Depending on ‘Pusswedilla’ and ‘Bakamuna’ - Professionals are shy to raise critical issues in pu...

Professionals are shy to raise critical issues in public!

It is believed that the single focus advocacy proposal of the Joint Chambers of Commerce and Industry for the Budget 2012 to address is the continuing high priority of enhancing the ‘ease of doing business in Sri Lanka’.
A president of a chamber holds a publicly articulated view that economic growth and investor confidence must be initiated by the local business community, and that in most instances where local investors give the lead, the foreign investors will follow.

To make this a reality he wishes the establishment of a task force under the President, headed by the Minister of Economic Development to provide a stimulus to entrepreneurs encouraged to start businesses in all provinces, with the Government facilitating the grant of necessary land and finance.

Hon. Chaminda Pusswedilla in action at the World Peece Sumitt. Professionals have not articulated their views and an intellectual debate is lacking in developing the way forward. The only hope appears to be to invite ‘Pusswedilla’ and ‘Bakamuna’ to step in with political satire tele-dramas and theatre plays and invoke involuntary attention of leaders in governance, business and society – Pic by Ima Hassan

Professionals have not articulated their views and an intellectual debate is lacking in developing the way forward. The only hope appears to be to invite ‘Pusswedilla’ and ‘Bakamuna’ to step in with political satire tele-dramas and theatre plays and invoke involuntary attention of leaders in governance, business and society.
Going beyond Ease of Doing Business
In the above context it was no surprise that USAID, Volunteers for Economic Growth Alliance and Pathfinder Foundation addressed the issue: “What should be done to improve the overall business climate in Sri Lanka going beyond the ‘Ease of Doing Business index’?” They presented their research findings to the relevant stakeholders recently. Three cheers for this initiative.
One must however examine in depth and validate whether the “real” issues and not “apparent symptoms” have reached the attention of the researchers, mainly due to business leaders and professionals being reluctant to raise critical national issues with integrity in public.
Key research findings
The researchers identified that the key factors which constrain ‘Doing Business Functions’ were:

• Laws, regulations and judicial decisions
• Regulatory procedures
• Institutional capacity issues
• Corruption and rent seeking
• Industry/project specific factors

They developed the undernoted summary of policy issues affecting the business community and potential new investors:

• Mixed signals from the Government on the role of the private sector;

Volatile and unpredictable economic policies
Lack of strong endorsement of the private sector as the engine of growth
Growing State participation in business
Commitment to improving ‘Doing Business Index’ not overall business climate

• Who is in charge of improving the overall business climate beyond a piecemeal approach to reform?
• Supreme Court decisions affecting approved investments
• The above policy issues were linked to the following recommendations;
• Seek Government commitment to a reform agenda improving the overall business climate
• Establish responsibilities for implementation of the reform agenda and monitoring progress
• Request a Government FDI policy statement, expressing its commitment to private sector led development
• Request clarification from government on its direct participation in business

Request clarifications from the Supreme Court

• Create a “land bank” of land available for investors and to expedite release of state land holdings for productive investment

Three cheers again to the researchers for a value adding analysis leading to the identification of some of the critical issues.
Why focus on ‘Ease of Doing Business’?
The positive enhancement of the factors impacting on ease of doing business could lead to greater new local and foreign investments, whilst at the same time enhancing the options available for businesses to improve productivity, quality and competitiveness sustainably. Therefore the ease of doing business has an impact. Is it however the ‘real missing factor’ to spur development and investments?
The Country Director World Bank in Sri Lanka, addressing the AGM of the Ceylon Chamber of Commerce, highlighted the importance of foreign direct investments in Sri Lanka realising sustainably 8-9% annual growth in the medium term. She stressed the essential need to raise the investments rate to around 35% of GDP annually to support the set goal.
With Government investments capped at around 5- 6 % of GDP in the period ahead and private sector investments being currently around 22% of GDP, the deficit of 7-8% has to be raised by way of foreign direct investments.
With the current best estimate inflows being below US$ 1 billion per annum, the challenge is for stakeholders in governance and business to attract around another US$ 4 billion per annum by way of local and foreign investments to realise the growth targets sustainably.
Need for a frank dialogue
The Country Director World Bank drew the attention of the business community that with input costs considerably high (electricity, labour costs of employment and lay-off), rigid labour laws and inflexible in the firm cost structures, the challenge ahead is not easy to overcome.
She also emphasised that the Government and private sector must engage in a frank dialogue on issues that need to be addressed together to ensure higher and more effective private sector contribution to the economy.
The million dollar question now shifts firstly to whether there exists a frank, transparent and open strategic dialogue between the private sector and Government. Let us hope it is not a monologue from Government, with nodding heads, praising statements and great applause from the private sector!
Secondly, one must assess after open and transparent debate as to whether the strategic action agenda developed by the researchers, the advocacy commitments of the business sector and the joint initiatives of all stakeholders can gear up the drive to realise the challenging goal of meeting the investment gap.
Thirdly, the debate must address as to whether the ease of doing facilitation and the index reaching the goal of the Government can by itself support the required new generation of capital inflows.
Other critical issues in attracting new foreign investments
The undernoted are other critical issues, in order of priority, in attracting new foreign investments as highlighted by present and potential foreign investors:

• Policy consistency and policy capture corruption
• Ineffective international and regional relations
• Exchange rate policy
• Lower capacity and capability of the available human resource pool
• Sustainable political stability in the absence of real solutions to the conflict post war
• Macro economy, fiscal and monetary management
• External debt management and fiscal gap
• Militarisation of administration
• Expanding role of State in business
• Rule of law and justice
• regulatory/institutional independence, integrity and effectiveness
• Right to Information
• Corruption
• Transparency and good governance
• Conflicts of interest, related party and network nepotism of the private sector
• Local preference policy and anti-foreign rhetoric
• Lack of a cohesive leadership style, singing from the same hymn sheet and promoting positive values and societal norms
• The plight of IDPs and conflict impacted citizens
• Regrettably business and professionals are reluctant to raise the aforesaid ‘real’ issues that negatively impact on new FDI.

Policy consistency and policy capture corruption
Policy consistency is a critical driver in attracting foreign investments. Recent examples of policy changes with regard to land sales to foreigners, visa on arrival/online, dual citizenship, and investment approval criteria are seen as negative drivers of investment inflows.
When duly announced policies are not implemented or are changed at the whims and fancies of the implementing agencies, as seen with some announced positive policies relating to taxation, customs duty, price control, import/export policies have created more negatives sentiments exceeding the positive sentiments raised on initial announcement.
One of the key concerns of foreign investors is the emerging trend of policy capture corruption in regard to investment approvals, tenders, sale of land and natural resource exploitation, rules of engagement with investors, pr-qualification criteria, compulsory local agents and bi-lateral deals by passing a competitive process.
Ineffective international and regional relations
The continuing arrogance of leaders and their accusatory challenges have deeply impaired long term built friendly relations with the west. Associated anti-West slogans and west bashing/blaming leadership style remains an impediment to investments and development of trade, especially at a time the nation is dependent on western countries for the bulk of its trade, services, technology transfers and investments flows.
All stakeholders should promote with focus, trade, investments and people to people exchanges with India and exploit the potential opportunity to serve the big and lucrative South Indian market. This initiative must be supported by the FTA, CEPA and close diplomatic relations. Goodwill and close relations with India and Tamil Nadu State Government are hampered by broken promises and Jekyll and Hyde relations of Sri Lanka.
The leading chambers have failed to leverage network relations with Indian chambers to support trade, services and investment flows and exploit advantages of Northern Sri Lanka becoming the link for such transactions, leveraging identified cost competitiveness of Sri Lanka over supplies originating from North India.
Exchange rate policy
The most significant monetary disincentive for investment flows is the year by year appreciating exchange rate. This severely limits the competitive advantages of Sri Lankan exporters faced with cost escalations caused by high local inflation and lower productivity.
This disincentive is imposed on investors whilst the country runs a huge trade deficit, whereas export of goods and services to selected niche markets must be the focused strategy of sustainable development and investment promotion.
The present exchange rate policy appears to yield heavy capital gains to foreign short term Sri Lanka Rupee Government Guarantee bond investors, especially those maturing between 2011 and 2015.
Lower capacity and capability of the available human resource pool
The available pool of talent in management, technical, creative, innovative, professional, supervisory categories as well as workers and support staff are totally insufficient in number to meet the needs of large ticket long-term investors.
Even the available pool requires a large focused further development investment to meet the needs of investors. In addition, the general level of capability defined inclusive of knowledge, skills, attitudes and values, are far below the competing resources of East Asia and India. Productivity, quality, shift/night work commitments and get it right first time commitments are lower in the local pool over competing resources of East Asia and India.
The unacceptable quality of secondary/tertiary education systems, inadequate investment for skills and attitude development, and low investments in R&D and innovation based competitiveness tools compounds the burden on investors.
Sustainable political stability in the absence of real solutions to the conflict post war
US Assistant Secretary Blake’ s statement that “we do look to the Government of Sri Lanka as we do to any government, to address the needs of its people, to ensure that the aspirations of its entire people are met” and the commitment of the Minister representing Sri Lanka at UNHRC that “it is our expectation that the holistic approach we envisage in this Plan, encompassing the promotion and protection of all rights, will also supplement the ongoing post-conflict reconciliation process”, are due deliverables on a timely basis in opening the tap to get foreign investments to flow.
Macro economy, fiscal and monetary management
When Sri Lanka sustainably demonstrates that its macro economy, fiscal and monetary management are in keeping with its commitments to the IMF and in line with the letter and spirit of the Fiscal Responsibilities Act and adopts international best practices of justifying spends resource allocations on the basis of equity and sustainable long term national socioeconomic benefits, meeting Risks mitigated 3Es criteria (Economy, Efficiency and Effectiveness) then investments inflows tap will open wide.
External debt management and fiscal gap
The single most significant long term financial risk the foreign investors see is the unprofessional, non transparent and ineffective management of the national debt, which potentially threatens the capacity to meet foreign debt obligations. This phenomenon is embossed on a canvass where the foreign commercial debt component is rising to its upper limits of acceptability with little signs of effective management, and thus creates ripples of uncertainty.

Militarisation of administration
With the terrorism risks now eliminated and the emergency lifted, investors cannot reconcile why the administration of the north and east are being heavily weighted in with expanding military presence and final civilian governance decision making left in military hands. In addition, the expanding role of military in governance, administration and business even in the South raises questioning eyebrows of investors.

Expanding role of State in business

Although investment promotional material position with a heavy accent public private partnerships, hardly any such opportunities have opened up in infrastructure development.
The State appears to prefer borrowed funds and paid for foreign expertise and technology, in developing high foreign component embedded infrastructure projects, executed on a government to government basis, by passing open and transparent international tender processes.
The continuing expansion of state ownership and management of businesses, new state monopolies (latest being gas) and even State favoured competing entities to existing private businesses, are negative signals to investors.

Rule of law and justice

The break down in rule of law, with thuggery, violence, and mafia style action on one hand, and forced closure and breaking down walls of business premises, creation of new sacred/archaeological sites, especially by persons without formal authority except network connections, is an anathema to investors seeking non interfered operations and effective enforcement of the rule of law.
Investors are reluctant to accept a judicial system which has long drawn out unacceptable processes, time delays and uncertain outcomes. Some of the past judicial outcomes impacting on businesses are also questioned by investors who fear that their operational freedoms and property rights (physical, contractual and intellectual) not being effectively protected against potential unjust and non independent judicial review processes.

Regulatory/institutional independence, integrity and effectiveness

The key regulatory institutions like the Central Bank, SEC, Public Utilities Commission, and Consumer Affairs Authority have significantly damaged the positive image of Sri Lanka. Their independence, integrity, capacity, and effectiveness in free and fair implementation of assigned roles are questioned.
They believe preferred manipulators, quality/price violators and other transgressors of regulations go scot free under the very eyes of the regulators. The lack of integrity and independence in enforcement decision making looms large before genuine investors.
Past regulatory failures in banking, finance, insurance and securities markets appear to enhance investor risks. The continuing lack of effective control, with mistakes of the past appearing likely to resurface with the floatation of debentures, borrowings and capital raising by failed institutions, along with uncontrolled expansion of the leasing industry rings alarm bells of potential systemic risks.
Professionals have failed to ask quo vadis – the leasing industry, as it expands business in an uncontrolled fashion, possibly without essential risk mitigation? Leasing of vehicles, white goods and household equipment are seen to contribute to import dependent business growth, with business risks amongst B to B and B to C reaching dizzy heights.

Right to Information

The lack of a Right to Information law is seen as a significant weakness in promoting good governance and accountability of those in charge of public administration and national resources management.

Corruption

The culture of “fear to do wrong” is now longer an upheld societal norm. Those with network protection appear to have immunity from prosecution for corrupt practices. Enforcement mechanisms of the State through the Bribery Commission and by the private sector through codes of ethics and conduct are only limited to paper.
Open acceptance of the culture of “facilitation fees”/“grease the palm” payments, and the acceptance of sharing “venture profits with network partners now considered by business not to tantamount to graft” have made way for bribery and corruption being partly legitimised.
Public and business acceptance that so long as projects and spends by Government and private sector drive the economy forward to higher growth targets the costs of corruption up to 10% of such spends is an acceptable norm, and even up to a 25% load for corruption is in order in special circumstances, makes the operating environment unacceptable to most genuine long term investors.

Transparency and good governance

When the highest position holding professionals in governance, public administration and regulatory control make presentation which lack transparency, using misrepresented information and incorrect data, in order to position only one side of the equation or to show “creative positive news”, and most professionals remain silent and a large portion nods in assent and applaud and only a marginal few question, the principles of transparency are totally shattered.
Investors however see through this strategy and laugh in secret seeing clearly the nakedness of these king and the king’s men in fine new clothes! The recent ‘positive news’ of a major cargo transfer by two vessels in Hambantota is questioned, if one of the ships was directed to that port following its arrest and the transfer was an unplanned fait-acompli.
The reported covert undue interference in the annual retirement and re-appointment of directors of two leading commercial banks by the Governor, using shareholder rights acquired mostly via public pension savings managed in trust by the Central Bank, has significantly damaged the independence governance rights enjoyed by private investors in listed companies.
Top officials support processes of covering up corrupt practices in procurements, national resource spends and assist in cooking the figures literarily to achieve what pleases the master, especially in the case of many targets from per capita income to poverty to numbers of IDPs effectively settled.
Did the worthy professionals who sit on the Money Board cheer, clap hands, thump tables and pat each other on the back, as their big boss announced that with US$ 8 billion in the kitty (blind to the sources and associated continent liabilities), billions more new inflows to follow in the next two months and dripping with saliva count the billions of dollars to hatch from the newly-discovered oil wells in announcing that policy rates can remain unchanged as monetary, fiscal and balance of payment stability is on the way and the fiscal gap will soon be positive? Ha! Ha! Ha!

Conflicts of interest, related party and network nepotism of the private sector

Foreign investors watch with amazement and disbelief as conflicts of interest, related party and network nepotism appear on the operating slate of the private sector. This is despite world class governance codes, accounting and auditing standards, and the intervention of capable and independent professionals and regulatory bodies.
They also notice how those engaged in big business and share market dealings simultaneously hold highest posts of governance in public administration. The escape route of pardoning convicted persons and erasing original crimes to make them acceptable as ‘fit and proper’ persons amaze independent observers.
Network nepotism is seen as a key to growth, profitability and shareholder value addition and this is truly a disincentive to genuine competing investors.
The conflicting role the Central Bank as a regulator plays in managing pension funds under their trusteeship to further political, nepotism and ego needs drives a nail through the coffin in the eyes of independent investors.

Local preference policy and anti-foreign rhetoric

Preferential position given to local investors as against foreign investors, the re-acquisition of gas, oil- bunkering and insurance businesses previously privatised and regular anti foreign rhetoric coming from extremist elements close to the leaders in power, does significant damage to the image of Sri Lanka as a place to invest, especially to investors who have many other options with lower risks on the canvass map before them.
With the budget proposals 2011 giving a fillip to local and foreign investment, and the head of state immediately making a statement of how the gas and insurance business were vested away from big business to the State hands for the benefit of common people negated the positive image the proposals created.
It is most surprising that even the private sector expresses similar anti foreign ownership sentiments. Advertisements are regularly broadcast over media to promote local products highlighting the saving of valuable foreign exchange and local retention of profits instead of being remitted out of the country.

Lack of a cohesive leadership style, singing from the same hymn sheet and promoting positive values and societal norms

A leadership style that builds investor confidence needs to be in place and the leadership team must appear to invoke cohesive actions across and down the chain of command, with all signing from the same hymn sheet, setting high standards of democracy, integrity, capability, promoting transparency, effective good governance, justice and equity whilst encouraging acceptable values and societal norms if big ticket investors are to be attracted.

The plight of IDPs and conflict impacted citizens

‘Struggling Beside the Shining New Road,’ an article by Amantha Perera, describes the continuing plight of IDPs and conflict-impacted citizens in the north, where he flagged the issues:
While projects like the A9 highway are swallowing up millions, precious little has been allocated to resettlement and rehabilitation
Severe food shortages in the region could compound the precarious humanitarian situation
Nearly half the population of the Wanni is currently facing moderate to severe food insecurity.
60 per cent of the population in the north are food insecure, live below the national poverty line and owe debt amounting to six months’ earnings.
Urgent need for getting companies to start up job creating ventures
He concluded quoting: “The peace dividend cannot be limited to a road or irrigation network.” Leaders must remember that caring investors are mindful of such issues also. (http://www.ipsnews.net/news.asp?idnews=105388)

Issues Mr. Pusswedilla forgot to refer to of what happens in ‘Arsik Land’

Reading the popular Sunday Sinhalese newspaper of 2 October 2011 (which paper regularly gives a detailed account of what happened in the cabinet meeting that week), a few days after enjoying the most recent theatre play of Mr. Pusswedilla, it appeared the events described were ideal for inclusion in a play by Pusswedilla.
The events described a popular discussion during the cabinet meeting relating to ‘cattle,’ consequent to a cabinet paper being presented to allocate 100 acres for a cattle orphanage. With a ministerial colleague wanting alternate land to be allocated as the proposed land was too valuable, the discussions had next focused on the increasing levels of ‘rabies’ and the need to allocate land for a ‘stray dog orphanage’.
Thereafter, the discussions had shifted to the need for the Social Services Ministry to be allocated land to build an orphanage for elderly parents turned out on to the road by their children.

Let us invite Mr. Pusswedilla and Bakamuna to stage weekly programmes

With those in governance and legislature, in business, professions and society, being reluctant to engage in intellectual debate on critical issues, civil society will need to invite Mr. Pusswedilla and Bakamuna to develop political satire weekly tele-dramas and quarterly theatre plays to bring out critical socio-political and economic issues. Examples of some current issues include;
Following the theories that won two US economists the 2011 Nobel Prize, evaluate the relationship in Sri Lanka between economic factors such as economic strategies and GDP, inflation, employment and investment in the modern world, permanent structural changes in the economy such as what happens when monetary policy is delegated to an independent central bank and how policy changes and shocks affect the long-term economy.
China’s potential debt defaults of trillions of Yuan invested in infrastructure projects, railway modernisation and road /bridge building consequent the stimulus package spends during the 2008 global financial crisis now classified as white elephant projects.
In ‘Arsik Land’ since independence only one high official in governance, politics, public and private sectors had been convicted by an independent court on non-trumped-up charges for a crime involving moral turpitude and actually spent time in jail.
Why the private sector remained silent when the Pensions Bill was presented though deemed detrimental to their interests.
What is the present ‘fiscal gap’ for Sri Lanka and what positive and negative contributions all the major projects will contribute in the future?
How the new pension schemes on offer to different segments will impact on the fiscal sustainability in the future.
How share manipulators and those with significant conflicts of interest and related party transactions are getting away under the review eye of regulators.
Whether key projects and voted spends add value to citizens and are thus socio-economically justified – Hambantota Port, Hambantota Commonwealth Games, Mattala Airport, etc.
Whether domestic airports for Kandy and Nuwara Eliya are justified and equitably prioritised.
‘Who Dun It?’ – bludgeoning to death beggars sleeping on the road.
Why the State needs to get into airline ticketing, private security and garbage clearance businesses.
Can we attract additional US$ 4 billion per annum new FDI?