The Island
Judging by trade volumes, a shipping industry expert says Sri Lanka would feel the global economic recovery late, as it did the slump, due to the level of integration with the global economy.
“Shipping volumes are picking up but not as expected. Sri Lanka felt the recession late because it was not deeply integrated with the global economy, so when the global economy begins to recover we would feel the recovery much later,” Jayantha Rathnayake, Managing Director of Cargoserv Shipping, said.
“We might begin to see a turnaround sometime in the middle of 2010,” he said speaking to the Island Financial Review.
According to the Central Bank the number of ships calling on Sri Lanka declined 5.7 percent during the first eight months of this year to 3,020 vessels from 3,204 during the same period last year (please see Shipping and Logistics on page 4).
“Import volumes have fallen drastically while the drop in export volumes is relatively not as bad as imports,” Rathnayake said.
Exports earnings in rupee terms declined 11.2 percent during the first nine months of this year while the decline on import expenditure was much steeper at 31 percent. In dollar terms, the percentage decline is 16.8 percent and 35.3 percent for exports and imports respectively.
Visible signs of the global financial crisis emerged in late 2007 and became clearer throughout 2008. But Sri Lanka felt it only during the fourth quarter of 2008.
In 2008, Sri Lanka’s growth rate for each of the first three quarters was above 6 percent but declined to 4.3 percent for the second quarter as the effects of the global financial crisis on the economy began to show.
According to the Central Bank, the economy grew by 1.8 percent during the first six months of this year compared to a 6.6 percent during corresponding period of 2008.
“Both industry and services sectors decelerated considerably during the first half of the year. The industry sector decelerated to register a growth rate of 2.4 percent compared to the relatively high growth rate of 6.5 percent in 2008,” the Central Bank said in its publication ‘Recent Economic Developments: Highlights of 2009 and Prospects for 2010’.
The services sector which accounts for the largest share of 59 percent of the economy, also recorded a decelerated growth rate of 1.1 percent during this period from 6.7 percent last year.
However, the agricultural sector did well to record a 3.7 percent growth during the first half of 2009.
Unemployment picks up?
The unemployment rate was on a steady decline from 8.1 percent in 2003 reaching 5.2 percent in 2008.
The delayed effects of the global financial crisis began to reflect in the unemployment rate which picked up marginally to 5.3 percent during the first quarter of 2009, reaching a higher 6.3 percent during the second quarter.
It must be noted however, that only after data for the third and fourth quarters are released that a proper conclusion can be made with regard to the trend in unemployment.
Meanwhile, the Chairman/Managing Director of Dankotuwa Porcelain PLC, Sunil Wijesinha, told a recent public forum ‘An Inclusive Sri Lankan Economy—The Way Forward’ that it was important to expand Sri Lanka’s industrial sector and that two shipping lines had discontinued calling on Sri Lanka due to poor volumes.
Building the Industrial sector
“The Industrial sector provides jobs so it needs to grow. We are a small country with small factories and we need volumes and this is a big problem. Two shipping lines have stopped calling on Colombo because volumes are too low,” Wijesinha said.
He said it was important for Sri Lankan industries to migrate from dependence of low labour costs to producing for value added, niche markets.
Economists and policy makers alike acknowledge limitations of the agricultural sector to provide sustainable job opportunities. Therefore, expanding the industrial and services sectors is important.
Growth of the factory industry, which accounts for more than 55 percent of the industrial sector, grew by 2.1 percent during the first half of the year, compared to a growth rate of 4.7 percent in 2008. The sector grew by 5 percent for 2008 and the Central Bank estimates a growth rate of 2.9 percent for this year.
According to the Central Bank, the industrial sector is expected to grow by 3.6 percent in 2009, from a 5.9 percent growth rate in 2008, while the services sector is expected to grow by 3.5 percent from a 5.6 percent growth rate in 2008.
Overall economic growth in 2009 is estimated at 3.5 percent, compared to 6 percent in 2008, and is expected to exceed 6 percent in 2010.