Monday, May 24, 2010

Sri Lanka an Economic Tiger in the making

As we celebrate the first year of eradicating the LTTE, I will never forget the experience I had in the North of Sri Lanka when I was heading Economic Affairs for the Government Peace Secretariat exactly a year ago. The final battle was in full operation at that time and after finishing my assigned tasks in Jaffna, I was en-route to Colombo on the C130 military aircraft and we had to make a stop in Anuradhapura to pick seriously injured soldiers from Puthumathalan on that day.

“Sri Lanka - the Miracle of Asia”
Even though it was mentally tough to see the seriously injured soldiers brought straight from the battlefield, when I spoke to them I was amazed at the dedication and commitment demonstrated. One soldier with a severe chest injury told me ‘Sir I am going to come back and finish the LTTE’.

Being part of the public sector at that time, I realized that it is time that the other half of the public sector, now shoulder this same responsibility and re-build the economy and one side has done its task even at the expense of losing their lives. I guess the time is right for us to evaluate what we have achieved in the last year.

Visionary community

While there has been many a development in the political arena in the last one year, to my mind the last year was spent on building a visionary community. After the Presidential election we saw how film stars, sportsmen, businessmen and many young professionals wanting to be part of governing the country. To my mind this infusion of young blood into the system is an indication that we are in the process of being an economic tiger in Asia.

I also believe that the general mass has also accepted the common vision and voted in a set of leaders who now almost make up a two thirds majority, thus, giving the ability to initiate serious policy reforms.
The key question now is will those hard decisions be taken this year so that the benefits can come to Sri Lanka by 2011.

A point that needs to be noted is that I see that the private sector has also become positive to the changing business environment. Gone are the days when business plans had statements like Raging war in the North of Sri Lanka or Political instability due to a coalition government. Given the exit of these statements, we now have a private sector that can also plan strategically for the future and do the internal reforms.

I guess the many hotels that are being closed in the next few months for re-furbishment, clearly demonstrate this forward thinking perspective.

Hard decisions

While I agree with the many sentiments expressed of Sri Lanka becoming the miracle of Asia, I feel the need of the hour is to accept the reality and correct it before we start chasing dreams.

The reality is that Sri Lanka was targetting at curtailing the GDP deficit to 7 percent last year but ended the year at 9.8 percent. If we are to drive down the expenditure and get fiscal discipline we have to correct the many State run enterprises that were losing in 2009. Recent data reveals that almost 1 percent of the

Apparel: high potential industry
GDP or around 45 billion rupees is the opportunity cost for Sri Lanka due to this loss making ventures.

CEB is in the red at 7.4 bn, CPC is at a staggering 12.3 bn, SLTB is at 5.1 bn in the red and SriLankan Airlines at a crazy 12.2 bn to name a few.

Hence, the only way out is to re-structure and re-model these loss making State ventures. It can be done just like what we saw in the case of British Telecom, Indian Railways and Singapore Airlines to be specific.

But it requires hard decisions which are not going to be popular politically or by the trade unions. However, it has to be done if we are serious about putting our economy in shape.

The best way forward is a private-public partnership approach. However, for this to materialize, we need to make sure that the regulatory environment is conducive. If not, just like the privatized tea industry, we will see the private sector in a Catch 22 situation than driving ruthlessly for value addition.

Engagement of IMF

It is important to understand that in the Sri Lankan economic menu, we must continue the engagement with the IMF. The logic being that the IMF helps Sri Lanka to have in its radar the importance of implementing fiscal discipline. We have no option but the expenditure has to be reduced significantly. The Government of the Maldives is a classic example for us. From a 27 percent GDP deficit it has been reduced to 18 percent last year and the target set for this year is 8 percent which is an outstanding performance.

Being part of the donor conference in the Maldives that garnered 313 million dollars as grant money into the country, President Rasheed very proudly stated that a 20 percent salary cut was accepted by the public sector that led the way for the curtailment of expenditure that won the respect of the donor community including the IMF. I guess its time Sri Lanka takes a cue from this initiative.

Slide to war

Research done globally reveals that half the countries who achieve peace slides back to a conflict mainly due to the citizens of the country not taking responsibility for the actions to determine their future. Countries like Rwanda made sure it will not happen like the issues between the Tutsis and Zulus with focused on post conflict strategies. It is paramount that every Sri Lankan understands that unless we each shoulder some responsibility we cannot get Sri Lanka back into the 7 percent+ GDP growth levels.

Also we need to understand that if the country grows, then we grow and this can lead to sustainable growth. If not peace is only an illusion. Let me get specific again so that this article is a real piece and not just entrepreneurial academics.

As per the labour force survey of 2002, the labour force participation is at 50.3 percent nationally whilst in the North it had dropped to 33.8 percent and 40.3 percent in the East. This data can directly be reflective to the health gaps in these regions. 46 percent of the children below five years of age in the North and the East are underweight compared to the 29 percent of the rest of the country.

The percentage of babies born underweight in the country is 18 percent but the reality is that in the North and the East it is as high as 26 percent. These figures are worse in the districts like Batticaloa and Vavuniya, where one -half of the children are underweight which gives us an insight to the tension that exists within a family in comparison to one’s relations in the other parts of the country. I guess post the resettlement process in the North these indicators must be at a lower ebb and we have to address this as a priority so that the economic disparity can be addressed.

Value addition

Tea: another potential industry
The key to driving growth and increasing household income is by driving value addition. If we examine this indicator, Sri Lanka’s performance in 2004 is not bad in relation to similar countries in South Asia but the fact is that we must aim to get closer to countries like Singapore and Malaysia where only in the agricultural sector is at a mammoth 7,108 USD per person as against Sri Lanka’s 951 USD.
We also must drive up industrial value addition from 3,187 USD to the levels as 18,295 USD that Malaysia operates on. What’s worrying is the declining industrial exports in 2010 and low investment on R and D of the agricultural sector which means we are not taking the high ground to arrest this situation.

Read more to continue....... at the bottom of this post

Drive high potential industries - Apparel 

Michael Porter says that the only way a country’s standard of living can be increased is by driving up productivity with sharp, strong strategies which will be reflective to the human capital and resources that a country has. Hence we have no option but to prioritize the key initiatives that Sri Lanka must focus on.
Sri Lanka’s apparel sector will have to be a key focus area to generate a five billion dollar revenue for Sri Lanka. The apparels sector has to move away from manufacturing garments to manufacturing fashion clothing the ethical way. The logic being that, as per the ADB Study on the Asian Textile and Apparel Industry it reveals that almost 68 percent of the apparel machinery imported globally, has been to Asian countries which will infer the entrenched competition that Sri Lanka will face in the future.

Currently Sri Lanka is feeling the heat as it is losing the top senior level management talent to Bangladesh given the development of its apparel sector due to the FTA with Japan. Separately the ADB study has also revealed that Asian textile suppliers have increased the cotton spinning output to 74.1 percent of the world requirement which means that cut throat pricing is on the table for Sri Lanka.

Given the increased cost in the Sri Lankan model, the only way out for Sri Lanka is to drive stronger integration with fashion designers and use the nano technology project to achieve competitiveness through innovative designs given that we do not have the dominance of the value chain.

This, coupled with the ethically manufactured proposition with the Effie Award winning Garments without Guilt campaign can reshape Sri Lanka’s apparel business. Policy makers must now drive for the FTA with India to work for this industry and also secure GSP+ as a priority. Currently it has been only promises from India of an increase from three million pieces to seven million pieces of garments to be imported into India whilst the reality is that negligible exports are registered. Sri Lanka must also unleash its true potential to make the Bangkok Agreement a reality. Currently the utilization of the quotas is below 5 percent which explains the opportunity for this industry.

Drive high potential industries - TEA

With the Sri Lanka Tea Board driving an aggressive post war marketing strategy, I strongly feel Sri Lanka is on its way to regaining its dominance in the world stage from Kenya on the positioning of Ceylon Tea - Ethically manufactured ‘Clean Tea.’ We have to make this industry a two billion dollar industry.

This can be done only if the completion of the field trials on Minimum Residue Levels (MRL) and a new Sri Lankan standard set for our tea so that we command the respect as a leading exporter of tea to the world while the Geographical Indicators (GI) registration must be done in the key markets as recommended by the Tea board.

This will give protection to the Ceylon Tea brand name which actually should have been done fifty years ago. Sri Lanka must develop a focused marketing program to build 10 new brands in ten countries with an investment by the State increasing to at least five million dollars so that with the private sector investment we can pump in a 20 million dollars plus worth of brand marketing to the world.

The industry must push for the 1.2 billion rupees the industry ploughs back into the Sri Lankan coffers as CESS be invested in the industry for the development of the sector from a supply and demand side. The overall impact these initiatives will have on the one million people who depend on this industry for their livelihood will sure unleash the true potential of Sri Lanka.

Drive high potential industries - Tourism

The new positioning that has been very well conceptualized by the Sri Lanka tourism Ministry needs more muscle in terms of funding with a strong private -public partnership to make the “Sri Lanka - the miracle of Asia” work for the country. The logic being even though Sri Lanka has registered a 50 percent + growth in the first four months and is ranked No. 1 by the UNWTO the awareness levels of our country globally is only 3 percent and market shares are at low ebb of 0.07 percent. The need of the hour right now is how we can have 35,000- 40,000 room capacity in Sri Lanka to attract the 2.5 million tourists in the near future. The current 14,700 rooms can only cater to a maximum of 760,000 visitors and in fact 50 percent of the rooms needs upgrading.

This means that we need a minimum investment of 3.5 billion dollars to make the 2.5 million tourist arrivals a reality which is the core task at hand. We must accelerate the development of Kuchhaveli, Pasikudah and Kalpitiya tourist zone development projects.

A point to note is that way back in 1983 Sri Lanka attracted 338,000 tourists into the country and in 2008 is yet struggling at just 438,000 when countries like Cambodia which were getting 200,000 in 1983, are touching almost a 2,000,000 which is the opportunity that Sri Lanka has lost which in financial terms is worth over 6,000 billion rupees. We now need to make this industry a one billion dollar industry for Sri Lanka so that we can actually say that Sri Lanka is in the making to be an economic tiger in Asia.

Importance of the North and the East

The fact is that N-E is the most under developed region in Sri Lanka. However, the good news is that these economies continued to grow in the last two years even after the ceasefire fell apart in 2004 with the East growing at 2-3 percentage points faster than the national average both in 2006 and in 2007 and contributing around 4.8-5 percent to national output.

But a careful analysis reveals that the Agricultural sector growth in the North and East had declined by almost a 10.3 percent in the period 2005-2007 which needs to be corrected.

The reason for this being that in the North from 56,000 MT of fish that were caught in 2004 has dropped to 15,000 MT in 2007 while in the East in 2002 almost 72,000 MT of fish were caught and in 2005 it dropped to 22,380 MT. But in 2008 it has increased to 61,000 MT which means that economic recovery is very quick in this sector and this benefit will come to the North too.

But once again the challenge is to develop the total value chain from cool rooms to ice plants and freezer trucks so that the total physical distribution system is managed and may be even a fish canning factory can be built to drive the export market.

The Atchuweli Industrial Zone must be re activated so that we can provide employment to the 200,000 youth that Jaffna has. If Sri Lanka does not address this issue speedily we can expect another revolt similar to the early days of the LTTE movement, is my belief.

Peace is a process-with minority

A key element to really unearth the true potential of the country is to create awareness that peace in a country is a process. This includes the Language Policy, the Governance structure, the Economic Development, the Human Rights and Democracy, IDP Resettlement and that the Military Strategy which was used was also part of the process.

All these elements must go hand in hand so that we ensure that we address the root cause of terrorism.
Whenever I am called to address a forum the private sector keeps asking me how a company can contribute to peace building and the practical step is to operationalize the language policy in a company i.e. a telephone operator must be fluent in all three languages, all circulars/notices must be in three languages. We have to make the minorities feel that they are part of the country so that we really can unleash the true potential of this country may be by attracting the talented diaspora back into this country.

Competitiveness of SMEs

This can only be done if the State makes the necessary changes by investing in Research and Development (R and D) and focuses on the SME sector. The current R and D investment is estimated at below 0.2 percent whilst we should invest at least 2.0 percent if we are to really unleash the true potential of Sri Lanka with a culture of innovation.

A case in point where investment on R and D has worked was seen where a red onion farmer in Kalawanchchikudy moved from manual irrigation to drip irrigation which increased production by 3,200 MT from an investment of just Rs 50,000. This kind of competitiveness moves is what Sri Lanka requires.
The current Gemidiriya project of empowering the youth is a project that must get more muscle from the policymakers is my view as it is changing the lives of rural households effectively. Maybe Sri Lanka can develop a dedicated Nano Technology Park so that we become a nation that drives the South Asian economy with innovation.

Nation Branding-all Ministries

If Sri Lanka can implement the concept of nation branding the synergistic effect can even match the fat advertising budgets of any country that will not only help Tourism but Ceylon Tea, Cinnamon and all exports of Sri Lanka. Turkey is the best country to explain this concept where even though in Turkey there is a terrorist group called the PKK it practises nation branding effectively that has resulted in attracting almost a two million visitors.

The best case in point is Turkey, in the German market exposed the people to Turkish cuisine on the streets, Turkish politicians are featured on German media, sports personalities of Turkish origin are interviewed on TV and if a German visits a department store one gets exposed to products made in Turkey. This together with the marketing spend by the Turkish Tourism Ministry creates a synergistic effect that results in the record numbers of visitors coming in from Germany that was more than one million in number. Sri Lanka can test it out in a country in the Middle East and thereafter roll it out globally in the future.


The only words that now echo in my mind are the words expressed by my friend Mohamed Ali Alabbar the Director General of he Dubai Economic Centre, he said “The difference between success and failure often lies not in the strength of the vision or the effectiveness of the strategy but in the ability of the leader to execute”.

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