Sri Lanka’s trade to boom, says HSBC


Global banking giant HSBC says Sri Lanka’s trade index is expected to perform better than the world’s average over the next five years on deepening trade ties with developing nations, offsetting loss of demand from traditional markets in developed economies, with the apparels and agriculture export sectors expected to show strong growth.

International trade growth is expected to accelerate from 2014 and grow by 86 percent in the next 15 years. Sri Lanka’s trade growth from 2012 to 2016 is estimated at 150.40 percent with companies here increasing trade activity annually by 4.5 percent over the next 15 years, HSBC’s latest Trade Forecast Update on Sri Lanka released yesterday (Feb. 22) said.

HSCB Head of Corporate Banking Chamira Wijetilleke said, "Sri Lanka is well positioned as an investment destination, and has become a potential market for rapid business growth and investment opportunities in various sectors. We are optimistic of further growth in trade this year, considering the significant support of the government that bodes well for the economy as well as trade within the South Asian and Asia Pacific countries. "

Excerpts from the HSBC Trade Forecast follows:

"The Trade Forecast expects that Sri Lanka’s trade index will perform increasingly better than the world’s average over the next 15 years. Over the next five years, trade with developing countries is expected to increase, offsetting the fall in demand from developed trading partners such as the UK and the USA. Sri Lanka has a strong comparative advantage in the manufacture of garments and in the next five years, this is set to open up new trade corridors. Amongst others, exports of t-shirts and vests to Italy are predicted to increase by 10.10% while exports of track suits, ski suits and swimwear to the USA are forecast to increase by 9.69%.

Sri Lanka’s largest export partners are the UK, USA and Italy and exports to all of these countries are forecast to increase over the next five years. Exports to the UK will grow at an annualised rate of 5.49%, accounted for mainly by clothing (skirts, t-shirts, accessories, tracksuits, swimwear, underwear), to the USA also in clothing plus sectors such as re-tread tyres, and finally Italy, also accounted for by clothing at a rate of 8.98%, all annualised to 2016. The fastest growing export partners are Singapore, Turkey and Hong Kong, annualised to 2016 of 14.29%, 11.89% and 9.50%, respectively. Tea remains Sri Lanka’s largest export sector and in the next five years it will provide even more opportunities for trade. Exports to Turkey are expected to increase by 8.35%. Importantly, exports of wheat and meslin flour to Indonesia are forecast to increase by 11.35% over the next five years - a sector that is forecast to increase by 7.41% globally, indicating even more trade opportunities for Sri Lanka. Sectors including machine tools, machine parts and machine instruments are emerging sectors with high growth rates from fairly low bases.

Sri Lanka’s largest import partners are India, Singapore and China and imports from each are forecast to increase over the next five years. Imports from India will grow at an annualised rate of 5.67%, accounted for by fabrics, fresh food, auto rickshaws and medicines. Imports from Singapore are accounted for by milk and milk products (21.63%), non crude oil (13.92%) and cement (11.01%), whilst those imports from China include fabrics. These suggest that Sri Lanka is still a major global provider of many types of clothing, and is reliant on certain import sectors, such as raw materials for this industry. It is also reliant on milk and medicines which it does not develop itself. The fastest growing imports are in dried vegetables (13.63%), sugar cane and beet (11.82%) and electrical appliances for line telephony (10.82%), all annualised rates for the next five years.

Sri Lanka represents a strong trading route for the clothing sector between China and India and Europe and the USA. Sri Lanka imports raw materials from India and China and exports large amounts of clothing of various types to markets principally in the UK, Italy, Germany, and the USA. Reflecting the need for imports for this sector knitted or crochet fabric imported from India will grow at an annualised rate of 11.47% over the next five years and the same from China at 8.32%. Sri Lanka imports fabrics from Italy (9.21%), and is then exporting t-shirts to Italy (10.10%), all annualised to 2016. The clothing sector is still Sri Lanka’s third largest export sector and when aggregated is also its largest fastest growing export sector. The challenges for business will be to grow their international activities an annualised rate of around 11.00% for the next five years in order to keep pace with this. As the clothing sector becomes more focused on speed of turnaround and supply, the pressure will be on the businesses within Sri Lanka to improve the efficiency with which goods go through the system.

Sri Lanka remains a major provider of certain niche agricultural products. For example, its largest export sector is tea, with the rates of growth to Japan at 6.95% and Turkey, 8.35%, annualised between 2012 and 2016. Its first and third largest fastest growing export sectors are food, especially fish (14.71%) and rubber in its primary form, 9.23%, all annualised to 2016. Sri Lanka’s top two largest fastest growing import sectors are dried vegetables and sugar cane and beet, (13.63% and 11.82%). Sri Lanka is still dependent on the production of and processing of agricultural produce. Whilst it is well known that there are expanding markets for simply refined and processed foodstuffs, it will be a challenge for Sri Lankan companies to capitalise on those markets."

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