#1Export Sector in Sri Lanka: Issues and Challenges Saman Kelegama Institute of Policy Studies of Sri Lanka Presentation to the 18th AGM of the National Chamber of Exporters of Sri Lanka, Colombo Hilton, 10 January 2013#2● • Presentation Format Emerging Picture at the Macro and Disaggregated level Comparing current performance and overall performance with some competitor countries Major concerns on the export sector • Way Forward#3Overall Macro Picture of Exports • Sri Lanka's export performance since 2000 has not been satisfactory Sri Lankan share in global exports has been on the decline Sri Lankan exports as a share of GDP has been on the decline • Sri Lanka witnessed a decline in absolute earnings of exports in 2012 Expanding trade deficit in 2011 and 2012 is partly explained by the unimpressive performance of the export sector#4% of GDP Declining Export Share Sri Lanka's Export Share, 1990-2011 35 0.1 30 25 20 15 10 5 0 1990 1995 2000 2005 2006 2007 2008 2009 2010 2011 о 0.09 0.08 0.07 0.06 0.05 0.04 0.03 0.02 0.01 % of World Exports Sources: Central Bank of Sri Lanka & IMF Direction of Trade Statistics Exports as a % of GDP Exports as a % of World Exports#5Reflected at the Disaggregated Level • This decrease in export share in the global market is reflected at the disaggregated level of exports The decline in absolute export earnings in 2012 is also reflected at the disaggregated level • There was hardly any improvement in the trade deficit in 2012 because of the decline in growth of exports in 2012#6• Declining Export Share: Disaggregated Level Stagnant or declining shares for most key products Sri Lanka's Share in World Exports, 2005 & 2010 HS Product Description Share in World Code Exports (%) 2005 2010 61 Articles of apparel, knitted or crocheted 0.9 0.9 62 Articles of apparel, not knitted or crocheted 1.1 0.9 09 Coffee, tea, mate & spices 4.6 4.2 40 Rubber & articles thereof 0.4 0.4 71 Pearls, precious stones, metals 0.2 0.1 69 Ceramic products 0.1 0.1 14 Vegetable plaiting materials 0.8 1.3 03 Fish, crustaceans, molluscs, aquatic 0.2 0.2 invertebrates Source: Export Development Board, 2012.#7Decline in Absolute Export Earnings Export Earnings of Sri Lanka, 2011 & 2012 Category Jan-Oct 2011 Jan-Oct 2012 Growth (%) (US$ Mn) (US$ Mn) Total Exports 8739.7 8163.8 -6.6 Agricultural Exports 2052.2 1855.7 -9.6 Tea 1220.9 1136.1 -7.0 Natural Rubber 184.4 109.2 -40.8 Fisheries Products 156.9 170.7 8.8 Other crops 302.3 303.5 0.4 Industrial Exports 6334.4 6000.4 -5.3 Textiles & Garments 3445.3 3245.3 -5.8 Diamonds, Gems & Jewellery 454.9 485.0 6.6 Manufactures 1986.8 1875.0 -5.6 Petroleum Products 447.5 395.1 -11.7 Source: Export Development Board, 2012.#8US$ Million 25000 20000 15000 10000 5000 Expanding Trade Deficit Export and Import Earnings of Sri Lanka, 2000-2012 2000 2005 2006 2007 2008 2009 2010 2011 Jan-Nov 2012 Source: Central Bank of Sri Lanka Exports Imports#9Sri Lankan Performance compared with Competitors? Is it the global economic downturn that has been responsible for the unimpressive export performance in 2010 and 2011? • We will examine the performance of some competitors of Sri Lanka in 2010 and 2011 We will then highlight two countries that have well overtaken Sri Lanka in export performance#10Comparing Sri Lanka with Competitors • In 2010 Sri Lankan exports grew at 18.2% compared to India- 40.5%, Vietnam 26.4%, Thailand 28.1%, Philippines 34% and Mauritius 18.7% • In 2011 Sri Lankan exports grew at 5.4% compared to India - 29.3%, Vietnam - 33.3%, Thailand- 17.4%, Pakistan 29.3%, Bangladesh 41.5% and Mauritius 23% Clearly the global economic downturn is not the only reason for the low export growth in Sri Lanka#11Story of Vietnam Post-conflict economy whose export were on par with Sri Lanka in 1990 - US$ 2 bn • In 2011, Vietnam's exports amounted to US$ 96.8 bn compared to Sri Lanka's US$ 10 bn Diversified products: clothing, shoes, marine products, crude oil, electronics, wooden products, rice, and machinery • Diversified markets: US (20%), Japan (11%), China (10%), South Korea (4.5%)#12. Story of Bangladesh In 1990, Bangladeshi exports were US$ 1.7 bn compared to Sri Lanka at US $ 2 bn Bangladeshi overall exports in 2011-2012 amounted to US$ 24 bn compared to Sri Lanka at US$ 10 bn in 2011 Bangladesh is the 2nd largest ready-made garment exporter of the world (after China) and in 2011-2012 amounted to US$ 19 bn (compared to Sri Lanka's US$ 4 bn); a global leader in the low-end RMG exports Bangladesh is now focusing, among other items, on ship building and pharmaceuticals and exporting them#13• Major Concerns of the Sri Lankan Export Sector Export sector is characterized by product concentration: ready-made garments and a few manufactured items amount to 62% of overall exports The sector is also characterized by heavy dependence on few markets: EU and NAFTA amounting to 54% of the market#14Product and Market Concentration Heavy concentration of export markets/products. Exports by Region, 2011 2% 4% 2% 56% to the EU & NAFTA 4% 7% 7% 9% 9% 22% EU ■BRICS 34% Exports by Product, 2011 3% 2% 2% 3% 4% 5% NAFTA Middle East 5%. ASEAN ■SAARC CIS Countries Latin America Others Africa 15% 24% 62% of earnings from garments & manufactures 38% ■Textile & Garments Manufactures Tea ■■Petroleum Products Diamonds, Gems & Jewellery Coconut ICT Fisheries Rubber Others Source: EDB, 2012#15Focus on Simple Products Close to 99% of Sri Lankan exports are simple products that could be copied by competitors easily • Value of high-tech exports in Sri Lanka have fallen sharply from US$ 102 mn in 2008 to US$ 57 mn in 2010 • Sri Lanka's share in high-tech exports averages at 1.8% compared to 75% in Korea, 27% in Thailand and over 50% in Singapore and Malaysia#16Way Forward • In addition to creating the conducive macroeconomic policy environment (flexible exchange rate, lower interest rates, trade facilitation, etc) Identify emerging new export sectors and the government should promote/encourage them Make maximum use of existing preferential and free trade agreements Increase investment in R&D by the private sector Change from simple products to more complex products Should recognize innovations in the export sector#17Emerging Sectors/Markets Products Light engineering products Plastic products Printing services Description Supplies parts & spares for machinery, equipment and tools Currently uses only 20% of its capacity Main exports: • Polyethylene bags, (door knob bags, shirt bags and food wrap bags etc.) Packaging products to exporting industries such as garments, food processing & jewellery exports. Considerable export potential in: Print packaging materials and labels and tags, stationery products Opportunities in typesetting, colour separations, offset printing, web offset printing, gravure printing, carton gluing, screen printing Potential Markets Singapore, India, EU, US, Hong Kong, Japan US, SAARC region, EU, Japan, China, UAE, Vietnam, Philippines SAARC region, the Middle East, Russia, UAE, China, Kenya, Australia#18Emerging Sectors/Markets Cont. Products Toys Wooden furniture Main exports: Description Plush toys, rag dolls and animals, puzzles, mobiles, educational toys, pull along toys, skittles, children's furniture, wooden boats Export potential in: • • Household furniture (bedroom & living room, kitchen furniture, garden furniture). Office furniture (computer tables, office tables etc) Commercial and institutional furniture (furniture for hotels and schools, hospitals etc) Source: Export Development Board, 2012. Export potential in: Potential Markets US, EU, India, Canada, Australia, Hong Kong, UAE, New Zealand, Japan India, Australia, UAE, EU, New Zealand, Maldives, US, Thailand, China#19Services Exports Performance of services exports more promising: - 55.4% growth rate in 2011 over 2010 compared to 5.4% for goods exports - 3.2% growth rate in 2012 Q1 over 2011 Q1 Services Export Earnings of Sri Lanka, 2010-2012 US$ Million 900 800 700 600 500 400 300 200 100 0 2010 Q3 2010 Q4 2011 Q1 2011 Q2 2011 Q3 2011 Q4 2012 Q1 Source: UNCTAD Statistical Database#20• • IT/BPO Emerging Sectors/Markets Cont. SL ranked among top 25 in A.T. Kearney's Global Services Location Index in 2011 5th largest export revenue earner for the country with US$ 392 Mn in 2010 Has been resilient in the face of the global recession 100% value addition - Key area: Financial & Accounting Outsourcing (FAO) – SL ranked among top 20 centres of excellence for FAO Current export markets include North America, EU, Australasia & East Asia Significant opportunities emerging in the Middle East - ICT sector in ME expected to grow at 8-10% annually compared to a global average of 3%#21● Way Forward Sri Lanka's export share in India is 5%, Pakistan 0.7%, and China 1%. It is time to fully exploit ISLBFTA, PSLBFTA, SAFTA, and APTA to penetrate these markets further Growing markets are in China, India, East Asia, and Middle East and they are the future markets and early mover advantage has to be gained How long can we move forward with low cost labour based comparative advantage? - There is a need to increase R&D expenditure in export firms – it is true that the overall R&D expenditure is low (0.11% of GDP) but what is alarming is the private sector share in this is only 18%, where as in other successful exporting nations private sector share is above 65% South Korea's Hyundai and KIA are the most fuel efficient cars today; Brazil's Emraer is one of the leading jet manufacturers and has partnership with both Boeing and Airbus; Taiwan's Acer and Asus are now two leading Notebook manufacturers in the world; South Korea's Samsung Galaxy smart phones have a competitive edge over Apple i-phones and Samsung will become the top home appliance maker by 2015, etc.#22. Way Forward These possibilities have emerged from investing in R&D and focusing on innovation. Export innovation is the way forward for Sri Lanka and it is high time that we have an Awards Scheme for rewarding innovations in the export sector • NCE already has one award for innovation, however with the recent MOU signed with the NSF, NCE should consider expanding these awards to cover more sectors Thank you