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| Sunday, 8 August 2004 |
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| News Business Features Editorial
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A quarter century of export development - Time to reflect by Lloyd F. Yapa. The Export Development Board (EDB) celebrates 25 years of service in August this year. It is an opportune moment to reflect on the nation's achievements in the sphere of international trade, more specifically exports. But first, an explanation may be necessary as to why international trade is important to achieve prosperity. Why export ? If a country does not trade with the rest of the world, it will have to consume what it produces and vice versa. In the case of a small country like Sri Lanka, which is not well endowed with resources, then, the size of an individual's share of the national cake will be miniscule. Worse, it cannot produce everything it needs, unlike a large country. If on the other hand, it specializes in what it does best competitively and exchanges it with goods and services, other countries specialize in and can sell cheaply, clearly it can enjoy a higher standard of living, especially because its earnings will be higher, (when catering to the larger external market) and because of the variety it can obtain at lower prices. In this process, it will also gain access to capital, technologies and managerial skills, (which are not available locally) for production. This is the reason why most countries in East and South East Asia had opted for an export orientation by the fifties and sixties and started prospering. Sri Lanka therefore followed suit after 1977, rather late. Export Performance, 1980-2003 In 1980 the country had exported about US$ 1000 million worth of goods, to which primary agricultural commodities contributed 63%, while the balance was the share of industrial products, (garments 10% of the total). By 2003 the value of exports had risen to around US$ 5000 million. Industrial products, earned about 80% of it. The contribution of exports to GDP rose to about 30% from about 21%. On the face of it, this is a satisfactory performance. But an in-depth examination reveals several glaring flaws. Nearly 20% of exports still go out of the country in primary form, value (and jobs) being added elsewhere. The balance 80%, though described as industrial exports, are really products involving a low level of skills. Of this latter category, by far the largest product area is garments, which also like primary commodities, fetch low prices. The industrial exports are also dependent on foreign exchange guzzling imports, with few backward linkages into the poverty ridden rural sector. They are in addition precariously perched on just a couple of markets. Sri Lanka therefore has not graduated to the tertiary level of differentiated and branded products/services, which command premium prices. Inability to create capacity The main reason for this failure is the inability of the nation to create sufficient production capacity by saving and/or attracting substantial flows of Foreign Direct Investments (FDI), usually accompanied by market access, the necessary technologies and managerial skills not available locally. However, two small Asian countries, Singapore and South Korea had added to their own sizable savings about US$ 69 billion and 15 billion FDI respectively in the period 1980-97, whereas Sri Lanka had managed to entice only a paltry $1.5 billion or so in the same period. These two countries by dint of exporting value added, differentiated manufactured products and services, had pushed up their GDP per capita p.a. to over US$ 30,000 and about US$ 11,000 respectively by the end of the century from about $ 431 and $156 respectively in 1960. Sri Lanka' per capita income had risen only to around $ 950 by 2003 from $142 in 1960, due mainly to the failure of the export sector to contribute substantially to economic growth. A more effective strategy The main requirements for attraction of such investments are social and political stability, supported by sound macro economic policies, capable of ensuring price stability, relatively open markets ( in respect of goods/ services, labor, land, capital etc ) to secure inputs at internationally competitive prices, developed infrastructure facilities, law and order, respect for property and other rights, an efficient public service and a system of education to provide sufficient tertiary (Science & Technology, Managerial) skills, to maintain a strategic edge of competitiveness over competitor countries. The country is still in the throes of developing these attributes. In fact the country's competitiveness has been ranked 61st out of seventy five countries recently. Some of the high performing countries such as Taiwan are also renowned for adopting a more interventionist approach of development of exports, where the entire State apparatus work furiously in concert not only to ensure a conducive environment for investment and to maintain competitiveness, but also to seek out investors and go all out to provide them with the planning, stimulus and the facilities they require to compete eg super competitive geographic clusters of enterprises producing similar products, (as electronics at Taiwan's sprawling Hsinchu Science Park), with all the supporting industries and services to build up a rapidly rising level of differentiated and branded exports in identified areas with high potential. Sri Lanka has yet to develop such a system, where the EDB and other institutions concerned such as the BOI are all able to work with the entrepreneurs towards one goal, adopting a common set of strategies driven by a single- minded political commitment. The 25th anniversary of the EDB is an appropriate moment to think of such an approach, without which the ultimate national goal of achieving prosperity and alleviation of poverty in this country, will continue to recede into the far horizon. |
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