Overcoming prolonged stagnation in exports

Wednesday, 15 May 2024 00:00 -     - {{hitsCtrl.values.hits}}

There is a widespread plea from many segments of the society to transform Sri Lanka into an export-oriented economy in order to find a sustainable remedy for the economic challenges faced by the country. Since 2011, the country’s exports, particularly the merchandise exports, have been experiencing an impasse, with prospects for considerable expansion looking dim.

In 1990, Sri Lanka’s exports were $ 2 billion and were on par with that of Vietnam and Bangladesh. However, the two competitors had leapfrogged over the last three decades whereas the South Asian Island had languished. Last year, Vietnam’s exports were $ 355 billion and Bangladesh’s exports were $ 60 billion while Sri Lanka’s corresponding figure was a miserly $ 12 billion. Over the last decade or so, the value of merchandise exports has been oscillating without taking off. The stagnation in export of goods is primarily caused by over reliance on apparel exports that represent about 41% of total merchandise exports. 

Apparel exports are predominantly directed towards the US and Europe, and economic recessions in the two regions periodically impact the fortunes of the nation’s prime export commodity. The apparel industry in Sri Lanka began to take off in the ‘80s because of the quota-guaranteed market access to the US and Europe in addition to the advantages the country possessed with regard to low-skilled, low-cost labour. Compared to competing countries like Bangladesh, Sri Lanka’s prevailing wage-levels are high and therefore, its early competitiveness as an apparel exporter has deteriorated. It is essential that policymakers explore sectors beyond apparel to drive the next stage of growth in exports as Sri Lanka’s competitive advantage with regard to garments is diminishing due to rising labour costs as well as lack of interest among women to seek jobs in the industry.

Lack of consistency in policymaking too has adversely affected the progress in exports. In 2018, under the direction of President Wickremesinghe (when he was Premier), the EDB unveiled the National Export Strategy 2018-22 (NES), which focused on developing new export industries and services outside the traditional industries of apparel, tea, gems and rubber. Boat building, spices and concentrates, food and beverages, ICT/BPM, electronics and electrical components, and wellness tourism were recognised as the focus sectors under this strategic plan. However, the Gotabaya Rajapaksa administration in 2019, in an awful move, discarded the NES – which was formulated after conducting a series of national consultations for over a year with a number of stakeholders.

Sri Lanka’s inability to attract export-oriented foreign direct investments has impeded the growth of exports, while its regional peers like Vietnam and Thailand have been able to significantly expand their exports due to their capacity to attract foreign investors who have established business ventures to produce high-value manufactured goods to the export market. Vietnam has transformed itself to become a global manufacturing hub and the South Korean mobile phone giant Samsung is their largest exporting entity. 

Sri Lanka’s ability to attract prominent multinationals is severely constrained by its outdated laws and regulations. No foreign-owned firm (with a foreign ownership of more than 50%) can buy a land in the country as per the existing legal framework. Regressive views that oppose foreign investors buying lands in the country don’t do any good for the country’s economy and unless some of the archaic laws are reformed, prospects for attracting foreign investments are remote.

Special-interest lobbies and political parties that advocate excessive protectionism of the local market are obstacles to develop an export-led economic development strategy. Developing an export-oriented economy necessitates a competitive domestic market in which both local and foreign-made goods compete on a level-playing field. A competitive domestic market which resembles the characteristics of the international marketplace provides the ideal foundation for local enterprises to formulate effective strategies to succeed in the international market. Without a paradigm shift in the thinking pattern of the society with regard to economic policy choices, an export-oriented economy will remain a perpetual dream.