13 December, 2017

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Post-War Economy, Rajapaksa Regime & Unity Government

By Abdul Samad

Abdul Samad

Sri Lanka, often known as the pearl of the Indian Ocean is an economy valued at $80 billion at the end of the year 2015, according to the World Bank. The service sector generates around 62% of GDP while manufacturing and agriculture generate 28% and 8% respectively. This reflects the importance of the service sector to the country in maximizing economic potential.  Post-independence Sri Lanka experienced its first GDP growth contraction (-1.4%) in the year 2001, under the leadership of Chandrika Kumaratunga.

Post war economic boom

From 2002-2008 Srilanka’s economy grew at approximately 5% annually. However, the end of the civil war opened the floodgates for rapid economic expansion. According to IMF, GDP growth in the year 2009 registered an impressive rate of 8.7% and the following year hit fresh highs of 9.1%.  This was unprecedented and unheard of in the Srilankan context. I firmly believe Srilanka as a country made an economic statement for the first time in the global business circle.

The economic boom produced two big winners. The tourism sector as expected and quite refreshingly the birth of a dynamic capital market that resulted in the Colombo Stock Exchange being the best performing market in the world. The ‘All Share Index’ rallied from around 2500 levels to almost 8000 levels, resulting in investment from international funds and reputed investors.  The strong macroeconomic fundamentals cited at the time acted as the catalyst for the investments. The tourism industry experienced quantum leaps within the same period as reflected in the increase of tourist arrivals up from 300,000 per annum in 2009 to 2.2 million at the end of 2016 (Tourism Board of Srilanka, 2016).

Rajapaksa Regime

In 2005, Srilanka experienced a fundamental shift in economic policy with Mahinda Rajapaksa being elected as the 6th president of the country. The privatization process of the state institutions initiated in 2002 under the premiership of Ranil Wickremesinghe was completely revoked and Key institutions were brought back to state control. This was a highly politically motivated move to secure and expand the government’s voter base undermining the wellbeing of the country and its people.

Srilankan Airlines and the Ceylon Petroleum Corporation are two classic examples of this policy disaster. The agreement with Emirates for management of Srilankan Airlines was famously revoked for outrageous reasons resulting in multibillion dollar losses and costing a fortune to the taxpayer whilst losing credibility in the international investment community.

A fierce commitment to ending the brutal 30 year old civil war saw repercussions on  Sri Lanka’s biggest foreign exchange earner, the apparel manufacturing industry. The country lost the GSP facility given by EU which gave better market access to our manufacturers. However, Mahinda;s regime cannot be held responsible for this as the commitment to end the war was far more important than the GSP facility extended by the EU. Nonetheless, it must be noted that the industry since then has thrived and has become an important player in global apparel manufacturing. A leading industry research institute Just-In-Style.com published an article in 2015 where it declared Srilanka as a winner in apparel manufacturing along with Vietnam and China. Countries like India and Bangladesh were not featured in the list despite handling much larger volumes and having access to ample raw materials. This was a truly significant achievement for a country that has migrated from large scale professional tailoring to total solution providers for international brands.

The end of the civil war in 2009 completely shifted the macroeconomic fundamentals of Srilanka. Apparel manufacturing which had long been the backbone of the economy started losing its significance and service oriented industries such as tourism came to the forefront. The biggest advantage offered by the service sector was the comparatively higher level of value addition. It exceeded well above 70% as opposed to the apparel industry average of less than 50%. This prompted the government to align its strategies to changing economic fundamentals, resulting in a significant number of international organizations entering the tourism industry.

The country experienced unprecedented levels of investment and commitment to infrastructure development.  All projects initiated by the regime seem to be done under strict timelines with very clear objectives. Construction of highways linking key tourist destinations to Colombo and the modernization of Colombo and greater Colombo were two visible outcomes. All the infrastructures commissioned by the Government stood out due to the rapid pace of completion.  The amalgamation of the UDA and RDA to the ministry of defense with Gotabaya Rajapaksa at the helm was an absolute master stroke by the then president. This resulted in the army being deployed for various projects that expedited the work.  Can we find a more disciplined workforce than the army? The question still remains to be answered. Personally I have never witnessed such mega scale projects being inaugurated and completed within specific timelines  The only equivalent in Srilanka’s context was the late former president Ranasinghe Premadasa and his development drive. The importance of this is reflected if one sees the state of the marine drive project that was started by the Rajapaksa regime. The stretch from Dehiwala to Kolpitty which was almost on the verge of completion when the president stepped down.  Two years down the line with Unity government in power the project is stalled. Its neither being finished nor being abandoned. We constantly see road workers aimlessly digging day in and day out with no end in sight.  Thus, causing unwanted congestions and costing millions to the tax payer. 

The other crucial bill passed in parliament allowed international gaming giants to enter the country. As expected it was met with hostility by the opposition but was portrayed as a culture related and religious issue. 

Colombo City in the next 3 years will have close to 8000 luxury star class rooms belonging to various organizations. This is excluding star class serviced apartments. By allowing the gaming industry to blossom, Colombo would ensure round the year visitors like Singapore’s Marina Bay Sands, Macau and Las Vegas. The idea was to offer these services to tourists and not to locals akin to the model followed in Singapore. 

The Highlight of the Mahinda regime was the swift decision making process. Key areas were controlled by the three brothers, a control structure similar to Singapore and Malaysia. This got rid of all the unwanted red tape and gave birth to a common vision for the country with development singled out as the primary objective. The informal bond and the shared personal and political interests expedited pretty much everything. The hosting of the commonwealth meeting was a classic example as Srilanka for the first time was recognized as being able to host an event of this magnitude with resounding success. The event put Srilanka on the global map.

Unity Government

January 2015, saw the collapse of the Mahinda regime citing large scale corruption, racial issues and nepotism being at the heart of the problem. For the first time in the political history of Srilanka the two major political forces joined hands and formed a Unity government with Sirisena being president and Ranil as the premier. The architects of this change were orchestrated by the West together with India who had multiple issues with the Mahinda regime. Ranil and Chandrika were responsible for the execution of the plan laid out by foreign forces.

This is the same Chandrika who lost the 2001 general elections due to an economic crisis that resulted in the first ever contraction of GDP (YOY) post-independence. This is the same Chandrika who built a 200m flyover for almost a decade on baseline road.  It is worth noting that since losing her presidency she mainly residing in the U.K., but suddenly in 2015 patriotism took over her and she reappeared to deliver lectures on economic development and corruption.

The idea of a unity government looks really good on paper. Specially because there is no major opposition in parliament which usually paves way for greater efficiency. However, in the Srilankan context this was done precisely to get rid of Mahinda not for the wellbeing of the people, much to the satisfaction of the West and India. Two extremely different political parties with polarized political views were made responsible for the future of this country. The result – AN ABSOLUTE MESS.

The first major blow to the government and people of this country was the joint decision making process on the economic front. What used to be a massive competitive advantage for the previous regime is the current regime’s biggest failure. Polarizing political views, personal interests and large scale corruption has resulted in no economic progress what so ever. In fact, Srilanka currently stands at the cusp of an economic crisis with the rupee expected to be further devalued citing no economic progress and stalled development projects.

The present government keeps crying on the debt level and the means to service it. What we fail to realize is that some of the biggest companies in the world (Apple Inc., Microsoft and Amazon) which are much bigger than the Srilankan economy have serviced their growth with debt capital. We are talking of market capitalization of each company exceeding $450 billion. These are not mere companies. Their decisions affect the global community.

The appointment of wrong individuals to key ministries such as Ravi for finance minister and Champika’s appointment to the Megapolis. Since taking office Ravi has overseen the depreciation of the rupee to alarming levels and continues to do so. Srilanka has been ranked at the bottom of the table when it comes to the “business confidence index”. He further exercise’s his control by sponsoring a bankers’ association in the U.K. for him to be declared as the best FM in Asia. It was nothing short of watching a sitcom.   One of Ranil’s main campaign slogans was the Colombo Megapolis project, a project that neither has clear objectives nor physical implementation. It has been more than a year since the project was inaugurated at a grand opening. It has just remained a newspaper headline, while minister Champika is busy allocating a special lane for busses in Colombo.

The unity government in their elections manifesto promised to put a few ministers from the Rajapaksa clan behind bars on allegations of corruption and more extreme charges like murder in certain cases. Two years down the line, the public still awaits a decision or conviction for any of the charges pertaining to aforementioned ministers. In fact half the potential candidates to go to prison under the ‘Yahapalanaya” seem to be part of the government. It remains to be seen whether these charges were made to detract voters or to topple a regime.

Srilanka as a country does not offer a domestic market that’s comparable to India or China. Neither does it offer natural resources at the scale of India or Brazil. Hence a consumption driven economic model or a manufacturing based economic model is not feasible for Srilanka. Service sector enhancement and rapid financial deregulation like Singapore and Hong Kong is the way forward. Our Premier repeatedly announces that his government is committed to opening factories and creating technology based industries. This is highly misleading as the economy is not geared for it. We also do not possess the demographics to replicate the manufacturing success of India or China. Being such an educated politician I feel it is a deliberate attempt by Ranil to mislead the general public with limited economic knowledge.    

Conclusion

Sri Lanka needs a “managed democracy” system like Singapore or Malaysia. Strong leadership with an iron fist to protect the country’s interests first rather than sucking up to external forces undermining the wellbeing of the country and its citizens. Unfortunately neither our President nor Premier or anyone in the present administration demonstrates these qualities. Srilanka is in a dire situation because of the political debacle that occurred in January, 2015.  Our macroeconomic fundamentals still remain strong, what is needed is strong leadership to guide the country.

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Latest comments

  • 0
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    Abdul Samad:

    Your article is very good. Sri lankan political systen has gone down since 1948. Now, they are the first barrier for the Country to be developed. they are incompetant and liers. they don’t give anything out because that expose their inabilities.

    Anyway, Service Job are paid less. On the other hand, Sri lanka youth are very intelligent and educated. theri education can be diversified and trained in many different fields instead of training in the same field which will cause problems in the future.

    Sri lanka should be developed based on agriculture and human skills. All these service jobs wreck and ruin the country.

    but, politicians are talking a lot and they never produce results. they talk big things only in summary and they never show results saying this is what we have done.

    See Ranil wickramsinghe. He is a lawyer but talks as an economic expert. His results are bankrupting the central bank.

    govt is talking about incresing the income of people in thousands of dollars per year. But, the most developed secotr is the service sector. SO, they have to show cooked up figures in order to show any development in personal income.

  • 1
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    Abdul Samad, my salute to you! You have grasp the current mess of SL craftily.

    //The idea of a unity government looks really good on paper. Specially because there is no major opposition in parliament which usually paves way for greater efficiency. However, in the Srilankan context this was done precisely to get rid of Mahinda not for the wellbeing of the people, much to the satisfaction of the West and India. Two extremely different political parties with polarized political views were made responsible for the future of this country. The result – AN ABSOLUTE MESS.//

    Keep it up, Abdul!

    Cheers

  • 2
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    Hello Sarath Alwis, read this….this is one reason why we need to kick yahapalanaya out. Your fear mongering would not work anymore

  • 1
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    Abdul Samad,

    Congratulations! Excellent piece of writing. Sometimes I wonder whether Chandrika and Ranil have been given a contract by some external forces to ruin Sri Lanka.

  • 2
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    Wow you got your free laptop car loan Sil Redi and roofing sheets?
    Singapore and Malaysia are a hundred years ahead of us in every department having been run by educated leaders?
    The uneducated uncultured Rajapaksas could not point to one thing they did for poor villagers in nearly ten years in office?
    The fat parliament members still need to go overseas for medical treatment but no Malaysians or Singaporeans need to?
    Mahathir or Lee had no reason to stoop to killing opposition like our uneducated uncultured thieving leaders?
    Hambantota villagers without even water while helping Hambantota filth helping themselves?
    We would need to search worldwide to find a family from hell like these?
    To the gallows with them and all offspring. None of sons married?

    • 1
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      While agreeing largely with Mr Samad, I applaud Shantha on his comments.

      Perhaps the Rajapakse clan managed to outdo Malaysia & Indonesia in terms of corruption. The so called ‘successful’ projects during the Rajapakse regime, some of which are white elephants, were funded on Chinese loans given at commercial rates & with strings attached, unfavorable to SL. Unfortunately, the corrupt Rajapakse regime could only be toppled with a spineless, incompetent & uneducated time server as President (who also has a questionable reputation, although, at a lesser level), & a PM, surrounded by cronies, no better than those in the previous regime. At the end of the day, the same yobs are in the parliament but in different seats. The rich get richer while the poor suffer with rising living costs, injustice, poor transport & health facilities, particularly, in the villages, where kidney diseases due to chemical contamination of soil & water are being largely ignored (who cares about the environment anyway) The legacy of the previous regime is yet to be sorted out.

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      “The uneducated uncultured Rajapaksas could not point to one thing they did for poor villagers in nearly ten years in office?”

      You may be right to a certain extent. The main beneficiaries of Rajapakse regime are the toiyas living in Colombo because most of the bomb attacks by Tamil terrorists took place in Colombo and now Colombians live in peace thanks to Rajapakses. I doubt very much whether you have been to a village and talked to people. I have done that and I know how they feel. Rural economy was getting better under Rajapakse regime. After the Yahapalana government came to power, rural economy has come to a grinding halt.

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