- Common sense on imbalance
Today we have lots of discussion on imbalances as various types of imbalances exist and as the word suggests, it is not a welcome development wherever the situation is applied. An aspect that merits discussion is the apparent adverse imbalance that is created in our trade balance.
The trade balance is showing a deficit for us and this gap is widening from day to day and the system is under pressure. Trade balance or balance of trade as it’s usually referred to, is the difference in import expenditure and export income over a period of time.
When the income is less than the expenditure, the deficit is present and is not a healthy development in terms of our position as more money is flowing out than coming in and that is neither a recipe to be rich nor to be a nation with resilience.
Lots of discussion can be had and much hair uprooted in identifying symptoms and causes and as usual we do have remedies too, though the latter always finds difficulty in implementing. Value addition has always been talked out but not acted upon as it is simpler said than done and you need a mindset change for that.
A simple way of looking at this situation may help in identifying reasons and moving forward with remedies. Trade takes place because one cannot produce all what one wants internally closer to oneself. Ricardo of course was the first person in with theories of comparative advantage – though at times one begins to wonder whether we are using such theories to our disadvantage as our mental faculties appear to have these write-ups and ideas as fixed entities.
As the ability to move goods around the globe and services across the globe has increased by leaps and bounds, trade has literally shot up. I as a consumer want what’s best for me and only my financial capabilities may control all my impulses.
With all the avenues for information exchange, a consumer is really bombarded with what one should buy to have a certain standing in society and such advice is never in short supply. Yet given a chance the true appreciation of an externally manufactured good or service felt by us would be indicated.
The disappointment seen on one’s face when what one has received from abroad as a gift turns out to be ‘Made in Sri Lanka’ speaks volumes. I know this is not applicable to all, yet this may be the reaction of a significant number.
The common sense on imbalance and my take on this trade gap really is that we like what others produce and others do not much like what we produce. This is the simple salient truth for this gap as I see it. Now as these likes and dislikes are quite fixed and perhaps becoming much worse, they translate into more demand for imports and less demand for exports.
Quality and innovation
Akio Morita, the ‘Sony’ pioneer has stated in his biography that in the beginning he used to print ‘Made in Japan’ in very small letters. With goods becoming advanced and with the quality revolution, ‘Made in Japan’ became synonymous with quality and a global demand for Japanese goods was created. The journey was not a simple task and it is described in some way by Deming in his biography.
Many points from that book should be taken up by Sri Lankan businessmen. The day quality is ingrained with a product and a service, the path for supremacy is created. It is the superior function and the level of perceived quality that distinguishes a similar product from two economies. However, if one sticks to providing only the basic function, after a while the magic of such product would disappear.
One needs to bring an innovative streak to anything one does to make a differentiation in the world stage. There may have been a time that you were able to sell sufficient quantities to your own market but those days are fast disappearing. One’s complacency in the ability to sell sufficiently to have a guaranteed cash flow and keep the business and oneself happy and contended may be acceptable to some though from a national economic standing that is not sufficient unless we follow Gross National Happiness as an indicator!
We can identify some excellent game players in the global market from our business community. We are yet to see game changers and that is what is important today. How can we first get these excellent ‘players’ to transform themselves to ‘game changers’? Dilmah perhaps is a near exception playing still within the commodity framework.
The first change necessary is a paradigm shift in the mindset. The factors for becoming excellent today have been order fulfilment, sharpening skill sets, excellent rapport with the external customer base and attention to detail in the value chain one operates. Admirable in their own way and important for some sustained cash flow, these traits will not position us at a different level. Boldly venturing out into new areas and risk taking so essential for ‘game changers’ are absent.
Our national composite picture of exports has not changed much over the last few decades. The expectations and plans do not envisage changing the picture too and that is sad. The economic war is being fought with the same old instruments and strategies only the slogans being more vociferous.
Sri Lanka should embrace high-tech exports if one to tilt this sliding situation in our favour. High-tech products are always able to command better margins whereas with commodities you are working on thin margins. Some judicious selecting of areas is definitely in order as Sri Lanka is going to be a late entry into this exporters’ club and one has to find one’s way with little or no help.
Today Sri Lanka can only boast of about 1.5% of export income coming from high-tech exports. The road map to this status is clear. Initially start with value adding to commodities that one is currently engages in and then seek some disruptive behaviour through innovation. The only commodity that is seeing some decent value addition today is rubber but there is still a long way to go.
The value addition will only come by strengthening science and technology and product design in each of the sectors. This will happen when companies seek new ideas and bolster their companies from within with talent. A simple example of a high-tech company can come from identifying the number of STI talent present within. It is expected that these folks engage in designs and determining new products and services and that engagement plus the organisational continued support are key ingredients.
Specific roadmaps need to be derived with some end points in mind. Consider cinnamon. We proudly claim cinnamon as the only crop from Sri Lanka enjoying a monopoly in world trade with 90% market share. How have we achieved that by sending cinnamon and oil in that simple form?
Considered to be unique to Sri Lanka, we process these in a primitive fashion taking a long time to realise some output which then we proceed to sell in bulk. Cinnamon tea and capsules are some interesting new variants but again not sufficient. Do we have a complete product picture of what is possible with our cinnamon and a plan to see that only value added products leave our shores?
It is also important that we do not limit ourselves by still only mapping what others are doing. Recently a US research on cinnamon was much touted in the local press (incidentally the research has been carried out by a Sri Lankan in US) for having indicated tremendous potential. Such news, which should create excitement and action in general, fades away after a while into recyclers’ yards.
In another breaking story with graphite, the current infrastructure developments have been lauded by the external company which is expecting to procure raw graphite from Sri Lanka. The website reads that ‘paved roads provide easy access to and from the claims and the port’. Certainly the growth in infrastructure is paving the way for resources to leave the island in a much more convenient manner.
Graphite is at the centre of new material development today after the 2010 Nobel Prize for Physics went to those who produced graphene – a single atom layer thick material from graphite. One of European Union’s two mega projects where each one pumps in one billion euros is based on graphene. One should understand the value of resources as well as the potential power of value addition when knowledge is factored in.
Organisations need to work on generating knowledge too as simple use of existing knowledge will not do and this aspect is really challenging. Selling graphite may get us some money in the short run, while tons may be needed to satisfy the hunger that we have within us to procure the final products made out from these resources. Then we will understand that it is an equation that we will not be able to ever balance by sticking to the old knitting.
The State should really see the need for drumming up the organisational mindset in charting new ways and action has to happen fast!
[The writer is Professor of Chemical and Process Engineering at the University of Moratuwa, Sri Lanka. With an initial BSc Chemical engineering Honours degree from Moratuwa, he proceeded to the University of Cambridge for his PhD. He is the Project Director of COSTI
(Coordinating Secretariat for Science, Technology and Innovation), which is a newly established State entity with the mandate of coordinating and monitoring scientific affairs. He can be reached via email on firstname.lastname@example.org.]