Sunday Nov 24, 2024
Sunday Nov 24, 2024
Wednesday, 6 August 2014 01:40 - - {{hitsCtrl.values.hits}}
Dignitaries, distinguished past chairmen, distinguished guests, ladies and gentlemen, good morning and a very warm welcome to the 15th Sri Lanka Economic Summit. The Ceylon Chamber takes great pride in organising this event which brings together the best and brightest minds in the public and private sectors of Sri Lanka to contemplate on the opportunities and challenges that lie ahead of our country’s economy.
At the very outset, let me on behalf of the Chamber, thank the many individuals and organisations that helped make this years’ summit a reality. A special word of thanks to our speakers from overseas; they’ve flown many miles to be here at the summit.
This year’s theme is ‘Sri Lanka 2020, Towards Surpassing $ 7,000 Per Capita’. This is indeed an appropriate subject since Sri Lanka is set to achieve a $ 4,000 per capita in 2015 and the time is right for us to look beyond and fix a new target. Over the next two days we will discuss our country’s transition from lower middle income to middle income. Topics will include amongst others, the Asian opportunity, the brands of the future, integrating the regions into the development process and the need for an education system that drives competitive advantage.
A per capita of $ 7,000 will make Sri Lanka a significantly better place. Rising incomes will mean improved standards of living for all Sri Lankans and greater success for our corporates. Road networks, power supply, the education system, public transport, health care, connectivity, entertainment and recreational facilities; all of these and more would move up many notches. Our cities will be cleaner, our buildings taller and our parks greener.
However, a few challenges remain as we make the transition from $ 4,000 to 7,000. Let me outline 3.
Private sector will need to re-think
First, the private sector will need to re-think. Imagine a consumer with double the per capita income of today, whom I shall call, ‘Consumer7000’. Thanks to rising incomes and cheaper access to modern communications tools such as smart phones and tablets, he or she would be far more connected. They would be more travelled than the consumer of today.
Due to greater connectivity and easier access to information, ‘Consumer7000’ would be more aware of what is available in the world and this in turn will make him or her more demanding. Our products and services will need to match up in terms of features, quality and price. They will demand global brands. We – the private sector – will need to compete with imports.
Rising incomes mean higher wages. Do our product and service portfolios allow for higher input costs? Can our brands demand a higher price to offset the increased expenditure? Are we sufficiently innovative, do we have the R&D capability, do we have the technical skills and do we have the partnerships to meet the needs of ‘Consumer7,000’?
We don’t have much time since 2020 is just five years away. We must make a start now. As a first step, I urge the private sector to establish strong partnerships with the universities. The universities are an incredible reservoir of knowledge which the private sector must leverage for innovation and R&D.
We must not leave the poor behind
Second, we must not leave the poor behind. I was surprised to find that almost 75% of the world’s poor – those who earn less than $ 1.25 a day or approx. Rs 5,000 a month – live in the middle income countries. Some of these countries have reached or are very close to a per capita income of $ 7,000. This is a result of a very wealthy minority skewing the data towards a middle income per capita.
In Sri Lanka, approx. 24% earn less than $ 2 per day (or Rs. 8,000 per month). Sri Lanka must strive for more inclusive growth. This is also in the interest of the private sector. Businesses would benefit more with a broad group of consumers earning a reasonable income rather than with a small group of very high net worth individuals. Therefore, the net of development must be cast wide across all districts of Sri Lanka, not just a few.
Fast-tracking SME development will also help. SMEs desperately need access to skills, affordable finance and supply chain linkages with the larger firms. There is a need for a multi-stakeholder approach to create an eco-system to nurture SMEs. The Ceylon Chamber has recognised this need and is in the process of implementing an SME capacity building program. This program will be launched at a National SME Forum scheduled for October this year.
The middle income trap
Third, is the middle income trap. In the context of today’s economic summit it is pertinent to note that the middle income trap is said to come into play when a country’s per capita income is between $ 5,000-10,000. Over the last 65-70 years, as many as 100 countries made the transition from low to middle income. But not many made it from middle to high income.
It is relatively easy for a low income country to step up. Cheap labour, trade concessions, concessionary funding by international lending agencies, etc., all help in this process. However, to move from middle to high income is more challenging. The cheap labour advantage is lost and with it, the ability to compete with the poorer countries. The technology advantage and the market access enjoyed by the rich countries pose a different set of challenges. The answer to the conundrum is to move up the technology ladder and to find markets that can absorb the new offerings. This means innovation and R&D. And export markets.
Dr. Duvvuri Subbarao, Former Governor of the Reserve Bank of India speaking at the 25th anniversary Convention of the Association of Professional Bankers of Sri Lanka, laid down a 10-point strategy to avoid the middle income trap. Amongst the points he made, three stood out. He spoke of good governance which in his mind was the ability to prioritise the long term against short term compulsions. He said sunset industries – i.e. those whose products and services that have no future – must be eased out. He further said that enhancing the lifecycle of such industries through subsidies, tariffs, exchange controls, etc., is counterproductive. In their place, sunrise industries must be encouraged. And he also spoke of the need to regulate but doing so efficiently. He noted that structural adjustments involve the public sector yielding to the private sector. He stated that the challenge is to regulate efficiently in a manner that the benefits always exceed the costs.
The Sri Lankan regulatory system as it applies to the private sector is in need of overhaul. Many of these regulations are perceived as a deterrent to investment and doing business rather than an enabler. Going forward, a consultative process between the public and private sectors is essential before new regulations are implemented. The extensive use of ICT will help make doing business easier. So will a single window to facilitate international trade and a genuine one stop shop to fast track investments both local and foreign.
It would be beneficial if our labour regulations facilitated the creation of employment rather than suppressed it. Whilst the private sector seeks reform, it is also true that – at times – our actions don’t lend itself to that process. It is common perception – mostly unfair – that we care for nothing but our next quarter’s bottom line, don’t pay proper taxes and use influence to bend the rules. This makes the process of reform difficult. It is our actions – not our words – that will change this perception. To many, the relationship between the public and private sectors seem adversarial. Instead, it needs to be one of partnership.
A milestone in a much
longer journey
The year 2020 is just five years away. In this period we aim to double our per capita income to $ 7,000. Even on the basis of a 100% conversion from per capita to individual income, this would mean that five years from now the average earnings of a Sri Lankan would be Rs. 77,000 per month at current exchange rates.
To put this into perspective, every one of you here this morning earns more than this today. Therefore, the $ 7,000 target is by no means an end. It is but a milestone in a much longer journey that must transform Sri Lanka into a high income nation.
Let me leave you with that thought whilst wishing you a productive and stimulating conference. Thank you.
