‘Today’s self-employed, wealth generators of tomorrow’

Sri Lanka is an inland nation of 65,610 square kilometres and estimated population of 20.869 million, with density of 333 persons per square kilometre, which is one of the highest in the world. Sri Lanka's economy has indicated a growth of 8.3 percent in 2011 compared to 8 percent in 2010. Sri Lanka's social indicators such as life expectancy, literacy and mortality rates are well above those in comparable developing countries and are on par with many developed countries.

The declining tax to GDP ratio, lower level of public investment and a relatively high level of debt to GDP ratio have been the major challenges in the fiscal sector in the recent past. Poverty still remains as issue affecting nearly one in four Sri Lankan in average.

The government has introduced series of measures to increase tax revenue, which include Simplified Value Added Tax System, expanding the tax base, rationalizing tax exemptions and improving tax administration. The government is committed to raising the revenue/GDP ratio and supporting a higher public investment programme with a view to providing a wide range of infrastructure facilities, developing human resources, undertaking capacity building and reconstruction of the North and East provinces.

Rural infrastructure

Inadequate infrastructure facilities remain one of the biggest impediments to Sri Lanka's progress. Reliable infrastructure is a paramount need for further economic development, especially for export-oriented activities such as manufacturing and tourism. In order to fast track reduction in poverty and rural development, it is important to improve rural infrastructure through public investment. The need for a reliable power supply, road network, transport system, telecommunication capacity, urban infrastructure and port and aviation facilities is strong.

The growing urban-rural gap is largely due to concentrated economic growth in Western province which is 45.1 percent in 2010. The largest cash transfer programme, Samurdhi still misses a large proportion of the poor even though it covers more than 40 percent of the population. In addition to disparities in growth between the Western province and the rest of the country, the slow pace of poverty reduction in Sri Lanka is also linked to rising inequality among income groups.

The sectoral composition of the economy has changed from that of an agriculture base economy to one dominated by the services sector. The services sector has been the highest contributor to Gross Domestic Production (GDP) at 59.5 percent, followed by the industrial sector 29.3 percent and the agricultural sector at 11.2 percent in 2011.

Liberalization, private sector participation and increased competition have contributed to the expansion of the service sector with buoyant performance in transportation, communication, financial services, trade and tourism.

Agricultural sector

Sri Lanka's main livelihood from ancient times is agriculture. The performance in the agricultural sector is an important determination of GDP, as this sector directly accounts for around one-nine of national output and employs over one-third of the workforce. Fragmented land use, poor farming practices, insufficient availability of water, credit, seed, technical know-how, marketing, storage, and transportation continue to weaken productivity in agriculture.

Rice is the staple food for more Sri Lankans, and government policy has been making the country self-sufficient, which is now almost achieved. A total of 70 percent of paddy lands are irrigated. While production has increased, the average yields are lower than average in Asia, and production costs relatively high. Therefore, rapid sustainable development in food production while protecting the atmosphere, water resources, forests, biodiversity need to be given high priority in the development strategies.

The plantation sector produces three export crops, tea, rubber and coconut and accounts for approximately 20 percent of export revenue. The highest ever tourist arrival of 855,975 was recorded in 2011. Most tourists are relatively low spenders, however and the tourism industry has expanded its capacity for a considerable future increase.

Economic growth

More than 23 percent of the population is self-employed. As the economy is likely to grow, self-employment will undoubtedly increase and it is vital that government provides the right conditions for people to start and run own business. Self-employment is a key driver to achieving economic growth in the rural areas. A culture change is needed to ensure that people are encouraged to start a business. In the current climate, government must ensure that self-employment and the concerns of small businesses are given the same status as high-grown businesses. It is essential to make the connection between the self-employed people of today and the wealth generators and job creators of tomorrow.

The education system is playing a vital role in creating productive workforce, possessing competent knowledge and appropriate skills. In order to achieve these goals a comprehensive education programme, together with the process of transformation, to be in force. Education at all levels contributes to economic growth through imparting general attitudes and discipline and specific skills necessary for a variety of workplaces.

It contributes to economic growth by improving health, reducing fertility and possibly by contributing to political stability.

The major importance of the education system to any labour market would depend majorly in its ability to produce a literate, disciplined, flexible labour force via high quality education. Consequently, with economic development, new technology is applied to production, which results in an increase in the demand for technically qualified workers and better education.

Women constitute nearly 50 percent of the population of Sri Lanka and they should be made to contribute meaningfully to the development efforts.

Women's empowerment and economic development are closely interrelated. While development itself will bring about women's empowerment, empowering women will bring about changes in decision-making, which will have a direct impact on development.

On the other hand, women's empowerment leads to improvement in some aspects of children's welfare (health and nutrition, in particular) but at the expense of some others (education).

The unemployment rate has nevertheless gone down, from 5.2 percent in 2008 to 4.2 percent in 2011. A substantial number of the unemployed are educated, and more than 40 percent of them have obtained the GCE Ordinary Level exams or higher. Many of them are therefore not among the very poorest, but can afford to wait for some time for entry in to future education, or for a more suitable job opportunity.

It's remarkable, however, that the unemployment rate among females is more than double the rate of males. This is important to keep in mind for policy-makers because the job market is still strongly segmented alone gender lines. The falling rate of unemployment therefore is an indicator of slightly better job opportunities for educated youth.

Industrial exports

According to Central Bank, key areas of employment generation were manufacturing, construction, trade and hotels and personal services. The share of public sector employment is 14 percent. The total number of migrant workers from Sri Lanka employed abroad was 1.9 million in 2010. Total foreign remittances amounting to Rupees 5,145 million received from migrant workers in 2011.

High value-added domestic resource based manufacturing activities offer opportunity for product diversification, competitive advantage and productivity increases. The export-oriented manufacturing industry dominated by textile, wearing apparel and leather products which contribute approximately 57 percent of export earnings while chemicals, petroleum, coal, rubber and plastic products contribute 15 percent and food, beverages and tobacco products contribute approximately 5 percent.

The structure of exports has changed over the years from a few traditional plantation crops to several industrial exports.

Compliance with standards such as health, environment, labour and safety to comply with international best practices assist Sri Lanka not only to meet the challenges of modern trade initiatives but will also ensure that the rights of global consumers are protected.

As a developing country a salient feature is the relative shortage of capital for developing the economy. An important way to overcome such a ‘capital constraint’ is through Foreign Direct Investment (FDI), which while bridging the financial gap, can simultaneously bring with it new technology and management skills, and also provide the country inroads into regional or global market and supply chains.

FDI, in a productive enterprise in a country by foreign corporations, is an increasingly widespread economic phenomenon of the present times.

Multinational corporations, which only a few decades ago were regarded as exploitative and ideologically opposed by many developing countries, are no longer taboo.

FDI are largely influenced by exchange rate, inflation, labour population, per capita gross domestic product, merchandise trade balance, current account balance and long-term debt outstanding.

The lack of stability of same may affect the FDI inflows in the economy. In fact, developing countries themselves now have an increasing number of multinational corporations of their own, many of which match the world's best enterprises in terms of technological sophistication, global outreach and profitability. FDI through public-private partnership arrangements such as Hambantota port project, Southern highway, promote large-scale infrastructure development.

FDI is to be further promoted to strategic sectors and export industries, and those of that use high local value-addition, generate employment, use advanced technological methods and undertake high research and development methods.

A comprehensive economic development strategy must combine an emphasis on economic sectors with growth potential, with an emphasis on geographical areas where there are grater needs of growth. This will make better use of the human resources in the country and reduce the tensions that follow from unequal and unbalanced development.