Financial hub in 2016?
Tea Hub in 2016?
Software to be $1 billion?
Global tourism campaign in 2016?
Whilst Sri Lanka has been very optimistic in the last ten years, more precisely the last five years, a point in many a policymaker’s mind is “why does Sri Lanka talk so much with strong visibility but when it comes to implementing things, fall off the rails?” Research reveals that either the Minister is changed or the Chairman is switched or there is some irregularity in the process that brings ground activation to a grinding halt. It is sad but that is the reality of Sri Lanka.
This phenomenon has been seen in the export industries like tea, tourism, gem and jewellery, whilst the only area that has not got affected is apparel. Maybe it’s a case in point of where politics and bureaucracy have not been able to affect the growth of this industry, which needs to be studied and captured as learnings for the other key export sectors that I just shared. A point to note is that the said industries account for almost $ 15 billion export revenue (including tourism).
Tourism is a key industry in which reform must take form in 2016 to make the destination command a higher share of voice
Sri Lanka needs be led
When I look back at the Budget 2016 that was passed with a two-thirds mandate, my mind goes back to the thinking of one of my controversial but respected university professors who said: “Sri Lanka needs to be governed and led and not to practice democracy”. I guess this argument holds group today too, given that we had many a conceptual discussions on the “tea hub”, “financial hub”, CEPA, FTA with Japan etc. but the projects have not moved an inch. Let’s hope and pray that 2016 will be a different year for Sri Lanka. In my view, it’s a make-or-break year for Sri Lanka, given the global economic downturn that is hitting the global marketplace. The real challenge is how we, from the private sector, support the recent budgetary proposals so that we take the high ground in South Asia rather than watering down every proposal. This has to stop at some time given that Sri Lanka needs reforms and we have to face it as a nation.
Given that I have discussed the architecture of a ‘tea hub’ around two weeks back, let me share some insights to the high share of voice budget proposal – “financial hub”.
A financial hub can be defined as an expansion of financial services of a country beyond its borders globally to a larger customer group which will drive up revenues and also develop resources in a country such as infrastructure, ICT and human resources where by wealth creation takes place.
It also plays a catalyst role for private-public partnership development. For instance, the proposed monorail system for Colombo can be funded via the benefits of a financial hub. Some of the leading financial hubs in the world are London, New York, Paris, Tokyo and Sydney, whilst the emerging ones are Mumbai and Shanghai, which are powered by superpower economies, which tell us the competition that Sri Lanka is up against on this idea.
SL’s financial sector
If we go into the details, Sri Lanka’s financial sector contributes to 10-12% of the country’s GDP. A point to note is that it is way above the counterparts of the regional countries with Thailand at a 6.2% and Bangladesh at 9%, just to name a few.
Sri Lanka has twenty-plus commercial banks that operate in the country with over 6000 branches across the country. The significance of our banking industry is that all top global banks operate in the country, which is an indication of the market attractiveness of the country even though the economy is around $ 70 billion.
The local issue
If one analyses the World Competitiveness Report, an area that comes out strong for correction is access to finance, but no concrete action plan has been implemented. This is very unhealthy because if we do not drive lending to around 3.5 trillion, we cannot achieve an 8% GDP growth that Sri Lanka is visioning in the years to come.
In fact, the IMF has been highlighting this issue over the last couple of years but now Sri Lanka has no option but to act on the strategies spelled out by IMF, given that we are seeking their help of $ 5 billion in 2016.
The choice of going global
Let’s accept it, the best brains in the country are normally housed in the banking industry and developing a product range and focusing on catering to customers internationally is well within the capability set of the industry elite. However, a point to note is that this strategy will require policy changes ranging from infrastructure facilities, self-regulatory community status, separation from the State and regulatory changes such as opening of the capital account which are decisions that will need serious policy changes. This will also require lengthy discussions and scenario planning with the policymakers which is the next challenge that the industry will have to commit to, given that Sri Lanka works in a political economy.
The benefits of going global is that it can spruce up the economy through wealth creation and the industry profits have the propensity not just to double but also triple, whereby the financial sector on the whole can contribute to 20% of GDP of the country just like in the case of mature financial hubs around the world.
Apparel industry: a case study
A best case in point where the private sector worked closely with the Government and developed a globally competitive business is the apparel industry of Sri Lanka cutting away from all the politics and bureaucratic red tape that I discussed earlier. The industry though does not have its own raw materials and did not even have a critical mass; way back in the 1970s a business model was developed and thereafter the policymakers were influenced for serious policy changes to be made. Today, this business is poised to bring in $ 5 billion-plus into the country and is now targeting to be the apparel and logistic hub of South Asia.
The financial sector can follow suit given the strength of the financial sector of Sri Lanka and its close link to the key policymakers. In my view, the task of driving in policy reforms in making Sri Lanka a financial hub will be easier. This has been spelled out in the Prime Minister’s ‘Third generation economic reforms’ presented and subsequently once again stated in the Budget 2016 though not in sync.
Building the brand Sri Lanka
Whichever strategy that the industry selects, one of the key pegs that need to be addressed is to make brand Sri Lanka more engaging to the world. It is sad that Sri Lanka tourism failed to take the leap by appointing one of the top seven global agencies to take the country’s image forward. Currently, we must accept that the brand is being questioned on many fronts, given the low awareness of the product range and imagery parameters.
What many forget is that unless we earn a positive image for ‘Brand Sri Lanka’ globally, even if we float the agenda of a financial hub, implementation can hit a rough patch. This area is called nation branding and it needs to be addressed at a policy level by the industry at some point of time. But first, we need to get the fundamental architecture right on tourism which must be the lead industry for nation brand building. Sri Lanka is currently valued at around $ 68 billion as a brand as per the global nation brand building data.
Next steps in 2016
Whilst we can argue the merits and demerits of Sri Lanka’s strategy, on the financial hub idea, the key actions that must be implemented as follows;
1) A task force needs to be appointed so that a passionate team takes responsibility to champion this task just like with the apparel industry, tea and the software industry.
2) A careful selection of target markets must be done just like what Malaysia did with zeroing on Middle East, Western Africa and North Africa. We must take the tough decision in 2016.
3) Thereafter, a strong positioning platform must be decided for the Sri Lankan financial centre. Malaysia selected the position of an ‘Islamic Financial Centre’ proposition and it has successfully carved out a niche in a customer’s mind.
4) Sri Lanka must then make the critical decision of deciding on what criteria we compete on. Is it on equities, bonds, hedge funds, private wealth, fund manager or an insurer/re-insurer? We must analyse our strengths and weaknesses and make this decision.
5) Whilst fashioning this basic business proposition of segmenting, targeting and positioning (the STP of marketing), the industry must involve the key policymakers intimating the key policy decisions required to make Sri Lanka a financial hub.
6) Whilst this deliberation takes place, the industry must develop strategies to spruce up lending to Rs. 3.5 trillion in the local market, addressing the issue of taking off the names in the CRIB of the entrepreneurs in the north-east that have been effected by the conflict.
7) A regular business health check must be carried out so that the path to being a financial hub is monitored with the necessary changes.
8) Finally, the concept of a financial hub must be explicitly stated in the ‘Third generation economic reforms’, so that that it will be mentioned repeatedly at forums and the task force will find it easier in its deliberations.
The author is an award-winning marketer by profession, who has served top multinationals like ReckittBenckiser, Lever and Diversey in South Asia for over 20 years. In the public sector he has been the Chairman of Sri Lanka Exports, Sri Lanka Tourism and also served the international public sector – the United Nations for five years where Sri Lanka secured the global best project award. Dr. Athukorala can be reached on firstname.lastname@example.org