Sri Lanka needs to push for regular bilateral trade and investment dialogues with the United Kingdom while finding other compatible markets within the European Union to minimise the short-term economic shocks of Brexit on our export sector, a leading trade economist said.
Kithmina Hewage, an economist of the Institute of Policy Studies was speaking at a forum on ‘Brexit and its impact on Sri Lanka’ organised by the Colombo Chapter of the Young Professionals Organisation recently.
He said that even in an immediate ‘No Deal’ post-Brexit situation, the British Government has committed to continue extending GSP+ concessions to Sri Lanka and other developing countries. However, this commitment is subject to the passage of the secondary legislature in parliament.
“Amidst these assurances, our exporters have to plan and prepare for an era of no GSP Plus concessions in the future, as we will lose such preferences after graduating to high-middle income status in 3-5 years,” Hewage said.
GSP Plus concessions are only eligible for countries that are deemed ‘low and low-middle income’. Sri Lanka needs to urgently improve economic competitiveness to grow its export sector and attract Foreign Direct Investment.
The Sri Lankan export basket composition has only recorded a marginal change in 25 years and is still dominated by apparel, tea and rubber, while regional economies, especially, the Asian Tigers have increased exports multi-fold to high value added exports such as consumer electronics.
Vietnam, Thailand and Malaysia were much like Sri Lanka 25 years ago, and depended on low value added exports such as coffee, rice, crude petroleum, rubber and apparel. Vietnam changed in the mid-90s and attracted FDIs that integrated their economy to global value chains to manufacture consumer electronics such as mobile telephones, computers, semiconductors and office machinery and parts.
However, Hewage said Sri Lanka has been left behind due to the conflict and unfavourable, inconsistent and protectionist policies that have led to inefficiencies in the economy. This was one of the primary reasons for Sri Lanka not fulfilling its post-conflict growth dividend.
Sri Lanka has missed the bus. It’s not too late, but policy has to change to focus on attracting efficiency seeking, rather than incentive seeking FDI. Sri Lanka needs to increase trade and investment partnerships with other regions, Hewage said.