Export expectations

Monday, 31 January 2022 01:03 - - {{hitsCtrl.values.hits}}

It was revealed this week that Sri Lanka’s exports in 2021 recorded $ 15.12 billion. This was up by 23% from 2020, and in a year in which the industry has picked up with the gradual reopening of the economy amidst the pandemic, this has been a boon, especially since the country has been struggling with multiple crisis – most notably a lack of adequate foreign exchange

Indeed, with the 2021 performance second only to $ 15.91 billion recorded in 2018, this is a very promising sign, and one the Government has rightly been crowing about. Further, Trade Minister Bandula Gunawardane has gone on to promise further support to export sector.

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. With foreign exchange reserves at an all-time low, the Government’s decision to limit imports comes at a very unfavourable time.

As for investments, they are critically important to provide capital, expertise and long-term diversification. Sri Lanka’s FDI has underperformed for much of its history, but the pandemic has made this situation even more precarious. And while expectations have been voiced of better inflows in the near future, even with the optimistic scenario of the pandemic easing, the bulk of exports are still linked to large infrastructure projects like an LNG plants, 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, especially amid the pandemic, it is countries that can reform the fastest that will make the greatest impact