Five hubs: Fiction or reality?
- Can Sri Lanka juggle five hubs and tourism at once?
- Singapore-based World Bank expert sheds key insights with global and regional lessons
By Cheranka Mendis
Introduced in 2010, the ‘five hub + tourism’ concept, around which Sri Lanka’s future development is woven has been a key topic of discussion in the recent past, with the large scale planning and goals that are repeatedly projected through various modes of communication.
Launched as part of the ‘Mahinda Chinthana: Vision for the future’ by President Mahinda Rajapaksa, the aim is to make Sri Lanka a dynamic global hub, transforming the pearl of the Indian Ocean in to a strategically important global economic centre.
Initially made up of maritime, aviation, commercial, energy and knowledge, the hub concept recently included tourism as a key strategic area for development. At Tuesday’s ‘Five hubs: Fiction or Reality’, full day forum organised by Daily FT in partnership with the Colombo University MBA Alumni Association, a large base of public and private sector experts came together for the first time to share key insights into the country’s five hubs strategy. Over 20 experts drawn from the five hubs highlighted key opportunities as well as challenges during the session.
The Chief Guest at the event was Economic Development Minister Basil Rajapaksa.
Enhancing Sri Lanka’s competitiveness
Breaking away from the everyday perspective that unfolds at most of the forums and interactive discussions that take place in the country, the World Bank Group’s Lead Private Sector Development Specialist for Competitive Industries Practice based in Singapore, P. Tewari presented an interesting twist to the state-of-affairs by questioning the need to focus on six hubs (inclusive of tourism) at one given time.
Comparing Sri Lanka with Singapore, where he is currently based, Tewari assessed the current buzzword for Sri Lanka; our ‘competitiveness’ by the real GDP, population and land-mass. As such, Sri Lanka’s real GDP was stated at $ 65 billion, with a population at 21 million, bringing GDP per capita close to $ 3000. Singapore, on the other hand has a GDP of $ 270 billion with a population close to 5.3 million people, summing up a GDP per capita is around $ 52,000. While the gap between the two countries remains wide, Sri Lanka is also said to be 92 times bigger than Singapore.
“This deferential of about 70 times the GDP per capita is what I define as competitiveness,” he said.
So how does the country create, capture and trade value with almost similar settings – or rather, better endowment in terms of strategic location, land mass, energy, tourism endowment, etc.
Compared to Sri Lanka, Singapore has pretty much nothing within the above criteria.
Tewari acknowledged that Sri Lanka has done extremely well in the recent past in certain key indicators, be it GDP growth rate, unemployment rate or GDP per capita. There has been a positive trajectory in Sri Lanka. However most of the GDP growth has been fuelled by public investments, i.e. government initiatives – which is a good thing; but his outside-in observation is that private investment has not kept in step with government investment.
“The country needs to think about how to keep the tango between public and private investments in lockstep,” he asserted. “There has been a slight FDI uptake but not enough. As a country you need start thinking about how to build investor confidence.” There needs to be a collective action on this, he assured.
Putting forward another observation, he noted that despite the depreciation of the currency, export competitiveness is going down – it is around 17% of the GDP. Looking at similar figures for Singapore, the country’s exports are 200% of GDP. “This is an aspiration Sri Lanka should look at given the strategic location of the country,” he added.
Some of Sri Lanka’s export numbers have been declining as well, he said. “There is reported negative growth on tea, rubber, etc. These need to be looked at as well.”
However, the “story is quite nice,” with six hubs with the addition of tourism which Tewari noted as an important strategic advantage/strategic thrust of the country.
Six hubs, too much?
While there is headroom for growth in each of these hubs, Tewari’s concern was whether six hubs are too much to handle at the same time. Consumed by so many initiatives, will the initiatives get the necessary attention required?
“Is there a sequence of prioritisation of these hubs? Are there means to be made to figure out cross-cutting initiatives that will support more than one hub simultaneously before pursuing others?”
He also remarked that the six hubs are not the be-all-and-end-all of the Sri Lankan economy. It is a current strategic thrust which will be evaluated. The Government should be honest in saying if some of the hubs aren’t working, he said. “Singapore does this – they have gotten into electronics and out of it, gotten in to textiles and gotten out.”
There are five pillars of competiveness that should be looked at when assessing competitiveness of countries, he said. This together covers 80% of what makes economy competitive.
1. Regulatory environment: The ease of doing business is a key indicator to investors outside and within to set up business. Single window clearance, reducing time to register, having good bankruptcy laws so exit becomes easy, are some of the areas that should be looked at. “80% of firms die within the first seven years. You need to have easy Chapter 11 Bankruptcy laws which are a bit of a problem as at now in Sri Lanka.”
2. Infrastructure: Quality and connectivity of infrastructure, ports/airports and living conditions/hygiene factors are to be focused as well.
3. Industry specific financing: Areas to be looked at are availability and affordability of financial services, risk capital, growth capital.
4. Skills and capabilities: To be concentrated here are higher education, vocational training and productivity improvement programs.
5. Technology and innovation: Under this, the country must prepare for expansion in capacity for innovation, business sophistication, tech readiness and institutional capacity. “These must be looked at on an ongoing manner,” he noted.
How many know ‘Vision 2020’?
There is clearly a lot of work happening, both on the intellectual side as well as the implementation side. “There is a Vision 2020 document, but I don’t know how many of the people actually know about it and have read it,” Tewari expressed.
The importance of proper awareness of the content lies in the fact that some of the key items within that document needs to be shared aspirations – not only in government ministries but among the population and the diaspora as well.
His advice was to better communicate the strategic goals aspired for. “The five/six hub plan is a great action item, but what are they driving towards?” he questioned. “Is the aspiration to become a middle income country by 2020, to be the best shipping destination in all of Asia? There needs to be a collective effort from public, private sectors as well as other stakeholders and they must all work towards a single goal – which at present, is not very clear.”
Check list of items that will help Sri Lanka make sense
Tewari presented a check list of items that will “be helpful in each of the hubs to figure out what makes sense and what doesn’t.”
1. Sound and smart design: This, he said is key. While keeping in mind the competitive advantage of Sri Lanka, when designing these hubs it is imperative to be conscious of smart design of the hubs, from the implementation and blueprint level itself. The design should be flexible, dynamic, and responsive to market signals and have a long term perspective.
Citing Singapore’s Jurong Island, a petro-chemical hub as an example, Tewari noted that the hub has been designed to house some of the top oil and petrochemical firms on one island, cutting down cost of operation, transportation and logistics. “Anything coming out of the island has a greater margin than goods manufactured anywhere else.”
2. Open dialogue between the public and private sector: This is something he still does not sense in Sri Lanka, he said. Sri Lanka could do well to examine and learn from Malaysia which together has created many opportunities and employment for its people. Just as the PEMANDU – Performance Management and Delivery Unit in Malaysia, Sri Lanka could do well to establish a central agency tasked to monitor and deliver on the industrial roadmaps that are currently being designed.
3. Clear rules, processes, transparent execution: Radical and transformational approach. There should be an apex coordinating body with vision and authority.
4. Coordination at multiple levels
5. Accountability, Performance measurement
Lessons from Singapore
Tewari reflected that one thing Singapore does extremely well is market sensing. “Policies are designed market-backwards, rather than supply-forward. This translates in to a shift in the country’s focus every five to seven years.”
Like the CBSL Governor said ‘Sri Lanka Inc’, Singapore actually calls itself ‘Singapore Incorporated’ he said and does market sensing on an ongoing basis. This has helped Singapore move from an import substitution to working on innovation and technology based industries. At present, the country is moving towards knowledge, non-linear industries in the strategic line. “GDP per capita has increased by 80 times in 50 years.”
The country also has clear rules, processes, transparent execution. “There has to be a single player to avoid coordination failures across ministries, statutory boards and other areas in making things happen.”
To make things happen at these hubs, effort must come at several levels. There has to be macroeconomic policy work – “macroeconomic key indicators look very strong and positive for Sri Lanka beside a few like depreciation of currency and export competitiveness, good investment perception, good investment climate”, firm level engagement – participating, contributing and making investments which are high RRS, etc; and at the mezzanine level the work done by governments to unlock value in those clusters of industries etc. KPIs are also imperative to both government and private sector to keep each other honest.
Singapore in the last five to seven years has made a huge change on policy, education, investments in sunrise industries. They have now created two clusters, Biopolis and Fusionopolis where they create incentives to attract entrepreneurs, academics and scientists to come for R&D. The Public Statutory Board (which is part of the ministry) and private investors are situated at the same location, creating better cross-coordination. “The good thing is that the governance structure of Singapore is quite clean, so you can do these things and not get in to capital issues etc with transparency. With absolutely zero land-mass, zero energy reserves, Singapore commands 2.2% of the global trade which is astonishing,” Tewari said. “Sri Lanka is better endowed and better located than Singapore, so the headroom for growth is quite phenomenal.”
The Five Hubs Forum was supported by John Keells Holdings, Standard Chartered Bank and Sri Lanka Ports Authority as strategic partners whilst OfficeMax was the official printer, SriLankan Airlines the official airline, Triad the creative partner and TV and FM Derana were the electronic media partners.
Pix by Upul Abayasekara and Lasantha Kumara
A 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: