Sri Lanka could be a beneficiary of the escalating trade tensions across the globe that is compelling manufacturers to relocate operations in multiple locations, Economist Anushka Wijesinha told the Chartered Institute Logistics and Transport (CILT) 2019 Conference in Colombo last week.
He said while many multinational entities are considering moving operations away from China, a large number have already shifted operations to South and East Asian destinations which will provide an opportunity for Sri Lanka to leverage from the shift.
“Escalating tensions from the US-China trade battle and Brexit provide opportunities for Sri Lankan manufacturers to position themselves as a viable alternative manufacturing destination,” Wijesinha said.
The US-China trade war is estimated to cost around US$ 700 million by 2020 according to trade experts who also speculate this figure to increase if the issue is not resolved soon. World trade is forecast to decelerate further triggered by the trade wars. Global trade is predicted to slowdown to 1.2 percent this year and improve to 2.7 percent next year. The Brexit, US-China and the US-EU tensions are blamed for the slowdown in global trade. The pace of companies moving production out of China is accelerating as over 50 multinationals from Apple to Nintendo to Dell are rushing to escape the punitive tariffs placed by the US.
The trade war between the US and China has dragged on for over a year with 25% tariffs placed on $200 billion of Chinese goods. Vietnam which has a US$ 40 billion trade deficit with is likely to be Trump’s next target according to trade experts.
In wake of the intensifying battle, more and more companies announced plans or are considering shifting manufacturing from China.
“As a result of the trade tensions, US apparel exporters who were sourcing products from China are considering Sri Lanka. The industrial wage cost in Sri Lanka in certain technical categories is lower than China,” Wijesinha said.
However, according to panelists not all global players will find Sri Lanka attractive though some would prefer it or choose it as an additional destination for their ventures.
“Sri Lanka will need to play a proactive role in positioning itself as a destination for trade and investments emanating from the fallout of the trade tensions,” Wijesinha said adding that the country has skin in the game which it should leverage to benefit from the shift in manufacturing bases.
He said unlike the US which has 28 percent and China 38 percent of international trade to GDP, Sri Lanka’s international trade as a percentage to GDP is around 54 percent which makes it all the more important to be geared with strategies to sustain trade.
“We see the largest upheaval in the supply chain witnessed even before the trade wars. Global entities have moved from China to locate operations in Vietnam which is winning from the trade wars,” Wijesinha said, adding that those that are moving to Vietnam, will not fine it easy as labour recruitment and retention, management and access to inputs is not easy in Vietnam as in China.
He said that Vietnam with over 20 Free Trade Agreements (FTAs) including one with the EU and the Trans Pacific Trade agreement has prepared in advance to face the loss of opportunities from global trade.
India is keen to re-draw supply chains and the optimistic view is that Chinese supply chains will relocate operations to South and East Asian countries, panelist noted.
However, Wijesinha said Sri Lanka will have to be savvy, proactive and focused if it is to win from the shift in manufacturing bases with meaningful and bold tariff and para- tariff reforms and forging strategic FTAs.
“Proactive and focused investment attraction with a emphasis son firms and sectors seeking new destination, ambitious and fast tracked ease of doing business and trade facilitation reforms and building a world- class and technology driven logistics to boost connectivity are crucial to gain from the trade tensions,’ he said adding that Sri Lanka should maintain and build relations with traditional trading partners and build new trade relations.
BOI Chairman Mangala Yapa said Sri Lanka cannot forever harp on the unique geographical location and the major hubs that it wants to develop. The country has to keep up with competition in global trade by adding value in all key sectors of the economy.
“We have the skin of the game which we need to make use of to get ahead of the competition. The professionals in transport and logistics along with the other sectors must go ahead doing the reforms in their sectors,” Yapa said adding that being in the right place and being better than others in the region is no longer enough. It has to be better across the globe. He said Sri Lanka has only one or two companies in entrepot trade, sea port related activities and off-shore business. Banking on slogans is not going to take us forward.
Sri Lanka is ranked 94 behind Vietnam and India in the logistics performance index.
However, Yapa said Sri Lanka’s exports which had comedown to 9.4 percent of the GDP in 2015 from around 20 percent in 2005 had increased to 20 percent during the past five years.
“There are many positive things done during the past few years to boost competitiveness such as the introduction of the National Export Strategy, new Inland Revenue Act, development of ports and airports and setting up more export processing zones,” Yapa said.