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Tuesday, 1 October 2013 00:26 - - {{hitsCtrl.values.hits}}
I still remember how one of the financial industry stalwarts mentioning at a Bankers’ Association conference that the idea of the financial hub in Sri Lanka had been in the system for over 20 years, but had not been made a reality. Given that CHOGM is to be staged in Sri Lanka, it would have been ideal to announce this idea to the world at this event. But the million dollar question is, is the industry ready?
Why a 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 super power economies, which tell us the competition that Sri Lanka is up against.
SL’s financial sector
If we go into the details, Sri Lanka’s financial sector contributes to 10% of the country’s GDP. A point to note is that it is way above the counter parts of the regional countries with Thailand at a 6.2% and Bangladesh at 9%, just to name a few.
Sri Lanka has around 22 commercial banks that operate in the country with 5,100 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 being a sixty billion dollar economy.
The local issue
If one analyses the World Competitiveness report, an area that comes out strong for correction is access to finance. In any public flora or private sector business development this area of access to finance gets highlighted a multitude of times. The logic being that if we do not drive lending to around 3.5 trillion, we cannot achieve an 8% GDP growth that Sri Lanka is visioning.
In fact, the IMF last week questions when private sector credit has expanded at single digit, how does a country GDP grow by 5%? Whilst we grapple with the growth agenda in the domestic market given these insights, we can also go global and see how this takes shape in new Sri Lanka.
The choice of going global
Apparently the best brains in the country are normally housed in the banking industry and developing a product range and focus 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 policy makers 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 has 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 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. The industry though do not have their own raw material 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 and today, this business brings in almost a five billion dollars plus into the country and now targeting to be the apparel and logistics of South Asia. But a point to note is that given the strength of the financial sector of Sri Lanka and its close link to the key policymakers on a day-to-day basis the task of driving in policy reforms in making Sri Lanka a financial hub will be an easier challenge.
Suitable brand
Whichever strategy that the industry selects, one of the key pegs that need to be addressed is to make brand Sri Lanka suitable. Currently we must accept it that the brand is in question from many fronts and especially on the human rights fronts.
A point that must be noted is that unless we earn a positive imagery 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.
Next steps
The financial industry must take a hard look and decide if a financial hub fits into the developmental template and if so a resolution must be passed so that it is official may be at the forthcoming Annual Bankers’ Conference.
If yes, then a task force needs to be appointed so that a passionate team takes responsibility to champion this task just like what the apparel industry and the software industry has practiced.
The financial hub proposition requires a careful selection of target customer just like what Malaysia did of zeroing on Middle East, Western Africa and North Africa. We must do the same from the outset.
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.
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.
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.
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.
A regular business health check must be carried out so that the path to being a financial hub is monitored with the necessary changes.
Finally the concept of a financial hub must be explicitly stated in the ‘Mahinda Chinthana – Idiri Dekma’ so that that it will be mentioned repeatedly at forums and the ‘Task Force’ will find it easier in its deliberations.
Conclusion
Whilst we work towards making Sri Lanka the ‘Wonder of Asia,’ with the already planned five hubs, there is an opportunity for a financial hub also to be included to this architecture that will fashion the future economic landscape of Sri Lanka. However, the challenge is how it is championed by the task force that I guess Sri Lanka will have to watch.
[The author serves the United Nations (UNOPS) as the Head of National Portfolio Development for Sri Lanka and Maldives based in Sri Lanka whilst also serving the Government of Sri Lanka on many policymaking bodies in the area of trade and business an honorary capacity. He is a former Chairman of the Sri Lanka Export Development Board/National Council for Economic Development under the Presidential Secretariat and the Sovereign Rating Team of the Central Bank. In 2009 he was appointed to the President-appointed 10-man committee on developing the corporate tea sector of Sri Lanka. The thoughts are strictly his personal views.]
