By W.A Wijewardena –
Three growth challenges facing Sri Lanka
Sri Lanka has to tackle three main challenges in its march toward prosperity.
First, it has to sustain a high economic growth rate unabated in the next two to three decades without allowing it to slip away once a high growth has been recorded as it has dropped during 2012 and 2013. Second, it has to elevate itself from the current lower middle income country to a higher middle income country by at least 2020, just within a seven year period. Third, from there onward, it has to become a rich nation within another generation or so and the foundation for reaching that goal has to be laid now itself.
Way forward: Becoming a high-tech country and relying on the private sector
All these are daunting challenges but not impossible to meet if Sri Lanka continues with two policy strategies and sticks to them resolutely. The first is that it has to convert its current simple economy to a complex economy by becoming a technologically advanced nation.
The second is that it has to integrate itself to the global economy having relied on the private enterprise and initiative jettisoning the wasteful and inefficient state expansion policy currently being ardently pursued.
The lukewarm signals from Budget 2014
In the Budget 2014, a passing reference has been made regarding the first with a few unrelated and uncoordinated suggestions to improve the country’s technological base marginally. With regard to the second, the Budget 2014 has reaffirmed its conviction to expand the State sector and no mention about its using the private initiatives to drive the growth momentum forward.
Message from Budget 2014: We are believers in the State and not in the private sector
Thus, the whole budgetary strategy outlined in the Budget 2014 has been to continue with the current State expansion policy. It has vowed to continue with State enterprises, because it wants to maintain “a fair balance between the public sector and the private sector to ensure economic and social progress in our country” (p 4), a statement that openly decries the ability of the private sector to deliver “economic and social progress”.
It has taken pride in renationalising some of the previously privatised state enterprises that include the Sri Lankan Airlines which has accumulated operating losses of some Rs. 76 billion after the takeover by the Government and is projected to make a thumping loss of Rs. 27 billion during 2013/14. The Budget 2014 also has claimed credit for recruiting about 100,000 unemployed graduates to the State sector (p 5) though many of them are just distributing vegetable seeds to households under the Divi Neguma program.
Filling the engine with too many inefficient drivers
This is a clear departure from the previous strategy of the Government which believed that the private sector was the “engine of growth” and the State sector was the “driver of that engine”. That driver role required the country to put an efficient engine driver on the seat.
But, the current policy, it seems, has placed too many overburdened and inefficient drivers on the seat of the engine. The result would be neither the public sector nor the private sector will be able to do their best for the country.
Budget proposals on science and technology
The Budget 2014 has spoken of three main proposals to support the development of the country’s science and technology base. First, in a bid to enhance research and food technology, the Budget has proposed to allocate Rs. 500 million (about four million dollars) for lab facilities, equipment and research work by “agricultural faculties in provincial universities at field level together with successful ventures in dairy, poultry, inland fisheries, animal husbandry and food technology”.
This is less than the money spent by the Government previously amounting to Rs. 659 million for the now underperforming Ranminithenna tele-cinema village in the down south (available at: http://www.asianmirror.lk/english/index.php/news/6322-only-a-knick-knack-has-earned-from-ranminithenna). Since there are four such regional universities with Faculties of Agriculture, each university will get about $ 1 million under this proposal.
Second, the Budget 2014 has proposed to promote the IT sector in order to elevate Sri Lanka’s ranking in the Global Competitive Index to within top 30 countries and double the foreign exchange earnings from IT from the current $ 600 million to $ 1.2 billion by 2016 (p 17). Third, it has been proposed to set up a National Science Centre with foreign assistance in order to “enhance science and technology knowhow among our people and also to motivate our youth to pursue studies in related streams” (p 18).
Strategies proposed in Unstoppable Sri Lanka 2020
In Chapter 6 of the Government’s Medium Term Public Investment Strategy titled ‘Unstoppable Sri Lanka 2020’ (available at: www.treasury.gov.lk), there have been further proposals to build a “culture of innovation and research”. The strategy has focused on four main areas: The building of the Research and Development (R & D) Infrastructure in the State sector universities and research institutes, the selection of priority areas for development, the enhancement of the scientific and technological resource base and the transfer of technology to the grass-root levels.
Four outcomes have been identified out of these policy interventions: Increasing the number of scientists known as the scientific human capital stock, developing enterprises that use high-technology, expanding the country’s capacity in science and technology and protecting innovation and intellectual property rights.
University townships attached to four State universities
In building the R & D Infrastructure, the main focus point has been to set up four university townships associated with four state universities, namely, Jaffna, Wayamba, Ruhuna and Sri Jayewardenepura. According to the strategy paper, the sole purpose of the township programme has been to “generate a significant development impact on the area located around the selected university premises”. Thus, the respective universities will undertake various research programmes to benefit the local economies concerned.
Accordingly, Jaffna will concentrate on contributing to agriculture and industry in the Northern Province, Ruhuna, the marine sector in the southern area, Wayamba, the general economic activities and Sri Jayewardenepura, the higher learning. These are simply selected marginal developments that do not change the science and technology landscape of the country.
Priority is to support ‘import competing industries’
According to the strategy document, the selection of the priority areas will be based on both the development oriented applied research and knowledge enhancing fundamental research. This is evidently a goal which Sri Lanka will not be able to attain since it has no built in capacity to undertake fundamental research of worth competitively with other nations.
The strategy document has emphasised that areas selected will support the Government’s current move to go for what economists call ‘import substitution industries’ but presented by the Government as ‘import competing industries’. But what the country needs is to enhance its high-tech export capacity which now amounts only to less than 1% of total exports.
Sri Lanka is poor of scientists too
The increase in the number of scientists and technology experts is to be attained by expanding ‘science education’ at school levels and increasing the student intake to the country’s state university system. Sri Lanka has only 237 researchers per million of people, well below the average of scientists in developing countries.
In contrast, Singapore which is an industrial and high-tech powerhouse in the region has 6,175 researchers, about two times higher than the average number of researchers in developed countries. This shows where Sri Lanka stands at present and how much work has to be done in order to harness benefit from science and technological developments.
Technology transfer to grass-roots
What has been proposed under the strategy for taking technology to grass-root levels is simply linking technology knowledge to small and medium industries or SMEs to be undertaken by the entrepreneurial youth in villages and protecting the intellectual property rights of new inventors.
These are two different strategies which should have been tackled separately and not together in a strategy planning to take technology to grass-root levels. However, the protection of property rights, not only the intellectual property rights, is a basic requirement for any economy to function well.
But the essential ground condition necessary for protecting property rights is the observance of the rule of law and maintenance of the law and order supported by an independent Judiciary which according to many analysts are far from the desired in Sri Lanka today.
Only marginal improvements in science and technology base
These proposals by the Government to develop the science and technology base of the country will make marginal improvements to its current base. They are in no way sufficient to convert Sri Lanka’s simple economy to a complex economy and elevate itself to the club of rich nations.
What is necessary is to have a science and technology master plan, give the highest priority to its implementation, prepare a credible road map and monitor its progress from the highest level of the country’s administration. This is what was done by countries like South Korea and Singapore to acquire the mastership in science and technology within a quick period of time.
South Korea: Invent and commercialise those inventions
South Korea had a series of five-year master plans to develop its science and technology base starting from 1961. The Government invested heavily in R&D, making it the eighth largest R&D Investment country in the world within a few decades. By 2004, it had invested about $ 22 billion annually, contributed both by the Government and the private sectors, in R&D amounting to about 3% of GDP. The share of the private sector has been about 75% of the total.
Having built the science and technology base, it has taken effective policies to transfer technology to enterprises and commercialise the technology so developed. In other words, the Government supported the development of science and technology but relied on the private sector to use it productively in the economy.
Singapore: Technology through FDIs and learning from big giants
Singapore on the other hand, while using foreign direct investments or FDIs to have modern technology transferred to the country, initiated a program to elevate its educational system to a world class level. As Lee Kuan Yew has elaborated in Volume Two of his autobiography,
‘From Third World to First,’ all universities were instructed to switch over to English as the medium of instruction, have collaborative programs with higher educational giants like the Harvard, Chicago and MIT and produce graduates of worth who are highly demanded by the industry. The result was the development of a world class university system of which some are now ranked within the top 20 of the best global institutes of higher learning.
From a mere wish list to concrete planning
Given the strategies adopted by other countries to develop the science and technology base as a promoter of continuous economic growth, Sri Lanka’s strategy is simply a ‘wish list’ that needs a better treatment. It has not clearly identified the priority areas in which Sri Lanka can and should excel taking into account its development target within the next two decades. The strategy presented in the Government’s policy documents is without a proper resource base and therefore will remain just on paper for lack of funds.
Once the technological advancements are developed, there is no proper plan for commercialising the same and getting the private sector to use them efficiently and productively. Instead, the signs sent to the economy by the highest level of the administration are that the country distrusts the private sector and wishes to go ahead with an expanded State sector.
Engineering marvels in wrong hands will make poor commercial enterprises
Any commercial use of new technologies developed in the country by the state sector is fraught with failure as demonstrated by the key infrastructure developments done by the Government.
Ranminithenna tele-cinema village, Suriyawewa International Sports Complex, Hambantota Harbour and Mattala Airport are marvellous engineering creations about which any Sri Lankan can take pride. But they are poor commercial ventures as disclosed by the relevant Ministers in Parliament in answer to questions raised by members. It is inevitable that the same fate will befall on any State sector venture that will try to use the inventions created through investments in science and technology by the State.
This is why the Austrian-American economist, Joseph Schumpeter, separated the process into three different legs in his 1942 publication ‘Capitalism, Socialism and Democracy’: Inventions done by scientists, innovation done by entrepreneurs and diffusion done by the market. The State sector cannot undertake and has no incentive to go by all these three steps successfully.
Nano-technology was the right decision
Sri Lanka has very correctly got the private sector participation in the establishment of a nano technology institute in the country. Given its wide application, it is something without which a country cannot move into the 21st century.
However, an important priority area in which Sri Lanka should invest its resources is the development of biotechnology. This has two applications. One is in the food production and the other is in the medical field.
But biotechnology is a must
Sri Lanka’s arable land available for food production is limited in extent but the country is adding more and more mouths to feeding system every year. Hence, to avoid malnutrition and undernourishment, it is necessary to increase the output per hectare.
However, the natural evolution of crops is such that they always impose limits on progress. Once those limits are reached, there is no other alternative available except increasing the yield per hectare. This can be done only by developing high yielding varieties under the ‘plant branch’ of biotechnology.
Biomedicine should be promoted as a high priority
In the case of biomedicine, there are many new developments that have been made to support the world’s healthcare services. The discovery of new drugs for treatment of ailments which have so far defied the treatment procedures, the use of DNA-based individual treatment of patients and the full exploration of the human body, specifically the complex system of its brain organ, are the value additions that are made to mankind under this branch of biotechnology.
Several newly-developed nations in the region, namely, South Korea, Singapore and Taiwan, have already excelled in this field and got themselves connected to the global economy through inventions and creations made by them. Sri Lanka has no alternative but to jump the bandwagon of biotechnology and make use of its scientific brains to deliver benefits to the nation.
But to do that, Sri Lanka should leave behind its practice of just making wish lists and get into the serious business of making elaborative roadmaps to reach the final destination which it is planning to reach now.
*W.A Wijewardena –Formerly Deputy Governor of the Central Bank of Sri Lanka and presently Visiting Lecturer at PIM, University of Sri Jayewardenepura, Asian Institute of Technology, Bangkok and Naresuan University, Thailand. He can be reached at firstname.lastname@example.org