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Sri Lanka should reconsider its export items and destinationsMonday, March 09, 2015 > 14:11:38
By Amila Muthukutti
Sri Lanka, since colonial era, has been playing a significant part in international trade. The main reason 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 open economic policy in 1977, imports began to play an important role in Sri Lankan economy. However, Sri Lanka has become a country that imports more and exports less, resulting in a balance of payment crisis.
The country has been exporting to a 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 the Sri Lankan export sector, majority of which have a bad impact on the economy. It is recently reported that European Commission has decided to impose a ban on 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 should be is that fish exporters need to find out new markets. This reminds the nation that not only comparative advantages but also many other factors such as human rights, being environmental friendly and adhering to international standards can influence the 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.
Sri Lanka’s share of the world exports is on the decline. Apparel and tea exports claim a large share of Sri Lankan exports though the country has lost its previous comparative advantages in both categories. It is known that the country could attract international investors to the apparel sector, due to the highly educated and cheap labor 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 labor 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 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 Kilo Gram 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%. The second highest value per Kg is fetched by instant-tea. But it accounts for less than 1% 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 a 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 the older estates give lower harvests. As a consequence, cost of production goes up in comparison to other countries like Kenya. Tea estates suffer from the lack of sufficient labor force, as the younger generation is reluctant to join with the sector. As tea industry is used to be labor intensive, it will have a bad impact on the sector.
Sri Lankan tea exporting destination has been chiefly the Middle East countries. However, opportunities should be found to turn the Latin American region into our tea market.
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 used to be a labor intensive country. However, it seems that the country is losing its comparative advantages in labor intensive products. Therefore, what has to be done is that more and more FDIs ought to be attracted to the country, creating a capital intensive environment. It has been proved that a peaceful environment alone 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 export destinations in the world. While retaining its traditional markets Sri Lankan presence in the global market should be expanded.