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Targets set and soon forgotten
The ‘Mahinda Chinthana – Vision for the Future’ five-year development framework of the Government launched in 2010, expected exports to reach $ 18 billion by 2016. The same document envisages exports to grow twice the rate of real GDP. Given that real GDP is expected to grow over 8% per annum, exports were to grow at 16% per annum.
"Export targets mirror the plight of the export sector of the county. Exports are governed by a plethora of Government agencies that has very little or no communication with each other. There seem to be little or no consultation with the relevant industries when setting the targets or revising them. Exports are a vital source of foreign exchange for the country and should not be treated lightly. If the country is to revive its export sector, it has to go beyond political rhetoric and be more serious about its export targets"
The same document also has set targets for 2020, and according to these targets industrial exports alone are to reach $ 25 billion by 2020. If exports were to increase twice the real GDP, twhe total exports of the country should reach $ 35 billion by 2020.
Just one year later in 2011, the Ministry of Industry and Commerce announces a new export target for 2020 of $ 20 billion. It is all over the papers and is announced as an ambitious target. Within a year, the country and the agencies responsible for driving exports had forgotten that the government policy announced one year ago in fact envisaged a much higher export target for the country. The Ministry had downgraded the target. (Or could it be that the Ministry did not know or forgot the target set in ‘Mahinda Chinthana’ policy framework).
With the downward revision of the target, the expected rate of growth is also revised downwards. To reach $ 20 billion by 2020, exports have to grow at a modest 8.8% per annum. This is far below the growth expected in the ‘Mahinda Chinthana’ policy document which is twice the rate of real GDP. Even if real GDP grew at 6% a year (which is very modest compared to over 8% set in the ‘Mahinda Chinthana’), exports should grow at 12% a year and reach $ 27 billion by 2020.
Targets set by one Government agency (‘Mahinda Chinthana’ is developed by the Ministry of Finance and Planning) is drastically revised downwards by another Government agency within a year. No one asks for an explanation and none is given. Everyone seems to have forgotten the original targets set.
At the mercy of apparel?
Apparel, the one and only industrial export success story of Sri Lanka, is expected to rescue the export sector. In January 2011, the Joint Apparel Association Forum (JAAF), the apex body of the apparel sector set for themselves a target of increasing apparel export incomes to $ 5 billion by 2015. In 2010 apparel export value was $ 3.2 billion and the industry expected to grow at an annual average growth rate of about 9% up to 2015 which was modest and realistic.
The target set by industry is still reachable, in fact may even exceed the target despite the setback the industry faced with the world economic downturn. The apparel export value had reached $ 4.3 billion by 2013 and to reach five billion by 2015, the apparel exports has to grow only by 8% a year during the next two years.
However, the apparel sector is expected to do a lot better than that. Although the country drastically downgraded the total export target, the apparel export target has been drastically upgraded. In 2013, impressed by the success of the industry, the Ministry of Industry and Commerce nearly doubled the apparel export target by expecting the sector to reach $ 10 billion by 2016. The Ministry as well as the Central Bank envisages Sri Lanka to be among the top 10 apparel exporting countries by 2020.
To increase apparel export value from $ 4.3 billion in 2013 to $ 10 billion by 2016, apparel exports has to grow an annual average rate of 32.5%. The apparel sector is expected to achieve this skyrocketing growth at a time the world trade growth is expected to be sluggish and the economic recovery of the key import markets such as the European Union is expected to be slow. Apparel industry has delivered beyond expectations so far. Can the industry deliver the tall target set for it now?
If reaching $ 20 billion export target is dependent on apparel exports exceeding $ 10 billion, then the success or the failure of apparel will be the key determinant of the export success of Sri Lanka.
Dichotomy between targets and policy
Sri Lanka often laments of having only a few exportable products being the key reason behind the poor export performance of the country. Hence, the policy documents on exports emphasises the need for diversification as a key policy priority to revive exports. Yet, the targets set do not reflect any effort towards diversifying exports.
In contrast, by expecting apparel to reach $ 10 billion by 2016, at a time the total exports are to reach $ 17 billion (the latest figure set by Central Bank in its road map 2014), the country is doing exactly the opposite. The targets set reflect Sri Lanka’s exports being even less diversified than it is today by 2016. Apparel is expected to account for 59% of the total exports of the country by then. In 2013, apparel accounted for only 41% of total exports.
Targets beyond political rhetoric
Export targets mirror the plight of the export sector of the county. Exports are governed by a plethora of Government agencies that has very little or no communication with each other. There seem to be little or no consultation with the relevant industries when setting the targets or revising them.
Exports are a vital source of foreign exchange for the country and should not be treated lightly. If the country is to revive its export sector, it has to go beyond political rhetoric and be more serious about its export targets.
(The writer is Head of Economic Research, Vérite Research Ltd.)
