Experts spell out strategies for economic recovery 

In March 2021, the World Bank projected the economy to grow at 3.4% in 2021 mainly due to foreign investments, normalising tourism and other economic activities. The World Bank also pointed out that Sri Lanka needs to strengthen social protection systems and build capacity and competitiveness as it battles the ongoing debt burden and several other issues, as well as rising poverty levels. 

In this backdrop, the International Chamber of Commerce, Sri Lanka and the Daily FT’ hosted a webinar on ‘Development Strategies for Sri Lanka’ under the theme ‘Strategies for Post-Pandemic Recovery’ recently. 

GDP and digitalisation

The first Keynote Speaker Yasuyuki Sawada, Professor of Economics at the University of Tokyo and former Chief Economist of the ADB, indicated that GDP growth rate needs to be adjusted down both in 2021 and also into 2022. 

He spoke of slowed growth momentum, elevated inflation and widened current account deficits as challenges for Sri Lanka. The ADB he noted published a strategy to overcome COVID-19 impacts. The paper was titled ‘Revival of Economic Fundamentals, Making Economy and Society Resilient, and Addressing Long-Term Challenges’; the last named factors involve reducing poverty, environmental issues and climate change mitigation.

In all this he saw the need of adopting digitalisation strategies as one common critical factor, which links the responses in dealing with the platforms and issues. A comparison was offered with many other states in South Asia, where digitalisation contributed to substantial gains in GDP.

Good agricultural practices

This perspective meshed well with the presentation by the next speaker, Dhammika Perera, Founding Chairman of Vallibel One Group. He focused on agriculture. Some of the relevant points to be garnered from his strategy were the promotion of good agricultural practices, thus increasing productivity. Goals are to drive inclusive agricultural transformation, improve productivity among farms, increase farmers’ household incomes, increase equitable consumption, promote nutritious diet all year round, increase women’s empowerment in agriculture. 

Some interesting details were offered which, if applied in the real world, would bring results – examples of which are to distribute soil analysis (soil health) cards in the different areas and supply the needs in fertiliser as indicated in those soil samples. Oversupply of expensive imported fertiliser can be curtailed thus. Another was to involve the local authorities in the preparation of lands for agriculture with due regard to science and best agricultural practices. Also improve irrigation to support the specific needs in agriculture in those areas of focus. There is also a vital need for quality seeds being available at affordable prices and on time for the cultivation season. In some instances, there will be a need for a subsidy provided for liquid fertiliser as well as for organic farming.

Development of an e-commerce portal for increasing profitability in agriculture was seen as vital. Monitoring of farmer-crop profiling was also part of the recommended strategy as is accurate weather forecast for seven days, made easily accessible to all farmers. Modernity demands satellite guided mapping of all agricultural lands and prospective locales for agriculture with matching climatic and soil conditions with the choice of crop, which in turn, will also yield data on harvest projections along with fine tuning of application of fertiliser and other needed responses in a timely manner. Adequate warehousing was another factor emphasised by Perera. 

Management and culture

The webinar also included a conversation between Professor Peter Capelli and Dinesh Weerakkody. Professor Capelli is George W. Taylor Professor of Management at the Wharton School and Director at Wharton’s Centre for Human Resources, and co-author of the best seller ‘India Way’. He shared points that could be applied in the context of Sri Lanka. 

In this exchange he pointed out how the corporate sector in India was able to channel their energies and harness their resources with a well-demonstrated agility, to push through the challenges and were not dependent on the Government of India to furnish the necessary impetus. The success, he notes, comes from taking very seriously “management” of Indian businesses, with little regard to the negatives that could accrue from conflict, ethnicities, language or religious differences. Management of people and inspiring them to achieve great things obviates the need to depend on sophisticated structures and elaborate mechanisms for successful running of business in the same way that might exist in Western cultures and nations.

Capelli also opined that based on research over the years, there is a functionality that is brought to bear with the culture (traditions) of a particular nation, and the development of business models are better to be based on the particular cultural leaning of the community in which the workforce actually grew up in. Superimposing a culture borrowed from developed countries is not always authentic and might not succeed. Japan and Korea have certain efficiencies built in their national culture. These impacted positively on economic growth. India had its own ‘flavour’ and that had to do with learning and higher education with lots and lots of talent in the sciences, engineering and technology realm.

He also touched on the aspect of companies having people work from home. The upshot of all that has happened in the pandemic is the proof provided that management needs to build trust even as they empower, and there is no success with micro management of people who are at home. HR needs to address this reality and enhance the trust relationship among the workers, who in time will appreciate that they have choices, and those choices can be positive because of them recognising the overall consequences of underperforming while not being in the office environment under constant supervision by superiors. 

Panel discussion

The panel discussion comprised Ernst and Young Partner Duminda Hulangamuwa; Rajendra Theagarajah, former Chairman, Ceylon Chamber of Commerce and served as CEO of HNB and NDB; MP Prof. Ranjith Bandara, former Senior Professor in Econ at the University of Colombo; Veracity AI.Digital Reality Group CEO/Founder Jeevan Gnanam; Senior Professor in Economics at University of Colombo Prof. Sirimal Abeyratne; World Bank Group South Asia region Senior Economist Sibel Ku-laksiz, Global Consultant on Entrepreneurship and World Economic Forum Expert Network Member Talal Rafi; Sri Lanka Pharmaceutical Manufacturers Association President Sanjaya Jayaratne; and World Bank former Economic Advisor for South Asia Dr. Shekhar Shah joining the webinar from Washington DC.

Pandemic and poverty

 In the discussion, Kulaksiz referred to the World Bank Poverty Assessment report on findings in Sri Lanka, and shared the statistic that in the period of the pandemic the poverty rate increased upward to 11.7%. She also indicated that food safety could remain critical in the period ahead especially with shortages, as predicted. 

However, with the negative growth of the previous year, the projection for 2021 was more than 3.3% growth in the Lankan economy and that is hopeful. Albeit slow, the targets chosen by Sri Lanka seem to be achievable goals as observed by the World Bank, and there is vibrant participation by the private sector in this growth with activities in exports, financial services and real-estate market activity. 

Looking forward with an eye on opportunities that exist, she too spoke about harnessing skills and aptitude in digital technologies. She thought the Government ought to invest a great deal in widening digital literacy to also leverage on increasing job opportunities in the emerging future. Women being empowered within this area of digitisation was also seen as important.

Proceeding beyond pandemic

What should Sri Lanka be focused on in the context of middle income trap and proceeding beyond the pandemic? The question was dealt with by Dr. Shekhar Shah, when he responded saying that this middle income trap happens in countries that rely on low-wage labour. 

He alluded to Latin American countries who have lost their competitive edge, for the very real factor they find themselves in, with lacking innovative responses and managing people, etc., after they have accrued the benefit of being in the middle income group for a long period. Unlike low income countries, middle income countries cannot access concessionary provisions in trade and loans, for instance. This hinders issues that come up with repayment of debt for instance, because of not being able to access the concessionary elements they previously might have optimised on. 

He did recognise the looming difficulties with honouring the debt faced by Sri Lanka. He commented on the ‘common framework’ proposed by the G20 countries, that would, theoretically, help ease the burden pressing on a country such as ours. There is a prerequisite to enable the benefits from such a framework, namely to be included in an IMF arrangement. Without that commitment to the IMF provisions that facility cannot be accessed. 

Dr. Shah, responding to a question on the management of foreign exchange, clearly indicated that realism is required and is not possible to expect to proceed with private lenders beyond what the market is able to bear. The question remains, ‘Will the CBSL and the political leadership of Sri Lanka go ahead with working with an IMF arrangement?’ Negotiating with private lenders will be an onerous task.

‘Start-up nation’

Jeevan Gnanam observed that Sri Lanka has an opportunity to market itself as a ‘start-up nation’ and gain from the existing talent pool. Obviously, this treads again into the realm of digitalisation, and there is a shortfall in capital, and financial services have not been coming forward as they should, to address this. 

He advocates the need for a structure and even a regulatory framework within which ‘angel’ investors would enable start-ups and pursue the possibility of making these work as business investments, where such investors can benefit from tax breaks, given that they are actually taking on ‘risk’ with supporting the emerging start-up ventures. 

Tourism sector and recovery

Rajendra Theagarajah when asked about his recommendations for recovery, he focused on the tourism sector and its recovery. He notes that travel cycle times will shrink and there will be an increased pressure on service providers to respond effectively. 

The older pre-pandemic easy paced method will be replaced with more demand for quicker, efficient responses. This means that the service providers need to upgrade the levels of service at all levels. Therefore, a critical look at the working capital that will be needed for these varied service providers in their bid to upgrade, is required. Notably, the idea is afloat that it will be Millennials and Gen Z who will lead the recovery in tourism. 

For the tourism industry, there have been the provision of moratoriums. Theagarajah saw these provisions as suited for fire-fighting the pandemic; however, for the longer tenure, these moratoriums are not enough to build up the industry players who have taken a big hit. There has to be a thought-out process of engaging a supply line of credit among other long term measures, to make the industry actually move forward.

Banks and financial services agility

Theagarajah also indicated that banks and financial services need to sharpen their agility to respond to recovery. They ought to work toward acceleration in digitalisation. This will fundamentally impact on the ease of customer on-boarding. The pandemic did usher change in this system, now it needs to be permanent.

He did agree that banks need to promote start-ups, and also play a collaborative role with the hopefuls who enter the business space, rather than thwart them with procedures that will be difficult for them to comply with. His suggestion was to obviate the need for a CRIB report, in favour of using all the modern communication and IT methods in using algorithms to create the ‘portrait of the customers’ that would really foster business growth rather than generate paperwork. 

Education was also touched on. Theagarajah sees that the formula has to be ‘economy, employment, education’. In other words, education has to be linked to changing national priorities. Graduates who will not be able to be employable or contribute to the economy have in fact been wasting resources even as they have followed educational courses of study that have poor impact.  

Fiscal deficit and taxes

Duminda Hulangamuwa touched on the prevalent fiscal deficit, when asked about the possibility of tax concessions to attract much needed FDIs. The revenue was just not sufficient to meet the demands of the government, and with the prevalent crisis in foreign debt encroaching on the viability of the country’s economic progress, imports are seriously impacted. There is hardly any income from that aspect of commerce and trade; this means lower income to the Government and to the people. 

Certainly, pre-pandemic, the Government did offer tax concessions with the best intentions, but these are not sustainable now. Compared with other countries in the region, the tax regime is far too generous already, and the de facto applicable tax rate is 18%, which is the lowest in any country. 

With regard to FDIs, he said that the BOI has been existing since 1977 and the platforms that were created to generate foreign investment have already been granted. Any further lowering does not make sense, if attracting investment is the purpose. Rather, the Government needs to ensure compliance levels are adequate, and the administration of the tax collection has to be more efficient. He opined that if there is insufficient interest in Foreign Direct Investment here, that has to be examined from another angle, and not in terms of tax concessions, for such provisions will not of itself generate interest in Sri Lanka as an option to pursue their business. 

United front

Post-pandemic recovery, in the opinion of Professor Ranjith Bandara, was assured, if the country stands together. His take on the challenge was very upbeat. Despite the naysaying, Sri Lanka has not defaulted in paying the required debt servicing figure, which he felt augurs well.

With a will and focus, he said the country should be able to meet its obligations in the years ahead and successfully deal with a budget deficit of 11.1%. He also called on the private sector, and particularly the financial institutions, to play a more proactive role. He said the State sector was too stretched now. They cannot expand their range of service any more, but, he said, the people will have to share more in the future of the country. He felt that development banking in Sri Lanka was not playing such a nurturing role.

Pharmaceutical industry

 Sanjaya Jayaratne representing the pharmaceutical industry was asked about FDIs in pharma products in Sri Lanka. His reply was that there is no scale for FDI in pharma for the local market, which is of very modest size, rather the factors to look at are the existing and evident geo-political issues that are playing out at this time. This, he felt, was the best time to leverage on that opportunity. If Sri Lanka can enter that space, the time is now. 

The BOI has offered tax holidays for an exclusive pharma manufacturing zone in Hambantota. This could attract FDIs, but there are also local players in pharma who are already doing considerably well, and there are 120 products that are currently manufactured by local companies, and they are poised to export. This is a highly regulated area and very exacting, and therefore takes three to four years for a facility to meet the regulated standards to produce for export. 

With regard to education, Jayaratne noted that few universities produce science graduates who can take on employment in the pharma industry. There is a serious shortfall with poor quality in the output. He also indicated that regulatory measures ought to be in place, in a transparent manner. 

Entrepreneurship and exports

Talal Rafi was asked about the possibility of ramping up entrepreneurship in this country. His comment was that the number of entrepreneurs in Lanka were very low in comparison with, say, Bangladesh, which has 10%, and Sri Lanka only 3% entrepreneurs. He too emphasised the need for boosting start-ups and also innovation among the business models here.

With his knowledge of the university of Moratuwa and what is offered there, he was of the opinion that the potential is world class, but the number of STEM graduates who can go on to take on a role in the active engagement with business enterprises is too low. The BOI is useful for bigger organisations, rather what is needed is for start-ups and small businesses to also have a centre where they can be brought into the mainstream at speed. Because of the paucity of graduates to take on the needed roles in business, it might also be considered by the Government to offer high-skill visas for overseas workers. 

Talal also focused on the point that in the years 2000-2015 only seven new products were included in the exports list from Sri Lanka, whereas Vietnam introduced 48 new products generating $ 54 billion. Vietnam too was in apparel first, but its economy moved to embrace electronics manufacture. This proves that innovation is vital. 

Exports do not have to be Lankan brands. Working with overseas partners is greatly beneficial, and Thailand and China too have not held back from working with global brands in various industries. These links also usher technology transfer and building on skills that would bring more employment opportunities for the Lankans. 

Realising Sri Lanka’s potential

Overall several panellists noted that Sri Lanka does have enormous potential, however there is a need for proper management of all its assets and inherent advantages with a proper team in place. Also to reach that potential Sri Lanka has to cross this hump of the debt and fiscal crisis. 

Hard decisions will need to be taken on whether intervention by the IMF or seeking debt restructure will be the practical way. Whichever it is, the recovery process can no longer be delayed. The message has to be conveyed to the people with effective and meaningful explanation to all. 

They opine that protective barriers and curtailing of essential imports for reexport will hurt Sri Lanka’s exports in the long term. Positively, Sri Lanka can aim to be the entre-pot and be like Dubai in the Indian Ocean region, as a centre of providing cutting edge services and technology platforms – all of which need immediate educational reforms to keep pace with advancing skills.

The panel discussion was moderated by Daily FT Editor Nisthar Cassim and ICCSL Chairman Dinesh Weerakkody.