Another export target destined to be missed? Sri Lanka is aiming to double its goods export revenue by 2027, but history is not on its side

In a recent statement, Sri Lanka’s Export Development Board  (EDB) announced plans to secure USD 31.3 billion revenue from total  exports (both goods and services) by 2027. The EDB expects to double  goods export revenue from 2022’s USD 13.1 billion to USD 26 billion in five  years – a yearly growth rate of 15%.  
Sri Lanka has a history of seemingly ambitious export  targets being missed and subsequently downgraded, and these fresh export  aspirations face potential scepticism. For instance, the government  expected to double goods exports from USD 10.6 billion in 2011 to USD 20  billion by 2020. However, as of 2022, goods exports of Sri Lanka earned  only USD 13.1 billion, and the country has failed miserably to reach  its target. Given that Sri Lanka only managed a modest increase of less  than USD 3 billion in its goods exports over a decade (2011-2022), the  aspiration to double exports in just five years, amid a global economic  downturn and the uncertainty created by the rivalry between major  economies, appears overly ambitious.  

In fact, the EDB is already facing a setback, in only the  first year of its 5-year plan. Contrary to its expectations, the goods  exports in the first five months of 2023 fell by 8% compared to the same  period in 2022. The goods export target set for 2023 is USD 15.9  billion. The slowing down of exports, combined with the gloomy forecasts  made by the apparel industry that accounts for over 40% of the  country’s exports, will make it challenging for the EDB to meet its 2023  target.   

Sri Lanka’s targets modest compared to regional peers
According to World Bank trade data, Vietnam, a peer economy  in the region, increased its goods exports by almost three times between  2011 and 2020 – despite Sri Lanka failing to even double its exports.  The same source of data also shows that Sri Lanka’s ambition to double  its exports in the next five years, while seemingly a formidable challenge,  is modest in comparison to the past export track records of many others  in the region. For instance, from 2001 onwards, Vietnam managed to  double its goods exports consistently over periods of five years or less.  It has gone from USD 15 billion goods exports in 2001 to an export  value of USD 200 billion in 2017. It almost doubled its exports over  the past five years to USD 370 billion in 2022, even amid the pandemic.  Meanwhile, Malaysia also scaled up its exports from USD 100 billion to  USD 200 billion within five years. Thailand did the same in six years. India  expanded its exports from USD 75 billion to USD 150 billion in just three  years, and from USD 150 billion to USD 300 billion in four years.   

Why has Sri Lanka fallen short of its export targets?
There are several key differences that stand out when  comparing Sri Lanka with other countries in the region that experienced  rapid growth in their exports within a short period – such as Thailand,  Malaysia, and more recently, Vietnam. These differences shed light on  important factors Sri Lanka appears to have neglected in its efforts to  increase exports.   
The first difference is that Sri Lanka strived to grow its  exports by squeezing more out of existing industries and existing  markets. In contrast, the other countries that saw their exports jump  several-fold achieved that by expanding to new products and new markets.  The second difference is that Sri Lanka heavily depended on existing  investors to contribute more to exports. However, countries like  Thailand, Malaysia and Vietnam generated more exports by bringing in new  investors. 
Mobile phone exports from Vietnam grew from USD 2 billion in 2010  to USD 58 billion by 2021. An article published by The Economist  magazine in May this year points out that Thailand’s early presence in  automotive supply chains enabled it to emerge as the tenth-largest  producer of cars in the world, surpassing countries like France and  Britain. Thailand almost doubled the value of automobile exports within a  decade (2008-2018), from USD 18 billion to USD 32 billion. According to  Reuters, Malaysia accounts for 13% of global chip assembly, testing and  packaging, and 7% of the world’s semiconductor trade. Connecting to  GVCs enabled Malaysia to double its electronics exports from USD 49  billion in 2008 to USD 105 billion in 2018.  
Overall, GVC-led exports (electrical goods, machinery, and  automobiles) account for over 40% of the total exports of Thailand,  Malaysia, and Vietnam. In contrast, exports of these products account  for a mere 5% of Sri Lanka’s total exports.   
The next major shift that happened in the world market in  the recent past is the pivot of world trade to the East. In the 21st  century, with this shift, China emerged as the world’s second-largest  importer. Its imports increased nine-fold in the last two decades, from  USD 295 billion in 2002 to USD 2,716 billion in 2022. Countries like  Thailand, Malaysia and Vietnam were quick to expand their exports to  this new and rapidly growing market in the region. Exports to China in  2021 accounted for 14%, 15% and 17% of the total exports of these  countries, respectively. In contrast, Sri Lanka went on a borrowing  spree with China but failed to benefit from the massive and rapidly  growing Chinese market. As of 2021, exports to China accounted for only  2% of the total exports of Sri Lanka.   
The experience of countries in the region has valuable  lessons for Sri Lanka. First, the importance of identifying and  utilising emerging opportunities in the global market. Second, the  importance of venturing into new products and new markets – which is  only possible by bringing in new investments, both local and foreign.   

How can Sri Lanka accelerate its exports?
If Sri Lanka is to accelerate its exports, it is critical  for the country to be able to respond to major shifts taking place in  the global market at present. For example, in response to growing  geopolitical tensions between the USA and China, many companies are  seeking new investment locations to make their supply chains resilient  to emerging geopolitical shocks. The Economist has coined the term  “AltAsia” for a collection of 14 countries in the region which has the  highest potential to become investment destinations for companies  seeking to reduce the over-reliance on China and diversify their supply  chains. It includes most of the ASEAN countries, as well as our South  Asian neighbours India and Bangladesh. Sri Lanka is absent from this map  of ‘AltAsia’. While these countries are already attracting investments  from major MNCs like Apple, Google, Samsung, and Intel, Sri Lanka  appears to be missing this opportunity again.  
The EDB is yet to publish a detailed official version of  the country’s national export strategy for the next five years.  However, unless Sri Lanka takes note of the current shifts in the global  market and devises strategies to capitalise on emerging opportunities,  it will miss the latest target of doubling exports in five years too.