Solving the growth riddle

President Gotabaya Rajapaksa in his latest foray to find out development challenges in villages has said that he believes in going to the grassroots to resolve issues first-hand, rather than talking to officials in Colombo. However, much of the challenges faced by periphery areas are linked to provincial growth disparities that can be partly resolved by the centre.  

The Western Province has historically been the region that contributes the largest share of GDP, with 2019 being no different. But if Sri Lanka’s growth is to be truly sustainable and inclusive, it is necessary to bridge the significant gap between provinces.

The Western Province’s share of GDP reduced 0.5% to 39.1%. But the gap between the richest region and other provinces was still significant with the Central and North Western Provinces only contributing 11.5% and 10.7% respectively. PGDP shares increased in Northern, Eastern, North Western and Sabaragamuwa Provinces while in Western, Central, Southern, North Central and Uva Provinces, share decreases could be observed year-on-year.

All the provinces have contributed fairly in terms of the Agricultural activities ranging from 8.4% to 15.9% whereas Southern, North Western and Central Provinces were the top contributors to the Agricultural activities of the country.

The Western Province has dominated Industry activities with a contribution of 45.8% while Central and North Western Provinces became second and third highest contributors. In terms of Services activities, Western Province recorded the highest contribution of 39.6% while Central and Southern Provinces had the second and third highest contributions.

Northern and North Western Provinces have increased their shares across the three activities. On the contrary, Central and North Central Provinces shares in all the activities have declined from the previous year while other provinces have shown a mixed performance.

All the provinces, except the Northern Province, have dominant Services activities with over 50% contribution. Industry activities in all provinces are positioned next to Services activities, ranging from 16.7% to 32.1%, while Agricultural activities range from 1.9% 15.1% across the provinces.

Outside the Western Province, the share of agriculture remained high, but its comparatively lower level of productivity remains a challenge. There is clearly a need to support services and industries outside of the Western Province to encourage high shares of GDP contribution. Even though successive Governments have encouraged businesses to invest outside of the Western Province with preferential taxes, many other elements, such as skills, land, capital, market access and infrastructure, have a role to play in attracting them. Releasing labour from underproductive sectors, such as agriculture and the public service, will continue to be challenging unless attractive alternative employment opportunities are generated in the Provinces. Quite simply put, the Western Province has a captive clutch on growth.

Sri Lanka’s provincial political system, usually headed by a chief minister, is also a disincentive as unlike in India, they do not compete with each other to attract investment, create their own public revenue, and foster enterprise at a provincial level. Implementing incremental change by communicating clear policies, working to reduce the skills gap, encouraging investment, and giving labour the freedom to move up the value chain will be crucial elements in a reform process to take growth to the provinces. It is this clear gap that also feeds into the demand for public sector jobs and higher salary increase at every election cycle. Fixing inequality and this provincial divide is the answer to growth but it will require sustained policies from the Government that encourages technology infusion, increases in productivity, external investment and competitiveness.