Speech by Dr Nalaka Godahewa on the current economic paralysis
Posted on April 5th, 2017
SPEECH AT RORATY CLUB OF COLOMBO WEST – 15th March 2017
This speech was made by Dr Nalaka Godahewa-Former MD-Sri Lanka Insurance/Former Chirman-Sri Lanka Tourism Board/Director-Lanka Hospital-AP
Very good afternoon ladies and gentlemen. Thank you very much for inviting me to share some thoughts at this distinguished gathering. I my self was a Rotarian for about 15 years from 1992 up until 2007 and I was the president of the Rotary club of Colombo Down Town in 2005. Your club member, Mr Nihal Bogalanda was the Rotary Governor then. So obviously we have some thing in common.
When I was invited by your member, Mr Lakshman Fonseka, to speak at your club, he told me that I could pick any topic I am comfortable with. I said, “Lakshaman that’s a tough one because I wouldn’t know what exactly your membership likes to hear about” Then he asked whether I could talk about the current economic situation in the country. I said, “that’s easy” because nowadays there is nothing much to talk about the economy anyway.
Honestly, I do not consider my self qualified enough to lecture you about the economy. After all, the audience here comprise of many senior corporate executives and businessmen. You know as much as I do about the current status of the economy.
I am sure you already know that the GDP growth rate of the country has come down by about 14% over the last two years.
You already know that rupee has got devalued by about 15% compared to the value two years ago
You already know that foreign direct investments have declined from USD 1.6 bn in 2014 to about USD 450 Milion in 2016. Bloomberg has recently rated us as a high risk country to invest.
You already know that Colombo Stock Exchange is currently the worst performing stock exchange in Asia
You already know that Debt to GDP ratio has increased from 70.7% in 2014 to about 81% by end of 2016
You already know that despite the promise of the new government to create 1 mn jobs, unemployment has risen from 4.3% to about 4.6% by end of 2016
You already know that foreign reserves are down from USD 8,3 Bn to perhaps less than USD 5 Bn within the last two years
Everybody knows that interest rates are going up, savings are down, consumer spending’s are less and the whole economy is in bad shape.
So I don’t have to talk about those things and state the obvious.
Instead, I thought I could add more value by talking a bit about myself and draw from my own experience to explain what are the possible reasons for the current economic turmoil in this country.
I have been privileged to have worked in both the private sector and the public sector. I have worked for about 18 years in the private sector and about 5 years in the public sector. I got involved in the public sector in 2009 purely by accident. It was some thing never planned.
Some of you may remember that in 2009, as a result of a land mark supreme court judgment the ownership of Sri Lanka Insurance changed hands from its private owner Distilleries Company to the Treasury. Mr Harry Jayewardene was the Chairman of SLIC before that. Immediately after this change of ownership, some labour issues erupted in the company and the government was in a dilemma how to handle the situation. Some one had gone to the president and recommended that government should hire a person with prior experience in the company to arrest the situation.
I happened to be the CEO of Sri Lanka Insurance from 2006 till 2008. I had retired in 2008 at the age of 43 in order to pursue my academic interests. Having completed my PhD in 2007, I was planning to set up my own educational institute.
One day, I got a call from Mr Sumith Abeysinghe then Treasury secretary asking whether I could come and meet the President. I was asked by President Mahinda Rajapaksa whether I could act as the Competent Authority of Sri Lanka insurance for one month until a formal board is appointed. That was the first time in my life I spoke to President Mahinda Rajapaksa. I had no connection to any of the Rajapaksas until then.
I accepted the responsibility. I had enough free time at that time since I was on my own.
Perhaps because I did a good job during that one month period as the Competent Authority, I was appointed as the Managing Director of the company when the new board was appointed. I had no special connection to the top nor did I canvass for the job. They just decided on their own.
As Managing Director of SLIC I performed once again. We made substantial gains in the market share and also made some wise investments in the stock market which resulted in huge capital gains.
I met Mr Gotabaya Rajapaksa through SLIC. I wanted to turn around our loss making subsidiary Apollo. I invited Mr Gotabaya Rajapaksa who was riding high on a wave of popularity at that time as the defense secretary to be the new chairman of the hospital. He agreed and we served on the same board for several years. We rebranded the hospital as Lanka hospitals and turned around a loss making hospital to a profitable one, a virtually empty hospital to one which is packed to capacity. Obviously Mr Gotabaya Rajapaksa identified me as some one with skills. So he appointed me to several other boards under his ministry. That’s how I became a director of the Urban Development Authority.
After the 2010 general election, I was appointed as the Chairman of Sri Lanka Tourism probably because I had performed well at SLIC as the Managing Director. That is where I met Mr Basil Rajapaksa who was the subject minister. He too recognized my abilities and appointed me to a few other boards such as Sri Lanka Catering and Sri Lanka Handicrafts Board.
Then in 2012, I was once again given a special assignment by President Mahinda Rajapaksa. I was moved from Tourism to SEC to handle another crisis. By then the Colombo stock market was crashing for 18 continuous months and two regulators had been removed. I assumed responsibilities as SEC chairman in July 2012 and you know the rest. We not only turned around the market but also won recognition as the most sustainable stock market in Asia.
So contrary to what some people think, I am neither related to Rajapaksas nor am I a family friend. I didn’t know anyone of them personally till 2009. Any mutual respect we have today is totally due to working relationships and not due to any political connections. They were simply good at identifying the skills of people and using them to get results.
Having worked in private sector for 18 years and 5 years in the public sector I have realized how different it is to get things done in the public sector. Though there are 1.4 million state sector employees, there are only a certain percentage of public officers who actually make things happen. The good ones are actually better than some of the best private sector executives. Every government finds a few of those highly capable public officers and uses them to deliver results. Former president Mahinda Rajapaksa also had some very good public officers in his team. They were the ones who kept the economy moving.
When you are an insider, you quickly understand something that the outside world doesn’t know about. That is the power of the public officers. A minister may appear very powerful but there is nothing he can do if the public officers in his ministry are not co-operating. If the officers do not obey the commands of the minister, then the minister is a dead duck. That is because according to government rules and regulations Minister can’t get anything done on his own. He needs the officers to execute his instructions.
Today, you look around to see that the government machinery has come to a standstill. There are no government-led projects visible. We see only opening ceremonies and signing of MOUs. Investors who come to the country with money to invest are leaving saying that they have been sent from pillar to post with no one taking decisions. Virtually nothing that was stated in the two election manifestos of the present government has been implemented. What we are left with is ‘all talk but no action’ government.
Why has this happened ? Have you ever given any thoughts to this?
If you carefully analyze you may notice that the government officers are no longer cooperating with their political masters. They have unleashed a silent protest against the government.
Let me give an example. Several months ago a company that belongs to a friend of mine won a government tender. Value of the tender was about Rs 80 million, well within the approval limit of the procurement committee. The chairman of the institute had the power to award the tender to the winning bidder. Having heard that he has won the tender, my friend was waiting for the purchase order. It didn’t come for about a month. Finally he inquired from the CEO of the relevant institute why the tender has not been awarded. He was told that the chairman does not want to sign the paper so it has been sent to the additional secretary of the ministry to sign. There was absolutely no need for a Rs 80 million tender to have ministry approval. Ministry approval is required only for tenders exceeding Rs 150 million. Additional secretary also kept the document on his table for several weeks and then send it to his boss, the ministry secretary to sign. Secretary kept it for a few more months without signing. Several months later my friend approached the ministry secretary through some contact to find out what has happened. He was told that it would be sent for ministers approval. You will not believe what happened next. The minister recommended that a paper be submitted to the cabinet for cabinet approval.
Do you see the irony here? This is just a simple operational matter that could have been easily handled with the institute concerned. It is going up to the cabinet because no one wants to take responsibility for a decision.
So my friend has given up all hopes about getting this business. He was joking with me that it will go for parliamentary approval after the cabinet.
Now friends, this is the situation that the present government has created for them selves. By taking more than 2000 public officials to FCID, bribery commission and presidential commission over the last two years they have brought fear into the minds of government officers who are no longer willing to take any initiative. What the leaders of the current government started with a political motive has back fired. No government can function when government officers take this stance.
Another problem with the present government is that they don’t seem to have a clear plan as to how they should run the country. They had only planned how to defeat the previous regime and gain power. Probably there was no adequate preparation to run the country thereafter. Now they have to learn on the job. That’s why we see mistake after mistake made by this government. The budget speech where all most all proposals got amended later was a case in point.
When you don’t plan in advance how to run the country once you come to power you don’t prepare a team for the job either. That is why you don’t see a good team in place to manage the critical functions of the government today. I am not referring to the politicians. I am referring to the officers. Take for example the three regulators in the financial sector. The Governor of the Central Bank , the Chairman of SEC and the Chairman of the Insurance Board. None of them are fresh faces who have been groomed to take up these tasks. Some are actually discards of the previous government. How desperate government should be to depend on these old hands to regulate the financial industry of this country at a time you need dynamic out of the box thinking.
This is the same story with many other government institutes. Government cannot find good people to run these institutes. Who actually wants to put your neck forward and assume public sector responsibilities any more in the current environment?
The government keeps presenting different policy statements in the parliament. If my memory serves right over the last two years more than 4 different economic policy statements have been presented by the prime minister and the minister of finance . We hear that another policy statement is to be presented soon. That clearly shows that we have brought to power a government, which is trying to learn on the job. Tell me with your own experience in the corporate sector, whether it is possible to manage a company, let alone a country, without preparation in advance.
Lastly I want to explain to you how the government committed hara kiri by challenging its own credibility.
They started this by challenging the information provided by the Central bank. In order to show that 2014 growth was not as high as what the previous administration claimed, the new government changed the base year from which the GDP growth rate is calculated. By doing so they were able to bring down the reported GDP growth rate of 2014 from 7.4% to 4.9%. Can anyone be stupider than this? You show the world that yours is not a high growth economy and yet expect the foreign investors to get exited about it? On the other hand will foreign investors trust the information provided by the Sri Lankans when the Government it self challenges the statistics reported by the Central bank ? So this shortsighted politically motivated behavior did a lot of damage to the credibility of our country.
Then they stopped all ongoing projects in the country including the Ports City. They told the world that they are investigating various corruption issues related to these mega projects. Once again the government it self was painting a bad image of the country.
For the last 27 months the only thing Sri Lankan government has been talking about is investigating large-scale corruption. No wonder we have slipped further down in the world corruption index in 2015 and 2016. Add to that the entire world now knows about the infamous bond scam where the primary suspect is the governor of the Central Bank him self-not to mention the possible masterminds holding even higher positions in the government. For a foreign investor Sri Lanka looks like one of the most corrupt countries in the world today.
Let me use a simple example to explain this further.
Imagine one Mr Silva gets drunk in the evening. Comes to the road in front of his house and starts shouting like this.
“ Guys do you know that my wife is sleeping with my naighbour. She is a prostitute. My eldest son is a murderer. He is now in jail. My second son is addicted to drugs. He has robbed many people in this village. My eldest daughter just eloped with the driver. By the way I am looking for a groom for my youngest daughter. Let me know if there is a nice gentleman who likes to marry my daughter”.
Do you think any one would want to associate with this family, let alone getting married to Mr Silva’s daughter.
Friends, this is exactly the plight we are in today. Our own government has destroyed our credibility as a nation. That’s why we don’t get any new investments. That’s why existing investors are running away from us.
The mismanagement of the economy is appalling. Firstly the Central Bank bond scam resulted in increase of interest rates. It had a huge impact on the debt payments. Then the recurrent costs of the government went up by about 28% in the first year it self. The government had to borrow more or print money. The rupee started depreciating. Reserves were wasted to control the falling rupee value. Lack of decision making at various levels affected administrative functions. Exports started falling. Money circulation reduced. Consumptions dropped affecting all businesses. Now we have got into a vicious cycle.
On the other hand what’s the point of talking of all these problems? The problems of this country are not due to just one government. Administration after administration has failed us for the last 69 years since independence. The hate politics have not taken us anywhere. The question is what we as professionals are going to do about this. Are we going to sit back and just criticize everything that’s happening around us or isn’t it time that we come forward and collectively look for some solutions?
Some of you may have heard of ‘Viyathmaga’, an organization comprising group of academics, professionals and entrepreneurs who want to make some significant contribution in creating a better future for our country. We believe that as professionals we have a duty to guide the politicians when it comes to the formulation of national policies. Today we do not have a set of national policies that stand above party politics. That’s why every time a new government comes to power they start reinventing the wheel. The idea of Viyathmaga is to discuss a range of important issues from economics to environment to national security to foreign policy and develop a national policy framework. Of course it will take time to deliberate and finalize these. But if we can do that in methodical manner then we will be in a position to present them to all political parties for consideration. We want to be independent as much as possible in the exercise and stay away from party politics. If we succeed in this effort who ever the next government that come to power will have a clear plan in hand to implement. So we invite anyone who is interested in this area to join us. It doesn’t matter what your political affiliations are. You may support the SLFP, UNP, JVP or any other party. All that matters is that you also love the country.