Despite its proximity to India, Pakistan, Bangladesh and Nepal, intra-regional trade accounts for less than 5% of total trade in South Asia. This is partly due to limited logistics, major regulatory barriers and protectionist policies, as well as disproportionate trade costs in the region. According to the World Bank, South Asian trade costs 20% more than in the Association of Southeast Asian Nations. Although the South Asian Free Trade Agreement (SAFTA) has been in place since 2006, para-tariffs have discouraged activities. According to uk Dayani Wegapitiya, Director of Policy and Strategic Planning at EDB, the NES will focus on six sectors: spices and concentrates; Processed foodstuffs and beverages; Electrical and electronic components; shipbuilding; Wellness tourism; and outsourcing online business processes. The specific objectives of the NES aim to increase value-added transformation in target sectors by 2022, with a focus on exporters, while implementing and developing soft and hard infrastructure for the benefit of these industries. “Regulatory problems have an impact on exports,” Wegapitiya told OBG. “So we looked at each sector to solve and reform regulatory issues. We have also involved the heads of the relevant authorities to deal with some key issues.
This is in line with the forecasts of the OBG: Sri Lanka CEO Survey, published in February 2018, in which 77% of Colombo-based CEOs expect the apparel industry to drive export growth next year, followed by tea and spices at 14%. Trade and investment activities in Sri Lanka are benefiting from the country`s situation along the busy Indian Ocean trade routes, numerous agricultural and industrial exports, and young and skilled labour. Only 19 km separate their southernest port from a global shipping route that carries two-thirds of the world`s oil and half of its container transport. This makes local ports a natural cargo station for India and Pakistan, with about 30% of container traffic from former ports currently being transloaded through Sri Lanka. However, the effects of these three factors were most accentuated by the devaluation of the Sri Lankan rupees during the year. CBSL figures show that in 2018, the currency fell 16.4% against the dollar, 12.7% against the euro, 11.4% against the pound sterling, 18.1% against the Japanese yen and 8.7% against India`s Rube. At the beginning of 2019, there was some recovery: the rupees rose by 0.6% against the dollar in January, by 0.8% against the euro and by 2.1% against India`s Rube, but the fall in prices against the pound sterling and the yen continued, losing 3.2% and 0.3% respectively. Since most commodities are taken into account in foreign currencies, the increase in imports has contributed to large outflows from the country`s foreign exchange reserves. This was a particular concern, given the rigorous repayment plan that the country faced in 2017-18 and which continues until 2019.