Lanka needs an 'IPL' for the economy
Rohantha ATHUKORALA
Today the economic value of IPL as a brand exceeds $4 billion to the
Indian economy. Even though IPL-Gate has been unearthed, I blame the
policy makers for not regulating this industry. Once an industry is
blooming, for it to be regulated is a very difficult task. I guess it's
a lesson for Sri Lanka.
I remember the days when I was part of a larger team that was
fighting the war on terror. Whilst the final ground attack was in force
in the Vanni, our task was to keep the Jaffna economy engaged and linked
to the country's economy.
Travelling in military flights together with the soldiers, when in
Jaffna having to travel in armoured vehicles in a daily life that sure
beat the fifteen years of multinational experience that I have
previously enjoyed.
The bravery demonstrated by the private sector to work in the North
was commendable.
The first industrial exhibition that we staged way back in December
2008 amid the height of the ground operation attracted 168 companies
from Colombo and almost three quarter of population from Jaffna
peninsula, indicated the burning need the people had to engage with the
rest of Sri Lanka.
Even with the many logistical issues that we faced such as the A9
being closed for civilian traffic and the successive air attacks by the
LTTE on the city, the economy continued to perform and cross the 6
percent GDP growth mark which I believe would have been a dream that any
other country would like to emulate.
Credit must be given to the private sector that drives almost
seventy-five percent of the economy.
At the recently staged BPA investment symposium the Yalpanam chamber
head commented that at one time the people of Jaffna had almost 5 quasi
governments ruling the business community and it will be a case study to
determine how the Jaffna business world coped with such a situation.
Cost of the war
A latest study has revealed that the war in the last thirty years has
robbed the country over 6,300 billion rupees of 6.3 billion dollars.
Apparently between 1976 and 1982 the tourist arrivals had increased
by 24 percent per annum registering 407,203 visitor arrivals. But with
the conflict breaking out in 1983 visitor arrivals started dropping and
ultimately registered a low ebb of 230,106 which gives us an idea the
impact the industry had had due to the conflict.
If not for the war, we would have been attracting around 1.5 million
tourists which explain's the capacity development that would have
happened in Sri Lanka if not for the war.
In contrast if we take a country like Cambodia the country registered
200,000 tourist arrivals in 1983 and today attracts over a 2.1 million
travellers. This has been the opportunity cost for Sri Lanka.
If we take the 14,700 hotels rooms that are available currently in
Sri Lanka, even at a one hundred percent occupancy rate we can attract
only a 760,000 tourists at best.
It is estimated that if Sri Lanka wants to attract 2 million tourists
in the years to come we will have to invest a minimum of 3.5 billion
dollars building new hotels to match this capacity.
Which tells us the step change in thinking that will be required to
draw investment into the country. Current studies reveal that there is a
strong relationship between the security situation and the FDI flow into
the country.
It is estimated that Sri Lanka has lost around 3 billion dollars on
FDI's during the last 24 years.
In the recent past we have seen the positive trend in the tourism
sector catapulting the visitor numbers by almost 37 percent in January
and a mega 67 percent in February and 40 percent+ in March vs last year.
This explains the gold mine that Sri Lanka is sitting on. In the last
five years Sri Lanka's GDP has grown from a 24 billion dollar economy to
a 42 billion tiger in South Asia.
The overall poverty at a low twelve percent, the literacy rates are
at the high nineties with the un-employment level at a low 5.8 percent
which makes Sri Lanka an outstanding country in the South Asian region.
Like other economies of the world, Sri Lanka is having its set of
woes with the budget deficit exceeding a ten percent and the current
account deficit ballooning that sure calls for strong financial
discipline after the April 26 elections.
If we take our neighbour Maldives, it is a clear example of how an
economy can manage the budget deficit where from an out of control 27
percent registered in the recent past it has improved to a commanding 18
percent and now with strong leadership is targeting to end 2010 at below
eight percent which means that it can be achieved provided that there is
a political will.
Sri Lanka targetting for a zero poverty rate, a zero unemployment
rate and a zero infant mortality is not unrealistic given the
infrastructure development that has been taking place given that even
with all the issues in the last five years the development agenda
continued with a very strong drive on infrastructure development.
The challenge is for the country to have a strong leadership and a
strong public policy framework to support the agile private sector to
grow as Sri Lanka must not let go of this opportunity.
Believe it or not we are currently one of the top ten best growing
economies of the world as ranked by the New York Times.
This calls for a string public-private partnership approach to drive
a development agenda than just pointing the finger towards the
government to solve every issue that arises.
In my tenure of heading the pivotal policy making body the National
Council For Economic Development (NCED) at a time when the economy
expanded a seven percent plus, I saw that the industries that really
progressed were the industries that had a strong private-public
partnership.
The best case in point was the apparel sector and the renewable
energy clusters of the country.
Sri Lanka needs an IPL
I strongly feel that India is a model economy that has very cleverly
identified the waves of growth in the world and used it for the
developmental agenda.
Be it the IT revaluation or the BPO industry, India sure lived up to
the ethos of Incredible India.
In the recent past the drive towards nuclear energy sure makes the
country to be in good stead of being a super power nation in the future.
However, I believe the one event that unfolded in the economy that
made the country relevant and youthful to the world was the launch of
the Indian Premier League or more popularly called the IPL. Lalith Modi
articulated the belief that selling cricket stars for big money auctions
was possible.
Today the economic value of this brand exceeds a 4 billion dollars to
the Indian Economy. Even though IPL-Gate has been un-earthed the blame
is squarely on the policy makers for not regulating the industry. Once
an industry is blooming for it to be regulated is a very difficult task.
I guess it's a lesson for Sri Lanka.
This in contrast to the Sri Lanka's total exports that account for
almost twenty-five percent of the economy accounting for only a 10
billion plus dollars for the country whilst the number one brand BOC
commanding a 0.1 billion dollars only. Hence the need of the hour for
Sri Lanka is an 'IPL' for the economy which is in line with global
business trends.
I am not sure if it is the IT/BPO sector or if it will be value added
fisheries but Sri Lanka sure needs an IPL for the economy.
The last IPL that Sri Lanka saw was the apparel industry way back in
1977.
The export landscape
If one does an in-depth analysis of the export industry of Sri Lanka
what we see is that there has been no shift in the strategic direction
of exports during the last eight years which is worrying given that a
progressive country like India keeps innovating and keeping the country
relevant in the changing global template.
Export Composition of Sri Lanka
The sectorial contribution remains the same with Industrial Exports
contributing around 75 percent whilst Agriculture a 19 percent and
Fisheries at 2 percent.
This clearly demonstrates that we as a nation have not influenced the
overall strategic direction to be in line with global template of world
trade.
If I may take India once again we can see how the State identified a
specific sector where the nation can have a competitive advantage and
thereafter instills policy reforms that lead to attracting the private
sector do drive the new opportunity.
The best case in point in India's IT sector where radical policy
changes were made by the policymakers that has resulted in making India
emerge as a dominant player in the global IT arena.
When Lalith Modi said that he was going to take IPL to South Africa
when it ran into an issue in IPL season two may be was another
directional change in exports that the world saw. This is exactly
required for Sri Lanka to my mind.
The last of such a directional change took place in Sri Lanka as
mentioned before was when the apparel sector was launched in the 1980's
in Sri Lanka.
The dominance of this industry remains even today, though it's fast
eroding due to competition from China.
For instance in the United States we are experiencing a drop of 13
percent in the textile and garments segment whereas the total US markets
for clothing business is growing at 9 percent per annum.
It clearly reveals that Sri Lanka is losing share in the US market
which is incidently the number one market for Sri Lanka exports.
Strategic policy shift
If we closely analyse the directional change taking place in India,
we can see that once again there is a strategic policy shift that is
making a composition change of the India export industry. State of art
investment parks are being developed with up-to-date infrastructure
facilities in Andra Pradesh backed with a strong marketing campaign
which offers to the world a competitive manufacturing environment that
has resulted in attracting the top manufacturing operations of the world
into Andra Pradesh.
Sri Lankan has also been lured into strategy, where we see a leading
apparel company like Brandix deciding to set up operations in India. May
be if we do not save GSP+ it will put the nail on the coffin that's
going to sure make many other companies to follow suit.
If Sri Lanka wants to be competitive we need to prioritize spending
and drive up focused investment for growth.
It can be aviation, oil exploration, a BPO hub or the fisheries
sector.
If we do not do this, Sri Lanka will not be in line with the changing
global business landscape.
If Sri Lanka does not do this fast in another five years, the
composition of the export industry will remain the same in Sri Lanka.
May be, we might see India taking over the export industry of apparels
that Sri Lanka developed for the South Asian region.
R&D investment low
For a strategic shift to take place in a country a policy is required
to invest on research. A country needs to move into a knowledge based
economy. If we examine the current spending on R&D in Sri Lanka it is a
mere 0.14 percent of GDP down from the 0.30 spent, way back in 1996.
This is even way below the investment by countries like Bangladesh and
South Korea which experienced phenomenal growths in the last two
decades.
These countries in the last decade has increased R&D spending from
0.2 percent to a fantastic 2.8 percent of the GDP value which explains
the strategic thinking required to create a change in export strategy.
Scandinavian countries spend nearly 4 percent of GDP on R&D while India
has increased the investment to 1 percent of the gigantic economy.
We see that there has to be a strong directional change to the Sri
Lanka export industry so that we can have an IPL in the Sri Lankan
Economy to be in line with the realities of the business world.
This is important given that Sri Lanka's long term economic growth
and economic stability depends heavily on the future of the country's
exports.
* In three years the 'IPL' economic value has crossed $4 billion
* After 30 years SL's exports are $ 10 billion plus of GDP
* 'SL's No 1 brand Bank of Ceylon (BOC) is valued at $ 0.1 billion
* Any industry must be regulated if not business can become dirty
like IPL-Gate
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