Home > Editor’s Picks > National Export Strategy II - Sri Lanka’s export competitiveness: The journey thus far

National Export Strategy II - Sri Lanka’s export competitiveness: The journey thus far

'

This is the second article of a series in which Economy.lk showcases the National Export Strategy of Sri Lanka.

 

Underlying the growth of a country’s export earnings is its “export competitiveness.”

Export competitiveness is a reflection of a country’s ability to grow its exports at a higher pace compared to its peer countries and the global export trade. In essence, it is the country’s ability to increase its market share in the global trade. If competitiveness is lowered, then a lower growth in exports can be expected and vice versa. If a country’s export growth is higher than that of global exports, its market share growth will accelerate.

Hence, it is natural that the primary thrust of any national policy to improve exports would be in the direction of elevating export competitiveness. In the latter part of this series of articles, the potency of the National Export Policy (NEP) to enhance Sri Lanka’s export competitiveness will be examined in detail. Prior to that, it is important to have a critical look at the current state of Sri Lanka’s export competitiveness.

 

Export growth: a comparative perspective

Figure 1: Export growth of Sri Lanka: a comparative perspective

The strategic intent of a National Export Policy would be to grow export earnings and gain market share from competing nations.   Figure 1 illustrates the historical growth trend of Sri Lankan export earnings in comparison to some of the peer economies in the region.

Sri Lanka has performed more or less equal to India and marginally ahead of Thailand. However, this is not something Sri Lanka should be content with. During the base year (2007) the export earnings of Thailand and India were 19 and 25 times that of Sri Lanka’s respectively. Since these two countries have a much larger export base, it is not unnatural for them to grow at a slower pace compared to smaller economies.  

Sri Lanka has performed well ahead of the clusters of Lower-Middle Income and Upper-Middle Income economies, and has beaten the growth rate of the global economy. Beating the average of a cluster of countries of disparate characteristics is less meaningful. What matters is how Sri Lanka has performed against growing economies in the region.

In this context, Sri Lanka’s performance hardly augers well, as Vietnam, Cambodia, and Bangladesh – probable sources of market share gain for Sri Lanka - have performed way ahead of Sri Lanka in the export sector.

Sri Lanka’s lukewarm performance is also evident in the comparison of the compounded annual growth rate (CAGR) of the export earnings of the same set of countries and regions (Figure 2).

 

Figure 2: Compounded Annual Rate of Growth of Exports (Based on World Bank Data)

Country/Region

CAGR

2007-2017

Bangladesh

11%

Cambodia

11%

India

7%

Thailand

6%

Sri Lanka

7%

Vietnam

15%

Lower middle income

6%

Upper middle income

4%

World

3%

Growth, by and large, reveals only the degree of change in export earnings. From a policy and business decision standpoint, it is important to understand not just growth rates, but most importantly the underlying factors. 

 

Export diversification: a comparative perspective

Figure 3: Sri Lanka export basket of products (1996 – 2016)

The wide gap between the growth rates of Sri Lanka and Vietnam (Figures 1 & 2) can be explained to a great extent by changes in the export basket of the two nations during the period between 1996 and 2016.

The share of textiles in Sri Lanka’s export earnings has declined from 67% in 1996 to 40% in 2016.  The excessive concentration of exports in the garment industry has diluted to some extent within the 20-year period under consideration (Figure 3).

However, the share of relatively high value manufactured goods (plastics and rubbers, chemicals, machines and vehicles) increased by only 9.4%. Overall, the Sri Lankan export sector is still dominated by low value added garments and agricultural commodities. These products are characterized by a low price elasticity of demand.

 

Figure 4: Vietnam's export basket (1996 - 2016)

 

A contrasting trend is observed in the changes in the export basket of Vietnam’s products. In 1996, crude petroleum accounted for 18% of the product exports of Vietnam, and machines accounted for 2.6%. By 2016 the share of crude oil had declined to 1.1% and the share of machines had grown to 46%. Some of the product categories included in machines are: broadcasting equipment, computers, integrated circuits, excavation machinery, electric power supply equipment, audio equipment, etc. Within 20 years, Vietnam has transformed its export basket, which was primarily concentrated on commodities and low value products, to high value manufactured products. On the other hand, Sri Lanka has failed to produce a similar change, and continues to rely on low value products for export earnings.

Thailand’s export basket has also undergone a rapid transformation in a pattern similar to that of Vietnam, albeit much earlier than Vietnam.

In 1980, agriculture and marine commodities (both in raw and semi-processed forms) accounted for as much as 54% and garments were another 6% of Thai exports. During the same year, the Sri Lankan export basket was largely comprised of agriculture and marine commodities (64.6%) and garments (11%).

By 2000, electronics and machinery accounted for 45% of Thai exports and the share of agriculture and marine commodities declined to less than 10%. In Sri Lanka, contrastingly, the share of garments, commodities, and semi-processed agriculture and marine products increased to 72.85% (Source: The World Bank).

Compared to both Vietnam and Thailand, Sri Lanka has achieved very little success in aligning its exports with the global high value products trade. It appears that Sri Lanka’s failure to transform its export basket to include a larger share of high value products has led to relatively low growth in export earnings during the last four decades.

The next article of this series will continue to examine Sri Lanka’s export competitiveness, with further evidence and expert views.

 

Related articles

National Export Strategy – Towards achieving a quantum leap

Key words

Export competitiveness, Sri Lanka, Thailand, Vietnam

 

The Ceylon Chamber of Commerce

Economic Intelligence Unit

Leave a Comment

Comments