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