Export-oriented manufacturing the way forward for Sri Lanka

Dr. Howard Nicholas sharing insights 
Pic by Nimalshiri Edirisinghe 

• Economist Dr. Howard Nicholas says no country has advanced without manufacturing
• Says successive governments abrogated export-oriented economy after Premadasa
• Stresses SL should seize the opportunity to relocate production from China, US

By Lahiru Pothmulla

Diversified and export-oriented manufacturing is the way forward for Sri Lanka to develop as a nation, as no country has ever advanced without export-oriented manufacturing, world renowned Lankan-born economist Dr. Howard Nicholas said. 

Nicholas, the senior international trainer at ETIS Lanka, expressed these views while sharing insights on the topic ‘The Current State and Future Directions of the Global and Sri Lankan Economies’ at the Lakshman Kadirgamar Institute in Colombo last Thursday.

He said export-oriented manufacturing and a dynamic economy build trust in investors and motivate them to invest in a country.

“I did invest in Sri Lanka from 1990 to 1994 during President Ranasinghe Premadasa’s tenure. President Premadasa started an aggressive export-oriented development. I saw something happening in Sri Lanka and bought shares. I also encouraged others to do the same. 

“We knew if this trend continued, Sri Lanka will reach the developed country status in 10 to 15 years. Since that time, I have no interest in investing in Sri Lanka because that commitment to be an export-oriented economy has since then being abrogated by government after government,” he stressed. However, he said it was an exaggeration to say that Sri Lanka’s economy was in ruins today but noted that the country could do better.  

“Sri Lanka is not an entire disaster, but it could do better. When you compare Sri Lanka’s GDP per capita in US dollar terms with neighbours, Sri Lanka has done really well. It is still ahead of India, Bangladesh and Pakistan but not above countries like Vietnam. 

“Sector shares of GDP are not encouraging for investors because the shift in industry manufacturing from 2000 to 2007 has been sinking. The country needs manufacturing to show some dynamism,” he said. 

Nicholas said huge loans obtained from China and huge infrastructure development that took place in the country around 2010 elevated the GDP, but said the manufacturing was not improved. “This is a sign of weak economy,” Nicholas said. 

He said export as a percentage of GDP has shown no growth since 1998 to 2018 in Sri Lanka while exports had increased 300 percent in Vietnam during the same period. 
Touching on Sri Lanka’s manufacturing, Nicholas said the country’s main exports still remain to be garments and textiles.

“When you compare garment exports with other countries, the situation is sad. Pakistan, India, Vietnam and Bangladesh are doing way better than Sri Lanka in garment and textiles exports. The governments in other countries support exports with diversification. In Vietnam, concessions are given to fields such as electricity and transport,” he said. 

In the absence of an export-oriented manufacturing economy, Nicholas said Sri Lanka is earning money from tourism and foreign remittances. 

Meanwhile, he said though Sri Lanka is an island and people mainly termed the country of having an economy of an island, it was not so.

“If it’s an island, it shouldn’t show an economic growth rate in par with the world economic growth. Even when the world economic growth rose, Sri Lanka’s growth fell because there were problems in the country. Sri Lanka’s inflation also follows world inflation,” he said. 

Commenting on the trends of global economies, he said he was expecting a global recession, which can be used for the growth of Sri Lanka’s economy if properly seized.
“When there is recession, there will be pressure on currency. People are hopeful that tourism will bounce back, but the tourism sector is one of the most sensitive variables to global recession. You may have some recovery with normalcy but Europeans will stop coming if there is recession. 

“There is a great opportunity for Sri Lanka. However, there has to be some courage in seizing this opportunity because in major recessions there is relocation of company production from advanced countries to developing countries. That relocation can be seen now in India and Vietnam but not in Sri Lanka. China is relocating and having its production bases outside of China increasingly. The US is finally interested in Sri Lanka. We have to play smart. 

“We can welcome them and make a suggestion that it should encourage some of the US companies like ‘Intel’ to start a plant here. We can do the same with China. Let us do what Vietnam is doing. They are doing this exactly at this moment by sucking in production from both sides. The Americans want to have their presence in Vietnam to set up a buffer against China, and the Chinese are setting up companies via Taiwan and Singapore. These companies are relocating production in Vietnam,” he noted.