0. Revisiting Sri Lanka’s Trade and FDI Record
Ganeshan Wignaraja
Chair, Global Economy Programme, LKI
25 July 2017
Colombo

1. #1: Shift in the Ratios of Export Growth to GDP growth
F = Forecast, estimated using three-year annual average weights of exports of goods and services in constant 2005 US$ and the volume growth of goods and services from IMF October 2016.
Note: Developing Asia refers to the developing member countries of the Asian Development Bank.
Developing Asia's volume of exports are estimated using annual weights of exports of goods and services in constant 2005 US$.
Source: ADB estimates based on data from the International Monetary Fund World Economic Outlook (April and October) and World Bank. World Development Indicators online database (accessed 4 November 2016).

2. #2: Low & Concentrated Base of Sri Lanka’s Goods and Services Exports
$ 9.4 billion
2007
$ 16.7 billion
2016
Note: Other primary is defined as sea food, spices, coconut and rubber, gems and jewellery and other commodities. Other manufactures are defined as food, beverages and tobacco, rubber products, mach. and mechanical appliances, petroleum, transport, other industrial exports. 
Source: Central Bank of Sri Lanka and World Bank ,World Integrated Trade Solution (WITS). Accessed 13 May 2017.

3. #3: Traditional Markets Dominate Sri Lanka's Goods Exports
$ 19.0 billion
$ 30.9 billion
EU = European Union; ROW = Rest of the World
Note: Dynamic Asia includes ASEAN economies, Japan, Korea, Hong Kong, and Taiwan.
Middle East includes UAE, Iran, Israel, Iraq, Saudi Arabia, Kuwait, Qatar, and Oman. 
Source: Direction of Trade Statistics, International Monetary Fund online database (accessed 5 May 2017).

4. #4: Sri Lanka’s FDI Inflows Lags Exports and ASEAN economies
350.9
883.7
Sri Lanka’s FDI Inflows, US$ Mns
Source: UNCTAD, FDI/MNE database (

5. Opportunities in a Post–Crisis World
Undue export pessimism seems unwarranted
Weak import demand in advanced countries seems temporary
China’s rebalancing opens new opportunities for China and others
Examples of emerging trading opportunities in Asia:
China’s transition to higher domestic value added and innovation means the creation of more technologically sophisticated GVCs in East Asia
Some of China’s labour-intensive GVC stages are migrating to others in the region (e.g. ASEAN and India)
A greater role for SMEs (as direct or indirect exporters) in Asia’s GVCs
Expansion of services exports across Asia including digital trade, finance and professional services
Sri Lanka could tap more into opportunities in China and dynamic Asia

6. #5: Enhance Openness & Market Access
Feb WTO Trade Facilitation Agreement in effect
July 2017 GSP+ reinstated; good until 2024
5 limited past FTAs & new FTA negotiations with India, China and Singapore which will take some time
Future agenda – Joining the Regional Comprehensive Economic Partnership (RCEP)?
Mega-Asian FTA - ASEAN, China, Japan, Korea, India, Australia, New Zealand – covering 30% of world GDP
Estimated global income gains in excess of $260 billion
More development-friendly than other agreements
First steps for Sri Lanka are (i) ASEAN observer status and (ii) building capacity for trade negotiations

7. #6: Sri Lanka’s Lagging FTA Activity Esp. With China and Dynamic Asia
Source: Asian Regional Integration Center, Asian Development Bank. Accessed June

8. #7: Deepen Structural Reforms in Sri Lanka
Philippines
Thailand
Singapore
Simple Average MFN Tariff, 2015
9.3
6.3
11.0
0.2
Ease of Doing Business Rank, 2016
110 99 46 2
Overall Infrastructure Quality Rank, 2015 (out of 140 economies) 64 90 44
Individuals using the Internet, % of population, 2015
30.0
40.7
39.3
82.1
Researchers in R&D
(per million people)*
111
189
974
6,658
Average credit value gap per SME, US $, 2011
16,801
9,182
21,474
166,551
Source: World Trade Organization, World Bank, World Economic Forum, and IFC Enterprise Finance Gap Database.

9. Summary
40 years after the 1977 reforms, Sri Lanka envisages a more pro-active export-led investment strategy
An evidence-based exploration of trade, FDI and policies reveals some issues for economic policy in Sri Lanka
Exports held up amid slowing Asian trade but FDI lags trade
Low and concentrated export base
China, dynamic Asia and India insufficient in trade and FDI
Post global financial crisis external environment is more difficult but undue export pessimism seems unwarranted
Sri Lanka can tap new Asian opportunities in GVCs, services & SMEs
FTAs with Asia, building trade capacity, implementing reforms and investing in infrastructure vital for Sri Lanka’s success

10. Extra Slides

11. Gradual Shift in Inward FDI to China and Dynamic Asia
EU = European Union; ROW = Rest of the World
Note: Dynamic Asia includes ASEAN economies, Japan, Korea, Hong Kong, and Taiwan.
Middle East includes UAE, Iran, Israel, Iraq, Saudi Arabia, Kuwait, Qatar, and Oman.  
Source: UNCTAD, FDI/MNE database (