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CILT Sri Lanka hosts institute’s centenary sessions
By Darshana Abayasingha
The Chartered Institute of Logistics and Transport of Sri Lanka (CILT) celebrated the 100th anniversary of the institute globally, with an international conference titled ‘Shifts in International Trade – Shaping the Future of Transport and Logistics,’ which was held in Colombo recently.
Addressing the gathering, CILT Sri Lanka Chairperson Gayani De Alwis stressed on the importance of its membership being cognisant of the policy environment governing global trade and investment, and the impact and relevance of global scenarios to different aspects of logistics. She reminded that the dynamics are fast changing with the advent of nascent technologies and geopolitics, plus, increased importance for emerging market economies that may well play dominant roles in the future.
“In this backdrop, the impact to Sri Lanka must be understood clearly. Shifts in global trade towards the developing world is inevitable. New alliances are being formed, and Sri Lanka must gear ourselves to become part of these emerging associations and become an important player in the Indian Ocean to realise our hub aspiration,” De Alwis stated.
The Chief Guest at the event was Speaker Karu Jayasuriya, a distinguished Fellow of the Chartered Institute of Logistics and Transport of Sri Lanka, who averred there is still a lot of work to be done for Sri Lanka to achieve its full potential in this sphere. Commenting on theme of the forum, Jayasuriya said this was a timely topic as the Indian Ocean is fast becoming an important part of the world, and global powers are increasingly looking at presence in Sri Lanka.
“Even though Sri Lanka was blessed with a great position geographically, the potential has not been realised. At the moment only the drug smugglers are making full use of Sri Lanka’s potential. All important stakeholders must work together to realise this potential, and build capable teams to make these possibilities comes true. Sri Lankans should get out of this mindset that we are a small country. I don’t consider us small in terms of our intellect and competencies. What we need to do is develop our capabilities,” Jayasuriya said. 
Hub aspirations laid to waste
The keynote presentation was made by Board of Investment Chairman Mangala Yapa, a past Chairman of Colombo Dockyard PLC. Yapa reiterated the need to stay abreast of the fast-paced changes taking place in the industry, and lamented that Sri Lanka has been envisaging to become a logistics hub for the past 35 years and have not done enough to achieve this. It is not good enough to merely have a great location, which has helped us historically, but this is not good enough in today’s world he stressed. “This kind of simplistic wishful thinking is not going to take us forward.”
Sri Lanka must also stop comparing herself to regional ports like India, and instead look to be better across the globe, as Colombo just being the leading port in South Asia is not going to take us a long way, he said.
“In terms of the logistics performance index, we are out. Germany heads the list, with Austria, Sweden, Belgium and Japan is the only Asian country. But in the future the economic activity base is going to be Asia. But Sri Lanka is ranked 94th, and India is ranked 44th although we say our infrastructure is better. Their performance index is better. Then we have the big fuel change that is going to happen in 2020, whereby all ships in international waters must control their Sulphur emissions from 3.5% to 0.5%. There is no capacity to refine that kind of fuel. So, freight rates are going to be high, and this may impact our export competitiveness.
“On one side as much as our port infrastructure is growing we were exporting less. Thereby we become more dependent on transhipment cargo, if you don’t have enough of your own. So, we have given more discounts to transhipment cargo than to local cargo and becoming less competitive with exports. But now our exports have grown to 20% of GDP over the past four years, and we are happy to reverse the decline somewhat,” Yapa stated.
He called for principle-based policies to steer Sri Lanka into the future as opposed to the gamut of situation-based policies which are rife. Do we have the right leadership, he asked, questioning effectiveness of decision-making process. He also stressed the industry must be prepared to drive and engaged for effective policy, and be ready to implement such reforms voluntarily.
Technology-driven changes
Also present at the forum was Sameer Bhatnagar, Global Sector Head for Ports of KPMG India, who further reiterated the changes driven by technology in the sphere of logistics. He added that shipping and logistics could make a huge difference to an industry and a nation, pointing to how Japan since the ’70s have sourced, produced and shipped goods halfway around the world, and still be competitive than goods produced in those same countries. Services growth will change the pattern of goods requirement in time to come, he said.
Bhatnagar said ports and the industry have responded adequately to geopolitical situations, trade and economic factors, and this will keep happening but just faster. Also, future ports may not just be on land, but even out at sea with goods transported direct from there to intended recipient. These are possibilities with the advent of technology.
“The way we power our vessels will change the future, with the objective to be carbon neutral by 2050. Even for land vehicles the way your infrastructure is designed is going to change, and thereby the frequency of logistics and planning of schedules will have to be relooked at. If you have shorter-range travel, you need lesser batteries and that means more space for goods or even people. So, these are trade-offs and considerations which will start happening. Blockchains in terms of process will also make things faster, so trade cycles will become shorter. It will make countries more competitive; I think it will become the default standard in the future,” he predicted.
Making most of current trade outlook
Providing a macro outlook was Economist Anushka Wijesinha, who pointed out that trade tensions are currently at an all-time high, whilst trade growth was at an all-time low. Global GDP in 2019 has been revised won to 3% this year, whilst it would pick up next year, he said citing an IMF report released last week. This is the slowest since the global financial crisis.
Whilst Asia still remains somewhat robust in terms of growth, this time around the difference compared to the post global financial crisis period is that most governments have much less policy space to trigger new economic growth or stimulus, Wijesinha said. Monetary policy is at all-time easing levels, there is very little fiscal space to boost cash in the system, so it’s a very different period he added.
Global trade growth is projected to be 1.2% this year and 2.7% next year. Trade growth remained buoyant even after the last crisis, however this time it is different with a lot of non-tariff barriers playing into it, he remarked.
He further revealed that the US-China trade stand-off trade could cost the global economy about $ 700 billion next year, as Chinese imports have fallen which is hitting Germany. Ripple effects of Germany’s slowdown then impacts the Eurozone, and it is political tensions that are leading to trade tensions unlike the past.
“Vietnam is winning from the trade war, but it’s not that easy. US imports from China shrunk, whilst imports from Vietnam grew 40%. Foreign Direct Investment into Vietnam in the first five months of 2019 reached a four-year high to $ 16 billion, a 70% year-on-year increase. So, there are shifts happening but it is not easy there.”
“If you are a manufacturer used to the Chinese way of working and the Chinese model, Vietnam is not equal to that, it’s very different. It’s not as super disciplined as China, and of course there is the question of access to inputs. China was able to access and draw in the inputs very efficiently. So, Vietnam is winning, but it’s not a perfect replica for China, which is why manufacturers are looking at multiple locations. Vietnam has 20 Free Trade Agreements (FTA), and this is a real lesson for Sri Lanka also to draw from. They are already preparing for what happens when they may lose some big markets,” Wijesinha pointed out.
There is ample room for others including South Asia to attract industries leaving China, Wijesinha said, pointing out that India has been wanting a piece of that action and gain from China’s loss. It has been increasingly been proactive and trying to attract industries leaving China, offering financial incentives specifically for these companies with plans to set up industrial zones.
Sri Lanka is still an attractive place for investors, he said, as wages are still competitive and the business environment is favourable compared to regional peers with general ease to set up a business. We are not doing amazingly well, but we are still good in comparison to the region as per an economic study.
“Sri Lanka unfortunately let ourselves go for a while. We stopped going to the gym, we ate a lot of unhealthy food, we became anti-social so we didn’t meet a lot of new friends, and we kind of started hanging out with the wrong crowd. What do I mean by that? We didn’t boost our competitiveness muscles. We started getting unhealthy by getting a lot of sugar highs. We saw big government spending and generous handouts and fiscal expenditure. It showed in the numbers, with 8% and 9% growth; but those are sugar highs and we know what that does to you. We didn’t enter into new FTAs, we weren’t making a lot of new friends and we were open less to world trade. Now it’s time to change that and start looking good,” Wijesinha stated.
He emphasised it is time to push forward some crucial reforms to look attractive to these industries looking to redraw their supply chains. Sri Lanka cannot afford to backtrack on trade and investment reforms or ease of doing business. This is applicable to policymakers and to the industry, because industry must advocate change, remarked Wijesinha.
Government stated recently that it approved a five-year plan to remove para-tariffs, but Wijesinha thinks that is too long and that we need to at least get it done in three. Sri Lanka must be proactive and focused with investment attraction. Whilst companies are looking for new locations, they are not going to come after us, instead we need to go after them, he said.
During the panel discussion the audience posed the question how Wijesinha suggests Sri Lanka gets back in shape to take advantage with trade?
“Sri Lanka has to have strategic promiscuity, as the Governor often says. We have to recognise that it’s in our interest to be friends with several groups of people. The US and EU will be our key markets and that is where our trade happens with a lot of affinity. So, it’s in our interest we maintain those friends and build from that. It’s also natural we need be more engaged with Asia, we are one of the countries that are least integrated to East Asia. With the Singapore FTA we changed that a bit. There isn’t a huge trade benefit with Singapore, but there is for investment. Singapore was Chair of Asean when we signed, and now Thailand has taken over and we are talking to them. The more we do these things with folk who are leaders of new regions we want to get our foot in the door, the more we are going to be taken seriously. We should proceed with (FTAs) Bangladesh and Thailand. We are anxious on this question of Sri Lanka and India trade, but the foundation is that the opportunity is huge,” Wijesinha said.
Pix by Lasantha Kumara
