Reforms that’ll help Sri Lanka draw investors shifting production from China

apparel worker
Sri Lanka’s apparel sector showed growth

ECONOMYNEXT – Sri Lanka can benefit from supply chain disruptions that current global trade tensions generate by becoming attractive for investors through bold reforms and a focussed approach to draw companies looking to shift production bases, an economist said.

“China is seeing foreign manufacturing shifting out,” said Anushka Wijesinha. “We’re seeing what’s likely the largest upheaval of supply chains in a while, especially in products like electronics and apparel.”

Current trade tensions such as that between the United States and China are not just a flash in the pan that their leaders will resolve at their next summit but a secular trend that’s not going to go away, he said.

“I believe Sri Lanka can gain from these shifts,” Wijesinha told a conference held by the Chartered Institute of Logistics and Transport, Sri Lanka (CILT).

Trade tensions provide Sri Lanka an opportunity to be a viable alternative manufacturing base with studies and surveys showing that some corporate leaders consider the island attractive, with industrial wage costs in some technical categories still lower than in China.

Tariffs and free trade agreements (FTAs) with India and China would play an important part in their decision making, Wijesinha said, noting that Sri Lanka must boosts its “competitiveness muscles”.

Wijesinha suggested a four-pronged agenda, starting with meaningful and bold tariff and para tariff reforms and forging strategic FTAs, noting that the recently announced government five-year plan to phase out para-tariffs was too long.

A proactive and focused approach could draw investment from companies looking at new locations.

“They are not going to come after us – we need to go after them and have a very focused look on sectors and specific companies wanting new locations. The private sector also has role to start finding these partners.

Faster improvements in ease of doing business and trade reforms, such as being more efficient at the border using digital methods, could also help Sri Lanka stand out, along with building world class, technology-driven logistics infrastructure, Wijesinha said.

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Global manufacturing companies were drawing up contingency plans and looking at supply chain diversity and shifting production to other locations.

“So the concentration of supply chains will change. Some of these shifts are being pushed by the desire to diversify locations and looking at risk mitigation across the supply chain,” Wijesinha said.

Manufacturers are looking at multiple locations with several countries like Vietnam and India trying to attract those shifting their factories in what is a fundamental redrawing of supply chains.

Although Vietnam was “getting a big piece of the action and winning from the trade war”, it was not easy as the Vietnam model was different from China’s and “not as super disciplined and regimented as China,” Wijesinha said.

Access to inputs was also why China became a manufacturing power house, which was not easy for other countries to replicate, which is again why manufacturers are looking at multiple locations.

“Now is the time to change, push forward crucial reforms to make ourselves attractive to these industries that want to redraw their supply chains,” Wijesinha said. “We can’t afford to back track on industrial reforms or trade facilitation.
(COLOMBO, 29 October 2019)

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