Asia’s trade slowdown and implications for Sri Lanka

Dr. Ganeshan Wignaraja, Advisor in the Office of the Chief Economist of the Asian Development Bank (ADB) in Manila, recently delivered an invited presentation at the Lakshman Kadirgamar Institute (LKI), as part of its Foreign Policy Round Table series. Dr. Wignaraja spoke on the trade slowdown in Asia and what it means for Sri Lanka.

The round table discussion was attended by leading policymakers and experts, including Deputy Minister of Foreign Affairs Dr. Harsha de Silva, and senior officers of the Ministries of Finance, National Policy and Economic Affairs, Industry and Commerce, Development Strategies and International Trade, as well as from the Board of Investment and Department of Commerce. Representatives from the ADB, the Harvard Center for Development, and leading think tanks and private sector companies also participated in the round table.

Dr. Wignaraja presented a detailed examination of the dynamics of trade and global value chains in Asia since the global financial crisis; comparing patterns of trade during pre and post-crisis periods, with a focus on export growth during these periods. He mapped and explained the export slowdown, and considered how the dynamics may affect Sri Lanka, including new opportunities in trade.

The presentation noted that the average annual growth of exports in developing Asia has declined sharply from 11.2% in 2001-2010 to 4.7% in 2011-2015. The slowdown reflects a fragile post global financial crisis environment of weak import demand in advanced economies, moderating growth and re-balancing in China and a rise in protectionism. 

Meanwhile, Sri Lanka’s average annual growth rate of exports increased slightly from 1.5% in 2001-2010 to 2.7% in 2011-2015 but is at half the average growth for developing Asian countries. This is indicative of Sri Lanka’s catch-up potential with developing Asia particularly economies in East Asia. 

Dr. Wignaraja observed that China is entering a new phase of technology-led export growth that plugs into regional value chains in East Asia. The migration of Chinese labour-intensive global value chain (GVC) stages to other countries opens an opportunity for Sri Lankan firms to engage with labour-intensive GVCs in industries ranging from clothing to electronics.

Dr. Wignaraja analysed the potential of small and medium scale enterprises as a crucial sector in GVCs, both as direct or indirect exporters. He indicated that several measures are necessary to promote this sector in Sri Lanka; including prioritising the financing of SMEs via a number of specific methods, improving financial literacy, addressing language barriers (especially in English) to ensure that SMEs have access to GVCs, and forming SME clusters along with the required incentives and infrastructure facilities. He highlighted the need to rapidly diversify and widen Sri Lanka’s export base beyond products and services such as garments, tea, tourism and BPOs, and in particular, to increase the share of services in exports.

Dr. Wignaraja emphasised that Sri Lanka should improve labour productivity through labour market reforms, prioritise the upgrading of tertiary-level engineering skills and invest in physical and digital infrastructure. He urged policymakers to avoid protectionist pressures and maximise the benefits of an open economy by reducing import tariffs, improving surveillance of non-tariff measures and improving the investment climate. Other desirable measures would include ratifying the WTO’s Trade Facilitation Agreement to reduce trade costs, engaging with ‘mega’ free trade agreements like the Regional Comprehensive Economic Partnership (RCEP) for new markets, and promoting good regulatory practices.

Dr. Wignaraja’s presentation was followed by an active Q&A session with participants at the round table, who also shared their own insights on Asia’s trade slowdown and its implications for Sri Lanka. The discussion was moderated by the Executive Director of the LKI, Dr. Dinusha Panditaratne. 

For more information please contact LKI programmes, at [email protected] or visit www.lki.lk.