Recent attacks on business more worrying than lower export earnings
View(s):By Feizal Samath
Recent attacks by radical groups on Muslim businesses are greater economic-related concerns for Sri Lanka than latest data that show weaker export earnings, economists say.
This adds to other worries like for example Sri Lanka being unable to attract enough foreign investors unlike countries like Vietnam which also recovered from a conflict.
While export earnings slumped by 18 per cent in January 2013 continuing a dismal export performance in 2012, economists are more worried about a possible fall-out from attacks on Muslim businesses in view of dependence on jobs and oil from Muslim-dominated West Asia.
“Our political leadership is absolutely inept and (only) looking at personal survival, putting the economic future of the nation at risk,” said one economist, adding that “these attacks without any proper government response jeopardize jobs and oil supply in jeopardy.”
Sri Lanka is dependent on the Middle East which employs a million workers from here while the country’s entire oil supply comes from there.
In 2012, export earnings fell by 6.7 per cent to $9.7 billion with the trend continuing in the first quarter of 2013. Reciprocally imports have also sharply declined, falling by 5.8 per cent in 2012 and continuing into 2013 owing to stringent Central Bank (CB) policies governing non-essential imports. Vehicle imports in particular have fallen sharply.
The CB argues that falling export earnings have been buffeted by lower import spending, thereby helping reduce the trade deficit. It is further pointed out that though the recovery from the recession in the US and Europe is slow, some positive signals are expected to emerge from the US in second quarter 2013.
But the economist, who like many others spoke to the Business Times on condition of anonymity, said export and import trends pale into insignificance if the Government fails to crack the whip against attacks on minority communities and is seen encouraging a sudden flourish of radical groups.
“For the first time religious sentiments have invaded the market place and that is not a good signal for foreign investment and our relations with the Middle East,” he said.
A business analyst said that these developments would add to other worries of inadequate foreign investment despite the war ending in Sri Lanka.
According to recently published, comparative data of two countries recovering from war, export earnings in Sri Lanka and Vietnam were worth $2 billion in 1990 but by 2011 Vietnam had soared ahead with $96 billion in 2011 against Sri Lanka’s miniscule $9 billion.
Foreign investment which should have been in the region of 4-5 per cent of GDP (gross domestic product) in post-war Sri Lanka from 1.3 per cent before has only marginally increased to 2 per cent now.
“Despite the end of the war, we are still struggling to receive foreign investment and improve exports, and these new problems will worsen the investment climate,” he said.
Other ad-hoc policy decisions like the take-over of companies last year and a recent move to bar foreigners from buying private land are also not helping to create an investor-friendly and country-peaceful environment for investments.
The economist said investors now are more concerned about the rule of law, governance and the proper working of state institutions, unlike before when inflation, budget deficits and other fundamentals mattered.
Though Muslim countries voted with Sri Lanka at the recent anti-government resolution at the Geneva UN sessions that support could shift if the Government fails to clamp down on extremist groups, whichever religion they belong to, he said.
He said the drop in export earnings was due to strong reliance on recession-hit US and Europe markets, and also dependency on a debt-financed strategy – borrowing heavily to finance infrastructure and other development.
“Furthermore, rather than adjusting our exchange rate to reflect a market-dominated rupee value and boost export earnings, we are raising money from bonds and lifting reserves – mainly on borrowed cash,” he said, adding that this borrowing strategy is not sustainable.
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