Is Sri Lanka ready for the 2025 growth agenda?

Vision 2025 requires strong implementation, which is the issue in Sri Lanka

The other day the President and Prime Minister launched the 2025 vision for Sri Lanka which was incidentally the third policy statement of the Government since coming to power in 2015. My view is that the continuous changes to policy is important and I look at the vision 2025 in a positive manner given that the macroeconomy keeps changing so drastically today. 

Moody’s – negative rating

The most recent development from the global market was the rating agency Moody’s downgrading the country’s banking sector from ‘Stable’ to ‘Negative’ due to the increasing exposure on the property sector. Analysts speculate that the NPL will increase from the current 2.57% to around 5% in the backdrop of the imports of construction items that was growing at 8% as at end April 2017 declining to 3.6% with May recording a performance of 0.3% and June at -6.5% which does not augur well for the number one driver of the economy. 

The second indicator that is worrying in the slipping numbers of the blue-eyed sector – tourism. The growth as at now is at just 3.6% and the key market China being on a downward growth agenda is not very healthy. The silver lining for the Sri Lankan economy is the export growth of 5.2% in the first half of the year and for the fourth month in succession is demonstrating a positive growth. The performance of the textile and garment sector is not healthy at a -5.2% performance even with the GSP+ concession coming to play which might get corrected with the seasonal orders hitting the export numbers say the specialists. 

Vision 2025

The policy statement vision 2025 is based on the theme of Sri Lankan being a rich country by 2025. The strategy being, Sri Lanka to be a hub in the Indian Ocean with a knowledge-based highly-competitive social-market economy. The statement also states that an environment which is positive will lead to higher income and better standard of living. The key actions of ‘empowered Sri Lanka’ also include housing for all and improved quality of life for citizens which are interesting thoughts given that as at now the economy has been moving in the reverse direction.

A key point highlighted was the export-oriented approach to economic growth which included connecting the domestic economy to the global supply chain network (GNPs – Global Production Network). Stamping out of corruption as a value system encouraging competition on the proposition of transparency on an inclusive economy is for sure a strategy on the correct path. But sadly once again we see that the current performance is on the absolute reverse agenda which means unless a drastic new approach to governance comes to play the vision 2025 will be a nonstarter just like the last two policy statements made since 2015.

2017 trajectory – worrying 

If we take a ‘as is situational analysis’ as at 2017, we see the quality of life of a Sri Lankan household dropping for the first time in three years. Overall consumption of the FMCG industry at a household level has declined by -3.1% in Q1 to -2.5% in Q2, 2017 as per the latest report by Nielsen. What this means is that either people are moving out of the category or they are reducing the usage of product. This is the base that the Government will have to reverse if we want to improve average Sri Lankans’ quality of life.

On the tourism sector, we see the industry at the crossroads with just 1.21 million visitors in the first seven months of the year (Jan-July) as against the 1.17 million performance last year, registering a marginal growth of 3.6% bringing in a revenue of 2.08 billion dollars into the country. Whilst the above tourism performance can be seen as positive, the fact remains that for the seven months, almost four months have recorded a declining number as against last year. February -0.1%, March-2.5%, May-2.5% and July-1.8%. 

The much-talked-about global marketing campaign has yet not taken off ground and we recently heard that the digital communication campaign will break ground only in 2018. The industry voices that this is not what the country expected from a progressive government. In my view it a systemic issue rather than one that is personality driven given the current tender procedure being the biggest blocker to drive aggressive strategy.

If we take the key foreign exchange earner for Sri Lanka, worker remittances, the performance in the first five months is at $ 3.3 billion, registering a decline of 7.2% which once again indicates the changing quality of life on the beneficiary households. This also indicates the challenges of making Sri Lanka a rich country as per the 2025 vision and the implications to increasing the quality of life. This is the reason why top economists say that it is best to drive the internal economic growth agenda rather than expect too much from the troubled global economy.

On the proposition of Sri Lanka being an export-oriented hub we see the current export revenue is at $ 5.3 billion (Jan-June) at a growth of 5.2% vs. last year. However what is worrying is that export revenues from the apparel industry are registering a decline of 5.2% at a performance of $2.3 billion dollars which means that the GSP+ benefits have yet not kicked into the system. The revised Government target of 18 billion dollars performance by 2020 is highly unlikely given the current trajectory. Vision 2025 states a 20 billion export number which in my view is unattainable as we are looking at an annual growth of 15% to achieve this number which is a require serious policy changes on the supply chain side. 

Let’s accept it, Sri Lanka’s export challenge is not demand driven. The issue is the constrained supply. The export performance of the FTA with India remains at a low ebb of just 600 odd million whilst the overall balance of trade being skewed to India does not give any positive vibes of how Sri Lanka can be a hub for South Asia.

The hub issue – ETCA with India?

Whilst the above realities needs focused attention to see the 2025 vision of Sri Lanka being an economic hub, the ETCA partnership will be pivotal. However the problem with ECTA is more on a qualitative issue than the logic of comparative advantage.

Since I have worked very closely with Indian companies in my 17-year multinational career, if one draws a parallel on corporate lifestyle, the aggressive behaviour of an Indian – be it driving a car to office or at a typical routine at work – is very different to a corporate executive of Sri Lanka. The typical working time of an Indian ranges between 12-15 hours, where limited time is spent with family or at the gym and the overall objective being ‘getting ahead’. 

On the other hand, if we take a typical Sri Lankan corporate lifestyle, we have an approach of being somewhat cautious, laidback, content and wanting to be at the gym by six the latest for that daily exercise routine or being with one’s family, which are typical island mentality work ethics that do not hold ground for a charged-up economy as per the management theorist list Hofstede. We will have to move to an aggressive corporate lifestyle which is more masculine in nature as per the works of Hofstede if we are to make the 2025 vision a reality.

Whilst agreeing to a certain extent with the rhetoric that working with Indians is tough and that the Indian mentality never fits into a Sri Lankan culture has some truth, it needs to be taken into account if Sri Lanka is serious about being an economic hub of South Asia. This is especially true given that the unemployment rate is below 5% and we will have no option but to import human capital from countries like India to meet the 18 billion dollar export target, 7.5 billion dollar tourism target and five billion dollar IT/BPO target set by the respective industries.

Risk/corruption balance?

From a policy perspective too, we have a challenge given that public sector institutions prefer to follow Government procedure rather than take risks. This will hold ground more, given the recent three-year RI sentence on the highest-ranking public sector official who just followed orders. 

This means that unless serious policy reforms come into play as per the dynamic market environment, we cannot expect the key policy decisions to be implemented that can lead to ensuring the vision 2025 becoming a reality.

On a corporate executive working style, Sri Lanka will have to bring in a culture that is strong and masculine on leadership style based on the ethos of aggressiveness, risk taking, bold and achievement-driven rather than just pleasing the people around. This will require radical changes to the working style of the private sector which is a tough one for the vision 2025 to be a reality.

Vision 2025?

Hence, we see that Sri Lanka will have perform a 360-degree change on most fronts if we are to achieve the vision 2025 rich country proposition. If one does a dip stick evaluation the vision 2025 as at now is only a piece of paper. 

A very respected public sector person once said even if Sri Lanka implements the 1960 plans, we can be a rich country !

(The author can be contacted on [email protected]. The thoughts are strictly his personal views and not the views of the organisation he serves.)