16 June, 2021

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Economy At A Crossroads: The Way Out For Sri Lanka

By W A Wijewardena

Dr. W.A Wijewardena

The analysis so far

In the previous part, we noted that Professor H.A. de S. Gunasekara, the first Ceylonese professor of economics at the University of Ceylon, was a legend in economics teaching in Sri Lanka. His doctoral thesis to the University of London, ‘From Dependent Currency to Central Banking in Ceylon,’ was a seminal contribution on the development of banking, finance and central banking in colonial Ceylon.

The Five-Year Plan of 1972-76 that was produced under his direction when he was the Secretary to the Ministry of Planning and Employment sought to convert Ceylon, following the policy of the government in power, to a socialist economy. Yet, the diagnosis of economic ailments which Ceylon had been suffering at that time and the prescriptions recommended by him have not been different from what we experience in Sri Lanka today.

Thus, it was a proof that when it comes to economic analysis, both socialist economics and free market economics follow the same path. The difference is only in the end objectives. The main ailments suffered by Ceylon in the entirety of the post independence period have been the low economic growth coupled with imbalances in the budget, savings-investments and the external sector. The external sector crisis has been compounded by the low priority given to the export sector in national economic policy making.

Professor H. A. de S. Gunasekara

With the introduction of the open economy policy in late 1977, Sri Lanka was able to transform its exports from the three-tree crops to manufacturing which was dominated by apparels. This was facilitated by the transfer of production facilities by the Western nations to labour abundant developing countries, a process known as off-shoring. However, the advancements in science and technology in the new millennium have enabled those nations to shift those production facilities to their own lands, known as on-shoring, and countries close to their markets, known as near-shoring. It is estimated that by 2025 about a two-third of apparel supplies to North American and European markets will be sourced from on-shored or near-shored factories. Sri Lanka’s apparel sector faces a potential risk and the country has to find a way out.

Now let’s look at the way out available for Sri Lanka.

National Export Strategy

Taking into account the above-mentioned global developments today, Sri Lanka has released a new National Export Strategy (NES) in April, 2018. The strategic vision of the document has been to develop Sri Lanka as an export hub, driven by innovation and investment. The hub component of the vision has no practical value since Sri Lanka produces only a limited number of exportable products. NES also has identified four strategic objectives to pursue in order to attain its goal of setting up an export hub in the country.

1. To have a business enabling, predictable and transparent policy and regulatory framework that supports exports;

2. To strengthen Sri Lankan exporters’ market-entry and compliance capacities;

3. To become an efficient trade and logistics hub to facilitate exports; and

4. To drive export diversification through innovation and by strengthening emerging sectors.

Six focus sectors for development

According to NES, an enabling business environment will be created by improved logistics, trade information and promotion, developing a national quality infrastructure and inculcating a culture of innovation and entrepreneurship. Given Sri Lanka’s present endowments and comparative advantages, six main focus sectors have been identified for development during the strategy period.

1. Information Technology (IT) and Business Process Management (BPM);

2. Development of a wellness tourism sector;

3. Boat building;

4. Manufacture of electrical and electronic components;

5. Manufacture of processed food and beverages; and

6. Spices and concentrates.

NES has attempted to break away from Sri Lanka’s reliance on the three tree crops and apparels as the main source of export earnings and develop 6 new areas that include the export of services as well. This vision was expressed by the Prime Minister in November 2015 when he presented the first economic policy statement of the government to Parliament. It was reiterated in subsequent statements as well as the policy document titled Vision 2025 released in June 2017. However, it is after three years that this vision was codified and presented as an export development strategy document by the bureaucracy.

Managing disruptions

Exports will not happen automatically simply because a government body has made a pronouncement. To change the structure of exports of a country within a short period, it is necessary to disrupt the whole economy from top to bottom and across all the sectors. The government machineries which are usually moving at a snail’s pace should be accelerated to the maximum speed possible to provide support services. Labour markets which are rigid and ruled by uncompromising trade unions should be made flexible with respect to entry, exit, on the job training and new skill and talent acquisition.

The biggest disruption to be effected to the labour market is the conversion from the present ‘seniority and fixed salary based system’ to a ‘merit and output-based system’. When a society has lived hundreds of generations in a seniority and elders-worshipping society, it is normally embedded irrevocably in the genes of its members. Thus, the introduction of a merit based system to such a society, however much it is desired, will be a painful exercise. It requires the disruptors to inflict mental violence on the subjects who are to be changed; but the reaction of the subjects too is characterised by a similar response making it difficult to introduce the disruption without social costs.

This may appear to be difficult but not impossible to attain at all. It involves the change of the mindset of people through a back and forth consultative process removing fears and providing assurance. It is quite a challenge and Sri Lanka’s NES will also be subject to this challenge.

Technological advancement is a disruption

Technological advancements are disruptive and therefore painful. Those who are able to predict and adapt to the disruption will be winners, while others will be destined to be losers. Human history has often taught this painful lesson to mankind.

When the motorised vehicles emerged, the horse-driven carts were driven out of the road; when the spinning machines were invented, handlooms had to give in. They made thousands of people around the globe jobless but created new jobs for people who could train themselves to adopt the new technologies. However, a concern for many societies today has been that disruptive technologies are emerging at an exponential rate. It is just like that a person wakes up every morning today to be surprised by the next big thing that has hit the world. It is happening so fast, that it is difficult even to keep pace of them let alone getting trained to adopt them.

Yet, this frightening pessimism has also given rise to hopeful optimism as opined by Peter Diamandis in a TED lecture in 2012. What Diamandis said was that the fear of scarcity is unfounded. The emerging technology can make this world a place of abundance. One has to create a need for it and wait patiently until the next big thing happens in the scientific world. The global community is creating this need for technology creators to meet that need. Then, technology adopters have been able to supply the same in collaboration with the technology creators.

In this manner, the four famous technology adopters in the initial pace, Singapore, South Korea, Taiwan and Hong Kong, were able to beat the middle income trap successfully in 1990s. Today, they have been upgraded from the status of technology adopter to that of technology creator in competition with the rich Western nations.

New technologies to capture the world 

According to McKinsey Global Institute (MGI), there are 12 miracle technologies that are disrupting the world today. The list is not exhaustive but provides a guideline for nations to follow.

1. Mobile internet: Increasingly inexpensive and capable mobile computing devices and Internet connectivity; If you are with a smart phone with internet connection today, you have the entire world at your finger tips. A comparison has been made by MGI on this count with computers of yesteryear: It has said that the most powerful computer in 1975 costing $ 5 million had the same performance of an iPhone today costing only $ 400.

2. Automation of knowledge work: Intelligent software systems that can perform knowledge work tasks involving unstructured commands and subtle judgments. The distributed intelligence now being developed in USA and elsewhere in Europe seeks to replicate human brain and pretty soon most of the brainy work handled by humans will be outsourced to these smart and intelligent computers.

3. The Internet of Things: Networks of low-cost sensors and actuators for data collection, monitoring, decision making, and process optimization; software applications are now being developed in the Western world at a rate that it is practically possible to beat the limitation created by time and space when it comes to human interaction.

4. Cloud technology: Use of computer hardware and software resources delivered over a network or the internet, often as a service; This system of data protection and storage will help people to use only a fraction of the installed capacity in their computers and travel abroad just with a bag of clothes but still access to their data files from any place in the globe. The only requirement is that they should remember their password, but today with new apps, even password management has become possible.

5. Advanced robotics: Increasingly capable robots with enhanced senses, dexterity, and intelligence used to automate tasks or augment humans; These robots will not only handle monotonous routine jobs but also are capable of making decisions faster than humans having processed all the necessary information. Thus, the concept of bounded rationalist which Herbert Simon came up with in 1955 to propose that people are not rational because they cannot access to all the information and even if they have access, they are constrained by a lack of time and ability will be just a thing in the past.

6. Autonomous and near-autonomous vehicles: Vehicles that can navigate and operate with reduced or no human intervention; These are smart vehicles and already vehicle manufacturers have started to fix their products with all types of software packages that help drivers to better control their vehicles while avoiding fatal accidents or crashes.

7.Next-generation genomics: Fast, low-cost gene sequencing advanced big data analytics, and synthetic biology (“writing” DNA); this is the most disruptive of the new technologies because sequencing one’s genome will not only be cheaper but also be quicker. This will help the diagnosis of ailments more accurately and find treatments by simply changing the copy of the genome just like we write computer software programs today to handle processing problems.

8.Energy storage: Devices or systems that store energy for later use, including batteries; this is a real contributor to energy saving because it will help the world to develop more energy efficient machines and thereby conserve energy.

9.3D printing manufacturing: Additive manufacturing techniques to create objects by printing layers of material based on digital models; The invention of 3D printers from around early 1980s and reaching its adulthood in early 2010s has been termed as the second industrial revolution because it has enabled producers to use 3D printers to produce practically anything from precise parts of airplanes to cars to body parts.

10. Advanced materials: Materials designed to have superior characteristics (e.g., strength, weight, conductivity) or functionality; Nano carbons and other strong materials are to replace steel as the main input in producing machines and constructing buildings.

11. Advanced oil and gas exploration and recovery: Exploration and recovery techniques that make extraction of unconventional oil and gas economical; USA and Canada have been able to come up with hydraulic fracturing and octopus horizontal drilling for tapping what was hitherto inaccessible as shale oils and natural gas that lie in shale rocks about five miles deep down in the interior of the earth. USA is to be self-sufficient in natural gas and fossil fuel by 2025 by tapping its vast shale oil fields the northern parts of the country.

12. Renewable energy: Generation of electricity from renewable sources with reduced harmful climate impact; the development of new nano solar photovoltaic solar power harvesters will revolutionise the world’s new renewable energy production methods.

Sri Lanka should orient its education, research and development systems to be a partner of this changing technological base in the world. For this purpose, the resources that are presently directed toward consumption in the budget should be pruned and rationalised to enable the government to divert them to research, development and promote innovative practices.

Go for global production sharing networks

In conclusion, Sri Lanka is at a crossroads today because it is snared in what is known as the middle income trap. It was easy for Sri Lanka to move up from a low income country to a lower middle income country by using its abundantly available cheap labour resources. However, moving up further to an upper middle income country was challenging since the country had to spend about 24 years in the lower middle income country category before making a breakout.

Unless it attains an economic growth rate of about 9% per annum in the next 15-year period, it is unlikely that it will be able to beat the middle income trap. The way to do so is to produce for a market bigger than the market in Sri Lanka and supply goods that are demanded by that market. It requires the country to convert its production system from a simple technology based one to a complex technology one and join the global production sharing network to keep its presence in the market.

The flipside is that these are challenging targets but not impossible since there are many countries that have done so with appropriate investment in science and technology leading to research, development and marketing.

*Prof. H.A. de S. Gunasekara Memorial Oration 2018: Part 3 – The Professor H.A. de S. Gunasekara Memorial Oration 2018 was delivered by Dr. W.A. Wijewardena on 4 December at the Senate Room of the University of Peradeniya. Today, we carries Part 3 of a revised and abridged version of the oration

W.A. Wijewardena, a former Deputy Governor of the Central Bank of Sri Lanka, can be reached at waw1949@gmail.com

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    This comment was removed by a moderator because it didn’t abide by our Comment policy.For more detail see our Comment policy https://www.colombotelegraph.com/index.php/comments-policy-2

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      Dr. Wije: out of the box and Ocean focused development thinking is needed. Sri Lanka’s Blue OCEAN is its greatest and untapped wealth and a development strategy to upgrade its
      1. Fisheries and aquaculture sectors
      2. mine the undersea LNG and Oil resources in Mannar Basin and in the Southern block with the relevant infrastructure to harness clean energy, that exist in Lanka’s Ocean is the solution.
      3. Sri Lanka also sits on and is a key undersea cable route where 80 percent of global internet traffic passes and this is why US marines are building logisitcs hubs in Hambantota while Washington backed Bondscam Ranil loots and sells of this rich country and its marine and land resources to his Trumpland handlers.
      Unfortunately, Lanka’s marine and under sea resources which far exceeds its land resources have been otally overlooked as the Lanka’s development policy has been “islanded” due to over-reliance on (fake) international experts, who have consistently overlooked that fact that the Blue Ocean is Sri Lanka’s greatest natural resource and source of wealth. For example, given that Lanka is an island with more relatively unpolluted Ocean than land, fisheries and marine minerals, industry, and services sectors should logically be the largest export and foreign exchange generator. But foreign trawlers mine Lanka’s blue ocean. However, foriegn trawlers from Japan, Korea, China, India and UK fish here while Lanka still does artisanal fishing.
      When the navy was providing maritime security to ships plying the Indian Ocean and making millions, the operation was privatized by Gotabaya Rajapaksa in collaboration with Tilak Marapona who constituted Avant Guard, which is co-incidentally the name of a global security and surveillance firm.

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        Right on DS! Lanka’s marine and under sea resources which far exceeds land resources should be its most important development sectors..
        But too many foreign CONsultants including Trumpland’s Millennium Challenge Corp. (MCC) have been drafting Lanka’s (fake) development policy and Bondscam Ranil’s Vision 2025, and feeding their ‘deep dives’ and fake-analytics to this good Dr. Wijewardene and other so called economists and policy experts in this land like not other.

        Intellectual poverty and lack of lateral thinking is the greater threat to real economic development. In fact, today Development discourse continues to be Colonialism by other means as Samir Amin famously put it. Sri Lanka’s development thinking and experts are Under-developed and follow their colonial master’s fake Xperts at the Commonwealth, IMF etc. to loot the people.
        This intellectual de-development of Lankan policy experts is also the reason that Lanka is now in the IMF-World Bank constructed MIC DEBT TRAP, (Middle Income Country) because they follow IMF’s fake experts who put them in the MIC category, made Lanka in-eligible for concessionary loans after fiddling with the economic data and then forced Lanka, Argentina, Brazil, like Greece to borrow on capital markets. This is the IMF racket to enrich sovereign bond traders who work for global 1 percent.
        The bottom line is too many foreign CONsultants and Trumpland’s Millennium Challenge Corp. have been drafting Lanka’s (fake) development policy and feeding their ‘deep dives’ analytics to this good Dr. Wijewardene and other so called economists and policy experts in this land like not other. This good old Dr’s suggestion are a “derivative discourse” and reflects that fact that

      • 0
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        Don Stanley,

        You forgot to mention the Chinese trade routes……although that is prohibited by the West, and so we have to jump start the nonsensical Western IT, electronics and DNA-tinkering industries over our ancient sustainable ones, so as to boost up Western capital as they destroyed all of their natural habitats through war and persecution.

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        Thank you Don. Excellent summary/information/knowledge sharing.

        I am not so sure what you saying in the final para??

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    Your Cloud Technology is just like Rajitha Senarathne’s Gene Technology. What happened to open source software we wrote for Google and to software we wrote for Microsoft.
    first Develop food for people. Every Developed country has their own food source and we need Agric based technology and not technology to help foreign companies. We import every food ingredient. We changed from Polpala and Ranawara Tea to Black tea and now we have gone for coffee. WE changed from Coconut of which the whole tree can be used to KATUPOL. People in the west love Tropical Fruits. Austrlia had green Apples as endemics. So, we say EAT A GREEN APPLE EVERYDAY. We IN nORTH AMERICA SAY eat an apple everyday (We have different colours). I here People go from European AShthetic flowers because those need fertilizer, “Insecticides, special treatments (hormones) to local ones which the Developed world prefer. We even grow KAtupol, Banada, Bogan villae as Aesthetic plants. It is the the same thing with children who are sexually absued instead dogs are getting popular. We have the world’s best tea but our contribution to the world Tea market is 5%.We have lot of unemployed youth but we need Imported people via Indian and Singapore Free Trade Agreements. We send out women to Middle east and Indian Tamils come to pluck tea and play havoc. I here, We have 10 lakhs of Three wheeler drivers which is developed. Private Companies are assigned and Mangala Samraweera says we cut down three wheeler driver Licenses and Train more four wheel car Taxies, the reason, we have to import cars from them. UBER can come and ear some out of that. I can write this for pages.

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    today, Politicians have destroyed the country and yet, we people support them. We are indeed, enslaved by them

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    Dr. W.A Wijewardena,

    Certainly an exciting set of possibilities. But who’s going to give us the money to jump-start these industries? Will it be the US, or will it be China? Futuristics cannot evolve from thin/no air.

    In 25 years, will we be able to get back our money from the TN-S’pore-Lankan Union futuristic investments? Might have worked if we hadn’t placed our EPF funds on the Union.

    Other countries like Singapore and Malaysia got their monies to jump-start themselves from the oil & gas wealth of their region. S. Korea got its money being an ally of the US. Hong Kong got its money from Chinese oligarchs who escaped from the mainland from the 1940’s onwards, and which Britain safeguarded for them in their colonial commonwealthed banking system. Japan is the same as S. Korea. Thailand is just North of Malaysia and had business moving northwards from M’sia. Besides, it had no competition from their east and west neighbours (Indo-Chinese countries being socialistic/communist). South America tried out all the stuff, and look where they are now.

    So, where are we to get the man-power from? Where are to get the brainpower from? Most labor workers are in the ME. Most brain-power is in the West. What incentive is there for them? Cultural thought needs to change for the brain-power people to remain in the country. But for the masses who direly need the ME money, it will be a 100% increase in hardship to stay on-shore and look at their next generation for the futuristic aspiration.

    Let’s face it: The Zeitgeist aspiration is for the 1%, with a reduction of human population by abortion, covert infertility techniques, lgbtquia services, DNA manipulations, and anything other thing that will reduce human population. Robots will take over so other potential humans will not suffer by being born.

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    Sri Lankans always think they know everything under the sun, better than all others, due to their frog in the well attitudes, and in that process screw up the everything and the country too, and wouldn’t let it to progress. To be Successful – there is nothing to reinvent the wheel, just look at the successful countries like Malaysia, Thailand etc, emmolate them, they too copied it from Japan and South Korea, and that’s it. Even Dang Zou Ping of China learnt it from Sri Lanka, and set up the Shenzhen free zone and others, in Southern China, and they did it well and better than Sri Lanka, and see, what a roaring success it brought to them. But, we still fretting and struggling due the stupidities of our politicians, officials and people, and all knowing attitudes, in the end knowing nothing, and ruining what’s already there, like the Tea and other plantations etc Now Vietnam, Bangladesh, Ethiopia, Ruwanda etc moving up fast and way ahead of us, and our people are becoming more and more beggery.

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    A great in-depth analysis by Dr.W.A. Wijewardena a veteran in this field. New National Export Strategy (NES) in April 2018 is not alone sufficient to address the present economic crisis of Sri Lanka. Six focus sectors for development outlined appears to be attractive but by and large, it seems a distant dream as there should be a long-term vision with lots of planning and preparation. Without private sector participation and infrastructure development and involving financial support, this objective will not realize that easily. Sri Lanka’s economic growth is hampered by ever loss-making public enterprises on a grand scale which is a great challenge to be addressed. The government should workout effective strategy to address this burning issue. There are too many critical factors threatening to jeopardize the country’s economy.

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    The Prof H A de S Gunasekara era was quite different. Remember Sinhala Marikkar was prosecuted for corruption and Henry Abeywickrema for immorality.
    Our problem today is acceptance of the culture of corruption/nepotism/impunity matter of factly. This of course has resulted in breakdown of ‘Law and Order’.
    .
    Right now our leaders are quibbling while we are being pushed towards the ‘Failed-State-Cliff’.
    Dr W A Wijewardena avoids such aspects in his writings.
    Do we have this ‘middle income trap’?

  • 0
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    A former Central Babk governor, onluy now see that the economy is in shambles. Why Economic theories get obsolete as the time goes.

  • 0
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    ‘ There are only two kinds of people in the end: those who say to God, ‘ Thy will be done’ ,and those to whom God says,’ Thy will be done’.
    ( ‘ From. The Great Divorce’. C.S. Lewis.)
    ‘ Do not give what is holy to the dogs; nor cast your pearls before swine;
    Lest they trample them under their feet,and turn and attack you’.
    (Matthew.ch.7).
    Does philosophy
    Bring comfort and peace.. specially at the lowest points in life..?
    At death?

  • 0
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    Dear Folks

    What a lovely exchange of thoughts..thank you.

    How about the 1970’s SLFP policies……..promoted agriculture…….cottage industries……limited imports so we develop whatever ‘our ways’ and meet the necessities. We were cash trapped but the way we spend our borrowed money we made out cases to the lenders and the Nation at large.

    We all quest for bread half cooked and full of worms but we did keep the spending/debt to a limit. In Jaffna alone you could not find a square inch of land not farmed including the see fronts.

    Should we go back to those kind discussions?? I lived in Thailand/Vietnam/Malaysia/South Korea and visited Indonesia……and more….they have all managed indigenous ways/heritage well balanced with foreign interference/WTO needs reasonably well.

    Now after the war we spend our time discussing constitution when our priorities are entirely different??? is another tool used by outsiders for manipulating the National Thoughts for their trade/military adventures?? never in the interest of the living or the future generations??

    Is it what we mean by Sovereignty or rather lost Sovereign status dare I say.

  • 0
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    Dear Sir

    I agree with all your article. Can we bear all the following as Environmental considerations as a back bone for all the development work please.

    We need a clear green policy approach in all we do and infect we have huge gap in our policy discussions because none of the parties explicitly state what they stand for on green politics?

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