How Govt. initiatives boosted exports, investment and competitiveness in Sri Lankan Economy

Daily FT

28/10/2019

How Govt. initiatives boosted exports, investment and competitiveness in Sri Lankan Economy

The Ministry of Development Strategies and International Trade has been implementing several initiatives that have improving the competitiveness of Sri Lanka’s economy by providing them with supportive policies and strategies, financial and technical support, and enabling infrastructure. 

This write-up captures some of these key initiatives, many of which had been postponed in Sri Lanka for over a decade, and was urgently needed. These initiatives won’t bear fruit in a month or a year, but would change the game in the medium term and have lasting positive impacts on the economic trajectory of this country. 

Following is a quick recap of the exports and FDI performance since the Government took office, which demonstrates the positive impacts of its initiatives. 

Performance recap

  •  By the time the Government came in in 2015, Sri Lanka’s economy was as economically closed as it was in the early 1970s – both in terms of the share of international trade in the economy and the share of private investment. Sri Lanka had become more and more protectionist, mainly as a result of the imposition of para-tariffs favouring a handful of politically connected business owners. This didn’t help boost exports, neither did it help reduce costs to consumers
  • Industrial exports fell from 20.3% of GDP in 2005 to 9.4% in 2015. By 2015, total exports as a share of GDP was 13%. With the turnaround initiatives our Government initiated, exports are now back at 20% of GDP. A 10-year decline has been reversed within just five years
  • During 2015-2018 we achieved an annual average of $ 15 billion in total exports per year, which is well above the average of under $ 10 billion for the preceding five years. For 2019, the January to August data suggests a 6.5% increase year-on-year so far, with the regaining of EU GSP+, the leveraging of US GSP, and growth in NES focused sectors
  • Better trade and competitiveness policies have a powerful effect of attracting more and better Foreign Direct Investment (FDI). And we can see this in the numbers. We took annual FDI from $ 970 million in 2015 to $ 2.4 billion in 2018
  • The Three-Year Annual Average FDI has grown by 23% in 2016-18 compared to 2013-15 and BOI-registered companies created 17,000 new jobs. During the period between 2016 to September 2019, approvals given and investment agreements signed for over 360 projects (over 200 new projects and 157 expansions of existing projects)
  • These have estimated FDI value of around $ 9.5 billion, generating an additional employment to 60,000 Sri Lankans when they are realised over the next two to four years. Out of these 253 projects are at the Implementation Stage and over 100 are in Commercial Operation 
  • Tourism up by 94%: Annual Average FDI inflow up from $ 106 million to $ 206 million
  • Infrastructure up by 86%: Annual Average FDI inflow up from $ 388 million to $ 721 million
  • Information Technology up by 85%: Annual Average FDI Inflow up from $ 19 million to $ 36 million
  • Telecoms up by 50%: Annual Average FDI Inflow up from $ 217 million to 321 million
  • It’s noteworthy that the total FDI that came into Sri Lanka between 1978 to 2015 was $ 12 billion. During 2016 to 2019 alone, there has been total FDI Inflow of $ 5.4 billion. In other words, 45% of the FDI during the last 37 years, was realised in just the last four years
  • For this year, $ 4.6 billion worth of FDI projects have been approved in the first seven months, of which agreements for $ 4.1 billion have already been signed
  • A 100% export-oriented Petroleum Refinery with a foreign direct investment (FDI) of $ 14.8 billion, which is Sri Lanka’s single largest investment, has been cleared by the Cabinet of Ministers and the Investment Agreement and the Land Lease Agreement are to be signed shortly. The project is to be implemented within 42 months and will generate an employment opportunity of 6,500

Overview of six flagship initiatives 

  •  National Export Strategy (2018-2022) – a six-sector, four-function focused strategy that aims to boost exports to $ 27 billion by 2022. Being implemented vigorously takes a whole-of-government approach. Already ‘wins’ seen in IT sector, boat building sector, spices sector, processed food and beverages sector, and wellness tourism
  • Anti-Dumping and Countervailing Measures Act and Safeguards Measures Act – Government passed these two important laws after with more than 10 years delay. It provides a robust framework to protect domestic industries from unfair competition from abroad
  • National Innovation and Entrepreneurship Strategy (2018-2022) – New initiative aimed at boosting competitiveness of the enterprises and promote startups, and increase the high-tech component of exports. Several programs already being implemented including ‘Market Access Program’, ‘Enterprise Innovation Program’ and ‘Public Expenditure Review of I&E Activities’
  • 2000 Exporter Program and One Product One Village Program – to ensure export development is inclusive across Sri Lanka and enable micro and small firms to penetrate export markets. Programs already conducted in Ratnapura, Kurunegala, Kandy, Kegalle, Jaffna and Matara
  • Trade Adjustment Program and Trade and Productivity Commission – new mechanism to ensure industry concerns around trade liberalisation are heard, analysed, and considered in a credible and data-driven manner 
  • Improved Investor Facilitation – cutting time and costs of doing business through a multitude of efforts to improve ‘ease of doing business’, trade facilitation, streamlined investment approval and fast-tracked investor issue resolution 

Descriptions of key initiatives

‘National Export Strategy’: A form of industrial policy

  • The National Export Strategy 2018-2022, which has been in implementation since July 2018, is progressing well, anchored to the plans of action of six sectors and three trade support functions 
  • The NES provides an agenda for action in order to improve the competitiveness of six focus sectors, and provides improvement of trade support functions – like logistics, trade information and promotion, and national quality infrastructure – to improve the competitiveness of all sectors 
  • Ultimately, an industrial policy needs to improve the competitiveness, and national and international promotion of identified sectors, and this is precisely what the NES is doing
  • The sectoral ‘Advisory Committees’ comprising of private and public sector leaders are guiding the implementation of the NES, while a dedicated ‘NES Management Unit’ comprising of EDB, MoDSIT and external project managers, functions as the lead program coordinating and implementation body to ensure things are on track

‘2000 Exporter’ program: To make trade more inclusive

  • The Ministry is conscious that the export-oriented sector in Sri Lanka is not as widespread as it could be, and so it has embarked on an islandwide program to foster new exporters 
  • The ‘2000 Exporters’ program being led by the EDB will incubate a whole generation of new exporters in this country, and make the gains of international trade more inclusive 
  • Entrepreneurs and aspiring exporters from all parts of the country are being helped through this program, which will cover a new district each month. Already programs have been held in Ratnapura, Kegalle, Kurunegala, Jaffna and Matara, with more planned

Market Access Support Program: To help new exporters thrive

  • The already operational ‘Market Access Support Program’ has helped dozens of domestic enterprises improve their products, their marketing, and their technical resources, towards becoming more successful in the international market 
  •  Enterprises get matching grants for applying for special standards and certifications, to make a process or product improvement, to obtain external technical expertise, or reach into a new market with a market entry study or participation in targeted B2Bs

‘Innovation and Entrepreneurship Strategy’: To boost competitiveness

  • The ‘National Innovation and Entrepreneurship Strategy 2018-2022’ is a much-awaited landmark strategy co-created with the private sector, following extensive consultations with public and private actors and after a diagnostic study was done 
  • Under this, a unique support scheme called the Enterprise Innovation Program, the first of its kind in Sri Lanka, will be launched. Through this, domestic entrepreneurs can get matching grants to support them to develop new products, introduce technology into their business, improve processes, conduct R&D, and overall become much more competitive to meet the global market pressures 
  • This complements nicely, the concessionary loans on offer under the ‘Enterprise Sri Lanka’ program, where these entrepreneurs can expand and improve their business with lower cost capital

Trade Adjustment Program: Credible mechanism for domestic enterprises

  • In order to ensure that the domestic private sector has a meaningful mechanism to adapt to a more liberalised trade regime, the Ministry has introduced a ‘Trade Adjustment Program’ for the first time in Sri Lanka 
  • The Government recognises that alongside the reduction in para-tariffs and tariffs, the enterprises and workers would need help to adjust to the new market conditions. Moreover, the heightened pressure of international trade means that the enterprises need a meaningful mechanism to seek redress in the event of import surges and dumping from other countries
  • Two important pieces of legislation that underpin this effort were passed early last year – the Anti-Dumping and Countervailing Measures Act and the Safeguard Measures Act. This was yet another landmark achievement, particularly as these laws had been delayed by previous regimes for too long. Now, with these laws in place, domestic enterprises have a proper legal cover to combat incidents of import surges, dumping, and unfair trade practices by foreign countries. This is considered an important complement to the trade liberalisation and internationalisation efforts of the Government 
  • Under the TAP, there is now a Trade and Productivity Commission (TPC) which comprises of senior private sector and academics, to hear private sector submissions on any fallouts faced by them as a result of trade liberalisation, and subsequently recommend appropriate adjustment assistance 
  • This mechanism is a departure from the usual process of narrow interest lobbying that companies tend to do and instead provide an open and credible platform for addresses concerns of trade injury

Improving facilitating infrastructure: Cutting time and costs for enterprises

  • To ensure that the enterprises have a favourable business climate and more friendly bureaucratic procedures, efforts have been forged ahead to improve on the ‘Doing Business Index’ and implement the ‘WTO Trade Facilitation Agreement’ 
  • On the Doing Business Index, Sri Lanka rose up 11 places in 2019, due to the focused effort on reforming key pillars that matter like setting up a business, dealing with construction permits, and online tax payment. Several other reform areas are ongoing and will get reflected in next year’s rankings
  • In the trade facilitation domain, the National Trade Information Portal was launched last year and has changed the way domestic enterprises discover and use trade-related information to operate and grow their business 
  • The blueprint for an Electronic National Single Window is complete and development work would begin shortly. With all these, Sri Lanka would then have one of the most advanced trade facilitation infrastructure in this region, and would greatly minimise procedural delays and transactions costs faced by our enterprises 
  • For investors, the Board of Investment has accelerated investment approvals and also land allocations for investors, by way of fast-tracked mechanisms. BOI also introduced an online Single Window Investment Facilitation Taskforce (SWIFT), with MoUs signed with dozens of line agencies, to smoothen the path for investors who have to get multiple Government approvals 

Concluding points

  •  All of these initiatives are things that benefits the many and not the few; making the economy better for the vast majority of enterprises and entrepreneurs, not the few crony capitalists who succeed based on patronage or a parasitic relationship with the State 
  • These initiatives are already ushering in a new era of private enterprise-driven dynamism for the country, reversing the anti-export bias and a growth model heavily reliant on government spending that has been seen over the last decades, and that is now known to not be sustainable or successful 
Source at: Daily FT