Trade and Economic Competitiveness

The need of the hour is not generic SME development/support initiatives, but rather to quickly foster more export-ready or near export-ready firms, from among the SMEs in the country. Amidst the current forex crisis, boosting the cohort of exporting firms and expanding export-earning potential is a top priority. For this, there needs to be a closer link between GoSL institutions/programmes supporting export development and those supporting SME development. For a start, the Government should advise the consolidation of NEDA, IDB and EDB’s Regional Development Division. These entities should become a single agency, that is smaller, sharper, and with a clear and unambiguous mandate. That mandate must be to improve SME competitiveness towards creating more export-ready and near export-ready firms.

In this article on gender considerations in Sri Lanka’s free trade agreements, CSF Visiting Fellow Dr Janaka Wijayasiri argues that as the country begins to explore FTAs once again, it is timely to consider mainstreaming gender into Sri Lanka's trade policy and trade agreements taking into the gender inequality in the country. The article also explores international experiences and practices in gender mainstreaming of trade agreements, identifies ways in which to include gender considerations in trade agreements, and discusses the main problems in effectively mainstreaming gender into trade agreements and how to address them.

In May 2022, the Sri Lanka – Singapore Free Trade Agreement (SLSFTA) marked four years since coming into force - an FTA that was a landmark one for Sri Lanka in many respects. It was the country’s first bilateral free trade agreement (FTA) in over a decade, the first FTA with an ASEAN country, and the first ‘comprehensive FTA’ in the country’s history, which meant that it went beyond goods, to include services, investment, and economic and technology cooperation. This Working Paper reviews bilateral trade performance, explains some of the key domestic economic policy contexts during and after the FTA was signed, discusses some of the key issues that emerged, and takes an initial look at prospects. Research for the paper was drawn not only from published grey material but also from extensive primary interviews with key informants. Insights shared in this paper would be of particular relevance now, following the bilateral meeting between the Sri Lankan President and the Singaporean Prime Minister (on the sidelines of the former's visit to Japan), during which the two leaders recommitted to benefiting from the SLSFTA and advancing its implementation. This Working Paper is produced under the 'Trade and Economic Competitiveness' thematic pillar of CSF, and is co-authored by Anushka Wijesinha (Co-founder, CSF) and Janaka Wijayasiri (Visiting Fellow, CSF).

While steady growth in exports was recorded in the year 2021, Sri Lanka’s deepening economic crisis runs the serious risk of impacting the export recovery achieved to date. In March 2022, merchandise exports, consisting largely of industrial and agricultural exports, recorded a decline of 3.4% in earnings, compared to the previous year, due to a reduction in both volume and prices of exports. In addition to this, industry representatives predict a decline of about 20% - 30% in total exports as a result of the current crisis, with tea exports being among the lowest it has been in 23 years, and the apparel sector expecting a 20% - 25% drop in output by August 2022. Latest figures for June indicate that apparel sector has exceeded expectations and pre-Covid export numbers. In the context of the economic crisis, escalating now to a de facto lockdown across the country, understanding the challenges posed to the country’s external sector performance, one of Sri Lanka’s main sources of foreign exchange, is crucial. At present, exports of goods and services, which account for 17.7% of GDP as of 2021, have been adversely affected by several factors including most significantly, the worsening fuel and energy crisis.

Sri Lanka is on a renewed push to attract foreign direct investment (FDI) following a poor performance in the last decade, post-war. Fiscal incentives regimes have changed from time to time, laws and regulations have been introduced, investment promotions missions have been held in major capitals. Yet, attracting FDI remains a struggle, amidst heightened competition from regional competitor locations. In this interview, former Deloitte consultant Danindu Udalamaththa outlines some key areas for Sri Lanka to focus on and learn from. He draws from his experience advising global clients on the investor side, and argues that to attract good investment, Sri Lanka needs to design good incentives frameworks.

Like many countries in the region, SME development remains prominently on the policy agenda of successive Sri Lankan governments, development projects, and private sector support programmes over the years. Yet, a thriving, dynamic, and internationally-competitive SME sector remains elusive. Various schemes to address SMEs’ access to finance issues is a popular, and often dominant, part of most SME development initiatives. In this interview with finance and investment specialist Sharini Kulasinghe we explore some new perspectives on solving SME development challenges, going beyond the common wisdom.

Sri Lanka’s apparel industry – a significant export revenue earner and employer – was substantially hit by the pandemic. Aside from the short-term supply and demand shocks, the pandemic accelerated trends that were in motion prior to the crisis, and these provide signals of change and point to the direction in which the Sri Lankan apparel industry needs to head in. Moving from recovery to resilience and a new wave of growth will be shaped by three emerging trends - attracting new investment that drives innovation (in business models and products) and plugs into new supply chains and on focussing on meeting more stringent sustainability and other compliance requirements of buyers and preferences of consumers.

Sri Lanka's tax ratio hit an all time low in 2020, with revenue losses caused by the pandemic and steep tax cuts in 2019. The budget deficit reached double digits due to high pandemic related expenditure and fall in revenue. Attempting to revive growth through public investment will be constrained by low tax revenue, and progressive tax reforms are a must to avoid further macroeconomic stress.

For too long provinces outside Sri Lanka’s Western Province have been characterized as ‘lagging regions’, due to their slower growth trajectory, smaller share of national output, and more pronounced weaknesses in development indicators. It's time to change the narrative and see them as 'Secondary Growth Hubs', to transform how all stakeholders engage in partnerships to boost prosperity there - not in terms of how they need to be helped to get out of being ‘lagging’ but rather how they need to be partnered in creating more inclusive economic growth.

Tariffs often take centre stage in discussions around market access for exporters – especially SME exporters. But this view is increasingly out of date. Standards are a new differentiator, even to markets where preferential tariff advantages are not available. Standards compliance should not be seen as a barrier, but as a way for firms to find new sources of competitiveness and branding