Sri Lanka’s exports as a share of GDP has declined from 33% in 2000 to 13% in 2015. One of the solutions has been to diversify Sri Lanka’s markets. This is because over 50% of Sri Lanka’s exports go to the EU and the United States; and India and China absorb only 7% and 2.9% respectively. A previous Verité Insight titled “Solving dilemma of export diversification” pointed out that the bottleneck might not be in a narrow set of markets, but in a narrow set of products. Over 50% of Sri Lanka’s exports are Apparel and Tea, and the markets Sri Lanka accesses are appropriate to these products. Therefore, solving the export problem requires giving attention to diversifying products as well, not just the markets. The present analysis looks at the success of product diversification with regard to exports to India – signaling both a diversification from traditional markets and traditional products. This success in diversification, however, conceals some vulnerability. A majority of the products Sri Lanka is exporting to India are overly dependent on preferential trade terms with India – so they succeed only in India. This makes them vulnerable on two counts: the reversal of preferences, or the…
Elected officials and selected bureaucrats are given a huge amount of power to act on behalf of the public – modern democracies function on this basis: that citizens hand over their power to elected representatives. But how can citizens then protect themselves against those individuals misusing that power? This is the perennial problem of governance. The simple answer that is given to this question of governance, is “elections” – that elections ensure the displacement of politicians who violate the public trust, and thus create political incentives for better behaviour. This Insight provides an example, which explains why the answer cannot be that simple – the behaviour of officials during elections can both abuse public trust, as well as benefit these officials politically. As such, other governance solutions are needed.
Sri Lanka is negotiating an Economic and Technological Cooperation Agreement (ECTA) with India. It envisages liberalising trade in services. The lack of information on what is being negotiated has fueled speculation on the outcomes. A previous Verité Insight titled “Trade in Services: Sri Lanka needs to pull up its socks” pointed out, with reference to current Trade Agreements (TAs) of Sri Lanka, that the devil is really in the details – not the concept itself. This Insight attempts to unearth the devil in the details (pitfalls and opportunities) by a quantitative and case analysis of India’s trade agreement with Japan. Explaining at the outset some of the trade related terminology will help to unpack the implications.
Two previous Verité Insights titled “Sri Lanka missing world’s biggest trade party and its in her backyard” & “Trade Agreements that don’t deliver the goods” published in May and June 2013 pointed out that Sri Lanka is well behind her Asian neigbours in entering into trade agreements, and that those entered into were also deficient. This Insight shows that this is even more so the case with agreements that go beyond trade in goods to cover trade in services. This observation does not give a green light to ETCA (Economic and Technical Cooperation Agreement with India). but it does provide some context. Even though ETCA type agreements is ‘new territory’ for Sri Lanka, many of its neighbors in Asia have been quite vigorous in entering into such goods and services agreements in the last decade. The current debate on ECTA is around whether Sri Lanka should go ahead with the agreement or not. However, the important question to ask is what costs and benefits could accrue to Sri Lanka, and how that can be managed by the scope and structure of the agreement. Whether a trade agreement is beneficial or not depends greatly on those details. The experience with existing…
Tea sector wage negotiations have been in deadlock now for 10 months. There are political reasons for this situation, but also an overarching economic one: global tea prices have declined – as it periodically happens – and the industry is not geared to compete. Tea is an industry in which Sri Lanka has established a global reputation – Ceylon tea, as it is known worldwide, is considered to be amongst the best black tea in the world. This is mostly a result of Sri Lanka’s climatic and geographic conditions, which yield a quality of tea that is exceptional. Post-independence, Sri Lanka started off with an industry that was inherited. The tea plantations came not only with factories and machinery, but even workers who had been transplanted from India by the British, who served in poor and difficult conditions in the tea estates. The industry in Sri Lanka has relied mostly on its inherited position and first mover advantage in the world. Today it is in a crisis of its own brewing – the advantage of having poorly paid workers is diminishing, and the industry has not succeeded in adding to its productive value to face global competition. Currently, the average…
Most people in a country don’t understand the intricacies of exchange rate management. Nevertheless, actions in this regard have significant implications for the economic stability, growth and overall success of the economy, on which human development is fostered. This Insight explains how a professional approach to the management of the exchange rate seems to have been trumped by political considerations for much of 2015. The losses suffered by a lack of professionalism are not too different to the losses suffered due to corruption, and the lack of professionalism and corruption tend to be parasitic on each other. Therefore, this Insight also points to an important focus that has not yet been adopted by the agenda for good-governance.
Sri Lanka has been driving post-war growth in boom and bust cycles on the trade deficit; and fiscal measures have been used, especially spending on construction, to offset the bust cycles. This strategy is now being squeezed to pulp and it is not sustainable going forward.
This Insight analyses the importance of export finance as a tool to facilitate and promote exports in Sri Lanka. It identifies the bottlenecks that prevent effective use of export finance in the country and provides recommendations to improve availability, access and effective utilisation of export finance in the country.
Measures to prove compliance with an importing country’s standards and regulations are necessary for all exports. However, Sri Lankan exports to India suffer greatly from the associated costs and delays. This Insight proposes a Mutual Recognition Agreement (MRA) in Conformity Assessment Procedures (CAPs) to overcome this barrier and encourage further trade between Sri Lanka and India.
In February 2015 the Central Bank of Sri Lanka called an auction for one billion rupees on a 30 year bond. It then accepted 10 fold – 10 billion rupees – after the bids were in. This Insight identifies three errors in the published calculation of the monetary loss, and recalculates it at 0.9 billion rupees. It also highlights two other issues: conflict of interest, and confidence in institutions, which add to the negative consequences of the Central Bank decision.