ECONOMYNEXT – There is untapped export potential for Sri Lanka if it plugs into India’s local and regional value chains, a new World Bank report has said.
However, South Asia has been unable to reach full potential in creating regional value chains because of low intra-regional foreign direct investment (FDI), the report said.
Inter-regional FDI outflows from South Asia only made up 0.3 percent of total South Asian outflows in 2015, and inter-regional FDI inflows made up 1.1 percent.
FDI inflows from South Asia to Sri Lanka came up to 4.7 percent of its total inflows and outflows made up 14.4 percent.
Out of total interregional FDI flows in South Asia, 48.2 percent flowed into Sri Lanka, mainly due to large inflows from India.
India was the source of 91.7 percent of South Asian FDI inflows to Sri Lanka, while 56.4 percent of Sri Lanka’s South Asian FDI outflows went in the Maldives, and 32.0 percent to India.
The private sector in South Asia usually makes outward investment decisions beyond the immediate neighbourhood, said the report.
This has resulted in small regional value chains existing in only some sectors, such as textiles and clothing.
“There is a fantastic market right here (in South Asia), which we’re not exploiting,” Sanjay Kathuria, Lead Economist and Coordinator, South Asia Regional Integration, The World Bank Group said.
The South Asian market would allow companies to take part in larger global value chains, and then gain access to a larger Asian market, he said.
Sri Lanka sources 20.4 percent of its imported intermediate goods from South Asia, and exports 18.4 percent.
Over 45 percent of Sri Lanka’s capital good imports come from South Asia, and it exports 17.9 percent.
The report, ‘A Glass Half Full: The Promise of Regional Trade in South Asia’, points out that both interregional FDIs and value chains could be doing better. (COLOMBO, 10 October 2018)