Quality growth

High economic growth rates are much sought after. Governments like to achieve them so that they could flaunt them as proof that the economy is doing pretty well. However, achieving high growth rates per se does not mean that the economy is necessarily in good shape and is on the correct path. 

Many factors should be taken into account when judging a country’s economic performance. High government expenditure on unproductive sectors also contributes to increase the GDP and will help to increase the GDP growth rate. Therefore, what should be pursued is quality GDP growth and not GDP growth at any cost.

Pursuit of quality GDP growth transcends the obsession with mere high GDP growth figures. Quality GDP growth will focus on sustainable strategies to maintain a reasonably high growth momentum. If Sri Lanka is serious about pursuing such strategies, then the focus should be on viable ways of doing things with due regard for environmental concerns. 

Quality growth can be viewed and interpreted in many ways. For the purpose of this article, I have selected two areas that we need to concentrate on, among others, if we are really serious about quality GDP growth. These areas are as follows:

1. Fulfilling our energy requirements while rationalising the use of energy

2. Promoting entrepreneurship and innovation

The scope of each of the above two areas is very wide. I do not intend to delve into a detailed analysis in relation to each of them. Rather, I would like to focus on a few salient aspects in relation to each of them. 

1. Fulfilling our energy requirements while rationalising the use of energy

An adequate and steady supply of energy is required to keep the wheels of an economy moving smoothly. Other than hydropower, Sri Lanka had relied on expensive oil to run our thermal power plants for a long time. 

After commissioning the Norochcholai coal power plant, Sri Lanka has managed to migrate to a cheaper fossil fuel. However, even in relation coal power, environmental concerns do remain. Therefore, as a longer term and more sustainable strategy, the country will have to increasingly focus on renewable energy and nuclear energy. 

These sources of clean or green energy should be the way forward for the country. We have been talking about generating electricity from solid waste, running vehicles on methane, producing electricity from solar power and bio-gas and so on and so forth for a very long-time. 

However other than the mini-hydro projects and the small scale wind/solar projects, we have not achieved much in terms of developing alternative clean energy sources to augment large scale hydropower projects and the Norochcholai coal power plant. 

Therefore, the onus is on the public as well as the private sector to fast track work in relation to these alternative sources of energy so that the country could meet is growing energy requirements and achieve the national goal of energy self-sufficiency by the year 2030. The government for its part should provide maximum support to viable ventures that are geared to generating energy through environmentally friendly sources. 

In terms of rationalising the use of energy, we should seriously review our transport strategy. The city roads are packed with cars and three wheelers and we continue to import massive quantities of the same aided by the tax incentives for certain categories of vehicles, subsidised fuel and the Government policy of maintaining a low interest rate regime. 

The traffic congestions which are caused as a result, only contribute to large scale waste of petrol and diesel. Since we are 100% dependent on imports for our fuel requirements, this amounts to a colossal waste of valuable foreign exchange (oil imports account for around 25% of Sri Lanka’s import bill). Additionally, the labour hours wasted by productive labour due to getting caught to worsening traffic jams, contribute to the low levels of labour productivity in Sri Lanka. 

Therefore, the Government will have to seriously review its transport strategy and promote more viable forms of transport such as buses, Mass Rapid Transport (MRT), monorails and trains as a national priority. 

2. Promoting entrepreneurship and innovation

Entrepreneurs are the ones who keep the economy going and a nation that does not innovate will only move backwards and not forward. 

Entrepreneurs expect the Government to maintain consistent policies and be efficient in its dealings with them. These are the main things that entrepreneurs expect from the government. Duplication of functions leading to a waste of resources and an erosion of efficiency can be observed due to a lack of proper coordination among various Government institutions. 

Therefore, necessary administrative, legislative and institutional reforms should be instituted to ensure better coordination and avoidance of duplication of work between the relevant ministries and other Government bodies. 

Unless there is proper coordination between relevant Government ministries/agencies (further compounded by the proliferation of ministries), entrepreneurs will have to face many delays and bottlenecks in relation to their dealings with the same. These impediments will reduce the efficiency of entrepreneurs and discourage entrepreneurship.

Entrepreneurs will also feel discouraged if they perceive the Government to be arbitrarily favouring certain sectors and enterprises over and above the others. 

Therefore, it is important for the Government to get its act together and provide its services efficiently while taking steps to allay the fears of entrepreneurs in relation to Governmental favouritism. 

It is also important for the Government to maintain macroeconomic policy consistency. If the government constantly shifts its policies it will prevent entrepreneurs from taking a long-term view in relation to their business ventures. 

Policy consistency is particularly significant for hi-tech enterprises. Such enterprises invest considerable amounts of money to obtain the services of skilled workers and also invest on expensive hi-tech equipment. Therefore, high-tech ventures will be particularly reluctant to do business in an uncertain environment.

Empirical studies have revealed that annual average growth rates of world industry production are higher in the case of hi-tech industries when compared to other manufacturing industries. Therefore, promotion of hi-tech industries gains added significance in achieving quality GDP growth.

Promoting innovation is another important aspect in achieving quality growth. Innovation helps a country to maintain/enhance its competitive edge vis-à-vis its competitors in relation to its exports. 

In the absence of innovation, a country will become a laggard vis-à-vis its competitors and risk losing its market share in relation to its exports. Therefore, the Government should take steps to support private sector innovation related initiatives by helping to create a conducive business environment, and also foster commercialisation of inventions by promoting greater access to finance through venture capital, etc.

Conclusion

The above discussion highlights the importance of achieving quality growth as opposed to attaining high GDP growth rates at any cost. Populist policies and monetary policy tinkering will not help Sri Lanka to achieve quality growth. 

Prudent management of power and energy, and promoting entrepreneurship and innovation within a supporting and consistent macroeconomic and business environment will be critically important for Sri Lanka in achieving quality growth.

(The writer counts over two decades of experience in the field of economic research in the private sector. He has earned a Bachelor’s degree in Economics, an MA in Economics and a PhD in Economics at the Department of Economics of the University of Colombo. He can be reached at [email protected]).