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What happened to Sri Lanka?


Comments / {{hitsCtrl.values.hits}} Views / Tuesday, 16 September 2014 00:01


Being actively involved in the growth agenda of Sri Lanka in the private and public sector at policy and operational level, I was quite disappointed and surprised on the recent ranking of Sri Lanka in the World Competitiveness Index released by the World Economic Forum. Sri Lanka had slid from a commanding 52nd position way back in 2011 to a low ebb of 73 in 2014, which was strange when Sri Lanka’s absolute numbers are very attractive at 7% plus GDP growth and inflation as single a digit whilst poverty is at almost 5%, tourism crossing a billion dollars and stock exchange vibrancy continuing. SL – drops to 73 If we go into the details of the competitive index 2014/15, on the attribute of ‘Higher Education and Training,’ we have dropped from 54 to 62, which is strange given that Sri Lanka is driving towards being an education hub and on the area of executive training we are inundated with top notch speakers coming into the country from different Chartered institutes on a weekly basis. But I do agree the connectivity of universities and private sector organisations on human capital transfer being at a low ebb which is the foundation of a knowledge economy. Maybe it’s time we correct this without the rhetoric that things are fine on just indexes. On another perspective, maybe Sri Lanka’s development may be right but other countries have outpaced us, which is something that needs a deeper analysis so that we will know who Sri Lanka’s competitors are on this front. The Efficiency Enhancers score falling from 69 to 75 year-on-year is worrying, especially given that on the attribute of Business Sophistication, the rank dropping from 49 to 46 is not positive whilst it’s strange that on Health and Education the rank has also dropped from 52 to 45, which needs some careful analysis and course correction. The fact of the matter is whilst we are focused on Sri Lanka, somebody is doing better than us. In my view, we need radical reforms to make Sri Lanka a ‘Modern Economy’ rather than the political economy that is at play. But a point to note is that reforms that are required are at technocrat level and policy and let’s not get this confused with politics. For example, how can we make the tea industry modern if at the policy level changes are not being made to increase the lease period to 66 years (at least two cycles of the life of a bush), implementation of the Ceylon Tea global campaign that has been stuck for the last three years, monitoring the performance of the RPCs on a quarterly performance on the area of fertiliser application and replanting programs to be very specific. SL – Where to improve? A key area that for the second year running we are ranked 135 out of 144 countries which is a burning issue if I am to be blunt is labour market efficiency. On this attribute if we have to correct, one needs a iron fist and to be honest it will not be possible in the 2014/2015 time period given that we are at elections and decisions will have to be taken on voter perspective rather than logic. By the way we must have the maturity to understand this reality as this holds ground across the world today. The question is, how do you balance the decision-making given that almost 78% of the economy is driven by the private sector? The issues to address will be retrenchment, layoffs, VRS, wage increases linked to productivity and reducing the number of holidays, which are very contagious issues that have even changed governments. The importance of this factor is stronger given that unemployment levels are at single digit below 5% and the economy is expected to expand to a 100 billion with key strategies like driving towards six hubs like aviation, trade and education, which are essentially service-driven and require skilled people. This aptly summarises the challenge Sri Lanka is up against and what we can expect in making Sri Lanka a modern economy. SL – Things going good If we carefully look at what’s going good for Sri Lanka, the Economic Environment ranking increasing from 120 to 114 is good news for the hard work done post-war. We must acknowledge the Innovation ranking improving to 46, up three places. These two attributes alone means that Sri Lanka will see very positive results in the years to come. We must now develop on these strengths by driving connectivity to the semi urban and rural economies so that we can stimulate the SME businesses of Sri Lanka. I am sure this year’s Budget will be skewed to this sector given that politically too it will have positive ramifications. In my view we must combine technology readiness which Sri Lanka scores low at a rank of 94 and link it to innovation and business sophistication so that with integration we drive a modern industrial sector. The best case in point is how the apparel industry has developed the business model to have a 65% value addition by developing the design element in the value chain. I guess Ceylon Cinnamon, Ceylon Crafts and Ceylon Sapphires must take a hard look at the industry business model. The BPO industry targeting to be a $5 billion business is interesting given that AT Kearney has ranked Sri Lanka to be number 21 in the global out-servicing industry. So what happened to SL? Rather than questioning the World Economic Forum data, we must do a soul search is my view. Maybe the starting point is to revalidate the key data that we evaluate the country and check the perceptions people have on them. The best case in point is inflation. For three years we say that our inflation is at below 5% and as at now at 3.5% when each of us know all prices of the basket of goods has increased by a minimum 12-15% in our households. This is not only from the urban consumer but also the rural housewife given that we have an increased one million mouths to feed – tourism. In other words, demand has outpaced the supply chain and basic economics say that prices have to increase. The second is that whilst the Sri Lankan economy has expanded from a 40 billion to a 67 billion dollar economy in the last five years, our competitors has beaten us on the key parameters of competitiveness. This means that we must become market driven and change the game which makes Sri Lanka become competitive on the attributes that the world evaluates. In simple words, let’s be marketing-oriented rather than being product-driven that is myopic in typical marketing jargon. New faces and new things The new face of the Odel owner was only the start of game change that we are to see must be new ethos. We must attract the top four Indian companies into Sri Lanka – Ambanis, Tatas and Infosys just to name a few. We must attract the top four US and Chinese corporations into Sri Lanka so that one can access the FTAs we have with India and Pakistan and China in the near future. Let’s align ourselves to Regional Economic Partnerships like ASEAN that is targeting a regional FTA which will give a country access to 3.4 billion consumers and a value of 20 trillion dollars. Sri Lanka has no option but to play the high-ground game. If not we cannot really reap the peace dividends. The move to cooperate with the UNHCR is strategically a wise move given the vibes we have heard from the Japanese Premier. Sri Lanka needs these kinds of reforms. I guess the engagement of the INGO/NGOs with the Government senior officials was another reform that will support the trade engagement of the US and EU in the future. We have to remember the world is connected. The reality we saw on the impact of Aluthgama on Facebook was a classic case in point. Conclusion I will not agree totally to data of the World Economic Forum competitiveness score but it gives us insights into how the world perceives Sri Lanka’s performance and as against its competitors how we stand. We must also be sensitive to other global ranking scores like Nation Branding Index and Doing Business Index so that we use them as feedback loop to our performance. (The author serves the country on many private and public sector boards of management as an Independent Director and is a respected thought leader and award-winning marketing professional who has worked in top multinational organisations. The thoughts expressed are not the views of the offices he holds in Sri Lanka or in the globally. He is an alumnus of Harvard University.)

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