Oct 06, 2015 (LBO) – Sri Lanka should be a trading country and there is no need of a balance between manufacturing and trading, Deputy Foreign Minister Harsha de Silva said.
“Some say there must be a balance between manufacturing and trading. I don’t believe in this balancing. We have to go down to the basic principle of economics,” Silva said.
Speaking at an exporter’s forum Deputy Minister explained the theory of comparative advantage.
“Why is the doctor a doctor and not a carpenter at the same time? A doctor may be able to fix his own furniture but he makes more money through operations than fixing furniture.”
David Ricardo developed the theory in 1817 to explain why countries engage in international trade even when one country’s workers are more efficient at producing every single good than workers in other countries.
“We are better at something and somebody else is better at something else. It may be because where we are located or our climate or anything else.”
In an economic model, one has a comparative advantage over another in producing a particular good if he can produce that good at a lower relative opportunity cost.
“If we have to become a manufacturing nation; do we have the comparative advantage, if not; are we going to become a hub where we can service the region,” de Silva said.
“The answer to that is fairly clear; it is almost impossible for us to compete with China, with the global factory flow,” he said.
“If you look at Sri Lanka’s diplomatic relations with our neighbors in this region, it’s quite practical to come up with a plan for Sri Lanka to be a hub in the coming years.”
In fact in ‘Mahinda Chintana’ the previous regime talked about transforming the country into an aviation, maritime, commercial, energy and knowledge hub.
“The idea is not a bad one. But the question is how we get there,” Silva said.
“Suppose you are talking of a maritime hub and you put money in the wrong infrastructure; then you are again at cross purposes,” the deputy minister said.
“So I think Sri Lanka’s future lies in how well Sri Lanka becomes the hub for this part of the world using logistics, adding value and other things.”
He emphasized that this discussion must be re-started and the outcome must be based on evidence.
“We can’t everyday avoid this issue. Once and for all, we must agree, are we going to do it or not. Evidence based policy making is what we required.” Minister further stated.