Interview: Indira Malwatte

What sectors do you expect will increase export revenue over the next 18 months?

INDIRA MALWATTE: Exports are one of the main pillars of growth for any economy, and today Sri Lanka pays the price for not prioritising this element in the last decade. Exports’ percentage of GDP has been in decline from more than 30% in the mid-1990s to around 15% at present. In this context, trade-and investment-based reforms aimed at improving productivity, trade facilitation and more bilateral economic integration agreements are considered priorities of the government.

Value addition, market access and innovation are the major elements needed to enhance the export revenue of the country. Even though there is a time lag, Sri Lanka will gain further market access with the restoration of the Generalised System of Preferences Plus (GSP+) facility with the EU and from proposed trade agreements with India, China and Singapore.

Apparel exports are expected to grow significantly as a result of the GSP+ concessions, with sector exports to the EU forecast to increase by $500m in the next 18 months. Rubber-based products, yacht and ship building, coconut-based products, tea, information technology-enabled services and the tourism sector are also expected to contribute significantly to the overall export earnings of the country. Furthermore, fishery exports are expected to increase with the removal of an EU ban on Sri Lankan fishery products, and additional tax concessions will be received with the restoration of the GSP+ facility. Sri Lanka should also reap maximum benefits from the non-renewable resources it has for the betterment of the country. Raw materials such as silica, graphite and mica are exported by Sri Lanka to countries around the world without any notable value addition. This process needs to be changed and high-value-added products such as silicon chips, carbon nano-tubes and capacitors should be produced and exported.

How can best practices be promoted among small and medium-sized enterprises (SMEs)?

MALWATTE: SMEs are the economic and employment backbone of the country. The government is concentrating on design, product development, certification and marketing assistance to foster and develop such enterprises. SMEs hold a 50% share of the economy, so it is important to adopt best practices among these businesses and start-ups at a regional and national level with the purpose of manufacturing innovative and market-oriented products. Policies to promote best practices by SMEs should focus on incorporating an enabling environment that cuts transaction costs and eases doing business to accelerate the adoption of modern and relevant technologies. Improving infrastructure for d connectivity is also important for SMEs in facilitating their access to international markets.

In addition, the government believes that policies enhancing financial inclusion will address the present issue of accessibility to adequate funding. SME expansion is severely hindered due to limited access to finance, since banks believe in collateral-based financing as opposed to business-plan-based financing. As such, to address the lack of guarantees and support better access to finance for SMEs, it is important to initiate a SME Credit Guarantee Scheme and the proposed Export-Import Bank.

The opening of digital trade has rendered the entire services sector tradeable, liberalising it from the constraints of geography. Even for physical merchandise, e-commerce has created new opportunities for “micro multinational” SMEs to link with customers around the world. Increasing knowledge flows among SMEs about value addition, good manufacturing practices and product improvement is crucial for development at this stage, and intervention strategies are needed to fast track SME procedures while minimising transaction and regulatory costs.