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Sri Lanka should boost international relations for progress: Razeen Sally
20 Dec, 2011 18:37:33
Dec 20, 2011 (LBO) - Sri Lanka should strengthen relations with the West and India and expand economic freedoms to boost foreign direct investments and exports, an economist who is a specialist in international trade said.
Razeen Sally, a professor at London School of Economics who will be at the Lee Kuan Yew School of Public Policy from next year, said while Western economies would be sluggish in the next few years most of the demand for emerging economies still came from the region.


"Sri Lanka's main markets remain in the West, in the United States and the European Union," Sally told the LBR-LBO CFO forum, a gathering of senior executives in Colombo.

"There is no short term substitute. What is important is to have good economic and political relations with the United States and the European Union, because if those are compromised then that will compromise Sri Lanka's exports."

Fast exports growth is also closely tied to foreign direct investments, which in turn is linked to business freedoms.

Sri Lanka's industrial exports started to grow from the early 1980s when the country abandoned an oppressive import substitution economy that subjugated the sovereignty of mostly poor consumers in favour of privileges to producers.

At the time Sri Lanka also strengthened property rights with a constitutional guarantee against expropriation, which has since been compromised.

From the 1980s backed with foreign investments Sri Lanka became part of the global apparel supply chain, but missed the chance to attract more capital intensive electronics due to political risks from a civil war.

"There is every argument to diversify exports," Sally said. "That should be done with utmost vigor. But it will still not be a substitute, given how important Western demand is to Sri Lanka and the rest of the emerging world."

Near Chances

He said Sri Lanka should also build stronger relations with India because prospects were better due to its proximity rather than China.

"There is every reason to have very good economic and commercial relations with China but prospects of doing well in Chinese markets are less than India and other markets closer by," Sally said.

"In terms of diversifying exports the next priority has to be India, given its geographical proximity," Sally said.

"This particularly means closer links with the South Indian economy including Sri Lanka's Tamil neighbor in Tamil Nadu.

"There is of course a political complication in here. There is perhaps a chauvinistic reflex action that is against pursuing this kind of action."

Sally said Taiwan was in a similar predicament with China.

Sally said his work in Taiwan for example had shown an opportunity to strengthen its fractured relations with China and ride its supply chains and even catch up with Korea, and Sri Lanka had greater opportunity to do the same with India rather than China.

Riding the Tiger

Sally said Taiwan had to 'make peace' with China on their way to economic integration with the rest of the world.

"I make that analogy because in a whole range of businesses agro processing to some manufacturing and to a lot of services, Sri Lanka's road to globalization and global supply chains probably has to lie through the South Indian economy," he said.

"And it has got to ride that Tiger as it were."

"And then there are businesses who do not want competition from more productive and more efficient Indian businesses."

Most of the 20th century has seen a severe setback for people's liberties while states expanded. There was a rise in fascist-nationalism, war, monetary debasement, expropriation, trade restrictions and a general resurgence of Mercantilism and state intervention.

South Asia saw similar trends, especially after independence from British rule, analysts say.

"Mercantilists tend to think, exports, exports, exports, without realizing that you cannot have an efficient diversified productive export economy without having efficient productive, diversified import economy allied with open door for foreign investments," Sally observed.


Vietnam which now gets tens of billions of dollars of foreign direct investment each year and has seen booming exports, has strong foreign policy.

Nations that were involved in wars with Vietnam including the US, Korea and France are now key investors and trade partners.

"Politically it is our policy to close the door to the past and look towards the future," Vietnam President Truong Tan Sang said in an interview during a recent visit to Colombo.

"That is why Vietnam has an increasing number of friends in the world. With regard to foreign investments, we have foreign investment from about 100 countries in the world including the former foes.

"They are now all friends of Vietnam and they share the wish to develop Vietnam and that is why we have received committed foreign investment of 200 billion dollars of which 100 billion have been realized."

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1. kawdaboy Dec 21
The only path to economic prosperity is by capping mercnatilasm.