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Part IV – A journey towards a high income economy 2020
The Government has set ambitious development goals for 2020, being the year that reaches the third five years of ‘Mahinda Chinthana – National Vision’ development strategy, which is in keeping with the first five year program of 2005-2009 and the second covering 2010-2015.
Surpassing $ 7,500 per capita income in 2020 remains the income goal. Maintaining a 97% employment level with an increased number in the skilled categories of the workforce remains our employment objective. A zero maternal and child mortality and longer life expectancy of near 80 years, along with 100% secondary school enrolment and higher computer literacy, form our human development foundation targets. All districts to be made poverty free in terms of poverty headcount, while also freeing them from communicable and non-communicable deceases and malnutrition are the poverty reduction goals. A lower single digit inflation being the price stability goal, will gear improved financial management and supply side in the real economy. In this context, the underlying economic growth rate needs to be accelerated beyond 8%.
This scale of economic growth depends on the level of investments, its productivity, improvements in the policy environment and institutional setup to do business efficiently, application of research, technology and innovation, macroeconomic stability, national security and law and order. It is a much more challenging task than the previous two five- year phases, similar to an airplane that takes off on a long-haul flight, where the year 2020 will only be a stop-over destination.
This long journey needs to be supported through a strong National Budget which will bring macroeconomic security. It will be possible when the Budget continues to channel an increased volume of resources in support of core public investments in physical infrastructure, with parallel private investments shifting towards 30% of GDP from the current level of 24% of GDP. Equally, the Budget needs to divert a large volume of funds for the development of human resources and research and technology in excess of 6% of GDP, towards creating a productive and demand driven human resource base.
Complementing the thrust of the social responsibility of the Government, public spending on social security needs to be protected with special emphasis on the elderly and vulnerable groups. Channelling enhanced public expenditure to rural centric development initiatives and agriculture, fisheries and livestock is the core of the all inclusive development strategy of ‘Mahinda Chinthana: Vision for a New Sri Lanka’ to further strengthen food security. All these are viable only if the nation is capable of providing resources for national security, which is a primary responsibility of the Government. Our challenge in the years ahead while moving ahead in this journey towards success, is to engineer the national Budget in line with these considerations.
I would argue that these multifaceted considerations along with public investments in infrastructure done by the Government and state enterprises at a stable level of 6.9% of GDP, have helped to sustain increased private investments – including FDIs from 17.6% of GDP in 2009 to 24% of GDP in 2014, with considerable efficiency improvements as well.
The challenge in this regard is to raise private investments to 30% by 2020, focusing areas in which Sri Lanka has an edge while raising public investments to 8% – and bring total investments to near 40% along with continued efficiency improvements thorough improving the ease of doing business, and through technology, research, skills and manpower resource development.
Benchmarking success stories in development is important as much as making investment for growth, to keep pushing the growth momentum. Sri Lankan tea, which remained a primary export commodity for many years with a less than $ 600 million export income has gained momentum in recent years and is gaining grounds through many homegrown brands and an expanded domestic value chain, having entered high-end markets covering advanced and emerging economies, international hotel chains and airlines capable of surpassing $ 2.5 billion export earnings. This journey to achieve higher export earnings backed by a strong plantation economy and to retain its global recognition is being supported through recent Budget initiatives.
Apparel is another great success story that has concentrated on international branded clothing manufacturing, while maintaining high quality, being sensitive to timely delivery, adopting best business practices, ethics and respect to decent labour practices in good working environments and above all having looked at emerging markets such as India, China, Brazil, Japan and Russia.
Like our success stories of the apparel and tea industries, the Government also pushed certain other areas to take a further lead in terms of Country’s growth strategy. The Government supported IT/BPO business, which was around $ 200 million in 2007, and moving towards surpassing over $ 1 billion export earnings and creating around 100,000 well-paid employment opportunities by 2015 in the newly created policy and infrastructure environment supported by emerging skills in the labour force. This industry now projects $ 5 billion net export earnings, by 2022. Along with the skills development drive, the remittance income from overseas employment by Sri Lankan people is expected to cross the benchmark figure of $ 10 billion by 2016.
In 2013, the Government created a legal framework to develop free ports and bonding facilities to build a logistic services economy. New investments realised in logistic services, prospects of relocation of global business headquarters and the generation of new activities having combined many inputs mobilised to free port areas have paved way for Sri Lanka to capitalise on its strategic location supported by newly built infrastructure at Magam Ruhunupura and greater Colombo city. The logistic industry and provision of services have just begun to attract Sri Lanka as a destination in which headquarters of economic operations could be setup. New aspirations of a marine economy is emerging with new prospects created having rationalised charges imposed on importers and exporters, the creation of the Shipping Corporation, the proposed setting up of a Marine Industry Regulatory Authority, coupled with a low tax regime for professionals.
Manufacture of electrical products, machinery and spare parts has also gained momentum. The energy sector related activities that are expanding similarly, include the manufacture of high quality electrical equipment, electrical wires and cables. Shipbuilding and boat manufacturing have set the tone for high-tech industrial development. Local enterprises have made a dent in the manufacture of multiday fishery boats, agricultural machinery such as combined harvesters, etc. The jewellery industry has also recorded a notable expansion in exports as well as in domestic trade. Manufacture of construction material, ceramics, tiles and sanitary ware, office and household furniture, home décor, etc. provide new scales of investment opportunities to meet middle income aspirations. In promoting trade towards a greater volume of exports and import substitution, the trade and tariff strategy has been suitably directed in recent years. Free Trade Agreements with India and Pakistan as well as the proposed Free Trade Agreement with China to be launched shortly are being approached to secure a greater volume of trade with these large emerging markets. Our Government shares the view of the newly elected Prime Minister of India Narendra Modi, who said “Sell anywhere but manufacture locally”.
Tourism is becoming a lead industry, both in terms of foreign and local tourism and it is expected to record a turnover of $ 2 billion by way of foreign earnings in 2014, which is expected to be $ 5 billion by 2020. This has opened an array of opportunities benefitting those engaged in extending home stays and boutique type hotel facilities, indigenous medical practices combined with the country’s matured Western health system, hair and beauty care services, high quality herbal hair and body care products development, gift and souvenir manufacturing, furniture manufacturing, transportation, local agriculture and has pushed the expansion of the construction industry. These are some of the visible changes in the emerging economic structure of Sri Lanka and these new activities should create the next wave of growth. Almost all of them are in the hands of the corporate private sector and SMEs. Tea, rubber, spices, herbs, fruits, vegetable, poultry and apparel products and even high quality bottled water have entered a longer value chain process from simple labour usage to skills, technology and quality becoming brand driven businesses to be able to secure high prices and attracted up-end emerging markets.
Supporting this emerging scenario, while consolidating the new tax policy and fiscal policy strategy, a revenue administration and management system and an integrated treasury management system are being lined up to be fully operationalised by 2015. Concerted efforts are being made to simplify overlapping regulations, taxes and levies that have crept into the system due to the building up of layers of operational institutions, to reduce transaction costs and make doing business easier particularly to SMEs. The automation of the Sri Lanka Customs import export documentation process is being operationalised. Work is in progress for the provision of 24 x 7 Centralised Cargo processing facilities for cargo exports, to further facilitate exports.
In the process of advancing towards upper middle income per capita, the Government has recognised the importance of legal and financial sector reforms as announced in the 2014 Budget. In the legal sphere – reducing laws delays, setting up dedicated courts to handle commercial disputes and expedite early dispensation of such cases could be heighted as dire needs.
It is encouraging to note that introduction of technology to Courthouses, promoting Court Assisted Mediation and revision of Superior Court Rules are in progress to reduce delays, among other reform initiatives that are being implemented.
The financial sector needs to be repositioned to meet the needs of an emerging economy, crossing its traditional boundaries through new and diverse economic activities while also gaining ground in the region. The operation of a large number of small financial institutions with a low capital base is a constraint to satisfy regulatory standards, particularly in the backdrop of financial instruments getting diversified. It is in this background that the 2014 Budget proposed a medium term consolidation process to strengthen financial institutions that is now in progress. IT is another area of priority in policy and institutional development. Here again an inclusive policy strategy is being implemented in recent times bringing IT into both education and work places. These are steps taken to strengthen best practices in our governance structure.
Ladies and gentlemen, let me stress that in the process towards graduating as an high middle income economy, the remaining facets of poverty will have to be addressed, while taking safeguards to protect vulnerable groups, uplift livelihood avenues and provide gainful employment opportunities to low income households and while conserving Sri Lanka’s biodiversity and environment. Achieving a high income economy will make sense only if it moves parallel to addressing problems encountered in distant areas still vulnerable to adverse weather conditions such as droughts. Incentive structures and institutional settings should be geared towards promoting advanced water management technologies and drought resistant cultivation practices among farmers to address climate related risks, including having in place stand-by funding support to mitigate extreme risks.
Considering the importance of the rural agrarian economy, the SMEs, food security and environment priorities, the continuity of the present rural centric approach towards development is likely to provide greater prospects to become a high per capita nation that is free from poverty and has an acceptable level of equity with regard to household and regional income distribution. In this process, given the high standards that are already achieved, it is equally important to target a zero maternal and child mortality and address emerging challenges of non-communicable diseases among the population to improve quality of life and productivity of the workforce and maintain a healthy population whose life expectancy on average would be 80 to 85 years during the next 10 years. Hence surpassing a higher per capita growth process has been made inclusive.
This brings together the synergy of underlying five hubs namely, shipping, aviation, energy, trade and commerce and tourism, forming the foundation to drive the economy as a strategic global destination. You would see that it is structurally different from the legacy up to 2005 that I explained. It needs to double and a well integrated effort by the tri service, the civil service and the private sector, working on this common national vision.
Part V – Conclusion
In Sri Lanka, the post 2005 development journey and the post conflict take - off are vision driven, by the extraordinary leadership of His Excellency the President Mahinda Rajapaksa who helped the country to reach calm waters having sailed in rough seas, while placing the economy on an inclusive development strategy. The country now has strong prospects of reaching $ 7,500 per capita by 2020 and entering a transitional phase to become an advanced economy by 2035. Succeeding this challenging transformation demands further strengthening of the ongoing rural centric development strategies to facilitate livelihood development and food security, a social security system for the vulnerable, a preserved natural environment with bio diversity, infrastructure development, uncompromising national security and peace, law and order and maintaining continuity from a policy perspective to boost business confidence to advance the country steadily. Hence, we need to place trust in the nation building strategy of Mahinda Chinthana: National Vision, to make 20/35 development goals, a reality.
Sri Lanka as an emerging nation, which is increasingly integrating with the global economy needs to be attentive to development taking place around the world. Advanced G7 nations as shown in the recent Economist magazine, are performing below the potential growth in their countries owing to productivity lags, aging population as well as aging infrastructure. All these nations are heavily indebted and run high fiscal deficits requiring difficult reforms with strong political commitment. The recent financial crisis along with the slowdown witnessed by these economies, have raised many structural problems connected with labour markets and immigration policies. Newly emerged BRICS nations too have slowed down and are faced with constraints to sustained high growth rates similar to those of past 20-30 years due to compressed demand from advanced economies as well as strong exchange rates, high labour and material costs, environmental issues and social safeguard concerns.
Initiatives are under way to form a new multilateral bank of BRICS nations, a bank of SARRC nations and a bank for Asian Infrastructure Investment Bank led by China to address capital needs of emerging and developing countries as well as to address repeatedly unheard concerns of developing countries for years by existing multilateral financial institutions like the World Bank and IMF. The use of trade sanctions has undermined the thrust of global trade and investment arrangement under WTO. Similarly the stand taken by the newly elected Government of India recently to oppose WTO led trade reforms in respect of agriculture in the interest of food security reflects voice of Asia on this matter. The lead in Asia Pacific region in the global economy signals for a new economic order. The operation of NGOs in a non-regulatory environment has become a threat to financial management, inclusive development and law and order itself. Widespread terrorism has threatened shipping, aviation and financial transactions that risks trade, tourism and investments. Computer crimes, drug trafficking, smuggling are certain other facets of risks associated with the global economy.
Adjusting to manage these risks and de risking the economy suitably are also challenges that we need to be mindful of, without being complaisant with the many good achievements made so far.
Challenges are not new. Every failure in history is a lesson to learn as to why challenges should not be overlooked or mismanaged. Our history has amazingly rich days of glory and national pride not second to any other country and the human tendency is to boast about such glorious days. But we know that we have also had bad times, full of misery. We could be mindful of possible risks, judging by historical experiences. I feel that although history is the past, the present and the future invariably become history. For us, the year 2005 is now history. Our balance sheet in 2014 is distinctly different from 2005 and in fact richer than then. Yet in 2020, the year 2014 would be history. Therefore, we should be determined to manage the present and future well, if we are to become a nation that can speak of a proud history. We should therefore try to prevent the recurrence of historical mistakes.
This compels us to ensure that nation building is made on a solid foundation – on the five steady pillars that I noted earlier, namely, national security, food security, energy security, environment security and macroeconomic security, while also not compromising human resource development, peace and prosperity. Managing all these require us to be vigilant at all times in all aspects of our respective responsibilities in public life. The countries need to be vigilant to national security risks as well as economic and environment risks. It is sad if we have to say at any time that we underestimated the risk as now we see in respect of the Ebola virus.
I believe that success comes as our President in every aspect of his management has shown that “start by doing what is necessary; then do what is possible; and suddenly you are doing the impossible”.
Thank you, and my best wishes to Defence Seminar 2014.
