- Key Economic Learnings
USA and EU will get out of their current economic crises within the next few years, therefore it would be imprudent if Sri Lanka (SL) loses sight of those markets, its biggest foreign consumer base, was the message given out by three economists at a seminar last Friday
The topic of the seminar was “Global Economic Development: Impact on Sri Lanka,” with the lead speaker being Dr. Razeen Sally of Sri Lankan origin, now the Director of Singapore’s European Centre for Political Economy; Dr. Indrajit Coomaraswamy, former Director, Economic Affairs, Commonwealth Secretariat and Dr. Anura Ekanayake, former Chairman, Ceylon Chamber of Commerce (CCC).
Sally said that SL needs to position itself like Singapore and Malaysia if it wants to attract investments.
He however warned that if that were to happen SL needs to avoid being branded as a pariah nation, an obvious reference to the UN Secretary General’s and the West’s concern over Colombo’s alleged human rights violations in the closing stages of its war against the LTTE and the possibility of UN sanctions being imposed as a result.
He also said that Singapore and Malaysia were moving into a more politically freer atmosphere.
It was also pointed out at this seminar organized by the CCC that Sri Lanka’s exports comprise only 0.07% of the world’s total global exports, and, as a result there was scope to improve on this percentage because of its low base.
However Coomaraswamy said that there was a question mark in regard to how serious the island was on export promotion, considering the protectionist measures it has adopted on the exchange rate (ER)* to prevent its fall. A weak ER helps exporters to get more rupees for their US dollars/ euros/Great Britain pounds, but on the inverse makes imports more expensive-thereby hitting the poor the hardest as SL is an import dependent economy, with a number of basic food products such as milk powder, sugar, flour, potatoes and onions being on its import list, either because Sri Lanka does not grow such agrarian produce or because even if grows such produce, the quantities produced are not sufficient to feed its 20 million population.
Meanwhile Sally said that it’s not advisable for Sri Lanka to ignore its traditional export market which is the West. Sixty per cent of Sri Lanka’s exports go to the USA, EU and to Japan.
He said that despite the West’s debt crisis, the number of patents being registered in the USA far exceeded patents being registered by the rest of the world combined, an indication that the USA was ahead of the others in innovation, which would help it to get out of the crisis sooner than later.
Currently there was no second country in the global arena available to take over the leadership from the USA, said Sally.
“China is not an export market to SL because most of SL’s export products like garments are not only manufactured in China, but is cheaper than those manufactured in Sri Lanka,” he added.
The way forward may be to export high technology goods or machinery to China; however SL lacks expertise in those sectors, said Sally.
Therefore Sri Lanka should not ignore its traditional market which is the West, he said. Currently only 1% of Sri Lanka’s total exports go to China. In fact the majority of the rest of the world’s exports, or that of Asia’s, some 60%, go to the West, said Sally.
China is not a consumerist nation, he said. It’s a nation of savers. In contrast, India’s consumption rate is equivalent to 50% of its GDP, he said. So, trying to export to China might not work, he said.
Sally further said that China’s public debt figures dished out by Beijing were largely under-rated and warned that China too was sitting on the edge of a public debt precipice when considering its municipal debts.
China’s state owned enterprises (SOEs), usually controlled by those in the Chinese Communist party’s politburo have access to cheap credit, that helps those SOEs to fuel their investments drives, he said.
Sally however said that it was important for SL to build supply chain links with India which is just 22 miles away and with the Southern Indian states in particular. States like Tamil Nadu, Gijarat, Bihar and Orissa are more proactive than New Delhi, with their chief ministers operating like CEOs, said Sally.
It’s therefore not in Sri Lanka’s best interest to pit China against India.
He further said that it was globalization that has prevented the USA from going into a protectionist mode in the light of the current crisis facing the world’s largest economy.
Sally further said that a distorted trade policy would impinge on SL’s exports.
He also said that it was important for SL to improve on its “Ease of Doing Business” score, where SL is currently ranked 102nd out of a list of over 100 countries measured by that index.
Meanwhile Coomaraswamy said that if the USA and the rest of the West didn’t follow the Keynesian economic policy of quantitative easing (money printing), the US jobless rate which is in the 9% range currently may have had jumped to 25%, similar to that which prevailed during the time of the Great Depression of the 1930s, driving the USA and the West into a protectionist mode which would have had been disastrous to economies such as that of SL’s.
Following the USA’s earlier some $ 800 billion stimulus package, the Federal Reserve will follow it up by infusing another $ 450 billion into the US economy, he said.
Coomaraswamy also said that another piece of good news is China agreeing to buy Italy’s public debt. China’s biggest export market is the EU region followed by the USA, said Coomaraswamy. “So it’s in China’s own interest to help the Euro Zone to get out of its current debt crisis,” he said.
* Government of Sri Lanka/Central Bank of Sri Lanka has since depreciated the ER by 20 Sri Lanka cents to Rs. 110/30 in inter-bank trading to the US dollar.
An expatriate corporate head doesn’t expect UN led economic sanctions to be imposed on the island.
Stuart Young (65), a South African white who heads Cargills Quality Confectioneries (Pvt.) Ltd., said that the “benign” statements made by US Assistant State Secretary Robert O Blake in his recent visit to Colombo was an indication that the West was going soft on Sri Lanka.