The lack of wealth accumulation in Sri Lanka

Among many factors affecting the development of the country adversely, one factor that has been constantly overlooked by both politicians and economists alike is the lack of wealth preservation and accumulation in the country. What is this wealth accumulation?

Have a deep look out of your window, and inquire as to how many constructions will last beyond next 50 years. It is very likely that almost all the buildings, except a few, will have to be demolished and rebuilt again in few decades. A handful of buildings in major cities might just stand the test of time for several more decades, but the situation in rural areas is hopeless. What does this mean, and why it matters? The wealth accumulation is woven to a healthy and growing economy as much as the gravity is woven to our existence. 

Ordinary citizens work, earn and build houses. This is the process of generating wealth. From the perspective of economics, they trap a large part of their wealth in buildings. If the buildings that they build do not last beyond a few decades or have to be renovated substantially, their wealth and material legacy will completely vanish in a few decades.

The buildings may have to be demolished for reasons of structural unsafety or simply that they  are not fit for the current purpose. The next generation has to build again for their needs at a significantly higher cost. There is no wealth accumulation in this process. We can explain this further using an example. 

Think about a hypothetical scenario where your parents have built a house spending their entire wealth and passed it to you. However, you consider that it is not fit for your purpose. If you build a new house at the same location after demolishing the tired house, you will not only erase your parent’s legacy, but also destroy the wealth of the nation. 

If you leave the old house intact, and build a new house elsewhere, you could preserve the wealth. If the first house is not for your purpose, you can simply sell it. As long as it is intact and can be used by some other family, no significant wealth destruction occurs. This sentiment is straightforwardly valid to Government constructions as well. 

What is the role of the Government in this process to preserve the wealth of the nation?  The wealth generation is done by the citizenry, but the duty of care obligation for wealth preservation/accumulation exclusively falls upon the Government. The wealth preservation/accumulation is however something much more than building to last.  

Among many things to do, certainly what the Government should not do is to use any heavy-handed approaches like prohibiting people from demolishing houses and forcing them to live in old dilapidated houses. That is absolutely not helpful for a free society. The Government should instead use more graceful approaches such as introducing minimal standard for private constructions, making timeless architecture easily available to people, making buying and selling houses and lands hassle-free, promoting moving houses, and property repurposing. 

Currently, Government constructions are also in dismal condition. They often do not last long and also run the risk of being obsolete even before the completion of the construction. The planning process should be thorough and ambitious, and more importantly include a funding mechanism for the maintenance of these constructions. If need be, a statutory framework should be formulated tto fund the maintenance of key constructions. There are several key areas where the attention is urgently needed.

Sri Lanka has now become a remittance economy. Since 2005, people who seek foreign employment have exponentially increased, and majority of them are women from rural areas. As of 2019, Sri Lanka has been receiving personal remittance over $ 7 billion per year from these employees. 

The obligations of the Government should extend beyond just giving rupees for migrant workers’ foreign currencies, and should include duty of care obligations such as introducing wealth preservation/accumulation methods for these migrant workers. If the Government will not be able to create a wealth preservation/accumulation program soon at least for migrant workers, it is nothing short of a historical crime against these voiceless people. 

With the Budget 2021, the current Government is planning to kick-start the remittance economy version II by facilitating non-residents to buy super luxury condominiums in Sri Lanka utilising earnings in foreign countries or a loan obtained from banks outside Sri Lanka. The Government should do more to make sure that these luxury apartments last long for many generations to come in order to witness the true benefit of these foreign investments. 

Currently, Lakvijaya coal power plant generates 18% of the country’s energy burning 2.25 million tons of coal per year. Burning four to eight tons of coal produces one ton of coal ash, of which about 39% is fly ash. The air-borne ash particulates from the plant have been monitored even in Colombo. For a small country in terms of the land area, this will one day be a source of an environmental and health disaster on an unprecedented scale. 

The Government should devise a plan to preserve and accumulate the wealth created by the power plant. Once the level of wealth created is reasonably sufficient, the operation of the power plant should be gradually roll-backed.

Following the global start-up trends and entrepreneurial economic models, we see promising initiatives such as the recently-launched, US-led ‘Sri Lanka@100’ to promote people-led economic development in Sri Lanka. 

These programs will certainly mobilise energetic and industrious people for wealth generation, and will provide employments to many. It is however not clear the long-term benefit of this type of programs to the nation without proper wealth preservation/accumulation procedures in other parts of the economy.

[The writer currently leads a research team in Dublin, Ireland. He has also held full-time appointments in School of Engineering at University of Edinburgh-UK and Division of Global Investments at Aberdeen Standard Investments (ASI) – the largest active asset manager in UK. He was a graduate from Faculty of Engineering at University of Peradeniya with first class honours. Contact: [email protected]]