Time to strengthen national economic base

President Mahinda Rajapaksa has set the stage for Sri Lankans to work towards making Sri Lanka the ‘Emerging Wonder of Asia’. His astute leadership over the past five years eliminated the LTTE and put Sri Lanka on a firm footing where we can now concentrate on nation building.

As the war drew to a close Sri Lanka was in a very precarious position with foreign reserves at almost US $1 billion, donor nations holding back aid flows and the general conditions for exports also looking weak due to the world economic crisis. On the domestic front domestic consumption and internal trade was also seeing steep declines, as the population was unsure of what the future held. As economic activity slowed during 2008 and 2009 so did Government revenues from tax collection. The consequent increase in the Budget deficit was slightly unnerving to say the least.

Today, a little over a year later we look back and view May 2009 as if it were a distant memory. All major towns in the country are enjoying brisk business. Traders are well stocked and business people are finally looking forward to years of profitable business. Consumers too are viewing their futures with more confidence.

I think many including our friends in the Opposition expected the economy to go through a period of dire difficulty. Those negative expectations have not come to pass and the country has reemerged stronger economically, better than we all expected. The peace dividend is already evident in the newfound confidence of the investors, both local and foreign.

Today, most industrialists regardless of their political beliefs admit that Sri Lanka is now a much better destination to engage in business. The large Sri Lankan Diaspora has begun to trickle back to take advantage of the economic opportunities that are about to unfold.

All this has translated into renewed confidence that Sri Lanka will reemerge as a country with accelerated economic growth. The early signs are promising. Foreign investors are investing reasonably aggressively in Sri Lankan Rupee and Dollar dominated debt. As a consequence our reserve position has crossed US $5.5 billion.

Good challenges

These I believed are good challenges for a country like Sri Lanka to have. When most of the world is worried about serious declines in asset prices we are today in an enviable position where we have to plan how to manage rapid economic development.

All this is possible because there was a decisive victory against the LTTE, a little over a year ago. Sri Lanka, under the leadership of President Mahinda Rajapaksa, is forging closer economic ties with its Asian neighbours in economic, social, cultural and developmental spheres. Just as in the economic sphere, a degree of fearlessness and candour in articulating the national interest in the field of diplomatic relations and international affairs can only help to safeguard national sovereignty, protect our vital interests and raise the national profile on the global stage. Our own interactions, while acknowledging the concerns and interest of fellow members of the international community, must be respectful but never be from a position of subservience and undue deference.

Add time

Suddenly the challenges the Sri Lankan economy faces seem entirely different from a few years ago. Today, we are concerned about protecting our exporters from the Sri Lankan rupee strengthening too fast. Today, we are also faced with a situation where the policy makers have to be mindful about inflation because of the sudden upturn in consumer demand and increased investment activity.

The towns in the north and east that failed to attract visitors are suddenly facing fresh challenges of having to manage the domestic and foreign tourist demands. Reconstruction and rehabilitation of the North and East and other planned infrastructure development in the country will put pressure on demand for construction materials and skilled and unskilled labour.

With the amount of infrastructure projects planned, which will come on stream for which this budget has made substantial allocations, we can expect to see a significant growth in the construction sector. We have to ensure that domestic construction costs do not escalate.

I look forward to supporting the national endeavour of Developing Sri Lanka by ensuring that our agricultural sector is uplifted to compete in the international markets. Today the single largest challenge faced by our agrarian sector is the high cost of production of most agricultural products.

We are indeed lucky that most of our agripruoducts such as tea, coconut and spices such as pepper and cinnamon fetch higher prices due to the distinctive flavour and aroma. However, long term we need to bring our cost of production lower especially in areas of rubber, coconut and tea.

In a country where a third of the population are gainfully employed in agriculture it is imperative that we build an internationally competitive agrarian sector. Whilst some of these objectives cannot be achieved in a short space of time we must plan and work towards improving agricultural productivity.

As sectors such as Tourism grow and demand more workers at all levels out agri-sector must be able to release workers whilst not reducing production. The failure to achieve this would result in even higher cost of production that would lead to un-competitiveness of products in the international markets.

Traditional crops

We will soon have an estimate of the extent of land available for agricultural use in the north and east. Sri Lanka needs to decide if we rely on our traditional crops or whether we move to growing new crops such as Palm oil. My Minister is giving leadership to increase the area under palm cultivation from 5000 ha to 25,000 ha in the next few years. Experts are evaluating the ideal industry structure and the ideal lands suited for this purpose.

The Ministry of Plantations is also looking at opportunities where another 100,000 has of coconut could be cultivated in land released in the North and East. Today we import a significant portion of our vegetable oil requirement. I would like to see Sri Lanka achieving at least 50 percent self sufficiency in vegetable oil over the next decade.

This would effectively mean a saving of millions of dollars for the country. However, I advocate minimum long-term protection for the sector, as Sri Lanka needs to evolve as an efficient producer of palm oil.

The years we suffered with the war we were content under successive governments to grow the state sector even though it may not have been the most efficient.

It is imperative for the long-term well-being of the country that we look to limit the size of the state sector in business and work harder at delivering state services more efficiently. Let us not forget that whilst peace may be new to Sri Lanka for the international consumer of Sri Lnakan products and services what ultimately matters is whether we are competitive in the international market.

So whilst tourism may boom from the 480,000 tourists to possibly 2,000,000 tourists in a few years time the long term success and growth of the sector would depend on the ability of a travel agent in Europe or Asia to sell Sri Lanka at a more attractive price than say compared to an Asian competitor country.

As such it is important that all support services to tourism such as airlines, other transport services, hotels and tourist attractions be competitively priced. One country that has built a very successful tourism product based on efficiency is Malaysia. Today they enjoy tourist arrivals of over 10 million per annum. Sri Lanka too can expect to see tourism contribute as much as 6-8 percent of GDP from the present 1 percent of GDP if we build out business on strong fundamentals. I have no hesitation in

saying that under the able leadership of Hon. Basil Rajapaksa that this can be made possible.

This generation of Sri Lnakans will live through possibly the most prosperous period the nation has experienced in the post independence period. However, in order to unleash the full potential of the country we will have to invest in infrastructure, industry and services sector development.

The investment of our present National Savings of 24 percent of GDP is hardly sufficient to realize our full potential. Long-term it is not prudent to raise excessive amounts of debt at a national level. Whilst Sri Lnaka has adequate debt servicing capability within the five-year horizon I feel it is prudent to explore avenues of public-private partner ships to build the long-term infrastructure requirements of the country.

Sir Lanka, has a richly diverse social make-up. One of the challenges in achieving development and economic growth in a pluralistic society is ensuring that it is broad-based, inclusive and equitable. No segment of the national population should feel excluded and marginalized.

This inevitably leads to disaffection, discord and instability. This is why President Rajapaksa only recently pointed to the close correlation between development and peace. Speaking at the Business Forum organized jointly by the Indian and Sri Lankan chanmbers of Commerce the President said:

“Today, we extend our hand of friendship and opportunity to all nationalities and communities, while we are well on our way to bring about a true reconciliation within our communities and extensive economic empowerment among our people.

We strongly believe that to bring permanent peace there must be development. As I have often said, ‘there is no peace without development, and no development without peace.”

This then encapsulates our vision a vision for development with equity. As President Rajapaksa stressed in his recent comments about economic prospects for the future, our economic fundamentals are sound and our macro-economic management helped us overcome the worst effects of the economic crisis. Now, with the advent of peace we must strive to attract investment in key sectors of our economy. Virtually limitless opportunities have opened up in several areas in which Sri Lanka welcomes partnership. As the President pointed out:

“Those of you who are keen to explore, will find abundant opportunities for investment in Sri Lanka. The scope is immense: from infrastructure, to agri-business, to manufacturing and to a range of services. You will also find that our country offers a rare package of skills, capacity, and a willingness to learn and adapt our policy is vibrant, our package is enticing and exciting, and you would do well to join us in our forward march.”

While we believe that the private sector is the primary engine and driver of growth. Public investment as and when necessary on a suitable scale is necessary to foster and supplement growth.

We must at the same time nurture and safeguard local entrepreneurship and business. Although these initiatives in selected areas may be branded “economic nationalism”, we must while encouraging stronger and more productive business ties with regional and global players, also strengthen our national economic base. It is only then that we will be able to overcome the inevitable vicissitudes and tribulations that face any developing nation state in the modern era.