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By Nisthar Cassim
A prolonged global recession is looming in 2017-2019, a top international economist warned yesterday in Colombo but urged Sri Lanka to convert it into an opportunity by becoming competitive to lure Chinese and other international firms to relocate their factories.
Popular Lankan-born economist Dr. Howard Nicholas almost kept a packed Sri Lanka Economic Forum in suspense with his 
presentation, which backed his prediction of a global recession in 2017-2019, the first global meltdown since 2009, other emerging issues of international importance as well as a checklist for Sri Lanka’s way forward in the evolving external landscape.
An unprecedented 240% increase in money printing by six of the major central banks in the world (from $ 5 trillion in 2006 to $ 17 trillion in 2015), soaring global Government and private sector debt and lacklustre global growth since the last recession in 2009 were among the reasons flagged off by Dr. Nicholas in his compelling case of forecasting a more prolonged global recession between 2017 and 2019.
Though claiming mixed success over his previous predictions (he was among the few who predicted the US subprime mortgage bubble crisis well before it took place), the unorthodox and charismatic Dr. Nicholas said apart from the recession, the world in the next couple of years will see rising protectionism, massive Budget Deficits, more Quantitative Easing to finance deficits, a further rise in Government and private debt and overcapacity in global manufacturing.
“Global growth rates are increasingly synchronised and no part of the world is immune,” said Dr. Nicholas, who is an Associate Professor of Economics of Development at the International Institute of Social Studies, Erasmus University of Rotterdam, adding that governments and the private sector need to be vigilant and have contingency plans.
In the predicted emerging scenario, Dr. Nicholas, whose grandfather was a Post Master General of then Ceylon, told the forum titled ’Sri Lanka in a World in Transition: Challenges and Opportunities - A Way Forward’ organised by Sri Lanka Inc (SLINC) and the Sri Lanka Association of Political Economy (SLAPE), that the road ahead for Sri Lanka would be bumpy.
“Sri Lanka will need to move away from outdated economic ideas and focus on long-term strategic thinking and planning,” he added.
A key suggestion was recognising the importance of China, both as a key driver of the global economy and specifically as a top opportunity for Sri Lanka.
Dr. Nicholas, known for his pragmatism, said during recessions, global factories look for more competitive locations. When Europe was in recession in the 1930s, factories shifted to Latin America creating a massive growth opportunity. In Asia, the first wave was when Japanese and Korean factories set up in China, and with costs in China on the rise, the focus is shifting to places such as Vietnam and the Philippines.
“Chinese factories are also scouting for relocation opportunities in South Asia. So I strongly recommend Sri Lanka should use this recession time as an opportunity to lure firms to relocate. This is a great moment and Sri Lanka has lot to lose if this golden opportunity is missed,” emphasised Dr. Nicholas, who stopped short of endorsing the current Government’s move to set up an industrial zone in four southern districts to lure mainly Chinese factories, either intentionally or because he did not know of the ongoing measures.
However, given his recent past knowledge of Sri Lanka (he last spoke at a Colombo forum in November 2015 and in 2007 and 2000 prior to that), Dr. Nicholas was emphatic when he said: “Sri Lanka can’t afford the luxury of bickering and opposing politicians spiking at each other.”
“This (seizing opportunities that come Sri Lanka’s way) is not about politics but we need to pull together,” he said, adding: “If I were in the Opposition and if the Government does something right then I should congratulate them.”
He cited the case in Germany where irrespective of the parties ruling the country, they stick to the overall long-term vision and plans.
In attempts at luring global or Asian factories to relocate to Sri Lanka, Dr. Nicholas, who together with Prof. V.W. Lakshman (formerly Vice Chancellor of Colombo University and the President of yesterday’s forum co-organiser SLAPE who pioneered Master’s in economics teaching at the Department of Economics) said the challenge for the Government was creating a policy regime of incentivising entrepreneurs rather than offering only tax concessions.
“Anyone will flock to a country where they see entrepreneurs are incentivised,” he added. It was suggested that Sri Lanka can also learn from East Asia’s success and replicate policies such as public-private partnerships as well as privatisation.
“As seen in Singapore’s success, governments shouldn’t privatise natural monopolies or strategic enterprises where they can’t create competition,” he said.
For the private sector, his advice was to take state intervention as “given” hence it was unavoidable since it was a global phenomenon.
During his presentation, Dr. Nicholas also said developments in China and factors affecting it were key to understanding the world economy. “Led by China, Southeast Asia is dominating global GDP via its manufacturing prowess. It is now a situation of when China sneezes the world economy catches a cold,” he quipped.
According to Dr. Nicholas, China in recent years has been propping up its economy which he claimed went into recession with 1% negative growth in 2015 though official data showed a 7% growth. However, he said even the US fabricates its data hence statistics can be an illusion in some cases.
“US unemployment is as high as 11-15% and this is why Trump came to power,” stated Dr. Nicholas.
He said China has seen 37% annual growth in domestic credit which enhanced an already expanded manufacturing capacity base.
The Sri Lanka Economic Forum, at which Public Enterprise Development Minister Kabir Hashim was the Chief Guest, also saw a wide discourse on a host of timely and key issues involving academics and the private sector.
The session titled ‘Economic Policy Road Map - Is Sri Lanka on the Right Path’ saw University of Colombo Professor and Head of the Department Business Economics, Faculty of Management and Finance, Prof. HD Karunaratne deliver a keynote address, with inputs from Planters Association Chairman Roshan Rajadurai, , Laugfs Holdings Chairman W.K.H. Wegapitiya, Salon Nayana Proprietor Nayana Karunarathane, Access Group Chairman Sumal Perera and Capt. Ajith Pieris.
The issue of political economy of managing middle-income country aspirations was dealt with by former Ambassador Dr. Dayan Jayatilleka through his keynote speech. This session saw inputs from DSI Managing Director K. Rajapaksa, Strategic Enterprise Management Agency Director Chris Dharmakirti, Economist, Natures Secret Chairman Samantha Kumarasinghe and Dr. Neomal Perera and Political Analyst Arun Thambimuttu, journalist Dr. Mohan Samaranayake and Dr. Nicholas.
Economist Dr. Howard Nicholas yesterday charged that privatising the pioneering development finance institution NDB nearly two decades ago was a mistake by Sri Lanka.
Addressing the Sri Lanka Economic Forum yesterday Dr. Nicholas Sri Lanka needs to go back to development banking absence of which can dent a more progressive economy and private sector in the country.
He questioned the logic of privatising the then efficient and improving DFIs and alleged that the advisors for that move including multilateral donors had ulterior motives. “When China was keen to join the World Trade Organisation the first demand was it should privatise its DFI the Bank of China,” Dr. Nicholas recalled.
According to him every successful nation benefitted from a robust development bank and the examples from Southeast Asia was more profound as DFIs helped local private sector in a big way than a traditional commercial banking.
(Note: This article has been amended to exclude the privatisation of DFCC as mentioned in the original)
