KAMALIKA PIERIS

REVISED ESSAY.

Yahapalana has an ambitious economic plan for Sri Lanka. Here is the plan taken from Vision 2025, published in 2017.  Our vision is to make Sri Lanka a rich country by 2025. We will do so by transforming Sri Lanka into the hub of the Indian Ocean, with a knowledge-based, highly competitive, social-market economy. We will position Sri Lanka as an export-oriented economic hub at the centre of the Indian Ocean”.

A new development strategy will come into effect. The budget deficit will be reduced from 1.5 % in 2014 to 0.2 % in 2016 and by 2020 we hope to ensure an income surplus. We have formulated a new Trade Policy, along with an original National Export Strategy. Private investment will be the key driver of growth in Sri Lanka, together with increased inflows of FDI. We will encourage Public-Private Partnerships”, continued Yahapalana.

The Megapolis Development Plan, the Financial City (commonly known as Port City),  Hambantota Industrial Park Development and the proposed plan for the development of Trincomalee currently being prepared by Jurong of Singapore, will  help propel Sri Lanka to prominence”, concluded Yahapalana .

Indrajit Coomaraswamy, a highly   respected economist and presently, Governor of the Central Bank said ‘We are at a very promising point in our economic life. Sri Lanka can make a breakthrough, but there must be a new economic model and new paths. The economy must be private sector led, with emphasis on, exports, FDI and a greater integration into the global supply chain.’

It is difficult to see Yahapalana achieve any of this. Laksiri Fernando observed ‘the present government and particularly the UNP leaders are following an extreme form of neo-liberalism without taking any responsibility to build the national economy and the public sector’.  According to Yahapalana the only engine of growth is the private sector and the masses are asked to wait for the trickledown effect.

We have so far not seen any serious economic reforms, said Razeen Sally in 2016. A questionnaire was issued at Sri Lanka Economic Summit, 2016.  Respondents were critical of the economic progress made so far. They did not know what the government economic policy was and they were skeptical about the Budget 2017.  These responses hint at a wider dissatisfaction among the business community, said analysts.

LMD magazine reported in 2017 that the current situation is not very favorable to investors. There are no solid initiatives carried out by the government to promote investment and the lack of transparency in the investment climate is causing many to think twice before investing. 51% in the survey stated that investment conditions are poor or worse.

The Index of Economic Freedom 2017, compiled by the US based Heritage Foundation and Wall Street Journal,  places Sri Lanka at 112 out of 180 countries with a score of 57.4 points, down by 2.5 points from 2016. Sri Lanka ranks well below countries such as Mali, Uganda, Benin, Swaziland, Nicaragua, and Honduras.

Sri Lanka ranks 85 in the Global Competitiveness Report 2017/2018 issued by World Economic Forum, falling 14 notches. It was ranked 71 last year. In World Bank ‘Ease of Doing Business Index’ 2017 Sri Lanka has gone to 110 position from 109. In 2017, Transparency International rated Sri Lanka at 95th place out of 176 countries in its Corruption Perceptions Index. Census Department reported that inflation has increased to 7.9% in August 2017 from 6.3% in July 2017.

Yahapalana has placed high reliance on Foreign Direct Investment.  FDI was expected to flow merrily in  with the change of government in 2015, but that did not happen. Instead, in the two and a half years of Yahapalana rule, foreign direct investment has declined. In the first half of 2017, FDI amounted to a paltry USD 146.5 million, said economist Sanderatne. The expected 5 billion per year FDI will not come, predicted economists. Sri Lanka needs a miracle to reach this target.

Economists point out that there certainly are lots of investments funds available in the global market. Capital is flowing out of the rich countries, investors are seeking new investments, FDI is now moving to Asia, and countries are competing for FDI  but conditions are not encouraging for FDI in Sri Lanka. The environment is not conducive, said analysts. Investors must be able to trust the country. They look for political stability. Doing business in Sri Lanka is not easy ether. Labor regulations, work ethic and costs of production are not encouraging. Corruption is still continuing under Yahapalana. Sri Lanka is no longer a cheap labor country either. Labor is cheaper in Vietnam and Bangladesh.

The Prime Minister will be setting up an economic plan for the next five years, announced Yahapalana in 2016.  Ranil Wickremesinghe in his role as Minister of National Policies and Economic Management has engaged the services of McKinsey And Company, a US Consultancy group to prepare a plan    for an ‘Accelerated Economic Transformation in Sri Lanka’, providing big, fast economic results for the country’. The agreement between the two parties was signed in November 2016.

The McKinsey consultants have identified the three main areas for acceleration, tourism, agriculture and manufacture. In Tourism, they advocate focus on six ‘tier 1 ‘countries,  India, China, UK, Germany Russia and France.  Also the luxury segment of Tier 2 countries in Middle East, USA, Singapore, Australia and Japan. Manufacturing will focus on textiles, apparel, electronics, food and beverage. Agriculture will focus tea processing, coconut processing and rice. McKinsey said they have developed similar programmes in over 20 other countries. The company has charged the government USD 2,997,666 million for their efforts.

Let us now look at selected aspects of the Yahapalana economic plan. Yahapalana’s main economic thrust is exports. Our immediate goal for the next three years is to increase exports to USD 20 billion by 2020, said Yahapalana. Exports must play a crucial role in our economy. Product diversification and market diversification are vital. We need to diversify our markets. Our exports are mainly to USA, EU and India.  Our two main exports are not among the top ten product categories traded in the world either. In most other Asian countries the two key export products fall within at least one of the top five products traded in the world.

However, analysts point out that our exports have been declining or stagnant since 2010, reaching USD 10.3 billion in 2016. Our main exports, textiles and garments have continued to record a negative trend in spite of regaining of the GSP+ facility, they said. The most Sri Lanka could hope to reach in exports is USD  15 billion by 2020 as opposed to the national target of USD 20 billion, which requires an annual growth rate of 20%.That is unlikely observed President, National Chamber of Exporters. Also Yahapalana does not seem to know, or care, what the new exports are going to be, and the product categories to which they will belong.  GSP+ will allow us to send over 6000 products to the EU markets, said Yahapalana, ignoring the fact that Sri Lanka is not producing 6000 different goods.

There is also the question of employment. Critics want to know why ‘Vision 2050 ‘ speaks of one million jobs when  unemployment is  only 5%   Yahapalana is talking of providing one million jobs but they were unable to give even ten, they said.

Sri Lanka’s apparel industry, with a 400,000 strong workforce, is finding it difficult to attract   new employees. Once an industry which easily attracted labor, the industry today finds it difficult to retain staff in the face of stiff competition from other sectors like tourism and supermarkets. The workforce that was available at the time the apparel industry started out about 30 years   differs from the new generation.  Today, people are looking for more socially inclined jobs. Campaigns to attract workers by marketing the garments industry in the provinces had not brought the desired results. Hiring overseas workers is not desirable, the industry would have to incur a higher cost. The garments industry  is  therefore  moving towards technology and innovation.

Yahapalana  is obsessed with Free Trade Zones. Usually a country has a limited number of carefully set up   FTZs, under the control of  the host country.  Yahapalana  appears  ready to parcel out the whole of Sri Lanka into FTZs  which will be controlled by other countries, not us.  New industrial zones would be established said Yahapalana  enthusiastically.  Eight to nine are  already planned. They will bring development to rural areas.   We have identified lands that will be made available for industrial use.

The industrial townships in Mirigama and Horana have already commenced said Yahapalana. Economic zones will be established in Bandaragama, Embilipitiya, Vavuniya, Kuliyapitiya and Eravur. Mawathagama in Kalutara district is to get a FTZ, 500 acres have been allocated.  Homagama and Malabe areas have been identified as techo-cities with infrastructure for innovation based industries. There will be a logistics and industrial zone centered on the Hambantota air-sea hub.

An Industrial Park  of 400 acres  in Millaniya, Kalutara,   will be established by Rojana Industrial Park. Rojana is a public listed company in Thailand, owned by Japan’s Nippon Steel and Thailand’s Vinichbutr Group.  Yahapalana government will spend Rs. 3.5 billion to build the necessary infrastructure. The FTZ would be ready by December 2018.  Initially the FTZ will manufacture electronic home appliances like television sets.  ‘We will market some of these products locally. ‘

Rojana said that it has over 500 companies in their industrial zones in Thailand. ‘We will talk with them to set up their operations in this Park.’  Establishing a manufacturing zone in Sri Lanka is commercially viable for us. Labor costs in Sri Lanka are still lower than in Thailand and are ‘workable’.  We can think long term in Sri Lanka. We see much investment potential for manufacturers to set up plants here. There is the possibility of catering to both the domestic and international market, Rojana said. The FTZ will be handed back to   Sri Lanka in 50 years without any strings attached, said Yahapalana.

The Planters Association has complained that Yahapalana has requested estate lands amounting to approximately 6120 hectares, in five plots from  Kotagala Plantations, Horana Plantations and Pussellawa Plantations for establishment of industrial zones. This is the largest extent of land ever requested for acquisition by the state in the history of the Regional Plantation Companies, the Association said. Such a request was ‘going beyond the limit’. The reduction in cultivable lands will affect the plantation crops also the thousands living on the estates. The state had acquired properties in the 1980s for the Matugama Industrial village. Even today there are large amounts of land lying vacant. In Ratnapura another estate property was used to establish an industrial village but was later converted to gem mining which is continuing.

There will be FTAs with India, China, Singapore, USA and Afghanistan. A Free Trade Agreement with USA is planned. A China – Sri Lanka Free Trade Agreement, first mooted in 2015  will, it is hoped, be finalized by the end of 2017. FTA with Afghanistan will provide lithium for manufacture of laptops in Sri Lanka. FTA with Singapore will provide access to  ASEAN markets.

Singapore is already an investor in Sri Lanka ,  USD 102 million worth of FDI came into Sri Lanka in 2014.   Currently over 100 Singapore companies operate in Sri Lanka    in a wide range of activities, property, tourism food and beverage and telecommunications. Singapore has invested  further USD 530 million in Sri Lanka  and  companies have expressed an interest in urban infrastructure projects, EPZs, project in and around Colombo and manufacturing.

These FTAs create problems for the local industries.  Here’s one complaint. The Non vessel owning common carrier agents SLANA have objected to future changes in port policy which may put them out of business. They state that it is they who carried Ceylon tea to Iran and Iraq when mainlines did not call at these ports. It is also they who carried bitumen from Bandar Abbas port to Sri Lanka for road development in the last 6-7 years, when Iran was facing trade embargoes.  With the planned FTA, instead of increasing their involvement, the regional Non vessel owning agents were turning away from Colombo seeing it as a negative port, due to the fact that the terminal handling charge could not be recovered from the consignee as was the practice globally, the government must be advised of the adverse effects of over regulating the industry.

The Yahapalana economic plan includes several huge mega-development zones .Yahapalana comments on this are rather confusing. There are a whole lot of ‘corridors’.  There is one ‘corridor’ between Colombo and Trincomalee and another connecting Nuwara Eliya and Badulla Districts via the Kandy-Colombo Expressway and the Southern Expressway through Mattala to Hambantota, which will  help develop agro-based industries and tourism.

The North Eastern economic corridor will be centered around the Trincomalee port. It will bring large-scale development to the Eastern and the Northern Provinces, it will help the North Central Province as well,  with the completion of the Moragahakanda and the Malwatu Oya reservoirs.

The western corridor includes the Western Megapolis zone centered around the Colombo port . The Western Region Megalopolis project, is a mammoth  project, the like of which has never before been undertaken in Sri Lanka. It will need huge funds, around USD 44 billion. The same media report then says, ‘the funds for this are not coming in’. But the dream persists. Here  is the dream.

The proposed Western Region Megapolis Project Master plan, will include a Triple Hub of maritime, aviation, and trade. the Aero Hub will be geographically bi-centric with the Maritime City centered on the Sea-Port of Colombo and the Aero City centered on the Bandaranaike International Airport, Katunayake, with the two city-centres connected by the proposed ‘Port-to-Air Port’ highway to be built through the ‘Modera Bridge’ across the Kelani River, extending to the Air Port Expressway. Both aero and maritime hubs will be efficiently connected to the ‘Logistics Village’ to be set up as part of the plan. The word  Hub” is too ambitious. Can’t be achieved said analysts.

The Aero City, will involve development of airport infrastructure including Aerodrome, New Passenger Terminal, Aero-City Business-Park, Airport Hotel, and an International Convention Centre, along with the development of an Aero-City Residential Township at Minuwangoda. The project will consist of the airport cluster and a residential township cluster.

The airport cluster is aimed at growing the aviation related businesses around the airport, including the development of second runway, the airport extension, the development of aviation industries, logistic and MICE businesses around the airport, while the residential clusters will complement the airport city development by providing well planned residential areas in proximity to the employment centre around the airport. Various types of housing, recreational, commercial and public facilities will be integrated in the township, ensuring a good quality living environment.

The  Rajapakse government initiated a plan to develop the Beira Lake area. Their plan included casinos in a special zone in Colombo’s D.R. Wijewardena Mawatha/Beira Lake area. Yahapalana  has rejected this. Instead,  Yahapalana plans to have a ‘Sri Lanka Eye’ on Beira lake constructed similar to London Eye, the giant  Ferris wheel on Thames. Apart from this absurd decision, Yahapalana appears not have any clear idea of what to do.

Private and public institutions in the area are asked to make suggestions. local and foreign investors are asked to send in proposals. More than 70 government and private institutions, and over 1,000 smaller private institutions and residential properties are located in the area, says Yahapalana . Warehouses and garages by the side of Beira Lake will be relocated.   Families living in shanties along the lake will be provided housing units with more facilities in the condominium housing schemes under construction.

Yahapalana government  will entertain unsolicited proposals for these  mega development projects  carrying high foreign investments under a new procurement system on the lines of ‘Swiss Challenge’ process.  In  the ‘Swiss Challenge’ an unsolicited project proposal made by a company to the government will be put forward for public opinion and other interested parties are given an opportunity  to make counter proposals.  The  Prime Minister has directed the Finance Ministry to prepare guidelines  similar to ‘Swiss Challenge’,    under the supervision of Ministry advisor R.Paskaralingam.   new guidelines are now  being prepared for the awarding of project contracts to local and foreign investors without bidding.

Another interesting feature in the Yahapalana economy  is the appearance of Surbana Jurong, a large Singapore based consulting firm. The Board of Investment of Sri Lanka (BOI) has signed an MOU with Surbana Jurong to set up a technical consultancy services joint venture   which will  open employment avenues for local engineering, architecture and technical professionals  here and overseas,.

Surbana Jurong will also be given the task of carrying out accurate assessment of investment potentialities of Sri Lanka.  it will provide professional services, such as feasibility studies, project management and project implementation for urbanization and infrastructure projects in LL    so as to attract top-rung investors.

Further, Beira lake redevelopment was to be given to Subana Jurong without tender.  this is not an expensive contract,  said    critics.  it could easily be done by a Sri Lanka firm.  Sri Lanka had world renowned architects, structural engineers and other skilled personnel,  but there is no input of Sri Lanka professionals. How do we know that Surbana this is best firm  for this?

Janaki Chandraratne observed that Yahapalana was promising an unprecedented growth in employment so that every Sri Lankan would lead a prosperous life, but the ‘how’ of the plan is not explained. Here is some data which may help.  Prime Minister Ranil  Wickremesinghe said that a tourism plan is underway to attract high income tourists to Elpitiya, Dedduwa, Balapitiya, Akurala,  Koggala, Kalpitiya and Galle,  A new tea factory will be set up at Charleymount in Weligama, he added. Yahapalana also plans to capture the international oyster market. National Aquatic Resources and Research Agency (NARA) has  taken steps to introduce pearl culture, using new technology.  A special type of rope would be used to stock eggs inside the oysters.