Colombo Telegraph

Dealing With The Elephant Next Door

By 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.

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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