Starting this week, Economy.lk will showcase a series of articles on the recently cabinet-approved National Export Strategy.
A year ago, Sri Lanka unveiled a new trade policy (NTP) to address the decline in Sri Lanka’s openness to international trade and investment.. Now it has introduced a National Export Strategy (NES) aimed at increasing exports. NTP and NES together are an important element of Sri Lanka’s strategy to closely integrate its economy with the global supply chain and propel the island nation to the upper-middle income level.
A not so buoyant export sector and Sri Lanka’s dependence on imports have often been cited as reasons for the frequent balance of payment crises the economy has been facing. Sri Lanka’s declining export performance is well illustrated by the fact that the exports and goods to GDP ratio reached 39%, an all-time high, in 2000 but rapidly went south to hit 19.1% in 2010. Since then, it has edged up to 22% in 2017. In contrast, during the same period, the export of goods and services to GDP ratio of Cambodia moved from 49% in 2000 to 61 % in 2017, and in Vietnam from 54% to 104%. Sri Lanka was ahead of the cluster of “low-income economies” in the year 2000. However, by 2017, Sri Lanka ended up 2 percentage points lower, despite having moved to the lower-middle income sector.
Figure 1: Exports of Goods and Services to GDP of selected countries and lower-middle income countries. Source: The World Bank.
The new export strategy is formulated with the objective of shifting the source of growth of the economy. Commenting on the cabinet approval of NES, the Minister of Development Strategies and International Trade Malik Samarawickrama stated that, “The focus of the Government is to shift the economic growth model from one that was heavily dependent on debt fueled public infrastructure spending, to growth driven by more private enterprises, exports and foreign direct investment”.
Ministry Secretary Chandanie Wijayawardhana has mentioned1 that the National Export Strategy will have a tangible impact on how trade is conducted in Sri Lanka and will give way to suitable trade reform.
The implementation of NES, is expected to result in export revenue of USD 20 billion in 2020 and USD 28 billion by 2022, up from USD 11.4 billion in 20 (Source: Ministry of Development Strategies and International Trade). To reach this target, Sri Lanka’s export earnings will have to grow at a compound annual growth rate (CAGR) of 19.7%.
This is no doubt an ambitious target. From a global perspective, the table below presents the compound annual growth rate (CAGR) of ten countries which have achieved the highest increase in value of exports during the preceding period of 2011 to 2017.
|5. Costa Rica||7.0%|
|6. Sri Lanka||7.0%|
|9. Dominican Republic||6.2%|
Source: The World Bank
Myanmar and Luxembourg were excluded
Of the economies with over USD 10 Billion export earnings (reference year 2017), Vietnam has registered the highest CAGR of 16.1%. Sri Lanka’s own CAGR during the last six years was just 7%. Therefore, to reach the set target of USD 28 billion exports in 2022, Sri Lanka will have to maintain three times the CAGR it has achieved during the last six years.
However, Sri Lanka certainly doesn’t need to be constrained by past international achievements. Nor should she be bound by own past performance. Quantum leaps cannot be achieved by planning for incremental changes.
Quantum leaps demand transformative catalysts.
This series of articles will rationalize and validate the sub-strategies of National Export Strategy and will examine the challenges Sri Lanka is likely to face in implementing it.