive is to improve worker productivity and upskill the workforce to enable better value addition and diversification of exports. According to Dr. Wignaraja, one approach is to reform dated trade and labour regulations and invite reputed skill development organisations and universities to establish branches in Sri Lanka. Such a move would prepare a work force to service high-tech industrial investments made to the local Free Trade Zones (FTZs) and investment zones, improving the diversity, quality, and quantity of Sri Lankan exports. Sri Lankan professionals with internationally-recognised and accredited qualification will be well-placed to join the services sector at the Colombo International Financial City (Colombo Port City), where earnings could be made in foreign currency. Dr. Wignaraja opined that a more vibrant private higher education and professional training base in Sri Lanka would also see new entrepreneurial growth and the expansion of the ‘start-up business ecosystem’. His views were echoed by Ceylon Chamber of Commerce (CCC) Vice Chairman Duminda Hulangamuwa, who also stated that Sri Lanka needed to build its export basket by moving to export high value items and improve value addition of export products.  Hulangamuwa stated that such an approach may aid in securing new markets and expanding existing ones.   One example would be Sri Lanka’s gem and jewellery industry. Sri Lanka exports a range of gems, but the export of jewellery has not picked up significantly. Sri Lanka can establish with foreign assistance a high quality jeweller training institute to improve the local skill base to produce better jewellery exports.  However, when asked about what measures the EDB had taken to keep Sri Lankan exporters competitive during the crisis, EDB Addl. Director General Malani Baddegamage told The Sunday Morning: “Over the last two years the EDB and the Trade Ministry assisted our exporters to sustain their operations and meet export orders, thereby helping them to remain competitive.”  She further explained that at present, through the EDB and the Trade Ministry, we have facilitated online Business-to-Business meetings for exporters to meet new clients and seek markets overseas. “This effort is facilitated by commerce department personnel at Sri Lankan diplomatic missions overseas. Due to the Covid-19 pandemic, many trade fairs and business meetings which were planned have stopped. Our efforts to connect local exporters to overseas markets through online meetings and trade forums is to ensure we don't miss out on any opportunities for order or new markets,” she noted.  The Trade Ministry has provided relief in the form of fuel for transportation and power generation to the export apparels sector to ensure their operations are not disrupted.  Furthermore, the Trade Ministry with the help of the Ministry of Transport has created a programme where selected vehicles used by export industries can obtain fuel from regional CTB depots as a matter of priority.      

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