Bolstering the business environment for trade-led development in Sri Lanka
Like many developing country governments, Sri Lanka is seeking to make trade a driver of growth and development, using international markets as a lever to shift resources and people into higher value-added activities.
As part of its goal of becoming an upper-middle-income country within a decade, while reducing income inequality and regional disparities, Sri Lanka aims to double exports to $28 billion per year by 2022 as it diversifies the country’s export basket into innovation-based goods and services.
Yet setting ambitious targets is one thing; attaining them is another. The countries that have most effectively translated trade into broad-based growth and development did much more than provide a stable macroeconomic environment. They created an enabling environment for investment and production in an evolving series of sectors subject to the discipline of international competition.
Moreover, to maximize trade’s contribution to inclusive growth, it is important for micro, small, and medium-sized enterprises (MSMEs) – which account for the vast majority of jobs – to connect to value chains.
ITC has been working closely with the Sri Lankan government and an array of other domestic institutions to bolster the business environment for trade.
At the core of these efforts is the national export strategy (NES) that the Ministry of Development Strategies and International Trade and the Export Development Board developed with support from ITC. Formulated on the basis of extensive consultations with the public and private sectors, Sri Lanka’s NES identifies the most pressing bottlenecks on export success and sets out specific measures to address them. It is a roadmap for allocating finite resources to achieve the biggest returns in terms of growth and job creation.
The strategy identified six priority sectors for their high potential to create jobs and generate export revenue: information technology and business process management; wellness tourism; boat building; electronics; processed food; and spices and concentrates. For each, it describes – and provides cost estimates for – policy changes and key investments needed to build supply-side capacity.
It also identified for improvement four cross-cutting elements of Sri Lanka’s international trade competitiveness: the quality infrastructure to foster compliance and certification to international standards and regulations; access to trade information and trade promotion services; logistics services; and innovation and entrepreneurship.
As a complement to the implementation of the NES, ITC worked with the Information and Communication Technology Agency of Sri Lanka to map the ecosystem of support to entrepreneurs in Sri Lanka. The goal was to identify gaps, overlaps and connections among actors such as start-up incubators and events, industry associations, financing sources and educational institutions to help them work together as effectively as possible.
While the NES was only formally finalized in June 2018 and launched the following month, the Sri Lankan government had already been acting to implement it. Its 2018 budget allocated $60 million in project expenditures related to activities in the strategy’s implementation plan. Many of the initiatives foreseen in the strategy are underway.
Public-private sector dialogue on bolstering Sri Lanka’s position as a maritime, logistics and transport hub in the Indian Ocean is working to ensure that the government’s plans to open the shipping industry to international competition yield maximal benefits in terms of service costs and quality for Sri Lankan traders and consumers.
The ‘Island of Ingenuity’ branding campaign is marketing Sri Lanka’s knowledge services to potential foreign investors. Boat building, one of the priority sectors, has received significant support from the Government of Sri Lanka and the Export Development Board. The country’s first Boat Show and Boating Festival in October attracted a large number of buyers and industry professionals from countries in the region, the Middle East, Korea and Europe.
One important obstacle to Sri Lanka’s trade performance, as identified by the NES, is limited understanding of international market dynamics and opportunities. This is particularly true for smaller businesses. The government has allocated funding to develop an online export promotion portal to provide trade and market intelligence to exporters through regional chambers of commerce from Jaffna in the north to Matara in the island’s south. In a similar vein, greater knowledge about cross-border procedures and export management can help MSMEs trade more efficiently. In tandem with the National Institute of Exports, a training institution affiliated with the country’s National Chamber of Exporters, ITC has implemented an e-learning programme on export regulations, packaging requirements and freight options for cargo. Over 130 MSMEs have taken the online course. Eight businesses from sectors including processed foods, spices, garments and fishery products are receiving individual coaching as they upgrade their export-related administrative practices.
As in many developing countries, getting products certified as compliant with international health and safety standards is a major challenge for Sri Lankan exporters. In line with the NES recommendations, the government has made preliminary investments to inventory in-country certification capacity.
The entrepreneurship ecosystem mapping exercise culminated in a publication that has already started to deepen ties among ecosystem actors and change the ways they work together. For example, StartupX Foundry, a Colombo-based accelerator, said the report helped it identify new strategic partners such as the Sri Lanka Institute of Nanotechnology and influenced its work with other ecosystem actors in Sri Lanka.
ITC’s work in Sri Lanka is set to continue through NES-related allocations in the 2019 national budget as well as partnerships with other development partners. With support from national institutions, efforts to strengthen MSME capacities on export management, cross-border procedures and export marketing will be scaled up further.