Monday Nov 25, 2024
Monday Nov 25, 2024
Monday, 2 December 2013 00:00 - - {{hitsCtrl.values.hits}}
IPS Executive Director Dr. Saman Kelegama kicked off the proceedings with a few introductory remarks, mentioning that whilst economic growth is crucial for economic development and reducing the vulnerability of societies, distribution of wealth should be more equitable. This year’s report was rendered unique by its emphasis on inclusive trade and investment, highlighting that they should be set in an enabling environment with sustainable policies.
Inclusive growth involves breaching inequities, claimed Kelegama. “The report looks at empowering the country’s people to participate meaningfully in the growth and development process. Economic imbalance can lead to social tension, undermining the process. As a trade-dependent nation, improving productive capacity and connectivity is key.”
APTIR highlights
The main highlights, trend and takeaway points of the report were then presented by two of IPS’ Research Officers, Suwendrani Jayaratne and Dharshani Premeratne.
Jayaratne explained that the report looks at the region as a whole, noting that expansions of trade and investment in the region have reduced poverty, halving poverty ahead of the MDG target timeframe. APTRI forecasts that export growth will stay below its historical rates – just over 5% in 2013 and 6% in 2014. Overdependence on external demand from large countries both outside and inside the region is not a good path to sustained growth.
She went on to explain that a certain return of trade contraction has been noticed, and trade has continuously slowed down since 2011. Intraregional trade is the most important component however, with China absorbing about 30% of intraregional exports of developing Asia Pacific countries. Export however depends on the demand of several countries, including China at 13%, US 7%, and Japan 6% of total exports. A look at the services trade shows a stagnating pace, although tourism is still growing.
Jayaratne explained that both exports and imports have halved in 2012, but developing countries exports are relatively resilient as they are driven by exports of computer, ICT and travel services. Furthermore, servicification has been identified as an integral part of competitiveness of international chains.
The region has been hailed as a leading investment destination, as developing Asia Pacific accounts for a third of global FDI inflows, with FDI inflows to LDCs up by 10%, reaching a new peak of $5.5 billion in 2012. Intraregional FDI has been replacing those from developed countries, with China and ASEAN looking the most attractive.
Jayaratne added: “Yet, there are large gaps in trade facilitation performance, with performance varying significantly. Trade is also costlier between sub-regions than trade with countries outside the region, with costs particularly high for agricultural goods. A new index was introduced in the report – the ISCCI – which ranks countries in terms of connectivity to supply chains by providing multidimensional measures of costs of trade.”
She went on to cover the recent trade policy developments, which show a mixture of promotion and protectionism, with trade liberalisation mainly through tariff reduction. The report also mentioned that non-tariff measures were used more frequently even within preferential trade agreements, affecting sectors such as minerals and machinery. Regional integration has been refocused to benefit small, developing and LDCs.
End of the orthodox approach
Premeratne then took over, stating that the findings indicated towards the end of the orthodox approach of “trade and invest now, distribute gains later”. The report examined the various transmission channels via which trade policy affects households, with different results for poverty reduction and other inclusivity dimensions.
Absolute poverty and hunger was reduced significantly, with MDG 1 achieved on a whole. However, Asia still accounts for a larger number of the world’s poor than in 1990, with inequalities existing despite poverty reduction. Apart from worsened inequality, weak results were shown for access to economic opportunities, access to health and education, and the overall inclusive process.
She added: “Complementary policies have prerequisites as they refer to the existence of an appropriate regulatory environment. National policies range from trade policy measures, trade facilitation measures and FDI promotion to SME development, encouragement of CSR business practices and consultation and coordination. Countries with a higher share of FDI to GDP tend to display higher aggregate productivity.”
Premeratne explained that regional cooperation could secure fair and free market access for LDC producers, while regional trade finance mechanisms facilitated the integration of SMEs into regional production networks. The report also touched on the promotion of regional aid-for-trade projects and PPPs in support of the formation of agribusiness and manufacturing value chains.
The Asia Pacific region continues to face the risks and uncertainties associated with sluggish economic recovery in developed countries and rebalancing in China and other large emerging economies. Furthermore, growth without significant employment generation and worsened inequalities may lead to increased vulnerability. Wrapping up the presentation of the report, Premeratne succinctly covered the rebalance of regional economic structure, adding that there were two key messages of APTIR 2013 – the Asia Pacific region continues to outperform the rest of the world but needs to improve its inclusive development, and needs to move beyond the orthodox model.
Amunugama on inclusive
trade and investment
Dr. Sarath Amunugama, Senior Minister for International Monetary Cooperation and Deputy Finance and Planning Minister, delivered the keynote, explaining that the report’s theme was not only timely but was very much under discussion in Parliament.
He said: “Although the title of the report is trade and investment, it should be expanded to trade and investment in a time of global financial crisis. It would help us if we could go into some detail as to how this crisis has occurred, and look at our own perceptions and interpretations. I think the most persuasive one is that the phenomenal Chinese/Asian countries’ growth was largely predicated on low labour costs.”
He added that China transformed their economy via export-led growth by offering very low labour costs coupled with stable government, which were primary factors for investors to rush in and help along the transformation. Amunugama urged the audience to refer to the work of World Bank Chief Economist Justin Lin for further details, extrapolating jokingly that China is the only country that dealt with dissidents and unions by sending them to lunatic asylums in order to secure their political stability. These factors, he mentioned, must be looked at in a realistic way.
For close on three decades, China grew at 10% because of these factors, with strong and pragmatic political decisions. The crux of the four modernisation proposals is that China must realistically look at their potential, and ruthlessly and vigorously ensure that these policies were implemented, and was a conscious decision to move away from Mao’s dictat. Amunugama also mentioned Amartya Sen’s dissection of both the Bengal and Chinese famines, adding that drastic political policy leads to famine and economic disaster.
The Minister stated that the reverse works for countries such as the US and other developing nations. With their high labour costs and incessant political bargaining, they lost their competitive edge, particularly under Greenspan and Reagan. They were able to ensure that there was a flood of currency and very high debt. In Reagan’s words “the people never had it so good”. However, the high quality of life was built with a foundation of borrowed funds. Debt was consistently repackaged, and as the ratios changed, a chain reaction was triggered. The whole bubble based on imports from developing countries (BRICS) piggybacked on this growth, and led to the reverse effect in the developed nations.
Amunugama touched on the idea of protectionism, stating: “Despite optimistic reports, the developed countries will not keep allowing their markets to be flooded. The new notion of growth with employment has cropped up since political elements came in and electorates had to be assured jobs. The advantages lost through high labour costs are to be countered with one factor – science and technology.”
Trade policy must realistically
push growth
He added that policies must be made keeping Sri Lanka’s agricultural base and population and other factors in mind. “We need to fashion our trade policy to realistically push growth. Short, medium and long term strategies must be considered, and each must run into each other. There are a lot of references in the report to agriculture and food security. Rebalancing in terms of regional demand must be looked at in a country-specific way. China for example, will have their growth challenged and will respond with a feasible strategy – domestic demand and addressing internal disparities. Domestic agricultural production will help rebalance our economy. The focus should also cover the export of services as opposed to just goods. Our main export items, garment, commodities, tea, gems are all managed privately.”
Amunugama used Dipped Products, one of Sri Lanka’s foremost industries, as an example. After the factory at Weliweriya was closed down, the rubber farmers who used to receive Rs. 600 per kg now receive Rs. 240. “That is the real economic cost of the shutdown due to disruptive elements. In a systematic fashion, there has been an attack of rubber and tea. We must protect our trade and main export commodities from misguided ideologies as we have tremendous potential.”
Referring to the tourism industry, the Minister added that a whole range of services, including entertainment must be provided to boost our one billion tourism target to two billion, as things like endangered species are simply not enough. He added that it can be done with a proper policy mix, as long as firm decisions are made, as there was a necessity for political will to see it through.
He explained that Sri Lanka was fairly high in terms of achieving MDGs, and was in the process of formulating the post 2015 agenda. Now that the country is moving from basic measures such as life expectancy and poverty to science and technology, the industries must also look to value-added products.
Amunugama wrapped up his address by stating that while BRICs can face the challenge of loss of developed countries by looking internally, Sri Lanka is simply too small to do that. He stated: “In the real sense of the world, we need to look at niche markets, value additions and specialised services, so that Sri Lanka can be a model for trade and investment.”
Pix by Lasantha Kumara
