Logistics and Services in the Sri Lankan Economy

Abstract

Authors examine the growth, performance, and policy issues of the Sri Lankan service and logistics sectors. The government has clear priorities for these sectors, building on the country’s locational advantage. The policy documents of successive governments have emphasized the strategy of creating a globally integrated and competitive service hub. The authors observe that services and logistics are mainly, but not exclusively, nontraded activities. As in many countries, reform has proceeded relatively slowly in Sri Lanka. First, as nontraded activities, services and logistics have not faced the direct competition that liberalization has imposed upon the traded goods sectors. Second, the international benchmarking of productivity and efficiency exercises—such as ease of doing business, competitiveness, and logistics—that are now used to indicate a country’s performance are of relatively recent origin (i.e., within the last 15 years). Third, much of the sizable Sri Lankan SOE sector is concentrated in services. Political constraint and unionization have slowed the pace of SOE reform, and by extension that of services and logistics. The authors also argue that efficiency in logistics services is an important determinant of a country’s international competitiveness. Logistics and services can catalyze unleashing the economic benefits of Sri Lanka’s strategic location in the Indian Ocean. Some of the key challenges facing the sector include uncoordinated development of transport infrastructure, lack of synergy between city and port development, bureaucratic red tape, failure to attract global third party logistics firms, and a lack of a unified and holistic policy approach. Developing a master plan and establishing a national committee on logistics is important to address issues arising from weaker coordination and communication, and greater use of information and communication technology will help cut red tape. In addition, reforms that aim to introduce better regulation, encourage greater private-sector participation, and enhance competition will help the country improve the performance of its logistics sector and unlock its location potential.