Emerging Sri Lanka and role of private sector
World Bank Country Director for Sri Lanka and
the Maldives Diarietou Gaye delivering the keynote address at the 172nd
Annual General Meeting of the Ceylon Chamber of Commerce said, the
private sector has been a long standing partner of Sri Lanka’s
development.
Gaye said, Sri Lanka needs to focus on
building strong institutions that benefit all to become an effective
Middle Income country.
Following is the full text of the speech:
“The private sector has been a long standing partner of Sri Lanka’s
development even through tough times and deserves a pat in the back for
engaging with the government from the colonial times, through
independence, a three decade long conflict, financial crisis and now in
the process of moving into a middle income country.
Reading the CCC’s latest annual report, I found the theme ‘Practical,
Effective, Development’ very topical and timely for Sri Lanka in the
current point of history.
As we all know, to become an effective middle income country Sri
Lanka needs to focus on building strong institutions and a practical
governance structure that benefits its entire people. This should
certainly need to be coupled with increased investments in
infrastructure and human capital.
This is a great time for private initiative to emerge and prosper.
Many opportunities are there and are just waiting to be seized.
Private entrepreneurs
For that to happen, we need to all work together to move Sri Lanka
out of poverty and project the image of the Sri Lanka we all love: a
great place to visit, live, learn and most of all invest.
The Chamber is in a good position to drive this engine of growth. You
have done a good job over the years to pull together a good number of
important private sector players and now it’s time you jump from good to
great in positioning the private sector as a key partner in emerging Sri
Lanka.
I will be glad to further discuss how the Bank can facilitate such a
process through increased public and private dialogue.
Modern middle income country
I would like to spend some time today on the New Sri Lanka and the
opportunities that are created for the vibrant private entrepreneurs in
this country. I would then like to move from that to talk a little about
what other countries have done to mobilize private financing and boost
their economy and finally suggest some areas where the World Bank could
be of help in our dialogue with the government and with you to support
the objectives of the Mahinda Chintana of high growth and a decisive
movement toward building a modern middle income country.
Let me start with the post conflict setting in Sri Lanka.
The conflict as we all know, held back much of the country’s growth
and development prospects following the liberalization and opening up of
the economy in late 1970’s.
The economy and the private sector responded very well to the end of
the conflict:
l The Colombo bourse rose six percent on the day of the announcement
and has been strongly upbeat since then.
l Tourism industry (one sector which was adversely impacted by the
crisis) has begun to thrive. Tourist arrivals grew 46 percent in 2010
and by a further 37 percent during the first half of 2011.
l Considerable opportunities for the private sector from the hitherto
untapped markets in the North and East opened up. Many businesses made
good use of this. Just taking the example of private commercial banks -
nearly 40 branches of private commercial banks opened up in the years
2009 and 2010 in the North and East. Among other things this bode well
for the small and medium scale enterprises in these areas.
On the macro front: There was a strong rebound in growth
post-conflict from an average 4.7 percent (1983-2009) to eight percent
in 2010 and likely even growth in 2011.
The country’s economic fundamentals have also improved considerably:
(a) inflation and interest rates having come down to single digit levels
(b) the rupee having stabilized and appreciating in recent times backed
by strong BoP flows and strong external reserve position and (c) the
fiscal deficit also narrowed considerably from nearly 10 percent in 2009
to around seven percent in 2011.
The IMF programme the country entered to in July 2009 - a few months
after the end of the conflict, have progressed well with the country
marking the completion of the sixty review in April 2011 - the furthest
it has progressed under any IMF programme in history.
But with all these feel good factors in the backdrop, considerable
challenges remain for the country and indeed for the private sector
moving forward.
Collective effort
First and foremost is the issue of lasting peace: Although the
country has won the ‘war’ its main challenge is to win the confidence of
all communities alike. National reconciliation and nation building need
to be a collective effort, one that the government alone cannot achieve.
Active support and partnership of the private sector, civil society and
the international community is very much needed in the process - to
ensure that the country sustains it’s hard won peace.
I have noted well the good work the Chamber is doing in linking
people from the North and East with people from the South.
Business can facilitate the reconciliation process by connecting
people to people and link them to prosperity.
Reconciliation process
It is important to remember that achieving eight-nine percent growth
over the medium term as envisaged under the Mahinda Chinthana needs to
be primarily driven by the private sector.
To sustain these levels of growth the country needs to increase
investments rates to around 35 percent of GDP (from current 28 percent).
The private contribution of this investment requirement should therefore
need to rise to around 30 percent of GDP from current 22 percent. This
is a huge jump and it involves ramping up both the private domestic
investment and Foreign Direct Investment (FDI).’
Despite the fall in real interest rates and the gradual depending of
the capital markets - providing many avenues for businesses to tap
capital (in forms of debt, equity, venture capital etc), the investment
climate needs to be worked on further.
In Sri Lanka input costs are considerably high: the country pays one
of the highest electricity tariffs in the world; labor costs are also
rising with the gradual tightening of the labor markets. On top of this,
the rigid labor laws in the country - makes the labor cost component -
one of the most inflexible in the firm cost structure. All these are
elements that any investor will look into when making an investment
decision.
Clearly, the anticipated FDI flows following the end to the conflict
has not materialized to a significant extent. The total FDI inflow
recorded only US$ 435 Mn in 2010 - well below peak achieved in 2008 (US
$ 690 Mn) and continues to remains low in relative terms (at less than
one percent of GDP). The factors outlined above together with others
concerns as the general image still prevailing of country have certainly
discouraged FDI.
This an area where government and private sector need to engage in a
frank dialogue on the issues that need to be addressed to ensure higher
and more effective private sector contribution to the economy. The
government efforts towards improving the doing business indicators poses
one such opportunity to engage in constructive dialogue.
Let me talk about Rwanda, a country, that a few years ago, was known
only for the genocide and war that killed over 1 million lives. The
economy contracted by 40 percent in 1994 at the time the conflict ended.
A Government of National Unity Formed in 1995 and Paul Kagame was
appointed President in March 2000. Today, Rwanda is one of the fastest
growing countries in Africa and has doubled FDI over the last three
years. GDP growth averaged 6.5 percent since 2002 with inflation kept
under five percent. Their position in doing business moved from 143 in
2008 to 58 in 2010 and is still progressing. More importantly the image
in the world of this country has changed from dreadful genocide to
unprecedented economic reforms.
Another example is Georgia, a country that emerged from the
post-Soviet era as an independent nation in 1991. Turbulent times
thereafter till around 2003 (Rose Revolution). Then widespread economic
reforms including privatizations, public sector reforms coupled with
concerted efforts to curb corruption. Actually, Georgia used its battle
against corruption to promote its image internationally and attract FDIs.
They moved from a rank of 112 in 2005 in the World Bank doing business
to 12 in 2011 and make quite a stride in the Transparency International
Corruption Perception Index.
One can always question the pertinence of such indexes, but they are
available for all and often consulted by investors. Perception, image
and information and communication are key factors that make this century
what it is. Let us use them well to help disseminate the good news.
The successes in Rwanda and Georgia have largely been the result of
an open dialogue between government, private sector and other
stakeholder where the difficult questions are openly debated.
Let me finish my speech by saying a few words about what the WB can
do to support the private sector to reap country’s emerging
opportunities:
The Bank is in a privileged place to be able to share knowledge,
expertise and experience, connect people and institutions throughout the
world.
In addition to our lending function to government, that most of you
are aware of, the Bank Group, through IFC, the private sector arm of the
World Bank has been directly engaging with the private sector of Sri
Lanka and will certainly expand in the years to come.
We also facilitate South-South dialogue - this is an opportunity for
both public and private sectors to share experiences with countries on
specific issues.
Some projects, although government funded such as the e-Lanka project
and the recently launched Tourism and SME Development Facility project
are opportunities for private sector engagement.
Next year with the Metro Colombo project, which aims to improve flood
management and clean-up many of the main canals in Colombo, land will be
made available for private sector investment to contribute to building
the kind of city that is expected from a middle income country.
Just two days ago I spoke to an exclusive business community of Sri
Lanka. There, I used a quote from a great man from the South Asian
Region - Mahatma Gandhi ‘Be the change you want to see in the world’.
Today, I like to leave with you an African proverb ‘Peace is costly but
it’s worth the expense’. Let’s work together for a practical and
effective, development for all of Sri Lanka.” |