Relying on services sector to propel Sri Lanka’s exports

At the 2026 post-Budget Forum organised by the Daily FT in partnership with the University of Colombo MBA Alumni Association, Senior Adviser to the President on Economic Affairs Duminda Hulangamuwa remarked that Sri Lanka should make a strategic pivot towards high-value service exports, echoing the view which has been consistently advocated by this newspaper on a number of occasions.

The bold statement of the prominent economic advisor to the Government comes at a time when the Sri Lanka Export Development Board is in the process of formulating the National Export Development Plan 2025-2029 in collaboration with the Asian Development Bank. 

The blueprint is expected to serve as a comprehensive and strategic framework to guide Sri Lanka’s export-led economic transformation over the next five years. The Government has set an ambitious objective to generate $ 45 billion exports in 2030, by earning $ 25 billion from merchandise exports, $ 11.5 billion from service exports, and $ 8.5 billion from tourism earnings.

Nevertheless, it is pertinent to raise the issue whether the emphasis on exports is aligned with the views of political leaders of the NPP Government regarding Sri Lanka’s economic direction. Prior to gaining power, the NPP pledged to herald a production economy - a political slogan, not a concept found in the principles of economics - which underscores enthusiasm for the manufacturing sector to be the driving force of the economy. Even from the JVP days, the current ruling party expressed a fondness towards factory production and agriculture while demonstrating reservations towards trade and services.

According to Hulangamuwa, deep-rooted structural constraints limit Sri Lanka’s ability to scale up manufacturing exports despite the enthusiasm of many to see Sri Lanka becoming another South Korea with prowess in high-tech manufacturing. For decades, the country’s manufacturing sector has been dominated by low-skill and light manufacturing segments such as apparel, rubber-based products, and food processing while experiencing difficulty to diversify into medium or high-tech manufacturing. High-tech manufacturing requires reliable supply of power at economical rates, an area in which Sri Lanka fares quite poorly. Moreover, with a rapidly ageing population, Sri Lanka has lost its appeal as a destination for mass-scale, manufacturing- oriented foreign direct investments due to its declining labour force. 

The university system too does not provide graduates proficient in STEM disciplines in sufficient numbers to facilitate the growth of high-value manufacturing sectors.

Although the potential to excel in manufacturing is constrained, the nation has a huge opportunity to increase its export income by focusing on service exports. From ancient times, Sri Lanka has been one of the important maritime hubs for international traders. The geographical location gives a comparative advantage to the country as the gateway to the Indian Subcontinent to serve South and East Asia, the Middle East and Africa on the main East and West shipping route. Colombo Port has always been consistently ranked among the top 50 World Container Ports above other South Asia ports based on the volume of the containers handled. The Port has also emerged as a transhipment hub for a significant portion of Indian cargo due to its ability to handle deeper-draft vessels unlike main ports in India. With such inherent strengths, Sri Lanka can become a prominent logistics hub in Asia, aided by the growth of the Indian economy.

Tourism is undoubtedly a low-hanging fruit which has the potential to enhance Sri Lanka’s service export income substantially. However, Sri Lanka needs to be positioned cleverly as an up-market tourism destination to ensure the sustainable development of the industry.

A service-driven export strategy necessitates open and liberal economic policies backed by excellent relations with major foreign powers of the world. The view that industrialisation is the only pathway towards economic development for developing countries is no longer supported and endorsed by empirical evidence.