The policy changes, reforms and modernisation since Budget 2011 appears to have been the context of a presentation made to the Joint Apparel Association Forum in July 2011 by the “leading light” in finance, planning, treasury management and economic development.
Sri Lanka background 2000-’10
The presentation articulates the background issues experienced from 2000 to 2010. It highlights the conflict in the north and east till 2009, lack of strategic infrastructure development till 2005, the frequent political changes during 2000-’05, the new policy regime under the ‘Mahinda Chinthana – Vision for the Future,’ rising oil and commodity prices and the global economic crisis 2008-09 as the key milestones having significant impact.
It pronounces the paradigm shift with the ‘Mahinda Chinthana’ with a vision for the future, making a transition from an unstable economy to an emerging economy.
The success story is benchmarked by the achievement of growth and development with lower inflation, unemployment and poverty, along with attendant expansion in exports, reserves, investments and food security-led stability.
It highlights the consolidation of Sri Lanka as a modern economy with high value adding industrial output and services, the reduction in average unemployment over last six years to 6% (the average in the preceding five years being 8.2%), and a similar comparison of the increase in the last six year average of inward remittances to US$ 2,824 m per annum over preceding five years average of US$ 1,316 m.
Through a poverty head count analysis it demonstrates the benefits of rural development initiatives and large scale investments in electricity, water, irrigation etc leading to annually increasing access rates. Telephone density expansion is highlighted as the most impressive feature.
It also highlights the reducing trend in defence expenditures and increasing trend in public investments maintained at an average of 6% of GDP to resolve infrastructure bottlenecks and facilitate private sector led growth. Increasing commitments to social spends in health and education and road development network are also highlighted.
The presentation then goes on to focus on the growth of exports and imports showing the last six year exports averaging at US$ 7,356 over preceding five year level of US$ 5,186 m and similar figures for intermediate and investment goods imports being US$ 9,340 m over US$ 5,344 m.
The export growth is stated to be despite many challenges, such as non renewal of GSP+ concessions, high financial costs, etc. This reflects the dynamics of the local export sector, now supported by conducive policies to sustain improvements in skills of the labour force, productivity, technology, managerial resources and entrepreneurship. Increased usage in intermediary machinery and equipment is shown to reflect enhanced investments as well as a gradual transformation of country’s industrial base as an advance technology driven economy.
Sri Lanka beyond 2011
The presentation predicts that the GDP growth during 2011 to 2016 to average 8.1% per annum, as against 6.4% over the preceding six years. To support this growth Government and private investments in the same periods are expected to be 26.2% of GDP, as against 21.6 in the preceding six years.
The predicted growth is said to realise a per capita income to grow to US$ 5,000.
The key outcomes expected beyond 2011 include rate of investments to GDP increasing to 33% and annual growth in excess of 8%. Reduced poverty and inflation moving down towards 5% with FDI’s being over 2% of GDP each year are also predicted.
It proudly proclaims that building on greater public-private cooperation, Sri Lanka will become the ‘Emerging Wonder of Asia,’ positioned on support pillars built of global businesses in apparel, tourism, tea, IT, professional services, ports and shipping, research and technology based high value industries.
The development priorities beyond 2011 includes exports, value added tea, rubber, cinnamon and spices mineral and non-renewable resources. This impetus will make tea industry a US$ 2.5 billion business and rubber and cinnamon each US$ 1 billion industries.
The apparel sector will function as a hub providing logistical support, shopping facilities for manufacturers of branded products and create an up-market focus to end as a US$ 5 billion industry. The IT/BPO industry will be another priority and will be consolidated as a US$ 1 billion industry.
Machinery and equipment will be manufactured for aviation, shipping, power generation, etc., whilst fruits and vegetables will be prioritised through variety and quality improvements. The tourism and leisure sector will be another development priority, transforming the industry to contribute US$ 2 billion, providing employment for the emerging labour force.
FDIs in hotels, convention centres and shopping and recreational facilities will promote and support an international tourism network in Sri Lanka, whilst exploring Sri Lanka’s bio diversity and potential for upmarket tourists.
The exports and tourism based activities will be linked to the Government’s ‘Divi Neguma’ programme in order to improve backward linkages and to promote economic viability. Backyard economies will support the services-related economy.
The knowledge-based services and professional services will be improved to make Sri Lanka an international centre for knowledge business in medicine, legal, accountancy, IT and engineering, architecture, fashion designing, modelling and event management, etc.
Urban development will focus on expanding city frontiers to change the landscape, whilst preserving the environment. This will provide opportunities for the private sector to promote the emerging service economy.
Import replacement industries will become another development priority, with food, livestock, and agriculture led import replacement estimated at around US$ 1 billion. Petroleum and energy resources will be also apriority, especially investments in renewable energy where current imports cost around US$ 3.5 billion. Pharmaceuticals, fertiliser and pesticides industries are to be made research-based to replace current import costs of around US$ 0.8 billion.
These development priorities are to be supported with tax holidays of five years for fishing (including primary preparation for the market), producing agricultural seeds and planting material, three-year tax holidays for new undertakings in manufacture of products with investments over Rs. 50 m and five-to-seven-year tax holidays for new undertakings with investments over US$ 3 m. For strategic development projects with large investments, exemptions up to 25 years will be available.
Investment facilitation will be supported by a Standing Cabinet Appointed Review Committee, land alienation will be streamlined with 99-year leases, a one stop tourism development service centre will be available and the restructured BOI will facilitate visas/forex approvals, incentives and concessions. This will ensure a transparent and structured approval process for strategic development projects and the investment climate improvements will support planned FDI inflows.
These will be supplemented by uninterrupted power supply through continuous investments, enhancement of ports and airports infrastructure and rapid investments in national and principal roads. Irrigation, water supply, education and skills development will also be priorities for investment. Incentives for rural labour force from moving to townships will be supported by necessary public investments, expected to be above 6% per annum.
With budget deficits coming down to 5%, increased space will be available to finance the private sector and lending rates will reduce promoting investments. SMEs will also be supported to grow competitively.
The major challenges to the predicted scenario are seen to arise from continuous high international petroleum prices, exchange rate and inflation management and the consequential effects of the ageing population.
Let us join in the applause
As a caring and independent civil society, we must all join in the applause that was sure to have followed the above presentation. We should also extend our congratulations and good wishes to the leaders in governance and pray that the dreams as outlined above will come true.
Risks in realising the dream
As professionals it is also our duty to be cognisant of potential risks in realising such a dream. We must proactively engage in supporting the realisation of the dream, whilst engaging in pointing out potential challenges and also be a part of the ‘voice’ promoting necessary risk mitigation strategies.
Living the dream
‘Living the Dream’ was the theme of an annual corporate convention of a private sector business conglomerate, led by a man who has led his team with courage and focused commitment to realise his dreams, despite the many external challenges faced by the group.
The key speaker at the above event was Sandeep Goyal, founder Chairman of Dentsu. An original village boy with a dream to one day ride his own motorcycle, he became the President of Rediffusion, one of India’s largest advertising agencies. At 38 years, he was Group CEO of Zee Telefilms, India’s largest broadcaster. He was one of the most successful professionals and a wealthy business leader in India. He describes his career as being built around the motto ‘Success never comes, you have to seek it’.
Goyal went on to stress that “one has to ‘dream’ with ‘eyes open’ and with ‘both feet on the ground,’ recognising and conscious of realities of the environment, opportunities, challenges, threats, strengths and weaknesses”.
He went on to stress that we grow great by dreams. All big men are dreamers. They see things in the soft haze of a spring day or in the red fire of a long winter’s evening. Some of us let these great dreams die, but others nourish and protect them; nurse them through bad days till they bring them to the sunshine and light, which comes always to those who sincerely hope that their dreams will come true
Reality of living Sri Lanka’s dream
Civil society invites the business sector, professionals and media to begin a constructive and independent debate with the leaders in governance, debating issues emerging from and around the dream outlined in the presentation.
The following issues are set out as examples of issues for debate:
Is the present international relations regime supportive of realising the FDI, exports and growth targets?
Can these ambitious targets be achieved, without trade/services and investment facilitation agreements with India being effectively implemented, within a close network, structured around a genuinely committed relationship?
Can these export targets and FDIs be achieved within an annually appreciating exchange rate regime which erodes competitiveness?
Can these dreams be sustainably realised within a highly militarised administration, where genuine grievances of communities and segments of citizens remain unfulfilled?
Will the present experiences with law/regulatory enforcement, application of the rule of law and effectiveness of justice systems support creating the necessary external environment to live the dream?
Will the present education system, unfocussed training and development institutions lacking capability and technology and the politicised professional bodies and university administration structures support a talent pool of the required capability (knowledge, skills, attitudes and values) being available for deployment, especially the professionals required to lead the nation’s effort to become a knowledge hub in the region?
How will the perceived corruption and waste, lack of transparency, the lack of a right to information, nepotism and policy capture corruption impact on the key support pillars of the ‘dream house of Sri Lanka’?
How will the signals sent out by extremist forces aligned to those in governance with regard to their stance on foreign investments, free trade, genuine market economy policy regime and desired control regime impact on realising the dream?
How will the structure, tenor, terms and mismatch of the national debt, especially the ballooning foreign debt, impact the dream?
Will the large-scale investments made in infrastructure supported by foreign debt, without adequate open and transparent legislative/civil society validation of viability, cash flow returns, breakeven position and national socioeconomic benefits impact on the fiscal and balance of payments management negatively impact living the dream?
How will the fiscal gap of Sri Lanka be impacted over the next decade and how will it impact living the dream? Are the support pillars of governance (including the legislature, public service, regulatory institutions, judiciary, media, professional and research institutions, etc), independently structured, committed, led and engaged in the assigned tasks staffed by competent resources?
This debate should reveal whether we have dreamt with our “‘eyes open’ and with ‘both feet on the ground,’ recognising and conscious of realities of the environment, opportunities, challenges, threats, strengths and weaknesses”!
(The writer is a former Chairman of the Ceylon Chamber of Commerce.)