Sri Lanka, since colonial era, has been playing a significant part in international trade.As a country that is blessed with natural resources, the main reason as to why imperialists came to this tiny island was its export-oriented natural resources such as spices mainly cinnamon.
Since then, exports of this nation have been primary and not value-added. It ought to be mentioned here that with the introduction of the open economic policy in 1977, imports began to play an important role in the Sri Lankan economy. However, Sri Lanka has become a country that imports more and exports less, resulting in balance of payment crisis.
The country has been exporting to the limited number of markets such as Middle East, USA and EU. It remains important to note here that Sri Lanka has brushed aside some emerging markets like Latin America. Furthermore, some fluctuations can also be seen in Sri Lankan export sector, majority of which have a bad impact on the economy.
It was recently reported that European Commission decided to impose a ban fish exports from Sri Lanka to the European Union (EU), as Sri Lanka had not taken effective measures to tackle illegal fishing. The state of affairs is worse, as Sri Lanka is the second largest fish exporter to the EU. What has to be done is that fish exporters have to find out new markets.
This reminds the nation that not only comparative advantages but also many more factors such as human rights, being environmental friendly and adhering to international standards can influence international trade of any particular country. By extension, a country should not always depend on one market, as the international market is volatile by nature.
Apparel and tea exports
Sri Lanka’s share of world exports is on the decline. Apparel and tea exports claim for a large share of Sri Lankan exports both of which have become exports that the country has lost its previous comparative advantages.
The country could attract foreign investments due to the highly educated and cheap labour in the country. That is why it has been the largest contributor to export earnings.
However, the industry is currently facing numerous challenges in the competitive world market. Facilities for workers were upgraded and wages also had to be increased resulting in higher cost of production. It can be clearly seen that girls who have been the largest labour force in apparel sector, are reluctant to join with the industry, mainly because of the social stigma
attached to the sector. Nevertheless, countries like Bangladesh are ahead of Sri Lanka in terms of low cost production. Therefore, it can be seen that the country has lost previous comparative advantages in the sector. In addition to that, Sri Lankan garments are exported to the USA. Hence, economic recession in USA also had a bad impact on the sector.
The driving force that has been contributing to the export earnings for decades, is tea. Although Ceylon tea has gained wide currency all over the world, from the recent past, it has been facing challenges in the world market. The Middle East is the largest market for Sri Lankan tea. It remains important to add some value to the exporting tea, so that higher prices can be earned per kg of tea.
Packaging as tea-bags results in the highest value per kg. However, the share of tea-bags in total exports has stagnated below 10 percent. The second highest value per kg is fetched by instant-tea. But it accounts for less than 1 percent of total tea exports. Accordingly, the emphasis ought to be given for adding some value to the tea exporting.
Kenya is the most powerful competitor that Sri Lanka has in the global tea market. Kenya has so many advantages over Sri Lanka, especially, Kenyan lands are flatter compared to Sri Lanka. That will of course assure higher yields. By extension, technology is used at lower level, resulting in low productivity. Our country has tea estates that were grown and maintained by the British. It is needless to state that older estates give lower harvest. As a consequence, cost of production goes up in comparison to other countries like Kenya. Tea estates suffer from the lack of sufficient labour force, as younger generation is reluctant to join with the sector. As tea industry is used to be labour intensive, it will have a bad impact on the sector.Sri Lankan tea exporting destination has been chiefly the Middle East countries. However, the possibilities should be found out to turn the Latin American region into our tea market.
Looking beyond traditional exports
The time has come for the country to look beyond traditional export items.Instead of tea, rubber, coconut and garments, new services like education can be exported. Sri Lanka, fully utilizing its peaceful environment, must create a conducive environment where education providers and foreign students can meet each other. Singapore and Malaysia are countries that were behind Sri Lanka, but now export education as a quality service.
Sri Lanka, since its inception, has been used to be a labour intensive country. However, it seems that the country is losing its comparative advantages in labour intensive products. Therefore, what has to be done is that more and more FDIs ought to be attracted to the country, creating capital intensive environment. It has been proved that only the peaceful environment doesn’t pave the way to attract FDIs.
It has to be penned down that this is the best time for the country to diversify its exports and look for new exporting destinations in the world. While keeping traditional markets as they are, Sri Lankan presence in the global market should be expanded.