Sri Lanka, highest-ranked MIC in Hinrich Foundation’s Sustainable Trade Index

Sri Lanka has outperformed in the latest Hinrich Foundation Sustainable Trade Index, ranking seventh overall, emerging as the highest-placed of the middle-income and emerging markets, above richer countries such as China (8th), Malaysia (12th), Thailand (13th) and Brunei (15th).

The index measures the capacity of 20 economies—19 in Asia along with the US—to participate in the international trading system in a manner that supports the long-term domestic and global goals of economic growth, environmental protection and strengthened social capital. 

The 2018 Hinrich Foundation Sustainable Trade Index, prepared by the Economist Intelligence Unit, noted that Sri Lanka’s focus on sustainable development—in particular to attracting and absorbing foreign direct investment (FDI) in a manner beneficial to workers and the environment—was one of the key reasons for Sri Lanka’s enhanced performance in the index. 

The authors of the report emphasised that if Sri Lanka continues to balance industrialisation with “impressive” social and environmental protections, while growing to reach high-income status, Sri Lanka might be considered as a developmental model for other small emerging economies in the future.

World Bank Country Director for Sri Lanka and the Maldives Idah Pswarayi-Riddihough, who was an interviewee in the report, highlighted that with the implementation of the Vision 2025 master plan, Sri Lanka has been making progress in terms of reducing tariff and non-tariff barriers as well as facilitating trade.

“Sri Lanka has been striving to reduce tariff and non-tariff barriers (it ranks joint fourth on this indicator). At the end of 2017, it eliminated para-tariffs (fees or duties on imports other than customs tariffs) on over a thousand tariff lines. It is also creating a National Single Window for trade, which will help reduce the time taken for import clearances, including those relating to non-tariff measures,” she stated. 

While acknowledging the government’s attempt to enhance labour force participation, the report pointed out that much work remains to be done in terms of growing labour force participation— particularly for women—and broadening access to education and skills training.

Sri Lanka has also scored high in the index’s environmental pillar, with the best air pollution score. However, Pswarayi-Riddihough stressed that Sri Lanka would need to mitigate the impact of certain aspects of industrialisation and development, such as a rapid expansion of coal-based energy generation and private transport. 

The report indicated that Sri Lanka has been making efforts to grow its service sector targeting sustainable development such as increasing tourism’s share of total exports, which was partly reflected in low transfer emissions (ranked fifth) and a low share of natural resources in trade (fourth). 
The report highlighted that tourism’s share of total exports increased from 7.7 percent in 2012 to 20.5 percent in 2017.

However, Pswarayi-Riddihough stated that there are more to be done in boosting efficiency of core service industries such as banking, logistics and shipping. 

It was also highlighted that global brands and corporates are increasingly seeking for manufactures who engage in sustainable practices and Sri Lankan factories are considered as a model for environmental and sustainability practices.

Participating in an interview with the authors of the report, Li & Fung Supply Chain Solutions President noted that in terms of factory workers’ rights and labour standards, Sri Lanka’s eco-factories, which first came to the world’s attention about a decade ago, are still considered industry-leading.

Sri Lanka was ranked joint eighth in terms of political stability, which the authors of the report termed as a remarkable achievement for a nascent democracy still vulnerable to destabilising forces in a post-conflict era. 

“This has provided the base for healthy debates about everything from factory worker’s rights to the need to manage the inevitable economic and geopolitical interests from China and India,” the report noted.