SL’s lack of innovation, markets limit export growth : Dr. Kelegama
View(s):While countries such as Vietnam and Bangladesh are rapidly growing their respective export bases, even during a global economic downturn, Sri Lanka’s lack of export innovation and limited markets have stymied growth, according to Dr. Saman Kelegama, Exective Director of the Institute of Policy Studies.
Garment factory workers
Making a presentation at the recently held 18th annual general meeting of National Chamber of Exporters of Sri Lanka, Dr. Kelegama opined that the country’s export performance since 2000 has not been “satisfactory”. He also added that exports had been on the decline, as a proportion of overall global exports, as well as in relation to the Gross Domestic Product (GDP). Additionally, he noted that Sri Lanka’s absolute earnings in terms of exports in 2012 had also fallen, with many of these factors known to be partly impacting the country’s expanding trade deficit in 2011 and 2012.
Further, Dr. Kelegama also pointed out that, in both 2010 and 2011, domestic exports had grown at a rate of just 18.2 per cent and 5.4 per cent, respectively. This was in comparison to India’s 40.5 per cent and 29.3 per cent; Vietnam’s 26.4 per cent and 33.3 per cent; Thailand’s 28.1 per cent and 17.4 per cent; and Mauritius 18.7 per cent and 23 per cent. He also indicated that, over 2010, Philippines’ exports had risen by 34 per cent, while Pakistan’s and Bangladesh’s exports increased by 29.3 per cent and 41.5 per cent, respectively, during 2011. As such, he commented; “Clearly the global economic downturn is not the only reason for the low export growth in Sri Lanka”.
At the same time, Dr. Kelegama also highlighted the significant export growth examples of Vietnam and Bangladesh, both of which had previously maintained similar levels of exports, in 1990, to Sri Lanka. He explained how these two countries had done well by diversifying their export portfolio of items and services as well as the markets exported to. He reiterated that Vietnam had risen from US$2 billion in exports in 1990 to $96.8 billion in 2011, now comprising exports of 20 per cent to USA, 11 per cent to Japan and 10 per cent to China and 4.5 per cent to South Korea. Further, products now exported consisted of clothing, shoes, marine products, crude oil, electronics, wooden products, rice, and machinery. Similarly, Bangladesh’s exports rose from $1.7 billion in 1990 to $24 billion in 2011 and, while the country was the world’s second largest ready-made garments exporter at $19 billion, it was now also focusing on ship building and pharmaceuticals, amongst other products, for export growth. Dr. Kelegama also highlighted the fact that Sri Lanka had grown from $2 billion, in terms of exports in 1990, to $10 billion in 2011. And, as per Export Development Board data provided by him, 62 per cent of all exports in 2011 were made up of primarily ready-made garments ($4 billion) along with a few manufactured items. Further, he also added that 54 per cent of exports went to EU and NAFTA.
Continuing, he also explained that almost 99 per cent of Sri Lankan exports were simple products which were easily copied, and the value of local high technology exports had fallen “sharply” from $102 million in 2008 to $57 million in 2010. Another important disparity, according to Dr. Kelegama, was high technology exports as a share of all exports, now averaged 1.8 per cent. This was compared to 75 per cent for South Korea, over 50 per cent for Singapore and Malaysia, and 27 per cent for Thailand.
As such, Dr. Kelegama recommended certain measures which would more fully realise Sri Lanka’s export potential. These included making the country’s macroeconomic policy environment more conducive for exports by way of a more flexible exchange rate, lower interest rates and better trade facilitation. He also reiterated that new, emerging export markets and/or innovations must be better tapped, with the government also helping to actively promote and encourage these new areas. Moreover, he advised that private sector research and development activities had to be ramped up, along with maximising the use of existing preferential and free trade agreements. Most of all, he advocated an evolution to more complex products, from Sri Lanka’s current crop of simple, easy-to-copy exports.
Elaborating further, Dr. Kelegama also commented that Sri Lanka’s export share in India was 5 per cent, with 0.7 per cent for Pakistan, and 1 per cent for China, and that these markets could be better exploited due to existing trade agreements such as ISLBFTA, PSLBFTA, SAFTA, and APTA which allowed for greater penetration into these markets. He also advised that the growing export markets that Sri Lanka had to target would be China, India, East Asia, and the Middle East. He was also of the opinion that local companies first entering these markets would benefit significantly benefit as a result of early mover advantage.
Additionally, Dr. Kelegama noted that his advice to increase research and development expenditure was not so much because of the fact that it was low overall, in relation to other countries, being at 0.11 per cent of GDP, but that the private sector share of this was just 18 per cent compared to ‘successful’ exporters where this indicator generally topped 65 per cent. In keeping with his suggestions, Dr. Kelegama also revealed a number of areas where Sri Lanka could quickly build competencies and even possibly excel in a relative short period of time. These included the light engineering sector, which supplies parts and spares for machinery, equipment and tools.
An area in which Sri Lanka currently only exploits 20 per cent of its current capacity, and which would allow the country to accesses highly lucrative potential export markets such as Singapore, India, EU, USA, Hong Kong and Japan. He also indicated that plastic products and printing services were also areas to be considered, with the former encompassing polyethylene shirt and food wrap bags, etc., and the latter comprising stationery, labels, etc. Both of these fields were identified as having ‘considerable’ export potential, particularly in terms of exporting to SAARC region countries, the Middle East and the Far East, as well as even USA. In the meantime, printing services could also be further in-demand in countries such as Russia, Kenya and Australia.
(JH)
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