30 October, 2020

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Dealing With The Elephant Next Door

By Kumar David

Prof. Kumar David

Prof. Kumar David

Economic and Technical Collaboration with foreign countries; Dealing with the elephant next door

This essay deals with the concept of comprehensive economic and technical collaboration agreements. If ETCA is minimalist covering two or three sectors only or a mere trade pact, sadly it is an opportunity lost. Short-sighted nationalists and professional interest lobbies seem to have derailed a comprehensive version.

The Economic & Technical Cooperation Agreement (ETCA) with India has still to be published and it seems the government, unfortunately but understandably, has been forced by lobbies and vested interests to back down on crucial aspects. Nevertheless I spent last week discussing international, not just Indian, collaboration and I will mention the participants at three of these gatherings. A three hour session was with five highly regarded engineers with decades of local and foreign experience in government and/or private sectors. Their expertise was in construction, hydrology, environmental engineering, water-supply and telecoms. The sixth less notable participant with an electrical supply systems background was yours faithfully. In addition to practical experience three of them had PhDs and the other three solid MSc degrees – not dime-a-dozen MBAs.Ranil Modi

The second was a gathering of 90 engineers, 70 from overseas, who were here for a reunion. I spent a weekend with them in Kandy. A third discussion was with a Left parliamentarian, a democratic activist and a journalist who runs a website and edits a magazine in Sinhala. There is much merit in reflecting on all these conversations. Two conclusions summarise the gist of it.

  1. There is no doubt Lanka must reach economic and technical arrangements with other countries, mainly but not only Asian. First the Indian dish on the table must be dealt with.
  2. There is no doubt that the devil will be in the details. Hence skill is needed in formulating the protocols. Keep our fingers crossed that our ETCA negotiators are up to the task.

Why Lanka needs this deal

Leaving for later essential precautions and caveats, the bottom line is this: Correctly structured economic and technical collaboration agreements are desirable – Why? Face it; we need the bucks! Medium and long-term growth is predicated on, if not large, at least moderately large levels of investment. We cannot generate adequate resources in the domestic sector alone; hence overseas investment is a sine qua non. FDI from the West is lacklustre – local economic commentators show little understanding of why. They don’t see that it is not anything to do with Lanka that is keeping investors away – if anything the new government and its political dispensation are darlings of Western capitalism.

The reason for bashfulness of Western investors, worldwide, is global economic uncertainty, not Lankan specifics. Lanka pandering to investors won’t make a difference since capital is streaming back to the metropolis and there is not much anyone can do to staunch it. Economists predict a recession in the US and /or Europe in 2016 or 2017; JP Morgan puts the probability of a recession within three years at 92%, two years 67%. Stock-markets are jumpy, cheap oil on a yoyo instead of lubricating growth fuels investment pull-back, the Fed, ECB and BoJ are at their wits-end, and to cap it the Chinese economy is putting on an acrobatics shows.

This makes ‘likely-investors’ interesting. There are two who have a special interest in Lanka for strategic and geo-political reasons – China and India. In the case of India geography translates into proximity, an added benefit. I will pass over strategic issues briefly. Both would like to see Lanka closely allied with them and less with the other. Lanka is strategically more important for India than for China; you could not have missed that the LTTE-Colombo game was of vital concern to Delhi but only marginal to Beijing. Furthermore, proximity makes Lanka a desirable investment destination for Indian more than Chinese or Western capital. In any case we have burnt our boats with China; a decade of rank robbery of project monies in cahoots with Chinese investment-arms has discouraged new Chinese involvements in our economy, at least during the Xi Jinping anti-corruption era.

The case I have made so far adds up to this. We need foreign investment, the West is in no mood for overseas investment, China an old friend has burnt her fingers so forget it for now, but in contrast the Indian capitalist class is gung-ho and for strategic reasons and the Indian state is supportive. We should cut a deal and ensure it’s a good one. The Chinese economy is slowing and will not resume its blistering pace in the foreseeable future, but Indian capitalists have turned aggressive. Their eyes are set on Nepal, on several of Sino-Indian deals, and they will soon be probing Burma. They would like to invest in Lanka and for us, to be courted, is a good position to be in.

Technology

I have touched on the investment side, the E in ETCA; now the T for Technology aspect. A comprehensive discussion requires a separate article; my essay of 13 December 2015 “We need a Make-in-Lanka Strategy” did a bit of it. Make-in-India has twenty-five priority areas including automobiles and auto-components; biotechnology, chemicals, pharmaceuticals; IT, electronics, photonics; electrical goods; green energy; textiles, garments, leather goods; construction, railways, shipping, ports; tourism, wellness. Some of these are fields in which businesses based in Lanka can participate to advantage as joint-venture partners or subcontractors. This is the way local capitalists should go; I do not support protectionism and trade preferences for local capitalists because the public is then the loser. With the world’s fastest growing economy at our doorstep only a fool will fail to cash in. The halcyon days when old regime crooks looted Chinese riches are long gone; it is time to explore legitimate opportunities.

There are two aspects of Indian technology among others that are interesting; Indian excellence in IT and certain types of medium-tech whose transfer will be useful. Top Indian institutes excel at IT. Maybe there is a mathematical ethos in the culture which is passed through family and social pressure to youngsters; or with a large demographic pool like China, unsurprisingly, there are many high achievers. Many of Indian origin excel in Silicon Valley or as IT entrepreneurs in the US; for example Google’s new CEO Sundar Pichai. Joint ventures and subcontracting with India can transfer technology, and open doors and markets for Lanka, but our IT professionals fear being swamped by better Indians. Why not consider the quid pro quo that top quality locals can break into better IT openings in India?

Another domain in which Lanka will be able to benefit by association with Indian companies is the heavy-end such as civil engineering construction, railways, marine related activities and iron & steel. This is the middle tech domain in which foreigners will be relaxed and generous to transfer technology. This aspect is well understood and I will say no more.

Caveats and cautions

One worry is that Indian business is pushy, abrasive and corrupt; the ability to withstand this is a challenge. The other worry is the quality of our negotiators; but I say no more because without intending any malice I have a way of making people start up like offended porcupines. In any case I have no idea who our negotiators are, so let me pass on to a few substantive issues.

While I reject the closed-shop attitude of professionals whose interest is to protect their fees and financial prospects from competition, I do agree that foreigners allowed to work in Lanka must meet certain standards. However let us not think too much of ourselves. I searched the first 500 or 600 places in world university rankings and found none of our universities included, but about twenty Indian universities outrank us. I then tried medical schools in Asia only, but could not find any of ours among the first 50, or was it 100. We fall well behind Singapore (second in Asia) and Hong Kong fourth. It must be similar in other disciplines. The conclusion is that our educational and professional achievements, are at best, only mediocre even in Asia.

Professional competition is good; it benefits a country, a closed-shop does not. Nevertheless controls must be maintained to ensure that rubbish and riff-raff is not off-loaded. This is ensured all over the world by immigration authorities and licensing bodies issuing work-visas and licences to practice. This is nothing new; Lankan doctors, engineers and accountants win permission to work in UK and USA by obtaining supplementary academic and professional qualifications. This breaks the monopoly of the professional closed-shop while at the same time providing safeguards. Likewise in Lanka the public is entitled to the benefit of competition among high paid service providers while maintaining quality.

It is different in the labour grades where there is unemployment; but still tried and tested practices used elsewhere are a guideline. Employers wishing to recruit a foreigner have to make application for a visa, show that a local recruit is not available at the remuneration offered and explain the skills needed. This is well known all over the world; there is nothing for trade unions, professional bodies and the GMOA to get excited about. I agree of course that the devil is in the detail; that is, making sure the regulations are drafted and implemented properly. This needs enlightened professionals and efficient bureaucrats; both commodities in short supply.

I will sign off with two other comments in the cautions category; first the ‘negative list’ of Indian restrictions on the import of made in Lanka goods must be watered down, second care in choosing investments. The great thing about ETCA, if it is comprehensive as I advocate, not minimalist as the government seems to be backing down to, is that it envisages industry, manufacturing and services like transport and tourism; not monstrous blocks of concrete a la Mattala, the empty Bowl opposite Bridget’s Convent and that useless-for-telecoms Tower at the end of Darley Road. Lanka needs no more concrete blocks, in needs production and services. Furthermore, a bold Agreement should be an avenue not for one project but an enabling mechanism under which an investment stream can flow. That is good but again it is also a challenge to ensure that projects are wisely selected, blended with needs and preclude powerful foreign businesses from bullying local counterparts or the Lankan state.

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  • 4
    1

    Prof. Kumar David

    Dealing With The Elephant Next Door

    Thanks for the write up.

    1. ” Nevertheless I spent last week discussing international, …..The sixth less notable participant with an electrical supply systems background was yours faithfully. In addition to practical experience three of them had PhDs and the other three solid MSc degrees – not dime-a-dozen MBAs.”

    Dime a Dozen MBA’s. Did you check their IQs and GMAT scores?

    2. “The second was a gathering of 90 engineers, 70 from overseas, who were here for a reunion. I spent a weekend with them in Kandy. A third discussion was with a Left parliamentarian, a democratic activist and a journalist who runs a website and edits a magazine in Sinhala. There is much merit in reflecting on all these conversations. Two conclusions summarise the gist of it.”

    ” There is no doubt Lanka must reach economic and technical arrangements with other countries, mainly but not only Asian. First the Indian dish on the table must be dealt with.”

    ” * There is no doubt that the devil will be in the details. Hence skill is * *needed in formulating the protocols. Keep our fingers crossed that our ETCA negotiators are up to the task.”

    They are right on the money here. But do the politicians understand? They do not even have Dime a Dozen MBAs.

    4. “Lanka needs no more concrete blocks, in needs production and services. Furthermore, a bold Agreement should be an avenue not for one project but an enabling mechanism under which an investment stream can flow. That is good but again it is also a challenge to ensure that projects are wisely selected, blended with needs and preclude powerful foreign businesses from bullying local counterparts or the Lankan state.”

    Yes. Need Critical mass in several areas including education, that will be sustainable. Study Taiwan.

  • 6
    0

    Spot on Prof., As Srilankans we have this ‘Ravana’ attitude this has to go if we want to be recognized as world citizens cheers

  • 1
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    Very well presented Sir. My base is “Lanka needs no more concrete blocks, it needs production and services. ” too…

  • 1
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    Any foreign investors will bring their Engineers, and Technologists to start and run their Businesses.

    I am talking about real investors , and not just mates who park their Money for Galleon to look after.

    Our Engineers and Technicians will be hired to work under Foreigners.

    That is the norm if we sign deals with Western or Asian countries who have well developed Manufacturing bases which produce world wide, well recognized brands.

    India is a different story.

    They will bring even their toilet cleaners if they can.

    500 Million there live on less than Dollar a Day.

    Even 5 Dollars a day will be a 500 % improvement in their living standards.

    Besides who will buy Indian goods.

    It is Srilankans themselves and a few low income countries in the neighbourhood.

    China in contrast has over 300 Million middle class citizens who are spending big overseas.

    Once prosperous Western countries like New Zealand , Australia and Canda are begging the Chinese to visit them and help them with jobs generation and improve their FX earnings.

    Also Chinese are now shifting their manufacturing to less costly bases in wages.

    That is what our inhabitants need.

    Not to give Indians our jobs lock stock and barrel.

  • 2
    2

    A very good rebuttal from a REAL engineering professional of all those hollow arguments put out by the likes of the GMOA. What are they afraid of other than their own incompetence?
    “While I reject the closed-shop attitude of professionals whose interest is to protect their fees and financial prospects from competition, I do agree that foreigners allowed to work in Lanka must meet certain standards. However let us not think too much of ourselves.”
    Exactly the point, Professor.

  • 1
    1

    Let us compete with India on equal terms. The feedback we get from Sri Lankan Entrepreneurs who located in Indian in the recent past is not encouraging. There is a huge gap between what the Indian Central Govt says and the State Govts do. We tend to accept foreign participation whereas Indians are deeply Nationalistic and take the ‘Made in India’ brand to the extreme.

    Many Western Companies have invested in India because of the huge market. Some Indian companies simply act as go-between and quote fancy prices. On the positive side the availability of Professionals from India will help break the monopoly of our own Shylocks and Mafia who are holding the Public and Country to ransom. Our Govt must negotiate a good deal for the Public and Country not the vested mafia Professionals, Unions and Monopolist who are minting money.

    • 1
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      B M,
      The “feedback ” you are getting is from the failures like Munchee.Why don’t you look up the feedback from Keells, Amante, Elephant House and Damro ? They don’t talk much because they are too busy making money.
      Britannia biscuits failed the last time they tried to enter SL.
      If India is such a difficult market to enter, how is it that Happy Cow cheese from Austria is cheaper in Chennai than Colombo?

  • 1
    1

    The article suggests that many matters that we could not handle ourselves will be solved by the trade pact of some sort. Economists believed and argued that open shore policies were the way forward for countries to boost their own trade. But, East Asia showed that right domestic mechanism is privy to success. To assume that Trade pact will bring all good will be wishful thinking. The Indian issue is much larger. It has economic and political considerations and should have placed on considerable foundation of trust, especially when you are the underdog. India has burnt bridges with regard to Sl trust due to its excessive engagements with SRi Lankan sovereignty. This has made India an unreliable partner. It is these negatives that are affecting any agreement with them. When JVP rioted, foolhardily, against Indian imports many disagreed. But, now the situation has changed so much many , businesses-men, professionals, ordinary folks, do not trust India as a sincere partner in any thing. And Indians arrogance towards their smaller neighbor has made matters worse. the so called I-SL partnerships are going to be faced with serious opposition, and ridiculing them as over nationalistic, insane and selfish behavior is unfair and unrealistic. Unfortunately, incompetence, arrogance and insensitive attitude of our politicians are trying these quick fixes without getting into substantive reforms within the country. In fact, they make matters worse just like the manners they handled budgets and economic policy. This made SL as a weak party wanting a way out. This is just pathetic and dangerous. If they were clever they would have exploited China Axis without much political fall out. But, our folks kicked Chinese on their back when they were badly looking for places to relocate their investments. When do we learn, will we ever learn???

    • 2
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      Dear Jith
      You say” India has burnt bridges with regard to Sl trust due to its excessive engagements with SRi Lankan sovereignty.”
      Think realistically. Do we really have any real sovereignty? The elephant is not next door, it is inside the house.
      . What do you think will happen if tomorrow the Indians decided to heat up the fishing dispute off Mannar? That is how India took on the Portuguese in Goa.
      Do you think the Chinese would intervene? The Russians? The US/UK? You know all we would get is some hot air.

      Our sovereignty is at India’s pleasure, period. All throughout our history, there were comings and goings from India. In pre-colonial times, both countries were collections of princedoms and empires, which played each other off. The population swore loyalty to the local king, NOT some “sovereign unitary state”. It was the British that unified both countries and told us we were sovereign.
      We are very lucky that now we deal with a unified Indian state. We really would be in the soup if we had to deal with hostile sovereign states in Kerala ,Karnataka, and Tamilnadu.Let us pray that India doesn’t break up into pre-colonial components.
      However, there is a solution. In the 30’s JRJ himself suggested that we should join India at independence. Imagine what our history would have been like. No 30-year war, a passport much more respected than the one we have, plenty of cheap labour, cheap food and vehicles, exposure to world-class science and technology and we wouldn’t be running to the IMF or China every now and then.. Culture? Go look at Goa. Its way of life is more or less the same as in 1960.

  • 1
    1

    As the good Professor says, the devil is in the detail. AND the detail is what we are all waiting to learn about. The few who know are coy, and not keen (as yet) to let the eager interested ones know. Why? Someone said “all in good time”. Not when the inks drying on the signatures, we hope.

    What little I have learnt about ECTA has created a bad smell (and, NO, it is NOT my socks, again). When a minnow like our little nation is given the come-hither by a big-bad-boy, the pleasure, as much as the displeasure, is proportional to size (now where have heard that old chestnut before?)

    But the more I read, the more I think of a story of my wise old grandma related (may the dear lady Rest in Peace). Once upon a time, in a farmyard faraway, a hen and pig decided to go into business. They had heard the farm hands always talking about breakfast so, they hit on the brilliant idea of going into the breakfast business. The hen said I will provide the eggs, and you, piggy, could provide the bacon. With that my dear grandma stopped and gazed wistfully into the distance, and we young ones who were gathered around were left to marvel, once again, at the wisdom of elders.

    Caveat emptor, or something like that comes to mind.

  • 1
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    ” With the wold’ s fastest growing economy at our doorstep, only a fool would refuse to cash in”
    Stated short and swee about the ETCA by the engineering professor.
    Those who come out with their slanderous campaign against the Indian HC’s comments will live to rue the day for their self defeating outbursts as things progress in a natural way when the masses get informed.

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