The Sri Lankan Government has joined forces with the European Union in embarking on a four-year, 8 million Euro (Rs. 1.3 billion) project, geared towards increasing Sri Lanka’s trade competitiveness in regional and European markets.
The project will be implemented by the International Trade Centre (ITC) and United Nations Industrial Development Organisation (UNIDO) in collaboration with the Sri Lankan Department of Commerce.
Meanwhile, a steering committee co-chaired by the Ministry of Policy Planning and Economic Affairs and the Delegation of the European Union will provide overall direction to the project. Competent national level agencies and apex business entities will also support work-plan development and implementation of activities.
Minister of Industry and Commerce Rishad Bathiudeen noted that the project has been designed with four expected results in mind: The design and implementation of a coherent trade strategy for export competitiveness, inclusive of policies, regulatory reforms and trade negotiations, as shaped by the World Trade Organisation, regional integration process and EU GSP+ Scheme; enhanced efficiency of cross-border procedures and SMEs’ capacity to comply with cross-border procedures for exporting to SAARC and EU markets; improved compliance and quality infrastructure services to meet quality and SPS requirements in the regional and EU markets; and increased SME competitiveness in export-oriented sectors (spices, food and ITO/BPO industry).
“These expected outcomes are very much complementary to Sri Lanka’s state of development, and economic needs. As a South Asian growth economy, and as a recent entrant to the lower middle income ranks, the ‘Social Market Economic Model’ as envisioned by the new unity government of Sri Lanka led by President Maithripala Sirisena and Prime Minister Ranil Wickremesinghe is expected to power Sri Lanka’s next stage of economic development,” he added at a media briefing last evening announcing the project.
The Commissioner for International Cooperation and Development Neven Mimica and Minister of Finance Ravi Karunanayake signed the Financing Agreement for the project on 16 March 2016, which Bathiudeen explained is a part of wider economic reforms by the Government.
“In order to accelerate our GDP growth further, the new unity government is planning to introduce major reforms across many sectors which may be introduced as ‘3rd Generation Economic Reforms’. These reforms are targeted at generating one million jobs; enhancing income levels; developing rural economies; ensuring land ownership to rural and estate sectors, the middle class and government employees; and creating a wide and strong middle class,” he explained.
“To achieve these targets the Government needs to create the background needed to enter the global value chain; encourage our small and large-scale farmers, as well as entrepreneurs to participate in the global economy; encourage competitive international organisations to invest in Sri Lanka; and bring about the digitisation of the economy.”
Focus on spices, food and IT
The project is expected to help Sri Lanka integrate WTO policies and regulatory reforms so as to make the most of the potential opportunities from the EU GSP Plus scheme and greater regional integration. It will also address compliance standards and efficiencies in cross border procedures, which are key constraints to market access, especially for small and medium businesses.
Furthermore, specific attention will be given to enhancing value chains in the spice, food and IT Business Process Outsourcing sectors, which have been identified as having the highest export potential.
“Trade is about helping Sri Lankan spice farmers to integrate into the spices value chain. Trade is about the tourism focused communities in Sri Lanka being able to benefit from inclusive tourism. Trade is about the technology entrepreneur in Colombo and in the provinces who seeks to export BPO and IT services. And trade is about the Sri Lankan exporter of apparel, rubber products and processed foods who seek to be more competitive in international markets,” stated ITC Director of Country Programmes Ashish Shah.
With more than 80% of businesses in Sri Lanka falling into the SME category, and representing 35% of total employment, Shah added that strengthening the export capacities of SMEs in sectors with high potential for job creation was critical in ensuring inclusive growth in the country.
“Sri Lanka is ranked as the most liberalised economy in South Asia. It is not therefore surprising that this project is focused on helping this country take advantage of this conducive environment and strong potential for trade. But in order for trade to thrive it must be more inclusive. Trade is at the heart of the recently agreed sustainable development goals. It affects people’s ability to find decent work, to afford healthcare, access to education and address climate change. Ultimately trade is about delivering higher incomes and opportunities for the people and families who depend on their businesses to survive.”
The overall trade between Sri Lanka and the EU has increased to 4.7 billion Euros in 2015, up from 3.8 billion in 2014 - an increase of 24%. The European Union continues to be the number one market for Sri Lanka’s exports, accounting for approximately 32% of Sri Lanka’s total exports. However, apart from the obvious bilateral benefits between the EU and Sri Lanka regional gains are also being eyed.
“Trade is a key factor in stimulating the economic development of countries. This project has been jointly designed with the Government of Sri Lanka and brings together policymakers, Government agencies, business leaders, chambers of commerce and apex organisations with the aim of improving competitiveness gaps and expanding international trade,” said Ambassador and Head of Delegation of the European Union to Sri Lanka and the Maldives, Tung-Lai Margue.
“Trade brings about mutual benefits. Given the scope of the project we do not aim for bilateral benefits between EU and Sri Lanka alone, but we hope that regional benefits may be reaped as well.”
At present only about 5% of existing Sri Lankan SMEs export, with the prospect of competing with big global players a daunting prospect for many businesses. From a regional perspective, cheaper labour is available in countries such as Bangladesh and Laos, while Singapore and Malaysia offer higher productivity. Margue believes that Sri Lanka’s competitive advantage may lie with its private sector.
“The transformation of Sri Lanka to upper middle income status requires a rebalancing of the economic growth model to being a more open, private sector-led one, which is able to develop and sell higher value goods and services in global and domestic markets.”
With the EU and SL working closely on trade-related issues such as the EU’s recent lifting of a Sri Lankan fisheries ban, and the expected reinstatement of GSP+ to Sri Lanka, Margue hopes for more of the same going forward.
“Trade is about mutual benefits, as I mentioned before, and as such I fully expect that doing business with Sri Lankan enterprises will not only open new markets in the EU but will also enable EU SMEs to link with local business and grow together.”