Part I: National Export Strategy 2018-22:

Disrupt the economy fast if the goals are to

be attained

Applauding strategy: Prime Minister Ranil Wickremesinghe with a copy of

the National Export Strategy (NES) launched. Development Strategies and
International Trade Minister Malik Samarawickrama, International Trade
Centre (ITC) Executive Director Arancha Gonzalez, Delegation of the
European Union to Sri Lanka and the Maldives Chargé d’ Affaires Paul
Godfrey and Export Development Board Chairperson Indira Malwatte are
also present - Pic by Lasantha Kumara

Monday, 30 July 2018

A belated national export strategy

Sri Lanka’s Export Development Board, better known as EDB, released the
country’s National Export Strategy, dubbed as NES, last week after
conducting a series of national consultations for over a year with main
stakeholders (available at: http://www.srilankabusiness.com/national-export-
strategy/ ). It is a late product, coming out after three-and-a-half years since
the present good governance Government came to power in January 2015. It
is also late by two-and-a-half years, since Prime Minister Ranil
Wickremesinghe outlined his export strategy in the first Economic Policy
Statement or EPS presented to Parliament in November 2015.

Emphasising the need for building an exports-based economy, the Prime

Minister declared in his first EPS that Sri Lanka should produce for a market
bigger than its limited domestic market. This has been Sri Lanka’s economic
growth strategy throughout its history: ‘Produce not only for yourself, but
also for the rest of the world’. Accordingly, in the distant past, Sri Lanka had
produced elephants, ivory, timber, ships, spices, pearls and gems, not only for
its own use, but also for selling to people outside its shores through merchants
who had visited it from almost all over the world.

Colonial growth came from international trade

This practice had been followed more vigorously during

the colonial period spanning for over 500 years to date. In the British period,
more export commodities like tea, rubber and coconut were added to the list.
Thus, Sri Lanka’s economic growth in the late British period mainly came
from international trade, according to the top economist and former Central
Bank Governor, the late Dr Warnasena Rasaputra, who submitted a doctoral
thesis under the title ‘Influence of Foreign Trade on the Level and Growth of
National Income in Ceylon’ during 1926 to 1957 to USA’s University of
Wisconsin. Since export duties were the main income source of British rulers,
Colonial Ceylon was able to establish universal free education and healthcare
services, build a railway system and construct major irrigation projects out of
the income which the Government had earned through such duties.

Independent Ceylon failed to diversify and modernise exports

The independent Ceylon was expected to carry this forward by modernising

and diversifying its exports in line with the changing global conditions. Yet,
this did not happen, and even the economic reforms introduced in late 1977
was able to add only one new product – apparels – to the country’s list of
exports. Thus, by the time the new Government was formed in August 2015,
the crucial need of the day was to look at the country’s export sector from a
new perspective. It was pronounced boldly in the first EPS of November 2015,
second EPS of November 2016, economic strategy vision contained in Vision
2025 released in June 2017 and all the budget speeches presented by Ministers
of Finance. Yet, no concrete action was taken to realise this goal. In this
background, though belated, the present exercise by EDB is commendable.

Dreams should be converted to concrete action

However, a strategy is just a dream, and if the country is to benefit from that
dream, it has to be converted to reality. That is a cumbersome and long
process, involving a number of crucial steps. First, the dream has to be
developed into a national export plan, which should be an integral part of Sri
Lanka’s national economic plan. Since the National Economic Council that
functions under the chairmanship of the President is reported to have
formulated such a national economic plan, care should be taken to ensure that
the goals, processes and methods of both plans are consistent with each other.
Second, the plan should come out with a number of programs involving the
key sectors covered in NES. Each program should have its own targets, key
performance indicators, a time bound action plan and the resource base to
achieve goals. Third, each program should be split into a number of sub
projects that should be assigned to different implementation units. It is this
ground force that should deliver results to the nation. Therefore, these units
should be provided with necessary resources – both financial and logistical –
on the one hand and properly incentivised, monitored and directed on the
other. The fourth process is the most crucial for attaining the goals of NES.
That is to give political leadership to the implementation of NES at the
national level. It involves coordination of work among different agencies,
trouble-shooting and acquiring resources for the implementation of the
national plan to be developed under NES.

South Korea’s export drive leadership

In South Korea, in its initial phase of the export drive, this role was played by
President Park Chung-hee himself, under Korea’s Economic Planning Board
or EPB, which was similar to Sri Lanka’s National Economic Council today
(available at:
http://kellogg.nd.edu/sites/default/files/old_files/documents/166_0.pdf ). It
practically met fortnightly and took measures to direct the policy and
troubleshoot issues that the whole plan faced continuously. Since the
leadership was given at the highest level of the Government, it had the benefit
of support and collaboration by all the Governmental agencies involved.

Need for disrupting the economy

Exports will not happen automatically simply because a government body has
made a pronouncement. To change the structure of exports of a country
within a short period, it is necessary to disrupt the whole economy from top to
bottom and across all the sectors. The government machineries which are
usually moving at a snail’s pace should be accelerated to the maximum speed
possible to provide support services.

Labour markets, which are rigid and ruled by uncompromising trade unions,
should be made flexible with respect to entry, exit, on the job training and
new skill and talent acquisition. The biggest disruption to be effected to the
labour market is the conversion from a seniority and fixed salary based
system to merit and output-based system.

Inventions to be converted to innovations

Universities and research institutions should rollout new technologies – known

as inventions – for commercial adoption by the private sector – known as
innovations. Then, the system should make that knowledge available to all, a
process known as diffusion so that other like-minded businessmen could
imitate it and carry it further forward. This is a tedious long process but a
must for sustained economic growth, according to Austrian-American
economist Joseph Schumpeter who outlined it as far back as 1942 in his
Capitalism, Socialism and Democracy. These new innovations destroy the old
systems subjecting them to a beneficial outcome which Schumpeter called
‘creative destructions’.

In fact, Schumpeter derived this destructive process of capitalist development

from the preacher of antibody of capitalism, the legendary Karl Marx, who
predicted that these internal destructions are the sources of the eventual
destruction of capitalism. But Schumpeter viewed them as beneficial to society
and contributory for continued sustained growth in capitalism-based
economic systems, instead of being self-destructive. Since societies had learned
to absorb the shocks delivered by creative destructions with a minimal
damage to their membership, history has proven Schumpeter correct. The
subsequent economic schools have taken Schumpeter further forward
identifying the role of the new innovation processes in adding more output to
an economy in a synergetic contribution now called ‘Total Factor
Productivity’. Societies that abhor disruption love to do what they are doing
in the same way which Schumpeter termed ‘perennial lull; but what is needed
is a continuous forced change or a ‘perennial gale’.

Economic lull should be made an economic gale

Thus, if Sri Lanka is to convert its lull-driven economy to a gale-forced

disruptive force, it should have a leader in the form of a ‘game changer’,
capable of managing opposition, seeing things in the correct perspective and
driving its citizens forward with confidence toward realising predetermined
goals. In South Korea, this leadership was provided by President Park. In
Singapore, it was Prime Minister Lee Kuan Yew, supported by his Minister of
Finance, Goh Keng Swee.

South Korea chose heavy and chemical industries as the driving force, got its
universities and higher learning institutions to rollout new inventions in
collaboration with leading private enterprises, and established economic
relationships with the Western world that ensured markets as well as foreign
direct investments.

In Singapore, Lee and company established a Western Oasis to facilitate

experts from the Western world to feel like they are at home, deliberately
adopted a Leap-frogging policy to maintain its economic relations with
countries beyond its immediate neighbours, and switched over to English as
the medium of instruction at schools and universities while forcing its
universities to get affiliated with the best of the best universities in USA like,
Harvard, MIT and Chicago.

These policies paid dividends within a short period, and both South Korea
and Singapore were able to elevate themselves to the rich country club within
a single generation.
A bureaucratic implementation machinery

The implementation machinery of NES is a pure-authority based structure

with the Cabinet of Ministers at the helm and Ministry of Domestic Strategies
and International Trade functioning under it as group leader. The Ministry is
supported by an NES Management Unit setup in the Ministry and EDB as a
facilitator. Under them are a host of advisory committees, gazetted to provide
legal backing, with the Board of Investment or BOI on the side-line to attract
investments.

Connected to this setup are several dozen Government institutions that have
to implement the entire strategy, which should be converted to policies, plans,
programs and projects. This is an authority based structure, because those at
each level wait for the decisions coming from the top, and those in the top are
in a position to annul any decision made at lower levels. That type of a
machinery is good for a bureaucratic arrangement, which gives priority to
rules rather than the need. It is not the fertile ground for creative thinking at
all. Without creative thinking at all levels of implementation, a national level
export strategy or for that matter any national economic strategy cannot be
implemented.

Furthermore, the relationship with the National Economic Council

functioning under the President has not been clarified. It is likely that NES
will work independently of the proposed National Economic Plan of the
National Economic Council. Moreover, Sri Lanka is notorious for having an
elephantine Cabinet which is pressed for time, wisdom and agility to make
quick decisions. Because of the sheer largeness of the Cabinet, it is very rarely
a decision is made on the very first submission of a Cabinet paper. Such a
slow-moving creature cannot function as a game changer effectively in a
world where the rules of the game is changing pretty past. This is specifically
crucial for NES because it has chosen six key sectors as drivers of future
exports of the country, and in the case of all these sectors, the rules of the
game are changing pretty fast with new disruptive technologies being
introduced. Thus, the game changer should be faster than the game-changing
technologies involved.
Oncoming game changers

The European Foundation for the Improvement of Living and Working

Conditions, known as Eurofound, has identified five major game-changing
technologies in a 2018 report titled ‘Game Changing Technologies: Exploring
the Impact on Production Processes and Work’. The Eurofound has warned
the European countries that they should be in readiness to face the changes in
manufacturing processes arising from the game-changers concerned.

The five identified game changers are as follows:

1. Industrial Internet of Things, which would automate most of the industrial

processes in addition to automating personal services.

2. Additive manufacturing, that will use both 3-D and 4-D print
manufacturing for turning out almost the entire range of manufactured goods
that are produced in the world.
3. Industrial robotics, which would replace floor workers in manufacturing
plants and those foot soldiers in the services industry.

4. Electric vehicles, which would replace the present fuel-driven internal

combustion engines with lighter and longer-life batteries and quick
recharging systems.

5. Advanced biotechnology, which would produce almost anything ranging

from new crops to human organs.

Sri Lanka’s human game changers should be far faster than these physical
game changers in the field to the rules as and when the new games are set for
them by changing technologies in the world. For that, the whole of the Sri
Lankan society and systems should be disrupted to pave way for a different
future for the country.

In the next part, we will look at the six focus sectors identified in NES.

(W A Wijewardena, a former Deputy Governor of the Central Bank of Sri

Lanka, can be reached at waw1949@gmail.com )

Posted by Thavam