The trade surplus plays a pivotal role in the economic growth of a country. When exports are more, a high level of output is created from the country’s export industrial sector. The export-related business enterprises and State-owned institutions also provide a larger portion of employment to Sri Lankans through their respective operations.
Hence, exports are exceptionally important to modern economies, including Sri Lanka, as they offer more markets for the goods and services in the country. Exports benefit the country to promote monetary movements and also to improve industrial growth, generate employment, and attract foreign income.
For Sri Lanka, resources obtained in trade transactions contribute to offset the cost of imports in order to boost the domestic economy. Historically, the trade deficit in Sri Lanka was negative and with the emergence of the pandemic, it has increased to almost unbearable levels. Hence, a dire need has arisen to promote exports to bridge the gap.
Lost tourism
Due to the Covid-19 pandemic catastrophe, Sri Lanka has completely lost revenue earned through the tourism industry, a large portion of the revenue from decelerated apparel exports and foreign employment since the breakout in January last year. Sri Lanka’s travel and tourism industry is yet to commence and foreign employment earnings are down by over 50%, whilst the export sector has shown a commendable improvement from January to date.
It is common knowledge that Sri Lanka is undergoing one of the worst periods related to foreign reserves that are required to import essentials, provide public welfare, and payback foreign debts. Therefore, until the strict health restrictions carried out throughout the world are removed, encouraging the export sector to perform better is a worthy short-term solution to manage the Government expenditure.
As per the data from the Export Development Board (EDB), Sri Lanka has recorded US$ 7.8 Billion in merchandise exports revenue between January and August 2021, marking an increase of 22.3% compared to the corresponding period in 2020.
Almost all major export products sectors such as apparel, rubber-based products, tea, coconut, electronics and electrical components, and several other goods have performed well with enhanced volumes. This performance not only is a consolation to the country’s ongoing foreign exchange crisis but also to the overall economy.
Amid numerous negative effects, Covid-19 has given an important and valuable opportunity to the Sri Lankan exporters. A trade shift has emerged and the world merchandise trade is expected to increase by 8% in 2021 after a fall of 5.3% in 2020 according to World Trade Organisation (WTO).
The same source predicts that a larger portion of the demand will be met by Asia of which the growth is expected to be 8.4% as a region. Although the trend can be short-term, the Sri Lankan exporters are capable of exploiting the situation in finding new markets with the assistance of the relevant Government institutions.
The Export Development Board (EDB) currently is seemingly taking an extremely creditable proactive stance in promoting Sri Lankan exports. The EDB sources reveal that they are specifically concentrating on virtual promotions through Zoom and webinars due to restrictions on physical engagements.
It is commendable that the EDB has taken the opportunity provided by Covid-19 as another positive opening to the country’s exports. The EDB, combined with the Ministry of Foreign Affairs and the Sri Lankans foreign missions throughout the world is carrying out a promotion drive according to the EDB sources.
Awaiting opportunities
The world demand for agricultural products, particularly organic food is increasing rapidly. As per available information, there are over 12,000 organic farmers and over 350 certified exporters in Sri Lanka currently. The demand for organic food in European countries and the entire western hemisphere as a whole can be a huge opportunity for Sri Lanka if the country’s export commodities and services are properly marketed. In addition, the world demand for Sri Lankan tea and spices also have grown considerably during the past year.
The apparel sector that generates revenue of approximately US$ 5 Billion to the country’s economy as the second-largest single contributor, after the foreign employment sector, also is undergoing several challenges. As per the industry sources, although their order books are full, the manufacturers are forced to operate with 25% to 30% lesser capacity due to a dire shortage in labour.
Even with the best health and safety measures provided to the staff by almost every manufacturer, the workers are still reluctant to return to work. Most of them have left jobs due to fear of the pandemic whilst some have stopped because of peer pressure as the vast majority of industrial facilities are located outside urban areas where workers are usually village-based.
According to the information available, out of approximately 350,000 total work forces, only around 56,000 are employed in Export Processing Zones (EPZs). As per several industrialists, this writer spoke to, the apparel exporters are currently conducting awareness campaigns to attract new factory workers.
The general opinion is that apart from the apparel exports that count over 40% of the country’s total exports and other traditional exports, it is time to concentrate on other industrial exports with renewed energy and enthusiasm. For example, information and communication technology is an area that can be developed tremendously in a comparatively short period.
Additionally, the current high individual earnings of those who are already engaged in ICT exports are a definite encouragement to new entrants. Presently, the industry with over 300 companies with nearly 150,000 workers, serving clients all over the world with a highly skilled workforce serving a number of industry sectors. Currently, several major players are on promotional programs to attract more Sri Lankan youth to this lucrative export-oriented industry.
Promoting micro, small and medium scale entrepreneurs to enter into export trade will be an extremely effective step to increase export volumes. As in India or China, developing high-quality export goods through cottage industry can produce effective results for the export industry in the country.
A properly strategised action program for the self-employed fraternity, under the guidance and supervision of major industrialists and the Government, can improve the export volumes. This not only will benefit exports but also will upgrade the social lives.
Foreign Direct Investments (FDIs) are extremely important and considered as the heart of economic growth in any country whether they are high, middle, or low-income countries. FDIs can boost export industries and diversify the composition of the existing export basket with new sectors opened up in the middle of the Covid-19 pandemic.
The Board of Investment of Sri Lanka (BOI), the apex agency responsible for carrying out the primary function of investment promotions is one of the most important institutions to the country’s overall economy. According to available information, last year the institution has drawn investments of US$ 1.4 Billion, out of which approximately 50% was as direct investments from foreign investors. The balance was from the local investors who are on BOI-approved entities.
No doubt that the role of BOI is a key component in attracting foreign investments. The institution has taken many constructive steps in recent years. Nevertheless, without collective efforts from other stakeholders such as policymakers, environmental authorities, relevant private and public sector entities, and intellectual inputs, the task will be daunting.
Being open
Particularly, Sri Lanka is placed at 99th place in the Ease of Doing Business Index currently. This position in the index is a tremendously depressing factor to attract FDIs. The Government has to be actively and consciously involved in all aspects of easing the processes and procedures for investors.
According to many entrepreneurs engaged in exports with foreign collaborations, one of the most critical negative factors in drawing FDIs is the prevailing stringent labour laws in Sri Lanka. Most of them feel that labour laws must be completely revamped as early as possible to upgrade the ease of doing business index position.
Along with the high literacy rate, skills, and general intelligence of the citizenry, Sri Lanka has the best opening in the geographical region in the world export trade. Also, Sri Lanka, as a country, possesses numerous resources that can be processed as export commodities. The exports promote monetary movement and contribute to industrial growth, generate employment and foreign income.