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How the five hubs + tourism came into beingCentral Bank Governor Ajith Nivard Cabraal, describing the rationale behind the five hub + tourism concept, noted that the idea stemmed from President Mahinda Rajapaksa’s aim of creating a conducive, sustainable economic growth that does not halter or fall back on its move forward. Maintaining a growth of 4.5% on average in the years since independence, many doubted the country could do better due to the insufficiency in savings and investment until proven otherwise in the post war country. Under the Mahinda Chinthana, the country began enjoying an 8% growth, as anticipated by President Mahinda Rajapaksa. “We needed to find investment – we had to energise local investors while attracting foreign investors,” Cabraal said. “This is the first step for sustainable economic activities.” "In each of these six hubs, Sri Lanka has a massive competitive advantage. These six hubs provided an ideal platform for the receipt of the massive investments that would spur Sri Lanka’s economic development for the next several decades – Central Bank Governor Ajith Nivard Cabraal" Six strategies for investment Six key strategies were designed to ensure there is a continued pipeline of investments coming in to the country, he expressed. They are: 1. Heavy government investment to bring peace to the country – All investors were conscious of the war. To overcome this long standing challenge, the Government carefully funded and invested heavily in the war, followed by investing in the humanitarian exercise. 2. Infrastructure improvement by Government – Investment in roads and power plants, etc started well before the end of conflict. 3. Achieving and maintaining political stability despite both internal and external challenges to disturb the stability while understanding the importance of its continuity for development. 4. Maintaining macro-fundamentals at benign levels by taking required tough and long term decisions. Even though unpopular at one point, moving to a 6% growth from 2006 to 2009 and then to a 7.5% growth path; with debt sustainability, low inflation, high reserves and well managed public utilities. 5. Dealing with massive negative propaganda of the opposition and disgruntled overseas elements through continuous communication by carrying out some ‘incredible’ feats under humanitarian operations, re-settlement, de-mining, livelihood development, reconstruction, which many thought were not possible. 6. Creating new channels for investment to come in – by opening out government T bills and bonds to investors, issuing international sovereign bonds (of about $ 3.5 billion so far), allowing the banking sector to issue overseas bonds and borrow internationally, based on the strength of their own balance sheets, thus encouraging big corporates with sound balance sheets to seek direct investment in the form of equity or debt from overseas sources, creating a conducive platform for investments to enter into stock exchange and property market, creating new impetus for the corporate bond market to develop and grow, attracting PPP, creating opportunity for multi-lateral agencies and development partners to invest in Sri Lankan infrastructure and encouraging strategic investments. In effect, the “supply” of investments was facilitated. New stars for Sri Lanka Inc. However, for the supply of investments to take place, a demand for investments in the form of a steady project pipeline also had to be created, the Governor said. In order for this to happen, a set of new stars had to be created to supplement the dying areas of investments in “Sri Lanka Incorporated.” These stars, now known as the ‘five hubs+tourism’, will be the cash cows of the future. “In each of these six hubs, Sri Lanka has a massive competitive advantage. These six hubs provided an ideal platform for the receipt of the massive investments that would spur Sri Lanka’s economic development for the next several decades.” He noted that the country has done right by introducing new stars while existing cash cows (tea, plantation and apparel) were doing well. This would ensure that investors would remain in the country without shying away, maintaining the momentum. Sector growth projections Just as the apparel sector grew in 30 years from $ 20 million to a $ 4 billion industry, the new stars have the potential to grow as much, or substantially more, over the next few years. Today, values of maritime and aviation activities are growing substantially. Tourism has grown from $ 400 million in 2005 to $ 1.4 billion in 2013 and is expected to grow to $ 3.1 billion by 2016, and $ 5.1 billion by 2020. He also added that IT/KPO/BPO industry has grown from $ 83 million in 2005 to $ 600 million in 2013, with a growth expectation of $ 2 billion by 2020. Transportation services (including maritime and aviation) have experienced a growth from $ 70 million in 2005 to $ 1.9 billion in 2013. Growth projection is $ 6 billion by 2020. “This is not fiction,” he reiterated, “This is the reality and this is the new Sri Lankan economy that is unfolding before our eyes. Challenges for the future What of the future? What would be the challenges that we will have to deal with, as we go forward? The country will have to handle the transition to an upper middle income country status, Cabraal said. This will bring about many issues, particularly the re-alignment and re-training of labour, and the migration of labour to new higher paying sectors. “We will have to improve the productivity levels of our existing activities, particularly the agriculture and industrial sectors. Such sectors will have to develop higher levels of efficiency and capacity utilisation.” New technology in agriculture would have to be introduced and the benefits of sub-contracting in SME sectors will have to be utilised. A similar model as used in Malaysia for doubling capacity with half the workforce will be looked at for Sri Lanka as well. In short, the challenge is to ensure that the country does not fall prey to the middle income trap which ensnared several countries. For this, Sri Lanka will have to maintain political stability by ensuring that poverty remains low, with low unemployment and balanced regional development. What have we got right? In the march forward, Sri Lanka has got many things right, Cabraal assured. He listed the following as vital components of steps taken in the right path, so far: Not getting trapped in a single economic doctrine, as proposed by various academics. “We picked the right policies that would work for us, not going by other successful regimes. We had no dilemmas as to whether the chicken or the egg came first. We worked on all fronts simultaneously.” Looked at a ‘pro Sri Lanka’ practical policies. “We did not worry too much about economic theory only, but at what is practical.” Maintained momentum in the economy by ensuring sustained growth and benign macro-fundamentals all the time. Collaborative efforts in policy-formulation and policy implementation by the Finance Ministry, Economic Development Ministry, and CBSL. “The five hubs are deep rooted in our economy. I hope you continue to be inspired and in turn, partake in our development journey,” Cabraal expressed.
Q&A sessionA question and answer session followed the inaugural session where the members of the audience, numbering 300, were given an opportunity to raise questions to the speakers. Following are excerpts of the session: Q: How do you bring together the concept of the hubs? Tewari: What is most important is the mindset – understanding that knowledge is nonlinear, but that it yields good returns. Mindset education and the freedom to let 1,000 flowers bloom is what is important – an environment where people can try different things which is nonlinear. It is having the space to have 1,000 ideas bloom, which is important. The cultural issue is also something we need to move away from. We have to move away from the culture that doesn’t allow the child to experiment and learn in the economy. Q: Thoughts on Sri Lanka privatising hubs? Tewari: I do not know enough of what is happening, so is not very well versed, but I do think that sometimes less is more, because six is a lot. Cabraal: To a poor man it doesn’t matter from where his income comes from. That is the important factor here. We may have various theories as to how we are positioning the country’s economic structures and how it should be, but what we want is to touch the lives of every single person through these hubs. We are creating space for all those elements to function and the Government is also giving its full support for those hubs to develop and operate. We still have 6% of the people living below the poverty line, and for those, we cannot say we are only concentrating on one or two hubs which will not touch them. The concept that has been set in motion is to touch all different elements of the country. Q: Is there internal consistency in the approach of the six hub strategy when the number of people migrating is rising. Will human resource be the binding constraint one needs to address? Cabraal: This issue has our close attention as well. It is one of the challenges we will face in building the hubs. We understand that the total labour force is limited. In order to manage all new developments taking place at the levels we are envisaging that we would need some serious improvements in our productivity levels. We will also have to work on retraining and repositioning, as well as innovation in order to piggy back on the developments that are taking place globally. We will listen to the experiences of others and design our own model.
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