Sri Lanka’s way forward

By Sunil Karunanayake

Whatever the criticisms that could be levelled Sri Lanka’s 7.4% growth in the economy 2006 amidst escalation of terrorist activity, enhanced internal defence, higher global oil prices and natural disasters in floods and landslides is highly commendable. Underlying factors for this growth scenario could be the high involvement of the private sector in activities like plantations, port services, aviation, financial services, telecommunication, insurance, etc.

If the proposed restructuring processes for petroleum and electricity sectors had been carried out as planned the economic prospects of the country could have been even better. The release of the annual report within three months of the end of 2006 is yet another positive development and should be a model to other public sector institutions. Information must be timely accurate and easily accessible by the public. On this account the Government Publications Bureau seems inactive in serving the needs of business and public needs and unavailability of the much awaited Companies Act is a matter of disappointment.

We also agree with the Central Bank’s statement that “Sri Lanka has greater potential to grow” in several areas than envisaged in the 10 year Vision statement. According to the Central Bank, “the tourism industry has the potential to earn more than US$1 billion within a short period having much more diverse tourist attractions than in currently popular tourist destinations in the region.

Tea exports have the potential to become a US$2 billion industry if the industry focuses on value addition and branding as against exporting in bulk. With continuous specialization, backward linkages and marketing strategies Sri Lanka apparel industry can become a US$5 billion industry. Foreign exchange earnings from worker remittances could reach US$4 billion mark with continuous efforts to enhance remittances. The potential for FDI is already visible above the US$4 billion mark.”

These scenarios and the possible impediments to achieve such goals are well understood by respective industries for long. Competent personnel leading top institutions and a flexible framework are attributes of successful economies. The tea industry is the best example where crises paralyzed the Tea Board and Tea Research Institutes due to irresponsible actions by the appointed heads. Outdated legislations in tea imports curtail the growth of tea blending a step to the global markets.

It was these reasons that drove leading international brands out of Sri Lanka paving the way for Dubai’s success as a major Tea Blending centre. The tourism sector was no exception with internal conflicts in the board retarding its growth. On a positive note it can be said that the current position of both these institutions are healthy but lot remains to be done to achieve the potential. Incompetence and apathy adds to the transaction costs and the competitiveness that will impact on foreign investment adversely. Though foreign investments are essential we also must put our house in order.

The public sector that still plays a regulatory role must be strengthened with competency. Despite the e-Sri Lanka initiatives the reaction by government departments to change seems far too slow. One good exercise for the ICTA authorities would be to examine all government websites to see whether data is updated and serving the public as intended. Given persistent low growth scenarios and changing political climates accompanied by diverse policies the country’s public investment has fallen short leading to a vicious circle of growth deficiencies and rising unemployment.

This leads to heavy dependence on foreign donors to fund key activities such as health, education and infrastructure. Obviously any donor (not dissimilar to any commercial borrowing where terms are dictated) will impose conditions for the borrower; however much this is unpalatable the reality cannot be ignored. US Ambassador Robert Blake addressing the Sri Lanka Development Forum held in January in Galle did not mix his words when he told the Sri Lankan government that “Transparency, good governance, and respect for human rights and the rule of law are essential preconditions for economic development and indispensable prerequisites for laying the basis for a lasting peace”.

The negative consequences of continued conflict include direct costs include military and relief expenditures that are required that might otherwise have gone to more productive issues, and the infrastructure that must be replaced. The government in fact has moved correctly to develop infrastructure and a series of infrastructure development projects covering ports, highways and power generation has been initiated and given prominence in the government’s 10 year development programme under the “Mahinda Chinthana”.

The Colombo Port is a valuable national asset that has built a successful transshipment hub in the region catering well to the island economy’s foreign trade. The success of these initiatives depends heavily on good governance and strong institutions manned by competent people.