SL should look to engage in high value-added processes, not assembling products: WB
Sri Lanka’s role in global value chains is not to assemble products but to engage in high value-added processes such as marketing, according to the World Bank.
World Bank Sri Lanka Senior Country Economist Ralph van Doorn said that in a productivity ‘smile’ or a U-shaped curve, where the horizontal axis is the production process from upstream to downstream and the vertical axis is the amount of value added, assembling a product is the lowest skilled, lowest value-added activity, at the bottom of the smile.
“Sri Lanka’s role doesn’t have to be at the bottom end of the productivity smile; you are at the edges of it. You can be doing logistics, IT, marketing,” he said during a seminar organised jointly by the World Bank, the Colombo University Economics Department and Economics Students’association.
Many products, especially electronics, are now being termed as ‘global products’ since the components are produced in multiple countries and assembled in China, through global value chains.
“So, China for a while was at the bottom of the productivity smile. Japan would design electronics and they would ship it out to South Korea and Taiwan, then it would be assembled in China, in a factory and then it would be shipped out once again and marketed in the United States and Europe by high-skilled people,” van Doorn said.
He noted that Sri Lanka has no large labour force to achieve economies of scale, similar to India, when assembling products.
Even Sri Lanka’s apparel sector, which assembles high- value garments for sale in the Western world and is Sri Lanka’s highest export revenue earner, is facing labour shortages. Most Sri Lankan apparel producers have ventured out into cheap labour economies such as India and Bangladesh.
While the government has recognized the need to enter into highly skilled activities, which the recent budget also emphasized on, the government is also looking at setting up numerous industrial zones to tap into global value chains, such as the Chinese-controlled zone in Hambantota.
van Doorn said that Sri Lanka should use its market access to large economies such as India to market products in these countries.