SL must give leadership to SAARC post ETCA

 The academia and private sector must support the Prime Minister’s bold decision to sign the Indo-Lanka Economic and Technical Cooperation Agreement (ETCA). Sri Lanka must connect deeper with the world.

When a country’s debt overshadows its income, it calls for serious decisions and Sri Lanka is now challenged with similar decisions given the downward spiral of export income and the slow growth in FDI. If we don’t act today, Sri Lanka will not have any option given that the IMF will make it mandatory for such reforms to come into play in the near future. 

The big question

Whilst such reforms can be painful, the question asked by many is ‘how did the country get into this trap given that it announced GDP growth of 7% plus in last five to six years?’ The simple answer can be that the numbers did not reflect the reality or that the projects financed were too ambitious for a country like ours to sustain. Economists estimate the loans taken to be as high as one trillion dollars, which is very scary given the global economic downturn that the world is inching towards in 2016. 

The logic for raising the red flag is because way back in 2000, debt servicing was Rs. 71 billion or 8% of the current expenditure and in 2009 this had ballooned to Rs. 309 billion or 35% of the current expenditure. In 2016 the country’s debt servicing stands at a staggering $ 8,230 million, reports the Central Bank. This means that it will wipe out all the income including remittances, which highlights the gravity of the challenge ahead.

ETCA unplugged

In this background let me quote the statement issued at the ninth joint session of the Joint Commission meeting held between the External Affairs Ministers of India and Sri Lanka: “Preparations underway on both sides to begin negotiations on the Economic and Technology Cooperation Agreement. Preliminary discussions had been held during the 4th Commerce Secretary level talks in New Delhi on 21 December 2015. India will be holding a workshop in early March in Colombo on Non-Tariff Barriers (NTB) and Phytosanitary Barriers (PTB) regulations and procedures. Cognisance was taken of the reconstitution of the CEOs’ Forum on either side and the proposals from the Export Promotion Board of Sri Lanka for increasing trade linkages.” In my view, we must look at this proposal positively given the challenges we are up against. 

Let’s accept it, Sri Lanka has not seen a major development wave post the apparel industry boom that the country experienced in the last two decades. The sectoral export revenues of the textile and garment industry is struggling at $5 billion and overall exports stuck at 12 billion dollars plus is very worrying. 

Did the Indo-Lanka FTA benefit Sri Lanka?

In my view, it is a yes. Whilst there can be many arguments against the FTA such as a skewed basket of exports like processed food, copper, electrical machinery, aluminium, articles of stone, organic and inorganic products to name a few, the strongholds of Sri Lanka – garments and tea – are facing an uphill task with a series of Non-Tariff Barriers( NTBs). Whilst accepting that the decade of negotiations has not brought in the desired results, a point to note is that 86.1% of the products exported to India are under concessionary duty rates, which means that the export performance is a direct reflection of the performance of the FTA.

Cutting-edge decision 

In this background the Prime Minister is reported to have vowed to go ahead with the Indo-Lanka Economic and Technical Cooperation Agreement (ETCA). If I may quote the weekend newspapers, “We will take this agreement forward,” which is commendable given that Sri Lanka needs such cutting-edge decisions. 

We must make the IT/software industry of the country five billion dollars in the years to come, generating a million jobs. Sri Lanka will have to bite the bullet and move on to making such drastic decisions to get the country out of the debt trap whilst working on the issues of the already signed Indo-Lanka FTA.

ETCA extended to SAARC?

Another way of looking at the ETCA under the Indo-Lanka partnership is to make some headway whilst correcting the anomalies of the FTA and then it must be extended to cover all SAARC countries. Let’s accept it, South Asia is the home to around two billion out of the six billion people on the planet, which has taken centre stage in the eyes of global leaders. 

The World Bank and ADB estimate regional GDP to be worth $ 1,000 billion plus while GDP growth for the last 20 years has been around 5%, which is double the global average. Sri Lanka must take a cutting-edge decision to focus on South Asia whilst driving the Indian partnership and maintaining trade between EUa nd US that accounts for almost 60% of business. If not, we cannot take the opportunity that South Asia is throwing at us.

The opportunity – 5.3%

Let’s not forget that SAARC counties are registering total external trade at a low ebb of 0.8% of the world’s exports and 1.3% of world imports. Intra-regional trade represents only a meagre 5.3% (exports) and 4.8% (imports) of the total, which explains the opportunity at hand. I guess the ETCA can be the beta to check the responsiveness of SAARC countries to deeper inter-regional trade under the Modi administration rather than only looking out at EU and North America.

If we examine inter-regional trade, the EU is at 55% whilst NAFTA integration is stronger at 60% and ASEAN is at a low ebb of 35%. The reason why I am advocating that Sri Lanka must take a lead role in driving SAARC post ETCA is because Sri Lanka is well poised to be the hub of Asia due to the loggerheads between India and Pakistan and the strong economic and cultural ties we have with Bangladesh and Maldives. Let me share the contextual areas in which Sri Lanka can lead the SAARC countries post the experience of ETCA under its belt. 

1) SAARC – Free Trade Secretariat

SAARC trade as a percentage of South Asia’s world trade has steadily recorded an upward trend from 2.42% in 1990 to 7% plus today. From the many conferences that I have attended on South Asian trade, the consensus for this poor performance on integration of trade in South Asia was attributed to the poor leadership that all South Asian countries have had over time. Maybe it’s time we change this tide given the strong and bold move we saw from the Prime Minister of Sri Lanka last week.

2) SAARC – Development Fund

The idea of establishing a South Asian Development Fund was mooted as way back as 1991 and thereafter the SAARC Finance Ministers endorsed a roadmap for the creation of the SDF but is yet to be operationalised. One option to drive this project is to bring in a condition that a project does not have to be regional. It can be a project specific to a country based on one’s need. 

3) SAARC – Disaster Management Centre

I remember post the devastating Indian Ocean tsunami in 2004, a special session was held among SAARC Environmental Ministers in Maldives in 2005. This gave birth to the Malé Declaration, which includes areas like an early warning system and disaster management and disaster prevention systems that would come under the wing of the SAARC Disaster Management Centre – once again an area that Sri Lanka can focus on. 

4) SAARC – Poverty Fund

Poverty eradication has been a big ticket item in many previous conferences. In fact it was on the SAARC agenda as way back as 1991. However, the only concrete step that has happened is the setting up of the Three Tier Committee that has been followed up with many recommendations that have not actually materialised on the ground. What is lacking is implementation. Maybe SAARC should focus on one or two ‘key’ poverty alleviation projects for the region and drive it with passion and focus so that it can be a success story for the South Asian region.

5) SAARC – Food Bank

The SAARC food security reserve was established as far back as 1988 to meet the emergencies of member countries. However, it has taken a full 14 years to make this operational, like identifying institutions which will manage this and requirements for withdrawal from the reserve, which explains how slow the decision-making has been.

If I go into detail, even today after a 20-year time horizon there is non-implementation of the SAARC food reserve initiative and it has been revamped as the SAARC Food Bank since 2007. This too, remains notional today. May be the donor partners need to be involved like the World Bank and the Asian Development Bank, which are the hard-line decisions that Sri Lanka can lead.

6) SAARC – Energy market

With over 72% of the South Asian region’s people living in rural areas without adequate access to electricity, it is time that South Asia develops an integrated strategy given the jagged crude prices, making diesel-powered electricity generation financially non-viable. This will call for reforms that will not only include power infrastructure, but also power grids and gas pipelines. Given that the region is endowed with coal, gas and water resources, maybe we can develop a coherent strategy to reduce dependency on petroleum-based products. 

7) SAARC – Anti Narcotics and Drugs Task Force

Given the menace of drugs and narcotics, which has resulted in an abuse of public health, a convention was signed at the fifth SAARC Summit in 1991. However, this convention has met with the same fate of the Convention on Suppression of Terrorism. Whilst Sri Lanka is today free of terrorism, given the ISIS challenge we as South Asia can collaborate and mitigate the risk on this area.

8) SAARC – Anti-Terrorism Unit

The respected General B.P. Mallik, the former Chief of the Army, said that even with all the protocols and conventions signed by SAARC member countries, the deteriorating situation with regard to terrorism in South Asia was due to the lack of political consensus, a non-comprehensive strategy and the absence of a will to implement and provide capacity building to counter terrorism in the region. Sri Lanka is well poised to take leadership on this area.

Way forward: Political will

It is often said that one can choose one’s friends but not one’s neighbours. Whilst it might be not a palatable statement, the challenge is how we make our neighbours our friends so that Sri Lanka drive towards a 20 billion dollar export base. Now that there is a political will, Sri Lanka must ride the wave.

(Dr. Rohantha Athukorala has 20 years of experience of working for the private sector, Government of Sri Lanka and the United Nations. He can be contacted on [email protected].)