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Sri Lanka can up exports by moving to complex products: economist
20 Oct, 2012 10:23:32
Oct 20, 2012 (LBO) - Sri Lanka can increase exports and incomes by creating conditions to allow producers to move in to more complex products based on knowledge and research, a top economist said.
Sri Lanka is still making simple product such as tea and garments and very little hi-tech complex products for export, W A Wijewardene, former deputy governor of Sri Lanka's central bank told the annual sessions of the Sri Lanka Economic Association.

Wijewardene said Sri Lanka could be caught in a 'middle income trap' like Malaysia and some Latin American countries unless the direction of exports was changed.

He said Ricardo Hausmann from Harvard University and Cesar Hidalgo from the Massachusetts Institute of Technology (MIT) had developed an Economic Complexity Index, which shows the types of products made by a country.

Germany and USA were among the countries that made the most complex goods.

Wijewardene recalled the example of Jack Welch, who became head of General Electric a US based industrial company, when it was in trouble. At the time Japanese electric goods were competing against the firm.

"He could have gone to the government and asked to stop Japanese imports," Wijewardene said.

"But he focused on three types of high tech items instead."

Wijewardene said Welch turned around General Electric by focusing on aero engines where only Britain's Rolls-Royce was its only real competitor, medical equipment where Germany' Siemens and power turbines.

By moving to complex products through innovation, a country could stop worrying about competition from Bangladesh or Vietnam, he said.

Sri Lanka's export composition has not changed much over the past decade or so, he said.

Exports as a share of gross domestic product, has fallen sharply from 33 percent in 2010 to 18 percent in 2011. In 2012 it may fall to 15 percent.

The share of tea had increased mainly due to price increases.

Wijewardene said Sri Lanka needed to produce more engineers or scientists to come up with new technology or create conditions for others to come to the country in a 'reverse brain drain' process.

He said the government's program of a 'Green Colombo' would help by creating 'oases' for people to live and work.

Wijewardene said Sri Lanka also needed to provide rule of law and property rights and an independent judiciary to protect the rights of the people.

Sri Lanka has however produced the world's fastest stock exchange software.

Update II

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READER COMMENT(S)
12. Shaik Anwar Ahamath Mar 13
Thankfully because of the good relations of our predecessors, our reputation is held high and our trading partners haven't dropped us. The fly in the ointment is our Central Bank which is playing fast and loose with the exchange rates that has an impact on our exports. E.g. In a matter of days our currency has appreciated by about 25% which makes our products that much more expensive in the foreign market, too bad especially when our competitors have depreciated their currencies.
11. Wadda Podda Oct 22
@EXPAT.
Check this link.
http://www.swissinfo.ch/eng/swiss_news/Swiss_are_worlds_wealthiest_individuals.html

What you are referring to is from Anglo Saxon Forbes. Which brings me to my point, all the statics are manipulated according to who wrote it. Furthermore, Germany or US is nowhere to be seen in the top 10.

I'm sorry if I hurt you guy's feelings, but pls don't start another war,

10. EXPAT Oct 22
@Wadda Podda: "...Now, to some statistic complied by the Swiss banks, the richest country in the world per capita is Switzerland..."

check again mate, the richest country per capita is Qatar followed by Luxembourg (but some say Liechtenstein is richer ...)

Swiss are in the top 10 of course, while Sri Lanka is in the 100 region.

9. Gihan Oct 22
Currently, Sri Lanka is not even producing the most primary type of goods. In that case it no more falls under the classification of "primary producer" as the most primary type of goods are not being produced in Sri Lanka.

Private sector neither the government has done any thing to change the course of investments. Both are content with the current sources of profits which are mainly derived from trade, commerce, banking & finance, real estate, etc., which Adam Smith and the classical economists categorised as unproductive activity since the processes are not involved in producing value but are merely facilitating the value realisation and value generation processes in the economy.

8. WAW Oct 22
To Wadda Podda: Thanks for the clarification. There is no question about Switzerland being a high tech giant and in the index, though it is ranked below Germany at 3, its score is almost equal to that of Germany. Germany's score is 1.985 as against Switzerland's 1.935, a very thin and negligible difference.

One reason for Switzerland to be ranked a little below is that it still produces and exports a fair volume of simple products like chocolates, dairy products and raw materials etc. In these products, they are being competed by a large number of competitors from across the globe.

The index has been compiled by these economists after doing substantial research and tracking the historical footprint of 128 countries for more than four decades. It has nothing to do with the fact that it has come from Americans (unfortunately, no Anglo fellows there). In fact, Ricardo Hausmann, one of the authors, is the former Minister of Economic Development of Venezuela.

Both MIT and Harvard do not have geographical faith or allegiance as we do for Asia or Sri Lanka. The best research on Buddhism has been conducted by Harvard.

7. WAW Oct 21
Ramanjith Silva below: Of course Thailand and Malaysia rank well above SL in the index: Thailand at 31 and Malaysia at 34.

The problem which Malaysia faces today, as admitted by Malaysian authorities, is that it cannot move to a rich country status from its present middle income country status to which it entered as far back as early 1990s. This is because with respect to simple products, with its high wages, it cannot compete with low wage countries like Bangladesh and Vietnam and with respect to complex high tech products, it cannot compete with high tech giants like South Korea or Germany because it does not have technology.

So, for the last 20 years or so, it has remained a middle income country when its other associates like Singapore, Taiwan and S Korea elevated themselves to high income countries. This is not peculiar to Malaysia; some of the Latin American countries like Brazil, Chile and Mexico too have been trapped in this trap.

SL is now in lower middle income country state, but it may not be able to even elevate itself to higher middle income country state because of the rising wages and lack of the required technology.

That is why moving into economic complexity is important for SL and both Thailand and Malaysia; but in this race, Malaysia and Thailand will gain complexity much before SL with their superior investments in research and technology and human capital.

SL is lagging behind because its R&D investment is about 0.1% of GDP and it has not ventured into developing the relevant human capital.

6. Wadda Podda Oct 21
@WAW. Again, this statistic complied by some Anglo Saxons or Germans. Ask the millions of Germans who are seeking employment in Switzerland about who produces the most niche products in the world.

Now, to some statistic complied by the Swiss banks, the richest country in the world per capita is Switzerland. Ultimately, that's what every country tries to achieve, whether they are first or second in some unproven, unknown statistic.

@ Ramanjith Silva. SL and Malaysia maybe two different stories, but the fact remains they are stuck in the 'middle income trap'. Something that the present Govt. acknowledges and are trying to correct. Policies that favor certain groups(result :brain drain to S'pore and other developed countries) and not liberalizing the economy further, like signing the FTA with Europe etc hinders investment. Japanese and European companies in M'sia complain there are not enough capable engineers(you would surprised to know the number of Indian, Sri Lankan, Indonesian engineers working in M'sia.) Well they had oil and gas.

Marican the ex-Petronas chief in 2009 said gas reserves would be over in 10 years and the oil will follow, then it would be kingdom come.

5. Ramanjith Silva Oct 21
The writer has got it wrong about Malaysia. SL and Malaysia are far apart. Many high-tech companies are based in Penang and Shah Alam. Malaysia supply skilled and knowledgeable labour for high-tech industries. Similarly Thailand is the production base for many auto companies. Over 60% of Thai industrial workforce is graduates. Sri Lankan engineers could not prodcue even a hand grenade to support the government forces during 30 years of war.
4. Narendra Oct 21
I believe the important issues here are the rule of law, an independent judiciary and protection for physical and intellectual property.

These essential ingredients need to be in place to provide the impetus and confidence for progression.

3. WAW Oct 21
Wedda Podda, you have a point and Switzerland is ranked No 3, one notch below Germany which is No 2. The ranking depends on the overall complexity and diversity of complexity and not on one or a few products of complexity.USA which still produces and exports a great amount of simple products like agricultural products and natural resources like petroleum and minerals is ranked No 13, well below Singapore which is ranked at No 7.

A way to go for SL, though may be difficult but not impossible.

2. Kamal Oct 21
Quote : "unless the direction of exports was changed" To do that the Export Promotion Agency's top management should be strengthened with good thinkers/action people in place of current types worrying for what the next foreign trip is.
1. Wadda Podda Oct 20
'Germany and USA were among the countries that made the most complex goods.'
I always thought it was Switzerland that made the most complex goods. Even the simple triggering mechanism for the airbags in the so called German car are from Switzerland. Ever made a study how many fine precision and reliable parts from Switzerland are in a 'German' car ? You would be surprised.