ASEAN - going for single market like EU?

SL exports as at end February 2011 is +52 percent:

SL Exports to ASEAN countries is below 10 percent:

Rohantha ATHUKORALA

Rohantha Athukorale

Sri Lanka registering a strong 8.6 percent GDP growth in quarter four of last year, whilst in the first two months of 2011 exports increasing by 52 percent augurs well for the country. However the issue is that policy makers have been challenged once again to focus on an activity away from the economic agenda due to global complexities.

What's important to note is that whilst Sri Lanka is strategising the way forward on this new challenge, our neighbouring nations - ASEAN, are making plans by 2015 to have an European style single market economy.

This may include a single currency that can result in a further surge to the current foreign direct investment of $38 billion recorded in the recent past so that member countries can drive towards stronger export growth and economic resurgence that can drive double digit growth being achieved in the near future.

The power of ASEAN is so strong that already India has had discussions for a probable trade pact with ASEAN so that the key country in South Asia can outsmart its rival China on trade and overall quality of life of its population.

Focusing of Sri Lanka once again, it is commendable that Sri Lanka has registered an 8.1 percent growth in the first full year post-war in '2010' with all sectors performing extremely well with a eight percent plus GDP growth that indicate to the world on the potential talent that the country can unleash.

The 144 percent increase in profit in private sector performance further justifies the strength of the economy apart from the buoyant stock market hype. Given that over seventy five percent of the economy is private sector driven, the profit numbers flashed in the private sector annual reports mirrors the strong macro economic performance that is being announced by the state.

One key issue highlighted is that Sri Lanka's exports accounting for only 17 percent of GDP can be argued by some as a weakness given that in the 1990's the exports were 33 percent of the GDP.

But, in my view this is a strength given that in the 1990's the GDP of the country was only twenty billion dollars whilst today it is at almost $42 billion plus meaning that the economy has doubled even though the export sector contribution halving. This gives us an indication of the sheer power of the rest of the economy.

Apparently in the 1990's the service sector contributed to a mere twenty percent to the total economy but today this is almost sixty percent which tells us of the new growth agenda that has taken shape in the country.

I guess the 41 percent growth in hotels and restaurant sub sector in 2010 tells us the continuity of this segment that will further surge the service economy of Sri Lanka.

Another way of analyzing this point is that only 17 percent of the economy is dependant on the external environment namely the global consumer. Hence in the event another global crisis happens like the recent financial meltdown or the commodity bubble bursting there will be a lesser impact on Sri Lanka.

But whilst being positive to the status quo it's important that we make the export industry 20 billion dollars by 2020.

The good news is that Sri Lanka is on track to achieve this objective with sharp private sector led strategies supported by the relevant government agency.

Now the challenge is not to get de-focused or allow unforeseen events to hinder this progress purely from an economic perspective.

South Asia - growing at 9 percent

If we analyse the performance of South Asia, India leads the way with a nine percent plus growth with a strong non agricultural sector performance in excess of ten percent whilst Pakistan has rebounded to deliver a five percent growth.

ASEAN countries consist of 10 countries that currently attract $ 38 bn on FDI’s annually

Bangladesh has expanded to six percent mainly due to high remittances and vibrant service sector but is faced with many industrial labour issues that is working for Sri Lanka positively.

Nepal is staggering at a 2 percent due to the intense conflicts in the country but is sure to rebound strongly as it has been in the past as the government is linking with global infrastructure development organizations and driving towards improving road access and connectivity that stimulate livelihood development.

Sri Lanka which recorded a 8.1 percent GDP growth and export revenue touching a 17.3 percent growth has continued the positive trend in the first two months of 2011 with a 52 percent increase in value.

The Apparel earnings have grown by 21.9 percent to $385 million with cutting edge innovation and marketing initiatives whilst the overall industrial sector performance in January has continued to demonstrate strong growth.

Rubber sector has grown by 18.7 percent with solid tyres and tubes leading this growth but we need to watch the implications post the Japanese Tsunami that has impacted the output of vehicles from Japan. Agricultural products have continued to perform with a 28.9 percent growth agenda which means that Sri Lanka is within the 10 billion dollar export earnings mark for 2011.

What is ASEAN?

Whilst there has been a lot of media attention on ASEAN, let me give more insights on this development. ASEAN consists of ten members - Malaysia, Indonesia, Singapore, Brunei, Vietnam, Laos, Myanmar, Philippines, Thailand and Cambodia.

This common market houses 560 million people but accounts for only 8 percent of global exports which is interesting.

Intra-regional trade makes up of only about a quarter of bloc's total trade volume, compared to more than 70 percent in Europe.

Exports from Sri Lanka is below six percent but has the potential to increase.

After years of clearing the first hurdle in cutting tariffs on merchandise the ten member nation is now focusing on in-tense discussions to tearing down the protectionists' policies, whilst resolving ones domestic political stability issues like in Thailand.

Sri Lanka’s landscape is fast changing due to strong economic growth in the past two years

The goal does not call for a single currency system as at now but has the potential to be in the near future which Sri Lanka must carefully monitor in my view given that Sri Lanka's rupee is managed.

ASEAN strategy and Sri Lanka

The bloc after having secured a pact with the United States is now working towards a free trade zone with Australia and New Zealand as well a as China, South Korea and India. This is in spite of the differences in human rights of Myanmar which demonstrates the respect the bloc is earning in the economic muscle of the world.

This presents an opportunity for Sri Lanka in my view to drive exports indirectly by way of value addition. As most of the countries are into the manufacture of automobiles we can focus on developing products like rubber beeding, rubber bushes and tyres to name a few.

However, we need to be cognizant that, whilst there is a strong cohesiveness by the counterparts there is a nationalistic spirit that leads to non tariff barriers between members.

A recent study by PricewaterhouseCoopers revealed that unless the nationalistic tendencies are shed, cross-border trade will suffer significantly.

Sri Lanka needs to take a cue from this spirit as the country has a unique identity and should not become a mini India.

While we should get the benefits of lower priced automobiles and transfer of human capital the Sri Lankan identity should be preserved with non tariff barriers and policy restrictions.

The best case in point is Malaysia which stipulates that in any investment from its regional counterparts Malays must own 30 percent.

Thailand has banned all imports of rice into the country. In the South Asian region we saw how India curtailed Sri Lanka's export of tea into India where less than ten percent of the quota utilization has happened in the last few years.

However, it must be noted that some of the non tariff barriers in force has been relaxed.

Implications to Sri Lanka

What Sri Lanka needs to do is it needs to identify the industries which are vulnerable to international competition and build safety nets with non tariff barriers.

The logic being that no government in the world is a free trader that ignores its own constituents back home. The logic being one can lose elections in no time. Hence, it is time that Sri Lanka wakes up and drives home a competitive advantage with non tariff barriers so that we can also claim an identity in the economic stage whilst being part of organizations like SAFTA and CEPA.

But it must be said that the best non tariff barrier is to make one's product so competitive that it can outsmart a competitive product at the consumer end. But sometimes the private sector requires breathing space and hence to some degree non tariff barriers are a useful tool to practice. The second strategy to initiate is to identify the key products that we have a comparative advantage and strengthen these products in the supply chain so that we are ready to capture the looming new opportunity. This can be with new technology and introducing branding and marketing initiatives.

The third strategy is to venture into these markets and develop business linkages so that when the market opens out in a common front (post the signing of the trade arrangement) Sri Lankan exporters are one up and already made inroads into these markets.

Whilst arming ourselves with strong and sharp strategies I strongly feel there is nothing called 100 percent free trade. We must have a built in flexibility to exploit opportunities but, we should be sensitive to the realities of the domestic market and lay down our rules very clearly. My view is lets be proactive at least this time around.

(The writer is a doctoral candidate at a top University in Asia. He has a double degree in marketing and an MBA, winning the 'Best Marketer' title in Sri Lanka and a 'Business Achiever' award from PIM, University of Sri Jayawardanapura. He currently serves the International public sector for South Asia, based in Sri Lanka.)