Can SL drive for inclusive growth?

The Davos Economic Summit intrigues me every year not because of the eminent personalities that attend it, but more for the ground breaking reflections that are made.

My pick from this year’s summit were the argument that if the black money in circulation can be attracted to India, it can amount to more than the annual FDIs of the last five years and the importance of a government in power instilling inclusive growth in a country.

There were many other themes that were being debated such as the issue of food security in the world and women’s empowerment, but the logic for focusing today’s argument on inclusive growth is because I strongly believe that when a country is on a high growth agenda, unequal distribution automatically takes form, which is where the role of the government comes into play in the macroeconomic agenda of the country.

If not, the gap between the rich and the poor will further widen and will even result in political backlash, like what we have seen in many countries in the world.

What is IG?

Inclusive Growth (IG) means all sectors of the economy contributing to the overall growth of a country, which in turn results in a substantial reduction in poverty. In simpler words, growth must be broad-based and inclusive, where a larger part of the country is engaged in the development agenda.

But a point to note is that a country can achieve all the Millennium Development Goals (MDGs) but yet not register inclusive growth due to the skewed pattern of growth that has not been properly distributed, which is where the importance of the role of the government comes into play.

Hence it is important that a country highlights growth not only from its sheer pace but also from the pattern of growth which will in fact give a new image to a country. For instance, in the case of Sri Lanka, where we highlight the 8% growth that we have been registering, it must also state the pattern of growth in different parts of the country so that a real view can be captured; to name a few, Jaffna, Muttur, Kalpitiya, Monaragala or Mannar.

It’s also important to note that inclusive growth refers to areas such as equality, equity and protection from markets and employment, which are essential ingredients of a successful growth strategy of a country. To be honest, if growth does not happen in this manner, it can become toxic and result in adverse behaviour that includes revolts and political backlash.

IG the cause of terrorism?

For instance, successive governments have been focusing on the top line where Sri Lanka has a pretty picture to boast. Way back in 1996 it had been reported that the overall poverty indicator stood at 24.3% whilst in 2002 it moved down to a 19.2% and in 2007 it went down to the magical mark of 15.2% and then it came down to a magical 12%, which kept getting flashed in different media.

However, digging deeper, I unearthed some facts based on the 2003/2004 Socio Economic Survey done. Access to pipe borne water in the Northern Province was only 3.1% whilst in the east it records a 17.4%. The national average stood at a high 30.8%.

Even though we cannot be proud of the national performance, the fact remains that for a majority of the people who live in north east, life is not as comfortable as it is for people in neighbouring regions. Whether this can be due to inclusive growth is a deliberation that must be made, especially post the devastating floods that have ravaged the east of Sri Lanka.

Poverty-terrorism link?

Even though there are counter arguments that countries that have an intermediate range of rights experience a greater risk of terrorism, no conclusive studies have been done if it is nurture or nature that fosters terrorism in a country.

Michael K. Moore, the former Head of the World Trade Organization, once said: “Poverty in all forms is the greatest single threat to peace, security, democracy, human rights and the environment,” which is an indication of the possible relationships that can exist.

However, Alberto Abadie, Public Policy Professor at Harvard University’s Kennedy School of Government, says development aid is important but it is not clear whether it is an effective tool for reducing terrorism, at least not in the short run, which weighs heavily for a country to practice inclusive growth strategies to avoid a repetition of the same in the history of Sri Lanka in the future. May be the census that is scheduled to be implemented later this year will throw more light on this area.

SL in a catch-22

Whilst accepting the importance of inclusive growth in a country, we must note that Sri Lanka’s growth agenda is fuelled by the private sector, which means that based on the strengths that the company possesses, aggressive growth strategies will be conceptualised.

This is essentially what we saw post the private sector-savvy Budget that was presented on 22 November 2011. The billion dollar question that one can challenge now is if this strategy in fact works against the principal of inclusive growth.

The answer can be yes, but it’s only in the short term as in the long term this will trickle down to the next strata of the socioeconomic landscape just like what the world saw in Chile during the Pinochet regime.

Long-term perspective

Be that it may, I believe that inclusive growth approach must take a longer term view, especially when a country is planning for an aggressive growth agenda in the near future just like Sri Lanka. This was essentially the view expressed by Indian Minister P. Chittambaram at the recently-concluded Davos Summit. Let me attempt to argue this point in favour of Sri Lanka.

Youth skills

The Government’s commitment to provide skills development to 300,000 youth in the emerging new areas of business and trade will be key. At the last budget Rs. 16 billion was allocated for the next three years, which is opportune. Now the challenge is to drive inclusive training so that Sri Lanka is on line to practicing inclusive growth.

I guess the private sector must practice inclusive growth and specifically in the area of tourism, where current demand lies. May be private sector hotel schools can be set up across the country where new hotel projects are being approved so that inclusion naturally takes place.

The apparel industry’s recent drive to boost the image of working in the industry away from the current image of ‘Juki Girls’ syndrome as described at the recently held press conference augurs well in this drive to inclusive growth.

May be the tea industry must follow suit whilst in Jaffna the Atchuweli Industrial Zone will play an important part in preparing the youth of Jaffna to be strongly connected to the business and trade agenda of the country.

I hold the view that Sri Lanka has a supply chain challenge and not a marketing issue in developing the export industry. Hence, this focused increase in the skill area will surely stimulate the country’s supply chain development.

English – life skill

At the recent Budget, the proposal to develop 1,000 equipped schools across the island as secondary schools which will be linked to the primary education system driving English as a life skill is an interesting development. The reason being, with the knowledge of English and the expanding network of ‘Nena Salas,’ the reach to global media and knowledge houses will take form, which makes rural Sri Lanka connect to the world.

Given the high penetration of mobile phones and access to internet via mobile, the inclusion of people to mainstream communication will also drive inclusive growth. I guess the privatisation of the higher education system in progress now will also drive a higher inclusion and stronger equity for the youth of tomorrow to be part of the developmental agenda of the country.

Health

A key point that was highlighted by Indian Home Minister P. Chithambaram was that the number of people who get treated by the Government of India must be also taken into account when discussing the concept of inclusion in a country.

In this area Sri Lanka can take the high ground, with the country being ranked first in the world in the area of health and survival indicators. May be the recent flood will throw its own challenges into the process, but the good news is that statistics indicate the strong inclusion that exists in the country, with over 700 hospitals and almost 70,000 beds available.

Does inequality matter?

Whilst one can argue on the importance of inclusive growth from a private sector perspective, it’s sometimes important to have some degree of inequality. The logic being that it means there is a sense of reward for enterprising individuals and those who are innovative in their behaviour.

In fact it can force a person to repeat one’s behaviour and drive for a new economic order like for example the a youth from Horana who earns over Rs. 200,000 a month by doing caricatures for a global newspaper. However, this must be regulated so that this inequality will not result in a widening gap that causes destructive behaviour like land grabbing and avoiding the payment of taxes, to name a few.

Role of ADB/WB

If one analyses a country’s portfolio, the areas where funding is required initially are in energy, finance, transport and communication, which are essentially large-scale infrastructural projects. Once a typical country progresses to middle income status, then the need for such traditional lines of support will decrease as there will be many private sector institutions that will come into the funding mechanism.

Hence, it will be more prudent for organisations like the ADB and World Bank to drive a smoother interface between regional and local government level as well as focusing on driving trade between countries supporting governments in bilateral and multilateral trade agreements. This can also generate stronger inclusive growth within a region, especially in South Asia where inter-regional trade is at a low ebb of around 5.3%.

Next steps

Whilst Sri Lanka is going through drastic change whilst having to absorb external shocks, namely the looming food crisis and the oil price hike, we can see that if one is to practice inclusive growth, there will have be a focused effort on a slight change of strategy. This has to be done by the public and private sector and this is what makes this concept interesting.

I guess Davos 2011 set the stage for Sri Lanka to take this concept forward. In fact, it is one strategy that will ensure the avoidance of a political backlash. I guess this will drive a stronger implementation in countries that are governed on a political economy.

(The author represented Sri Lanka at the Asian Development Bank’s forum on ‘Inclusive Growth and Poverty Reduction’ in the New Asia and Pacific in Manila, Philippines, as a speaker and panel discussant whilst also being the keynote speaker at the Asia Pacific SME Summit in India recently.)