Productivity, a key determinant for export growth

by Rohan Masakorala

Over the last two decades the global markets have shown tremendous change and movement of activities across continents and borders. Asia has particularly emerged as a global manufacturing and a supply base for developed markets and emerging markets.

Strong geo-political shifts have taken a lead role and have changed the global trade patterns significantly. While Asia and its policy makers have shifted towards regimes which are adapting more market-friendly mechanisms to attract FDI, they are also competing among themselves to gain more access in developed nations and emerging nations to reach the consumers who have greater buying power and demand.

Therefore, Asia as a continent has been expanding its export growth significantly while within Asia; the two giant markets of China and India are also emerging as consumer markets creating more opportunities for other smaller exporting countries to gain market access and increase export growth.

In the modern context, for an export-oriented nation, competitiveness by way of pricing products and market access are some of the key elements to be recognised as a reliable sourcing destination for global consumers and retailers.

However, an important element has emerged that could be one step ahead, which is the supply chain efficiency which has tremendous advantages to an export-led economy to gain market access even if some factors are negative.

The cost of market access due to loss GSP+ could be considered considerable over a term and some in the industry have indicated as much as a $ 1 b as a opportunity cost over the next few years.

It is true that an opportunity cost along with a reduction of volumes of certain product items to other countries who have '0' rated market entry to EU have eroded our competitiveness, given our competitors having this preferential access to EU for products that we make, we too must try to obtain a level playing field for our products.

We should try to get this trade tool back if possible in the future and expand our market presence in EU and the US as old issues are 'water under the bridge' and we must move on, whilst trying to enter new markets, which is of course is easier said than done, especially in India and China due to many practical reasons.

Today the supply chain efficiencies are measured by global agencies through various indices such as 'logistics index', 'doing business index', 'institutional performance index' and labour laws where global investors and buyers are keen to know the market conditions of a region or a country.

What do these indices really mean?

Considering the modern global market demands, prices can be still flexible if suppliers can ensure quality, reliability and most importantly speedy delivery to the market. The concept of 'speed to market' is described as "where the retailing and sourcing giants of the world could receive and deliver goods to consumers with the shortest lead time at an affordable price". For this purpose, exporters must provide products to the market when required at the fastest speed by reducing lead time and product circle times which will have an overall cost benefit through supply chain savings and bring in a better price to the exporter and the retailer. This means that the end customer too will have products as per consumer patterns and demands delivered on time at an affordable price. Examples of this would be the apparel industry, motor car, telecommunication and other mass market products.

For exporters to be successful in the supply chain and to penetrate markets they need extreme efficiency and high productivity at the manufacturing end so that a competitive edge could be developed to increase market share and attract more manufacturing industries to locate in countries where such global indices are at the top level of the ladder. That is why today logistics are a key component of the competitiveness.

To attain a highly competitive, sustainable and a diversified export economy, the current status of Sri Lanka's global rankings needs to be uplifted. Public sector institutional reforms are required to do so. It is critical that the government takes a lead role in two areas other than the infrastructure which they have done a credible job to meet this challenge:

1. A stable policy regime with a focus on export growth and to create a shift in attitude in the public sector.

2. Modernise and reform rules and regulations of state institutions involved in facilitating export trade.

The above has to be led through a focused and a dedicated mechanism where currently such provisions are already available under the Export Development Board Act. It is only a matter of implementing the said Act, where the President of the country can lead a council of ministers from different ministries to work together and implement a common policy on export strategy.

It is only such a centralised and a powerful body that could take necessary steps to help exporters reduce cost and increase efficiency by way of bringing in needed policy, implementation, reform and modernisation of state institutions.

This process will bring in the necessary productivity, a common platform and tools for the state institutions to support entrepreneurs and businesses involved in export by way of facilitating them through simplified systems. This in turn will directly support global competitiveness of our exports by reducing domestic costs, and delays whist the country has the advantage of speed to market through our geographical location if properly exploited.

Increasing export volume

Over the last few years, it has been observed that the local export industry has been lagging behind the region in terms of diversity, capacity expansion and investment in the sector.

This has reflected poorly against the national GDP growth whereas services sector has kept on growing. All though a reasonable export growth has been shown in terms of turnover, the export industry is below 17 percent of GDP.

It is time that the Cabinet of Ministers takes a serious look at the export sector, in terms of industrial growth, capacity expansion, and product diversification, entering into preferential trade and tariff arrangements with emerging, existing and promising markets.

The time has come to infuse new energy to entrepreneurs and industrialist to focus more towards setting up manufacturing-based export industries in Sri Lanka.

Given the cost of energy, interest rates and rising labour costs the industrial sector in Sri Lanka is finding it difficult to sustain competitiveness and expand capacity, many of our Asian counterparts including India are increasingly looking at bilateral and multilateral trade arrangements to give a competitive advantage to their domestic industry and to expand export activity.

It is vital for the government and the national economy that we start increasing our dollar inflows through greater export earnings rather than allowing other sources of foreign income clouding the environment and taking away the attention and the importance of the export sector.

A level playing field, bottom up economic growth, innovation, ideas and creativity are important to sustain export growth with a high focus on productivity both in public and private sector.

Stable policy implementation

President Mahinda Rajapaksa has pledged a credible and needed reforms agenda to the country in the annual budget speech. This includes the five hub concept and beyond.

On the one hand, we see the speedy development of infrastructure happening in almost all sectors that were neglected. We have to welcome this but much more has to be done to increase efficiency and productivity, most government institutions do not work the full eight hours and this is now spreading to the private sector too. Technology and automation is a good tool to increase productivity.

It is important that we increase productivity as a nation and this is critical for us to compete globally. An attitude shift is a must to achieve this goal.