Stepping up: OBG talks to Harsha de Silva, Deputy Minister of Foreign Affairs

Interview: Harsha de Silva

How do you see Sri Lanka’s economic diplomacy going forward in the coming years?

DE SILVA: The prime minister articulated an economic policy plan in November 2015 addressing Sri Lanka’s economic priorities looking over the next few years. Having successfully resolved a number of issues with Western countries with regards to human rights, we feel we are able to participate anew in the international marketplace. Although this marketplace was largely available to us previously, we had been isolated from it due to various political reasons. As a result, the next phase of our strategy should be to align our economic policy with our foreign policy so that we can benefit from these new opportunities.

Historically, Sri Lanka’s economic success in earlier eras can be attributed to its status as an important trading post. There are stories of Sri Lanka exporting elephants to South-east Asia, and of Arab merchants landing in Sri Lanka to trade in spices and gems. In today’s times, we can merge both the Indian and Pacific oceans into a more unified trading sphere. A case in point is the Trans-Pacific Partnership (TPP). This can be extended to countries that are not strictly speaking in the Pacific Ocean region. In doing so, we can make Sri Lanka emerge once more as a pivotal player in global trade. It is important to note that this means not only foreign companies coming here but also Sri Lankan companies going abroad.

What measures can be taken to improve the competitiveness of Sri Lanka’s exports?

DE SILVA: For the last 15 years we have not focused on exports alone. In 2000 our exports as a share of GDP were around 34%, whereas they are now close to 14%. As a small country, exports are critical to our economic success. However, we must also do more to diversify our product basket. For example, Malaysia has since 1990 expanded its product base, while Vietnam has also moved into high-tech manufacturing. Meanwhile, we have remained focused on the same areas, namely around garments, rubber and gems. We have thus not been able to move into higher value-added products and services, perhaps with the exception of apparel. There we produce high-quality items, demonstrating the ability of Sri Lankan businesses to operate at this level in multiple areas.

Sri Lanka must likewise diversify its trading partners away from Europe and North America. For this reason the TPP and similar agreements hold a great deal of potential for our economic future. We believe that once a focus on international trade is maintained and developed into a coherent policy, we will once more be on the right track.

To what extent do you see a need to simplify trade policy, and how can Sri Lanka gauge the effectiveness of trade negotiations?

DE SILVA: We have made significant progress regarding trade liberalisation over the years, although the issue is two-fold. On the one hand, non-tariff barriers do not pose a significant challenge for Sri Lanka, particularly when compared with India. However, studies have shown that the combined tariffs on imports of certain items have doubled in Sri Lanka over the last 10 years, which has certainly not incentivised trade. What really matters for businesses is how tax is collected and how Customs policy is operated.

Therefore, we believe that simplifying trade policy has the potential to benefit all players involved. While it can be difficult for countries to come to an agreement on free trade, we must focus on achieving a mutually beneficial consensus around specific items, and remain mindful of the benefits of integration into a larger international market.