No country has ever developed without export oriented manufacturing and as there is a massive market in the developing world, Sri Lanka should focus on manufacturing driven economic growth, ETIS Lanka Senior Trainer Dr. Howard Nicholas said.
“Manufacturing is fundamental to most industries. China has taken over as the world’s largest manufacturer. It also has the largest retail market. China is driven by massive technological change. We are in the middle of a gigantic technological change,” he said at the discussion on the current state and future direction of global and and Sri Lankan economy, at the Lakshman Kadirgarmar Institute, Colombo last week.
“Sri Lanka could do better as it had not grossly under-performed. However, there is no dynamism in the system. Though there is a construction boom and financial services growth, the manufacturing sector has been neglected. We need to see a shift towards manufacturing to enhance export dynamism. Sri Lanka is losing the global garments and textile export market share. No concessional facilities from the government is forthcoming to propel growth,” he said. In the short run, there will be weakness in economic growth along with the rest of the world. There will be pressure on reserves and the exchange rate as the number of tourist arrivals fall sharply and world import growth slows.
The impact on the domestic price level will depend on the extent to which the exchange rate falls. Some expansionary fiscal policies may be pursued, although balance of payment constraints will limit their extent, he said.
“Sri Lanka could become one of the beneficiaries of the continuing relocation of production from advanced to developing countries (also away from China). The extent to which Sri Lanka can benefit from the relocation away from advanced countries will depend on how successful it is in developing its own manufacturing base and shifting production to higher value-added products in the long run,” he said.
Tourism and foreign remittances are the two major avenues of Sri Lanka’s earnings. The country needs to diversify. Negative interest rates are the new norm. In the short run, we could expect a global recession, massive budget deficits and more quantitative easing to finance deficits, he said.