Monday Nov 25, 2024
Monday Nov 25, 2024
Wednesday, 30 January 2013 00:16 - - {{hitsCtrl.values.hits}}
Sarath Amunugama, Senior Minister for International Monetary Co-operation and Deputy Minister of Finance, Nivard Cabraal, Governor of the Central Bank of Sri Lanka, Members of the Diplomatic Corps, Prof. Uditha Liyanage, the keynote speaker, Past Presidents of the National Chamber, members of the Chamber, ladies and gentlemen.
It is a great privilege to address you as the 30th President of the National Chamber, a chamber conceived and formed soon after independence by an eminent group of national business leaders who had the foresight to establish a chamber that represents the true national business community. There was much expectation in the newly independent country at that time, and our founders represented all Ceylonese of different races and religions.
Today, after the end of a 30 year war, the expectations are much the same, and our membership is eagerly looking forward to the leadership of the chamber to deliver their expectations. We stand alongside our members to help contribute to this new Sri Lanka.
Sri Lanka is now poised to leap forward, and it is a time for us to build a greater state of readiness in time to benefit from the recovery in Europe and the US when it finally does come. In fact, as Brazil’s President Lula Da Silva said in 2007, when his country was enjoying a boom time, it is the ‘Momento Magico’.
This is Sri Lanka’s ‘magic moment’. But it is equally important that we do not fritter away this moment, that we strategise to achieve our goals and that chambers too look positively at the opportunities that are unfolding.
My address to you therefore will focus on a few points; why the private sector is the engine of growth and how it should be nurtured, the importance of quality, productivity and innovation in the transition phase, what our chamber would look forward to in Government policy making, and what our chamber’s focus would be in the near term.
Fortunately many of the macro indicators of the economy are very encouraging. Although not all will agree, we must place on record the following positive indicators which are conducive to the business sector.
Positive indicators
There is an exciting infrastructure drive, addressing long standing constraints to private enterprise activity. Unemployment has declined considerably and poverty alleviation has been impressive. Inflation has been reigned in to single digits. There is a concerted effort to control the budget deficit and build a better Balance of Payments situation.
Foreign reserves are at comfortable levels and exchange rates and interest rates are more stable. Most notably, GDP growth has picked up at a steady pace – and this is amidst a very difficult global economic scenario where even the emerging giants of India and China have seen their growth falter a bit.
The country has a vision to reach a per capita income level of US$ 4,000 by 2016. Some say Sri Lanka will become a ‘Breakout Nation’. In his book – ‘Break Out Nations; In Search of the Next Economic Miracle’ – Ruchir Sharma, a Managing Director of Morgan Stanley Investment Bank defines a ‘breakout nation’ as a country that beats expectations and grows faster than other countries in the same per capita income bracket.
This, coming from such an emerging markets expert, is certainly exciting. While we no doubt welcome such an economic miracle, we certainly do not want wide disparities, such as we have seen in some countries where economic miracles took place, where one class is spending money lavishly in decadent enjoyment while the poor are still in slums barely able to survive.
What is needed is more inclusive growth and a more equitable standard of living for our people. We need to bridge the economic divide. We need to be mindful of this. We don’t want to leave room for anything like an ‘Occupy Wall Street’ movement to happen here.
But sustained economic performance does not come by wishful thinking alone. In the mid-90s we were benchmarking alongside the East Asian Tigers, and declared our intention to become a Newly Industrialised Country, an NIC. There was confusion on what an NIC meant. A year or two later, we had power cuts for over 12 hours, and I remember C.V. Gooneratne, the then Minister of Industrial Development, saying that we have already reached NIC status if NIC meant a Non Illuminated Country (NIC)!
A coordinated strategic plan
We need a coordinated strategic plan for the country. Our Chamber is not an economic policy making institution and will therefore not be prescriptive, but we keep abreast of what is happening in the outside world, in terms of how it would impact on Sri Lanka and also in terms of good policies that seem to have worked elsewhere.
A recent study on 13+ countries that had sustained growth of 7% or over for at least 25 years continuously had some common features. They were:
These countries weren’t only the ones you might intuitively think about – Brazil, China, Japan, South Korea, and Singapore, but also countries like Botswana, Malta and Oman. While there is no guarantee that what worked for others will work for us, it is useful to benchmark and see what useful lessons we can learn.
While we are proud of our economic achievements, there are also warning signs ahead. We talk with pride that unemployment is now low. While this achievement is to be lauded, we must realise that this causes problems to many manufacturing companies which are labour intensive. We must not fall into the ‘middle income trap’ as we have seen in some countries, like Malaysia.
In the industry I was associated with until recently, labour was never a problem in the 1990s. There were thousands who were in the waiting list. Today, it is almost impossible to find new recruits because they want to work in air-conditioned environments mainly in shops and supermarkets even for a lower pay. Many of our chamber members complain that labour shortage is a huge problem and even suggest that the Government should do something about it.
There is nothing that the Government could do. It is a reality that has to be accepted. The solution is to upgrade the industries which will require more skilled people. There is a role for the Government here, in upgrading the skills of our workforce, building a productive and competitive workforce, capable of working with the changing dynamics of the world economy.
The example of China is a good eye opener. The 2009 documentary, ‘The Last Train Home’, shows an estimated 130 million Chinese taking the train journey home to their villages for the New Year holidays. Many wait day and night for a space on the train and some even wear diapers to avoid using the toilet. Many workers do not return after the holidays and companies had to resort to various incentives to get them to return.
What was the main insight here? Hourly wages in China rose twice as fast as productivity, forcing companies to increase prices and therefore lose the price advantage of their exports. In Sri Lanka too wage increases that outstrip productivity increases can be very damaging to competitiveness. We need to be proactive.
This is why regular consultation is necessary because industries will notice the problems much before they appear on the radar of economists and Government policy makers. The answer is not in higher unemployment figures but in upgrading our industries to the next level of technology, and upgrading the skills of our people.
The private sector
The private sector – large and small – is well recognised as the backbone of the country’s economy. The role of and the contribution that can be made by the private sector is very readily apparent and has been made abundantly clear by the experiments of some major economies that allocated a prominent role to the private sector.
Several waves of reforms in these countries have sustained growth for extended periods. Although Sri Lanka liberalised its economy even before India, the war years constricted growth. Decades of a controlled economy had stifled the private sector creativity. Unfortunately, even today, the private sector is cautious because of policy uncertainty.
With a policy objective of achieving GDP growth of eight per cent or higher, Sri Lanka would need to raise its annual rate of investment from the current level of around 26% of GDP to at least 35%. With increasing pressures on the Government budget, and public investment likely to be capped at around 6%, it means that this higher investment ratio would need to come almost entirely from private investment.
A strong private sector with substantial investment going into it can make a significant contribution to the national economy, and this cannot be stressed enough. But this doesn’t happen automatically. While the Government has already provided many incentives and positive policies to encourage the private sector in recent Budgets, much more needs to be done. Especially in providing a conducive climate for the private sector to truly thrive
Meanwhile, our Chamber is very passionate about the Small and Medium Enterprise (SME) sector. We believe that SMEs can be the driving force of this new growth, if given the right environment to thrive. We need to move beyond thinking of only concessionary loan schemes as the ‘magic bullet’ for SME development.
When you look at the SME development of neighbouring countries like Philippines, Malaysia and Thailand – why did their strategies succeed? Because they focussed on all aspects of SME development – not just loans. They created eco-systems of business development that helped SMEs unleash their potential – technology transfer, better management techniques, helping them become competitive and go on to exports.
We can learn from these strategies. Our chamber has done a lot to promote SMEs, and we will continue to do so. But we need to push further, and the government has a strong role to play. In a recent survey of our SME members done by the Institute of Policy Studies together with the National Chamber to identify what SME constraints are and what they want, a significant proportion said that the support from Government institutions and agencies involved in SME development can be much better.
Quality, productivity and innovation
Sri Lanka is a transition economy and no longer competitive on cheap inputs that helped particularly exports to be competitive in the past. We now, more than ever, need to compete on factors other than price. We need a sustained program from both the private sector and the Government in creating firstly a national culture of quality, productivity and innovation and secondly a willingness to apply modern techniques at enterprise level that will improve quality, productivity and innovation.
Some Asian nations such as Singapore, Thailand and Malaysia are classic examples of where a quality and productivity drive initiated by the Government has been transformative, while others such as Japan have seen the private sector taking the lead after the initial steps by the Government.
Some very significant productivity improvement achievements have been made in the public sector of Sri Lanka, as evidenced by the new procedures at the Passport office, the Registrar of Motor vehicles and the Registrar Generals Office. Unfortunately these efforts are concentrated in small pockets and still relatively inconsistent, while the private sector initiatives have been lukewarm at best, except among some industry leaders.
The declaration of 2013 as ‘The Year of Excellence in the Public Service’ is commendable. Singapore’s Lee Kuan Yew strategically improved the productivity of the public service in the 1980s to create a more conducive environment for the private sector. Our survival and growth would, to a large extent, depend on our ability to improve productivity of Government services which will facilitate business and in the ability of the private sector to adapt effective techniques and greatly improve its quality and productivity.
The concept of productivity at enterprise level is still not well understood. I am not talking about Total Factor Productivity measured by economists but enterprise level productivity. Productivity is still often associated with just labour productivity and many assume that it means “working harder.”
In fact, Frederick Taylor the most famous pioneer of productivity showed over a century ago that applying scientific techniques of productivity improvement will actually reduce fatigue, while producing more, and affording higher wages. In a study I carried out for the Asian Productivity Organisation a few years ago, I found that the knowledge and application of modern productivity-enhancing techniques is woefully inadequate in Sri Lanka compared with other Asian countries. If we are ‘looking East’ to grow like the Asian Tigers, we must to focus on productivity enhancement the same way they did.
The Asian Productivity Organisation was created in the 1960s as an intergovernmental organisation after realising that Asian countries were lagging behind in economic growth because of low productivity. Although it may be argued that some Asian countries have achieved rapid economic progress recently without a significant improvement of productivity, it is unlikely that such growth can be sustained in the long term.
Sri Lanka is perhaps the only member country of the APO that has no statutory body in charge of productivity, it only has a secretariat. While Singapore has integrated its quality promotion and standards body with its productivity promotion body, in Sri Lanka they still operate in their own compartments. If we are serious about promoting quality and productivity the first step is a suitable institutional framework and next would be a country-wide plan of action.
About a decade ago a ‘National Productivity Policy’ was prepared with the assistance of a USAID consultant. Substantial resources in terms of consultation took place in conceptualising the policy. Unfortunately, it subsequently appeared that the objective was merely preparing the document – once again proving that Sri Lankans are weak in implementation.
Japan is well known for its Kaizen culture where everybody thinks of improvements all the time. Masaaki Imai titled his famous book ‘Kaizen; The secret of Japan’s Competitive Success’. Today incremental improvements with Kaizen are considered insufficient and it is Kaizen coupled with innovation that is in vogue.
Unfortunately in Sri Lanka, change is not popular and therefore Kaizen and innovation are often relegated to a lower position. Sri Lanka desperately needs a new way of thinking. The productivity programs in Singapore and Malaysia were driven by the Head of State. I believe we need something similar here in Sri Lanka.
What our chamber will focus on
The National Chamber stands ready to play an integral part in the exciting new growth phase taking shape. Primarily we need to serve our members and assist them to reach higher levels of growth. We will do this by educational programmes on management, business improvement techniques, and others related to statutory, regulatory and other requirements. We will represent them to the relevant Government agencies and assist them to overcome obstacles and inhibiting issues they may encounter. We will assist them in promoting their business locally and overseas.
Meanwhile, we will always keep in mind our national duty. We will contribute our ideas and insights to Government Policy making and synchronise our efforts with the Government’s economic policy framework.
Thanks to our previous councils led by our eminent presidents, our Chamber has been growing steadily over the years. I have worked with six Presidents during my tenure in the Council and all have contributed immensely with great commitment and dedication. The immediate past President Mr Asoka Hettigoda was determined to enhance the training and auditorium facilities and created a new auditorium and meeting facilities in record time. It makes my task much easier to carry out many more programmes for our members in the future in this new facility.
How the Government can benefit from the chamber
Finally, my speech would not be complete if I don’t mention the useful role of the Chambers for the Government. All chambers have a large and diverse membership and therefore are privy to the opportunities and obstacles across all sectors in the economy. They are in the best position to advise Government on appropriate policies that will create a conducive enabling environment.
Responsible chambers will never advance petty interests that will be at the expense of the national interest. The Government could well use this huge reservoir of knowledge in formulating policies. More discussion and consultation will invariably result in policies that are more acceptable and even more importantly policies that will spur on faster growth.
I am not for a moment saying that there are no consultations now. Particularly in the preparation of budget recommendations, the consultation process is a good initiative. This must not only be widened, but it must be deepened. It is genuine consultations that really matter.
Therefore I urge the Government. Please have regular consultations with chambers. It will certainly be a win-win result.
Finally, I repeat that this is our momento magico – Sri Lanka’s magic moment. The goal of the chambers and the goal of the Government is the same. We need to synchronise our efforts to bring sustained, fast growth to our country in an inclusive manner. As I pledge my commitment to the Membership of the National Chamber, and we as a Chamber commit to partner the nation to achieve the status of ‘Miracle of Asia’, I must conclude by placing on record my deep appreciation of the contribution made by the outgoing President and the Council and all those associated with Chamber activities.
May I now conclude, by wishing every one of you a pleasant evening and a productive and happy 2013.
