Consistency of Policy… Policy … Policy… reverberates at CCC Economic Summit
One of the most crucial and overwhelming topics at this year’s Sri Lanka Economic Summit was the need for consistency of policy by the government. All eight sessions of the two day summit organised by the Ceylon Chamber of Commerce held at the Cinnamon Grand in Colombo last week emphasized much on the policy frameworks and its implications to businesses and people’s behaviour in going forward.
Closing session panel at the CCC Economic Summit. From left: Jim McCabe, CEO, Standard Chartered Bank SL; Dr. Hans Wijayasuriya, Vice Chairman, CCC; the Prime Minister; Rajendra Thegarajah, Chairman, CCC and Vish Govindasamy, Dep. Vice Chairman, CCC.
International Monetary Fund Resident Representative in Colombo, Dr. Eteri Kvintradze in her remarks stated, countries with two current account deficits are most vulnerable. Sri Lanka is one such with high debt, low revenues and low reserve position. If Sri Lanka continues on the fiscal consolidation maintaining consistently and persistently, investor confidence can strengthen and remain constant. Introducing a new broad-based tax system and gradual fiscal consolidation that will be revenue-based will help reduce and manage overall debt levels. This has to be supported with inflation targeting framework with stronger reserve management and flexible exchange rate and also transparent accountability reforms which should strengthen economy governance.
On the aspect of inclusiveness and more broad-based development, Sri Lanka must gain a lot from revenues and resources needed to be channeled to more productive and inclusive economic activities. There is potential in addressing issues such as the natural disaster mitigation and management and more active female labour force participation, she added.
Dr. Kvintradze also mentioned that Sri Lanka when establishing various reforms, must consider macro-economic stability as a key foundation. Inflation targeting frameworks have to continue in Sri Lanka and many reforms are underway. Focus is about implementation of automated and predictable systems. In terms of public financial management fiscal rule based consolidation frameworks, predictable public financial management system as a key and addressing large state owned enterprises and managing debt profiles is also extremely important. Energy pricing reforms are a key parameter and it is a necessary step to be able to contain fiscal clause from state owned enterprises but it’s not sufficient. More reforms need to be done to address cost efficiency of the state owned enterprises, she noted.
FDI
Sri Lanka compared to other emerging markets has more restrictive foreign direct investments (FDIs) and trade regulatory environment. There are huge gains to be made if the environment is to be more open and less regulated. Sri Lanka’s economy has lost its trade competitiveness and its trade structure hasn’t changed in the last 25 years. Sri Lanka’s trade has remained only on tea and rubber products while East-Asian neighbours have moved far on export diversification and export value chains.
Sri Lanka’s export structure has been frozen for the past 25 years because its highly protective, highly regulated and there is no space for competition and innovation. To enable it, you need to have less restrictive and more enabled regulatory environment.
She emphasized that Sri Lanka knows where it is heading. It has set out very ambitious objectives to position itself as the regional and global hub for trade, development and innovation. It also knows how to get there. Strategies have been developed and steps have been made. Implementing those strategies depends on how consistently and persistently those reforms are executed and its function of effort by the government, private sector and civil society of the country, she noted.
Standard Chartered Bank, Mumbai, Head of Economics Research in South Asia, Anubhuti Sahay stressed that Sri Lanka is in a more insulated space. Between 2008 and 2018 Sri Lanka lost its economy the most number of times. A lot more needs to be done in the country on the macro-sustainability aspect. Sri Lanka needs to diversify and leverage on its own. “The country has the potential to become a top destination for education and research and development. The nation is not left with too many choices, the public and private institutions together must identify the reforms and act accordingly,” she noted.
State Minister of Finance and Mass Media, Eran Wickramaratne, in his presentation stated, “Policy makers have to think about the next decades to come, whereas politicians keep thinking about the next election in 2020. Unfortunately the politicians have become the policy makers in this country. This is the conflict Sri Lanka’s Finance Minister, Mangala Samaraweera will be grappling with over the next few weeks before presenting the budget 2019. Sri Lanka has made wrong decisions over decades.” Two exogenous factors that have impacted Sri Lanka greatly are the weather and fuel prices by and large, he added.
In 2017 the macro-economic indicators were doing better, the budget deficit and inflation has been trending down while reserves and exports have been trending up. These are small numbers, but in a larger global economy, vulnerabilities do exist, stated Mr. Wickramaratne.
Protectionism
He also mentioned that, another major aspect is between protectionism and competition. Some of Sri Lanka’s exporters have done well. Sri Lanka can compete in the world market while rubber, apparel, electronics, IT industries have done well by exporting branded products that are manufactured in Sri Lanka. Sri Lanka must open up its economy to the world market.
Mr. Wickramaratne affirmed that para-tariffs will be removed over the next period and admitted that there are hiccups in implementation and certainly moving Sri Lanka to a more rules-based system taking disruption away from politicians and bureaucrats. Increasing ease of doing business has much to be done in the country. Free Trade Agreements (FTAs) are not going to immediately increase exports but it’s going in the direction of reform, he noted.
Sri Lanka is not doing well in terms of the economy, stressed Singer Sri Lanka PLC, CEO, Asoka Peiris during the panel discussion on ‘Economic turnaround, how and when?’ Pointing out some of the progress on negative factors that have affected the country, he said, “The biggest impact Sri Lanka faced was the drop in the harvest for three consecutive times where 30 per cent of the population is engaged in agriculture.”
He mentioned that there are improvements in the implementation of projects. “Government is implementing some of the projects, something is happening though the entire private sector is not satisfied. Unproductive government expenditure using borrowed funds has stopped, though people don’t realize this.”
Stressing on factors that are yet to be corrected in the country, he stated that there is a negative perception among people in this country. People think when the dollar value goes up, the economy will crash, whereas the dollar rate has been increasing since 1977.
In terms of job creation, Mr. Peiris said that Sri Lanka doesn’t have a problem with job creation. “We have underemployment in specific sectors and a huge demand in other sectors. You need a strategy to shift people from underemployment to where the employment is. There are almost 100,000 job vacancies in this country.”
On the aspect of getting the economic growth back of track Mr. Peiris stressed that the government has sufficient plans, but implementing them is the issue while Verite Research (Pvt) Ltd Executive Director, Nishan De Mel stated that the private sector is experiencing the art of surviving in a broken system.
Not enough exports
State Minister of National Policies and Economic Affairs, Harsha De Silva during a discussion on ‘Economic Turnaround, shifting gear from slow to fast track’ stated, the biggest problem in Sri Lanka’s economy is that the country is not increasing its exports to cover up the imports. Local manufacturing is not doing great in the country.
“We need to have production-driven exports and allow FDI’s to come in without erecting barriers at the borders. Sri Lanka must drive a national surplus strategy and integrate with the countries in the region,” he added.
He also mentioned that the country is restricted by the knowledge people have. “We have to merge and acquire. The country must relax immigration laws and think about integrating policies. Open up the markets and reduce border tariffs.”
Diversification is the way forward, small and medium enterprises (SME) must start putting out their brands amidst policy changes in the government, stated Shalin Balasuriya, Director and Co-founder of Spa Ceylon.
Storing data in cloud in Singapore is cheaper than storing them in Sri Lanka’s cloud space because Sri Lanka’s electricity tariffs are the highest in the region, noted Jeevan Gnanam, SLASSCOM Chairman while elaborating that the IT sector is evolving rapidly with the target of making it a US$ 5 billion industry by 2022 from a $1.2 billion today.
Investments in the Colombo Port City are dependent on the economic policies of the country, stressed Liang Thow Ming, Chief Sales and Marketing Officer of CHEC Port City Colombo (Pvt) Ltd. He stated that 90 per cent of reclamation of land is completed while engineering work will begin mid this year; the first phase of the project will be completed by 2022. “The next biggest task is attracting investments into the Port City,” he added while emphasizing that 83,000 jobs will be created within the port city where 90 per cent of them will be for locals.
Nestle Lanka PLC, CEO and Managing Director, Shivani Hegde stressed that Sri Lanka must build a resilient rural community. “We have achieved self-sufficiency in rice, we must move into dairy as well. We must build a brand of Sri Lankan coconut and diversify its export portfolio. Sri Lankan coconut is at its best in foreign countries,” she added.
Ms. Hegde also pointed out that Sri Lanka has been a trendsetter for gender equality. If gender equality is kept going, the country’s per capita income can be raised by 28 per cent, she noted.
As a nation, Sri Lanka is hitting speed bumps. The country has a large current account deficit and there are lots of socio economic problems. “We must ensure we have sufficient exports more than imports. However the country is stuck in low complexity and low income products.”
During the panel discussion on ‘Accelerating future outcomes; trade, investment and services’ it was revealed that Rs. 20,000 has to be paid to obtain data on trade transactions sector-wise from government institutions in Sri Lanka which is provided free-of-charge in other developing countries. “There is lack of data provided in websites of government institutions,” said Subhashini Abeysinghe, Research Director at Verite Research (Pvt) Ltd.
She noted that language is a barrier for most Sri Lankans when doing business. Only 30 per cent of the country’s population can read proper English which is the international language for doing business.
It was mentioned during the discussion that Sri Lanka should maintain its open economy approach. The country’s FTA’s with Singapore, India and China are very important. Trade is a blunt instrument that needs to be managed properly. Development cannot only take place in Colombo, but move into all other districts as well.
Ample room for improvement in the legal system in Sri Lanka was discussed under ‘Energizing the Bureaucracy’. Sri Lanka has a world record of 52 ministries in the government sector. Today most of the decisions are challenged in courts. People are using their rights in courts since there is hardly room for discussion in the public sector. Government officials must adhere to the correct procedure, noted Sumith Abeysinghe, Secretary to the Cabinet of Ministers in Sri Lanka.
Ministry of Finance and Mass Media, Secretary to the Treasury, R.H.S Samaratunga pointed out that for every Rs. 100 people spend on a daily basis, Rs. 44 is spent on public servant employees. The total revenue to the government as of today in 2018 is Rs. 2400 billion, he noted.
Secretary to the Ministry of Education, Sunil Hettiarachchi emphasized there has to be more thinking in the government sector. At some point people don’t trust government institutions. “Reinventing and rethinking is necessary in government institutions and look at everything from a customer perspective. Collect and make use of the available data. At least by 2030 we need to bring our country to a position without a language barrier, changing the culture and mindset of people while embracing new technology. Government services must be made available anytime and anywhere,” he stated.
No way forward
The private sector chambers in Sri Lanka discussing ‘Shaping the National Agenda; A joint Chamber Plenary’ revealed that if the government and the provincial councils have two agendas, there is no way forward for Sri Lanka.
Chamber of Young Lankan Entrepreneurs Chairman, Dinuk Hettiarachchi stressed, the biggest problem every industry faces today is finding the right people for the right job. Sri Lankans have been great entrepreneurs in the past but today’s youth get into local universities, create havoc to everyone on the streets and later get into a government job through some influence.
Ruwan Edirisinghe, President of the Federation of Chambers of Commerce and Industry of Sri Lanka, stated that people create a mess with the FTA’s the country signs up with and come to the streets to protest. Private sector has to take the leadership of the economy of the country. Today Sri Lankan businesses have moved to Vietnam, Bangladesh and so on whereas for FDI’s there are barricades in Sri Lanka. “What protection is there for local businesses to survive in the future?” he questioned.
National Chamber of Exporters of Sri Lanka, President, Ramal Jasinghe pointed out that over the past few months the export quantum has been growing. “Will FTA’s be an advantage to the country’s development? Challenges are development of the industries with regard to innovation and capacity building. When it comes to steps on importing labour do we have correct standards and protocols? Sri Lanka’s labour laws are 70 years old,” Mr. Jasinghe stated.
He also mentioned that the apparel industry is expecting 300 per cent growth in the next few years. “We need to mobilize the consumer, attract the youth to come to vocational training. In today’s world young people have so many options,” he added.