Exports examined

Tuesday, 12 February 2013 00:00 - - {{hitsCtrl.values.hits}}

Sri Lanka’s exports dipping by 7.2 per cent last year, with reduced revenues for key products such as apparel and tea, have placed fresh challenges on economic growth for 2013.

The Asian Development Bank has downgraded the growth forecast for South Asia by 0.2 per cent to 5.3 per cent in 2012 and 6.2 per cent in 2013 on a slowing Indian economy. In its latest Asian Development Outlook, Gross Domestic Product growth has dipped to 5.3 per cent in the second quarter of 2012 from 6.7 per cent a year earlier, with poor output from farm and manufacturing sectors. Growth in private consumption expenditure was one of the lowest in years. Even though other economies in South Asia are expected to be resilient strong growth is not predicted from them.

According to statistics released by the Central Bank on Monday Sri Lanka’s exports have declined by 7.2 per cent in 2012 as a result of ongoing global financial issues but due to reducing imports the trade deficit also contracted. Yet this is not the best scenario for growth.

Latest data showed that total exports declined from US$ 10.5 billion to US$ 9.7 billion in 2012 with almost all key products being hit. Agriculture and industrial products both recorded a 7.8 per cent dip. Tea, Sri Lanka’s highest earning crop, dropped by 5.3 per cent to US$ 1.41 billion on reduced demand from the Middle East.

Sri Lanka’s largest foreign exchange earner in trade, apparel, ended the year with a 4.8 per cent reduction after recording an upturn during the last quarter. The industry, which managed to earn US$ 4.1 billion in 2011, notched up US$ 3.9 billion last year.

Foreign Direct Investment (FDI) remained unimpressive as well leaving the economy reliant on remittances and tourism earnings. The latter continues to be bright spark earnings more than a billion US dollars for the first time in history, which is particularly impressive when considering the mere four year lapse since the end of the war.

Lower exports mean low foreign exchange and lower foreign exchange in turn means a small purchasing capacity of a nation in the international market. Fluctuations in export earnings introduce uncertainties in an economy. These uncertainties influence economic behaviour by adversely affecting the level and efficiency of investment and in turn have a negative effect on growth. In addition to the above factors, export growth is also important because of its effect on internal trade and economic stability. Even more, the rate of economic growth and the distribution of income and wealth in a country are closely related to export growth.

All this means that the Government has to work with the private sector to funnel assistance and resources to bolster exports to wean the country off loans and promote overall economic stability and growth. Fast tracking niche market concepts, promoting branding, stepping up trade agreements and streamlining export procedures are just a few steps that need to be taken if Sri Lanka is to turn around its numbers. Promoting overall rule of law, stemming corruption and increasing transparency is also essential. The latest data insists that these steps need to be done sooner than later.