Boosting exports

Sri Lanka ended 2018 with Government statistics showing merchandise and service exports to have hit an all-time high of $ 17 billion, up 15% from a year earlier, and setting the stage for policymakers to set the target at $ 20 billion in 2019. But the twin challenges of increasing competitiveness and market access remain as tough hurdles for exporters.

According to the Export Development Board (EDB), the forecasted merchandise and service exports was $ 17 billion, falling short by $ 430 million from the original target. However, it was pointed out that last year’s performance has surpassed the previous best of $ 11.4 billion achieved in 2017 and would have hit the expected target had it not been for the political turmoil that hit the economy towards the end of the year. 

The target for 2019 is $ 20 billion, which is about a 17% to 17.5% increase, an ambitious target, but with the support of the EDB the Government is confident exporters will be able to achieve it. Never a party to shy away from overstating its case the Development Strategies and International Trade Ministry has set a target of $ 37.1 billion for 2025 which is a 177% increase from exports Sri Lanka had in 2015. 

However, there are two key challenges that continue to weigh on exports. For one, imports and investment are closely linked to exports. Much of Sri Lanka’s imports are essential for value addition and exports. Investments are critically important to provide capital, expertise and long-term diversification. Sri Lanka’s FDI is still underperforming and while expectations have been voiced of better inflows in 2019, the bulk are still linked to large infrastructure projects like an LNG plant in Hambantota, likely to be funded by China, rather than high value tech industries and other sectors that provide well-paying jobs for aspirational Sri Lankans.    

While diversifying a country’s products and markets is a solution that has been touted like a mantra, exactly how the said diversification must be carried out must be examined. Another strategy that has been suggested is that barriers that prevent certain sectors’ exports from doing better need to be removed in order for the sectors in question to take off.

Trade barriers are anything that is beyond the control of the company that undermines its export competitiveness. If companies are lazy, if they’re not innovative, if they’re not improving their processes, if they’re not investing in their skills and quality, that’s a problem nobody can address. But if companies are doing all of that and there are still factors beyond their control, then that affects their competitiveness. Competitiveness is determined by price, quality, quantity and timeliness of delivery.

There can be lots of barriers that make companies non-competitive. It can be institutional inefficiencies, it can be the more macroeconomic environment: tax policy, infrastructure, lack of information, rules and regulations, complying with various government requirements: all of this can affect competitiveness of markets. Barriers – which can be anything from taxes to red tape to corruption – can occur at different stages of the export process. These are all things that Sri Lanka still has to work on to improve. 

Matching companies with buyers is also a process that needs support. Government support is needed to clearly identify opportunities and provide consistent support so companies can find buyers and link to global value chains. In a fiercely-competitive global market it is countries that can reform the fastest that will make the greatest impact.