SRI LANKA’S EXPORT BASKET MOSTLY EMPTY

Sri Lanka’s economic growth was marked by only 3.1 percent in the year 2017, which is the lowest in 16 years. And the blame for this scenario was fallen mostly on the adverse weather conditions. But when comparing with other Asians who have faced almost the same level of experiences from adverse weather conditions, something must have been obviously missing in the Sri Lanka’s economic discussions.

Sri Lanka is the lowest rated on the growth of exports since 2000 to 2015. These growth accelerations in Sri Lanka during the post war period have tended to happen with a widening current account deficit. While government spending propped up economic growth in the years after 2009, export growth did not keep pace. When GDP increases, imports tend to increase as well. If exports do not keep up with imports, the current account deficit widens and growth then automatically slows down.

It is not only the amount of exports that we should pay attention to, rather the diversity of products that we are adding to our export basket. Further, it is also important the speed of the growth of exports so as to accompany the growth of the rest of the economy of the region. If we consider countries like Thailand, Malaysia and Vietnam, Sri Lanka’s export growth is far behind them.

Between the years 1995 and 2015, Sri Lanka has been able to expand its export portfolio by 13 percent. In comparison, Malaysia and Vietnam have enlarged export baskets by 2 per cent and 26 per cent respectively.Between 2000 and 2015, China added 76 products to its export basket; Thailand added 70 products, while Sri Lanka only added five products. This puts Sri Lanka at a major disadvantage to other frontier markets, which are developing and diversifying their exports, which has resulted in rapid economic growth.

Having said the need of expanding the GDP share of exports, one of the best examples could be driven from the communist nation of Vietnam. The aftermath of the war had left Vietnam among the five poorest countries in the world with 75 percent of the population living in poverty in 1984. Since then, the poverty level had dramatically decreased to 37 percent in 1998 and later to 29 percent in 2002, according to the World Bank.Vietnam experienced a first annual trade deficit in the year 2015 since 2011, which was estimated at; USD 3.17 billion. But in the year 2018, Vietnam witnessed a trade surplus of USD 2.7 billion. According to the government officials of Vietnam, the trade surplus was boosted by high export growth as well as increasing locally-made materials that contribute to reducing of imports.

What are the obstacles in the course towardsexport diversification?

Being an island and possessing tropical climatic conditions, Sri Lanka is bestowed with the best natural resources in the region. People can come up with various reasons for the low rate of innovations to the country’s export basket. There was a time that the differences in the availability of the factors of production (Land, Labour, Capital and Entrepreneurship) made the differences in the wealth of nations. But at present it is the difference in the level of productivity of using the factors of production which makes this difference. This same theory is applicable to Sri Lanka. Achieving a higher level of productivity on the other hand gives the means of expanding skills and innovations.

The Sri Lankan manufacturing sector faces a deficit of high skilled labour and technology intensive industries. Medium skilled and technology intensive industries have expanded over the twenty year period. Barriers to the expansion of the export products also coincide with the lack of knowhow movement within the country as well as into and out of the country.

Leaning to the same fact, from a proper definition of the requirements of enhancing the diversification of the export basket, can influence to re-think why Sri Lanka is lagging behind. According to the IMF, the items of a country’s export basket could be segregated based on a mix of five factors as described below. 1. Skills which refers to the levels attempt to group industries on the basis of their requirements of skilled or unskilled manpower), 2. Scale of production: Refers to the large, medium or small size companies, 3. Resource/endowment: Attempts to differentiate the more capital intensive industries from the less capital-intensive ones or more labour intensive industries from the less labour intensive ones, 4. Technology content: Primarily used to assess the quality of exports in the low, medium or high technology segments by accounting for the direct and indirect technology content of such exports, 5. Stage of production: Distinguishes the items by their use between raw materials, semi-finished or finished items.

According to my point of view, Sri Lanka can mainly address the last two factors in expanding its export basket which is the technological aspect and the stage of production aspect. Sri Lanka is at its middle stages in the process of technology inclusion into the export sector. When it comes to the stage of production of the export items, Sri Lanka still has a long journey to cover. The best Asian example of the fact of stage of production is Vietnam. I have personally experienced the difference in the market system in Vietnam and Sri Lanka through my two years stay in postgraduate education. From mobile phones to furniture, Vietnam's export boom shows no signs of losing steam. Without clinging to the Agricultural products Vietnam has widened its export items. Leather, textile and rubber or plastic footwear are among the 20 highest valued Vietnamese export products in 2017.

The most valuable Vietnamese exports also included with hi-tech products such as mobile phones, computers and solar power components. Crude oil is another area where Vietnam’s supply exceeds domestic demand and generates product-level surpluses for the Asian country.

Though Sri Lanka possesses an open economy, people themselves have created unseen barriers in entering into the market, which is the barrier related to ‘attitudes’. For some families in Sri Lanka, taking up entrepreneurship or a different career path would be a reason to be ignored from their level of society. Unlike in Vietnam, most Sri Lankans never try to think out of the box. From my own childhood, I have only heard that Sri Lanka is a main exporter of Tea, Rubber, Coconut and Apparels. Earlier, it was mentioned how other Asians increased their export baskets, but what is it with Sri Lanka? Between the years 2000 and 2015, Sri Lanka only produced and added five products to its export basket worth seven dollars per capita.

What shall we do?

It is obvious that Sri Lanka is performing well in the human development index and has excellent levels of adult literacy and life expectancy, leading South Asia in these categories. Yet, economically Sri Lanka is fading away from the region. As mentioned earlier, expanding our export basket would be the best solution to overcome this situation. Not only the employed workforce in the country, but also the upcoming workforce who is still in school, can contribute to this effort of adding more things to the export basket. While facilitating to enhance the innovativeness of the youth, it is necessary to provide room in the school syllabuses to develop a ‘creative’ generation. Further, the government of Sri Lanka must facilitate foreign investors to work in the country, while making a flexible environment for them. Productivity oriented cooperation among private and public sector industries is key for creating better conditions for companies that operate in Sri Lanka. Further, research needs to be drawn in search of strategies to attract new industries, cutting down any barriers which prevent them from establishing in Sri Lanka. Meanwhile, not only the export basket, Sri Lankans must be attentive to reduce the size of our import basket.