LKI Executive Director draws attention to ‘bottlenecks’ faced by Sri Lanka in enhancing exports and FDI

LKI’s Executive Director Ambassador Ravinatha Aryasinha on 30 March participated as a panellist in a webinar titled “The FTA Pathway: Exploring Sri Lanka’s Exports & FDI Potential”. This event was organised by the International Chamber of Commerce Sri Lanka (ICC), in collaboration with the BOI, the Daily FT and several other economic organisations. The Minister of Foreign Affairs M.U.M. Ali Sabry, Indian High Commissioner to Sri Lanka Santosh Jha, and former Trade Economist at the World Bank Dr. Nihal Pitigala were the keynote speakers on this occasion.

Questioned on the challenges Sri Lanka’s diplomats face in pursuing economic diplomacy abroad, Amb. Aryasinha while detailing the efforts being made by missions, underlined the need to urgently address the ‘bottlenecks’ faced by Sri Lanka, in order to make the country more ‘FTA – RCEP ready’ and to derive the full potential in enhancing exports and FDI. He said some aspects of these must be addressed by Sri Lanka from within, while there were others which interlocutor countries and entities could considerably help with. 

As for ‘domestic bottlenecks’, he said with respect to exports, it included Sri Lanka’s very narrow basket of products and components which has hardly changed over 30 years, and even when new markets are found through PTA/FTAs that Sri Lanka has shown low capacity in utilising these concessions. In the case of most, while maintaining quality, continuity of supply has also been a concern. The weak backward linkages to the sourcing of material from abroad to produce many of Sri Lanka’s prime export products including apparel, also makes them vulnerable to challenges that could result from the increasing trade wars and geo-political contestations. He said greater effort must be made to locally produce at least some of this. 

With respect to FDIs, he said constantly changing Government policies – both in foreign policy terms as well as in economic direction, had also been an impediment resulting in the lack of predictability over time, coupled with shortcomings in transparent processes and allegations of corruption. In order to overcome these handicaps Sri Lanka needed to considerably improve its ranking on indexes including on the Ease of Doing Business, Corruption Perception, Democracy Index, towards which modalities have already been proposed over time, and has also featured prominently in recent times through the IMF’s ‘Sri Lanka Governance Diagnostic Assessment’ of September 2023. 

As for the ‘external bottlenecks’ that restricted Sri Lanka’s export, FDI and tourism growth, Amb. Aryasinha said Sri Lanka’s ranking in the OECD’s ‘Country Risk Classification of the Participants to the Arrangement on Officially Supported Export Credits’ as of Feb 2024 stood at 7 – the worst ranking a country can get. He said this is not something new and connected to the recent economic crisis, but that it was the same before the ending of the separatist terrorist conflict in 2009 and has unfortunately not changed since. What this does is that it makes obtaining credit for those wishing to do business with Sri Lanka all the more difficult, and friendly countries in the OECD could help Sri Lanka in revising this rating. 

He said similarly travel advisories issued from time to time by countries also dissuades business from coming to Sri Lanka, as insurance risk premiums are higher. Host states, while encourage businesses to engage with Sri Lanka, could also more actively facilitate the Sri Lankan diaspora communities to invest in Sri Lanka. He noted that this process is being actively assisted at present through the recently operationalised Office for Overseas Sri Lankan Affairs (OOSLA) located within the Presidential Secretariat which plays a collaborative role in this regard.

Questioned on the difficulties faced by Sri Lanka in leveraging its strategic location given the geo-political tensions in the region, Amb. Aryasinha said Sri Lanka’s recent success in securing the IMF extended fund facility, presently navigating through a complicated negotiation process with all countries and parties concerning debt restructuring, and the effort to provide a level-playing field for investors through projects such as the Colombo Port City, should convey greater confidence to genuine investors. While regretting that immediately after the ending of the terrorist conflict in 2009 some countries did not more actively support Sri Lanka’s quest towards economic development, Amb. Aryasinha said if that had happened, Sri Lanka might have avoided some of the difficulties faced in the subsequent years and also enjoyed a different trajectory of development.

The other panellists included Australian High Commissioner to Sri Lanka Paul Stephens, Bangladeshi High Commissioner to Sri Lanka Tareq Md Ariful Islam, Japanese Embassy in Sri Lanka Deputy Head of Mission Kotaro Katsuki, Italian Ambassador to Sri Lanka Damiano Francovigh, French Ambassador to Sri Lanka and the Maldives Jean-François Pactet, Joint Apparel Association Forum Sri Lanka (JAAFSL) Secretary General Yohan Lawrence, and Board of Investment (BOI) Director General Renuka Weerakone. The panel was hosted by Arun Dias-Bandaranaike and moderated by Economist Talal Rafi, and Sri Lanka Institute of Directors (SLID) Senior Vice Chairman and former Chairman of the ICC Dinesh Weerakkody.