Rural sector transformation

Stagnation of global growth

Income of the G7 economies has swelled marginally after the Great Recession in 2007, which accounted for 1% per annum of growth. Expansion of emerging economies continued rapidly even after the Great Recession and stagnated from mid-2013.

As average growth of potential regions has stalled during post-recession era, many policy makers have feared the state of secular stagnation over global GDP. There are two controversial arguments have been formed by the economists to explain the sluggishness of the global growth. 

Certain groups claimed that post-recession slowdown is caused by demand problem and others estimated that it is an outcome of structural stoppage on innovation and productivity. Nonetheless, after the 1970s era of globalisation, ecosystems were gradually formed, and such are based on the linkages between developing economies and advanced markets. 

Consequently, with a sharp slowdown of advanced countries, there would be a narrower opportunity for developing nations like Sri Lanka to specialise in goods and services that would be exported to developed economies. 

The recession triggered with COVID-19 pandemic is expected to last only one year under the best-case recovery scenario. According to the World Bank, the COVID-19 pandemic is the steepest recession after the mild downturn of 1990. 

Like with any other recessions, additional forces have shaped the path of “The Great Lockdown”, including, policy uncertainties in different regions, elevated regulations in financial markets, plunged in oil prices, and other regional specific factors.

Recent forecasts indicated that the magnitude of ongoing real side shocks to the world economy will be sparked the unemployment rate to its highest level since 1965, which is the root cause for the era of Monetarism. Such hike will reduce economic activities under the key drivers including industry and services. 

In addition, financial market turmoil, which is partly associated with tumbled oil prices is expected to be make things even graver in second half of 2020. 

Strategic direction 

Factors including re-opening of businesses, lifting off travel barriers, and rebound of consumer confidence are anticipated dynamics of the silver lining on global markets. However, many strategies were formed by business entities while leading through the crisis. Such strategies have generated new opportunities for individuals and other market participants. 

Majority of neonatal opportunities are likely to be optimised by the states which have already undertaken the structural changes over recent years, E.g. Malaysia, Indonesia, India, and Bangladesh. Nonetheless, the icing of the cake is yet to be foster, which is post COVID-19 Sustainability.

In accordance with the real sector behaviours and other developments around the world, rural and semi-urban sector growth will be the focal point in mainstream policy stimulus basket of “middle-of-the-road states”. 

For the reason that, such expansion can prevent another upcoming crisis. Ability to enhance agricultural value chains, food life cycle, urban transformation, and new-found forward and backward linkages in industry and service sectors will direct growth towards rural and semi-urban areas. Consequently, there will be many discoveries for the countries like Sri Lanka, where majority of growth is dependent on the rural sector. 

Rural sector in Sri Lanka

The estate and rural population in Sri Lanka are the largest share in South Asia, which is around 82% of the total. The demographic transitions since 1981 indicates that the elderly population is likely to increase in next twenty years whilst somewhat stagnation of productive age population. 

The gender ratio in rural sector is more than 92%, which shaped by cultural, technological, and economic factors over the past few decades. The highest poverty rate was recorded in Northern, Eastern, Uva, Sabaragamuwa, and Central provinces, which is well above the national rate of 4.1. 

The monthly shortfall was accounted as Rs. 520 million to bring out the poor people from the poverty line, whereas more than 80% of transfers ought to be directed towards rural sector, which in turn demonstrating the importance of creating employment generation platforms in the rural areas. 

The Government has lifted 13 social protection programs in recent years under social assistance and social insurance schemes. The programs are focused to enhance the safety nets of rural households, where only 40% of total monetary income of rural households are generated through wage and salary paid jobs. A majority of the rural population are employed under the service sector, which is a major driver in post-war development era.

The literacy rate among the rural population was estimated as more than 95%, which is well above the international and regional standards. However, the functional literacy is vital to facilitate the sustainable development goals. 

The schooling population in rural areas who have completed GCE A/L or an equivalent was less than the national rate of 18%, which in turn deliver less likelihood to develop functional literacy among rural population.  

A popular educational theorist Paulo Freire once stated that “generating knowledge is a social process,” where it can increase the standard of living which may not captured by famed indexes like Human Development Index. To create such, the community needs to be enrolled in robust economic activities. However, large number of values generating non-agriculture activities are centred to urban areas that comprise with highest population densities of the country. Latest figures suggesting that the availability of urban sector employment opportunities are three times higher than rural sector. 

Such would leave a lesser room to enhance the tacit knowledge among rural community, which may narrow the space of peoples’ behaviour, which may only base on declarative information, rules, and procedures. 

Nonetheless, COVID-19 pandemic has created a broad space to minimise vulnerabilities in the rural sector through many opportunities that has stimulated with prevailing market trends. 

Prospects of rural sector 

Rural livelihoods in the country are unified with physical characteristics of each provinces, whereas Sri Lanka is rich with natural resources, including underutilised cascade systems, vegetation, and costal line habitats which used for farming, forestry, fisheries, tourism, and other small-scale industries. 

Although, majority of income sources in rural sector are integrated with mining and quarrying, manufacturing, wholesale and retail trade, accommodation, and food services. Many minor shifts in the stated markets were observed after the first wave of COVID-19, including behaviours of both consumers and producers, and there were many opportunities formed in conjunction with post-lockdown state of the markets. 

By optimising such prospects will be facilitated to increase the wellbeing of rural population, which in turn will enabled the growth of the country. The opportunities are scattered under both Macro and Micro scale dynamics. Consequently, growth plans ought to be aligned with such altering aspects.

Macro scale: Exchange rate pressure

Limited foreign reserves, lack of capital inflows, reduced policy rates and expected debt servicing would increase the monetary burden of the economy. In addition, formed expectation over an undervalue currency by the market participants will be triggered a market turmoil through an overshoot of the exchange rate, also viewed in recent past. 

Under such context, most feasible option for CBSL is to control the foreign exchange, which in turn generate new opportunities for SMEs and Large firms to diversify their products for the local markets. Such will be created new domestic supply chains. 

Debt level

Debt-to-GDP ratio was estimated as 87% in 2019, where more than half of the debt financing were foreign currency denominated borrowings. The amount of gross debt will be narrow down the borrowing space of the government. In addition, some credit rating agencies have downgraded Sri Lanka from their benchmarks. 

Consequently, government has to fixate revenue generation options by utilising the existing resources. For example; strengthening the 4Ps (public-private-producer partnership) in agriculture sector, enhance aquaculture and tourism activities in inland tanks etc. The degree of stated options will be directing the development towards rural areas in the country.

People centric economy

The vision of the current Government is to shift the country’s export economy to value-added industries. To make this vision a reality, authorities have to develop policies and procedures to strengthen the local markets through each and every landscape of existing value chains, by giving centre of attention for the areas under agriculture, livestock, tourism, and other industries where micro and small scale enterprises are functioning.

Business cycle

Recent studies have intimated that the globalisation has positively contributed for the growth of rural sector in Sri Lanka, which in turn underlining a strong correlation between local activities and global trends. Global business activities can be stressed out under short to medium term horizons. 

However, experts in Harvard Business School suggested that, the interim period of downturn and recovery is the best time to invest for new ventures. A majority of the portion of investments should be directed towards strengthening startups that required to facilitate the primary activities of businesses. 

For the reason that, when the overall global growth will be returned to its pre-COVID level, entrepreneurs and management can put more attention for primary activities that need to be integrated with new boom of the economy to facilitate the motives of making gains. 

Micro scale: Value chains

New market participants have activated after imposing restrictions on global activities, owing to rise of prices and shortage of import materials. Many micro and small-scale enterprises in localised value chains, which produce food, beverages, and tobacco were continued their operations whilst businesses that make use of imported raw materials, for example; textile, wearing apparel and leather related products, were exhibited a declining trend. 

However, the coir industry which represents a considerable share of economic activities in rural sector were not affected as textile industry. Travel restrictions have reduced the income of many informal workers in tourism industry. Thus, many of them were shifted from tourism sector to agriculture and other industries. 

Such diversification of income sources is predicted to continue even after the pandemic, also known as “gig jobs,” trend.

Novelties 

Constraints on gaining access to the global markets have boosted new innovations by producers to capture local markets. Newly designed products and services for local consumers have increased the profit share among some producers in the peak of lockdowns. 

Since such markets are competitive, many entrants will be expected to develop and attract profits. Consequently, many informal income sources will be created in the rural sector, for example; increased demand for home garden crops. 

ICT 

Many online platforms were created after COVID-19 pandemic. Although, some of online activities were halted after relaxing local travel restrictions. However, the concept is likely to be applied by retailers and producers to create new markets. 

If alike platforms enhanced on due course, the accessibility for urban markets will be expanded for both Micro and Small-scale producers. Thus, one of main constraint will be expunged for MSMEs which are operating in the rural sector without any government intervention. As an outcome of such ecosystems, many income sources will be created for women and youth, which is the most vulnerable group of this economic downturn. 

Restarting the economy smartly

Government interventions are deemed to be the leading source on restoring the economy affected by COVID-19. However, existing fiscal space is limited for the Government to heat up the economy. Hence, national level institutions are required to adopt mechanisms that would create a broader level of development in the country. 

Accordingly, the policies and procedures ought to be focused on post COVID-19 global trends under existing scope on expansion of the economy. For instance, national government in Switzerland is formulating attractive schemes for students from different disciplines to attract them to semi-urban and rural development. 

Similarly, steps must be taken by the authorities under agriculture, MSMEs, and service sectors to make progress towards for a self-sufficient domestic production under short to medium term versions. 

Agriculture 

In the agricultural sector many programs have been implemented to address the constraints under productivity, weather conditions, labour market, knowledge gaps, value chains, and infrastructure. However, the government ought to establish a less labour intensive and high technologically dependant agriculture industry in Sri Lanka. 

Thus, authorities have to introduce programs by pursuing millennials and generation Z to attract them for farming. For an example, SMART farmer concept can be included under the curriculum of 13-year education programme and vocational training level programs. 

In addition, awareness also requires to be created amongst students regarding farming and technology, by bringing the concept of farmer to whole new level. Such will be providing a solution for human capital problem in agriculture sector, whereas local migration for urbanised areas could be reduced with such broader level programs. 

MSMEs 

MSMEs are considered to be the backbone of Sri Lankan economy, since the markets are highly labour intensive. National strategy for SMEs was formally documented in 2002 as a white paper. In 2016, the Ministry of Industry and Commerce prepared an action plan for MSMEs. 

Additionally, there are over 20 ministries providing support and services for MSMEs and each and every ministry has its own strategies. The target of such liable institutions ought to be to transform some percentage of Micro enterprises into Small enterprise stage, whereas 92% of establishments are involved with Micro scale activities. 

However, no proper coordination among administrations have reflected the sluggish growth of Micro and Small-scale businesses in the country during past decades. Some entrepreneurship programs also failed to create the expected output as a result of erroneous decision making by the institutions. All the bottlenecks of the sector have been documented under several strategic plans. 

Accordingly, national government is required to implement identified strategies to create a sector wise transformation in the economy. 

Services

Tourism is deemed to be one of the vital subsectors under services, which comprise a high potential to increase provincial GDP. According to the sector wise value chain landscaping, the industry has a potential to provide a broader level of livelihood opportunities for vulnerable communities including women and youth. 

Sri Lanka is positioned under exploration to development stage in the tourism life cycle. Accordingly, many segments of the sector ought to be utilised for further development of the industry. However, the COVID-19 pandemic has immensely affected the tourism industry, where activities are expected to be recover in near future. 

Many tourism related development projects in the country have to be planned to meet this challenge.  Many industry experts are suggesting that the current interim cycle is a suitable time for planning and implementation of tourism related infrastructure projects. Improving the conditions of the industry will create many job opportunities for rural communities, in turn addressing the poverty alleviation in the country. 

As Apple CEO Tim Cook stated, “COVID-19 is a temporary downturn, as a company we are developing a long-term vision over a feasible future.” Countries like Sri Lanka also need to adopt the same strategy by targeting the post-COVID sustainability. 

(The writer is currently working at a major donor-funded project and could be reached via email at [email protected])