Sri Lanka on course to reducing poverty by half

Sri Lanka is on course to meeting its Millenium Development Goals with the exception of halving its poverty levels, according to Richard Vokes, Country Director for the Asian Development Bank (ADB). The Development Forum in Galle earlier this year was abound with discussions on the resilient nature of the country's economy which saw 7% growth in 2006 but Vokes emphasized that the reduction of poverty was still a major challenge.

Vokes, addressing the Key Person's Forum this week jointly organized by the Federation of Chambers of Commerce and Industry in Sri Lanka (FCCISL) and Small & Medium Enterprise Developers (SMED), spoke on rural development and the role of the public and pivate sector.

He attributed the ongoing problem of poverty to lagging rural sector growth, limited productivity growth and low or declining productivity. He said most agricultural growth is limited to the western and central provinces, despite the fact that agriculture contributes 17% of the overall GDP and employs a third of the labour force, approximately 2.3 million Sri Lankans. More private and public sector involvement is needed for rural development as well as more effective and efficient policies. The public sector has a substantial role to play in marketing, extensions, credit programs, fertilizer subsidies and in trade and tariffs.

Agriculture is divided into three main sectors, those being paddy, plantations and agro-industry. Vokes said the paddy sector is 'critical to rural transformation' because what happens there has a direct effect on determining poverty levels. There is also a lot of potential for value added in tea, coconut and rubber but Sri Lanka must work harder on realizing the full potential of value added products.

The agro-industry includes fruit, spices, cashew nuts, herbs, tea and vegetables amongst other commodities and makes up around 50 – 60% of the agricultural GDP and 15% of exports. "There is potential for increased commercialization," Vokes said, adding that recently, the performance in this sector was weak. The prospects for growth and export potential are strong, given that Sri Lanka has the ideal climate and fertile soil. "The agro-industry is important to maintain industrial sector growth," he said. The government has also stated that this is a priority growth area and key to foreign exchange growth.

However, the constraints are numerous and pose serious challenges to development. Vokes said that frequent changes in trade and tariff policies are a hindrance in addition to insufficient labour market regulation, low productivity, lack of skilled labour and an infrastructure which needs much improvement. He cited road development and rural electrification as two areas in need of greater progress, particularly rural electrification which 'opens up opportunities.' Sri Lanka is also weak on research and marketing and as a result, has posted high harvest losses. There is a lack of competition, a lack of market information and a lack of proper storage facilities.

Thailand, which employed contract farming in the 1970's has since taken off, particularly with fruits, vegetables and poultry. In contract farming, an agreement for a fixed price is agreed upon between a company and the farmer and puts in place measures of quality and quantity. The company is responsible for providing the supplies and the farmer is responsible for supplying the land and the labor. The contract farming model is already in place in Sri Lanka but there is potential for it to grow further. Similarly, the supply chain or value added model, an extension of contract farming seeks to raise value added on the entire supply chain.

"The public sector needs to understand the constraints of the private sector and encourage a level playing field," Vokes said. There should be consistent trade policies, effective quality control and certification and the public sector should also encourage PPP's or Public Private Partnerships. Adequate investment must be made in infrastructure, particularly in transport infrastructure and improve packaging in transport.

Sri Lanka is 'world class in many areas' and the private sector has a key role to play. Sri Lanka must work with the World Trade Organization (WTO) to gain access into the first world market and expand its options for commercialization. Vokes said the ADB is providing support for non-traditional crops as well as commercialization, export growth and employment potential.