A candid study and an action plan Economic and social development for Sri Lanka Part 2: Competitive Advantage, Burecrctic Delays, and Need for FDIC
Posted on May 24th, 2023

by Professor Sunil J.  Wimalawansa

Properly trained labour force with skills, ethics, and attracting FDIC

The skilled labour force in Sri Lanka is either stagnant or decreasing with exiting to other countries.  Most could speak and/or understand English, and fewer speak other foreign languages.  Hence, besides vastly expanding skills training centres—universities as described above, the government should encourage inflow and establish skill-driven industries.  Examples include medical tourism, outsourcing businesses like call centres, medical data interpretation and reporting, etc., to attract foreigners to spend capital in Sri Lanka.  India and China have been leading in these lucrative industries—industrialised countries continue to offshore their businesses to save labour costs, such as reporting medical testing (e.g., radiology images) and call centre jobs.

In India and China, labour rates and overall costs are rising, causing many industrialised countries to relocate outsourced centres to alternative locations, such as the Philippines and Taiwan.  With little capital investment, this is an excellent opportunity for Sri Lanka to initiate additional FDIC.  However, successive governments have taken no steps to secure such projects, perhaps due to too few or no commissions. 

As illustrated below, creating sustainable new jobs is paramount to economic success and the long-term stability of Sri Lanka.  However, political stability, stable currency, reliable infrastructure, and sustained peace are fundamental to attracting FDIC.  Service-oriented businesses are significantly less expensive to set up compared to capital-intensive manufacturing.  These approaches would generate thousands of new jobs at higher salaries.

Demand by the industrialised countries for service sector support, including the need for call centres, is rapidly increasing.  The offshore information technology and business-process outsourcing amounted to $34 billion in 2005, which is expected to double by 2012.  While India is currently enjoying 60% of this market, its share is set to decline as its wages and job turnover increase.  China has an edge in absorbing more service sector outsourcing work due to its government policies and the availability of huge educated human resources.  Still, the main obstacle is the language barrier.  Success in attracting manufacturing work increases with lesser regulatory burdens and the ability to cut red tape, easier imports and exports, and the ability to expand infrastructure rapidly.  Consequently, China is already capturing India’s lucrative information technology and business services work, but Sri Lanka should compete with it.

Sri Lanka has a comparative advantage

Russia, Brazil, and Mexico likewise began to compete for the same market, offering costs and skills often on par with India.  However, they have an edge because they are located closer to the US and European markets.  However, Sri Lanka has a competitive edge due to its prevalent high literacy rates and trainable workforce: thus, better positioned to compete with these countries.  Nevertheless, to capture these markets, Sri Lankan government must create opportunities, the right regulatory environment, and transparency for entrepreneurs. 

Text Box:  Medical vacations—medical tourism is another potentially lucrative business to attract those with excess wealth and/or international medical insurance coverage.  Sri Lanka has well-educated physicians and other healthcare professionals.  However, it has weak public relations and attitudes.  Customer services must be dramatically improved, especially in healthcare.  Sri Lanka must explore, improve, and utilise these resources to earn the trust and credibility, offer regulated surgical and medical care packages to Westerners, which would lead to pave the path for earn foreign exchange,

The costs of health care in the US and waiting times for routine surgical care in Canada, Europe, and Australia have escalated in recent years.  This further increased the demand for such services.  However, these are not sustainable without better communication, strictly adhering to ethics, and maintaining high-quality care.  When those centres fulfilled all mentioned criteria, larger health insurance companies In the West and wealthy individuals in affluent countries would begin to look for better alternatives than what they have in their countries, using creative ways to keep their costs contained while attaining the desired outcomes. 

Longer-term development of Sri Lanka

With proper strategic planning and positioning, Sri Lanka should be able to take advantage of the mentioned new economic opportunities, especially with affordable five-star hotels and sunny beaches, making healthcare ventures and venues family-oriented enterprises.  Along with eco-tourism, medical tourism could encourage a substantial flow of US and European foreign currencies to Sri Lanka, via Sri Lankan hospitals and hotel systems, with forward and backward linkages.  With the current unacceptable attitudes of physicians, supporting staff and hospital administrators, there is little possibility that medical tourism will boom.  Before embarking on medical tourism, genuineness, public relations, and communication training must be provided to them.  Nevertheless, if properly executed, it could become a multi-billion-dollar opportunity.

The key to developing a long-term plan for Sri Lanka is identifying and refining resources, defining co-competencies, and determining where Sri Lanka has comparative advantages.  A feasibility study of this nature should include the cost of labour, accessibility, high literacy rates, healthcare and other needed training, favourable climatic conditions, availability of raw materials, beautiful beaches, etc.  However, using these can be severely hindered by corrupt practices and hostile encounters with officials like immigration/customs and the police; seeking bribery to get things done will make this impossible. 

In addition, using the Hecksler Ohlin Theorem/model (a capital-abundant country will export the capital-intensive good, while the labour-abundant country will export the labour-intensive goods”),the country should be able to identify products and services that use these abundant resources.  When appropriately managed, industries that need intensive and trained labour (e.g., communication centres, medical vacations, high-tech industries and IT-software development, high-end textiles, high-margin products, and tourism) will thrive in Sri Lanka.  While reducing legal barriers, the government must aggressively identify foreign markets for these products and services. 

Ways to overcome loopholes and increasing tax revenue

Since corruption, regulatory barriers, and ‘red tape’ hinder progress, implementing stern programs to curtail these harmful practices is essential.  Out of these, eliminating corruption at every level of the government and in the private sector is the most important.  This alone will enhance credibility, eliminate waste, and expedite formal approval.  If done transparently and correctly, it could double the effective GDP in Sri Lanka within a few years.

Examples include the recently exposed large-scale VAT fraud and significant wastage due to multi-tier commissions taken by politicians and high-level administrators and non-payment of fees and taxes by ministers, company directors, military personnel, and politicians.  Besides professionals doing face-to-face business—accepting cash only for services, only a few honest people pay their share of taxes.  The latter alone is estimated to cost the treasury an annual loss of tax revenue of an estimated one trillion rupees.  Despite digital and IT advances in Sri Lanka, still, electronic payments and collections of tax revenue have not become the norm.  The lack of it keeps the doors open for bribery, corruption, and higher consumer commodity prices. 

With fiscal discipline and meritocracy, countries like Singapore and large cities like Shanghai in China have shown rapid and sustainable progress.  In these counties and large cities, their major development programs are supported and backed up by governments via private-public partnerships and venture capitals, not by obtaining loans.  In these countries, proper decisions are made within weeks (instead of years in Sri Lanka) after independent evaluations and audits.  Genuine experts should make development-related choices without conflicts of interest and political interference.  Activities begin within weeks and timely complete projects with full transparency.

Because of the red tape, bribery, and corruption in Sri Lanka, building a highway, industrial park, or free trade zone takes years just for approval.  It must go through many layers of bribe-takers, which tremendously adds to the project’s cost.  By comparison, a similar major development project in China or Singapore, from the decision-making stage to project completion, can be a year or less.  Whereas under the current system in Sri Lanka, such a project would take more than 20 years, which adds significantly higher cost. 

Examples include road construction, provision of pipe-borne water supply, safe sewerage disposal, efficient garbage collection and disposal, etc.  Ironically, many expensive projects in developing countries start because of commissions and fail to be completed because they run out of funds.  Under these circumstances, it is no surprise that sustainable long-term development projects are neglected or abandoned, resulting in economic stagnation in countries like Sri Lanka.  In addition to prioritising and eliminating corruption, political and administrative systems must be changed for the country to prosper.  They are vital barriers to progress.  System change must be comprehensive to eliminate corruption, re-establishing the judiciary’s independence and replace the Constitution.

Delayed progress due to layers of bureaucratic organisations

It has become routine that many politicians do not support or approve projects unless there is a commission or something for them.  Besides, they prioritise short-term projects that would be completed in months (during their political term), allowing them to take the credit.  These destructive vicious cycles must stop—they must put the country first.  Politicians should take bold steps to develop the country and bring prosperity to people today and for future generations, not because the projects provide them with votes or commissions.

Too many levels of government and bureaucratic organisations exist in most developing countries.  Sri Lanka is not an exception to his mess: it has ministries, departments, authorities, etc.—these have become money-making schemes.  Most are preoccupied with how not” to get things done or approved: determination influence is commission.  It is a familiar story across the country.  They erect barriers to delay progress till bribes are collected. 

Adding to this hogwash are three additional bureaucratic tiers—district, municipal and provincial councils.  None of these provides added value to the process.  Instead, council members’ mentality is infested with corruption—further increasing delays in obtaining approvals, wastage, frustration, and bribery-driven expenses.  These redundant bureaucratic organisations and multi-level governments hinder progress and add no value to projects or developments.  This multi-layer government should be disbanded with a new constitution.

This boloney can be avoided by establishing independent (preferably district-based) unelected professional bodies appointed by professional organisations.  These must have the legal power to approve or deny projects based on data, facts, and common sense related to outcomes.  Such independent scientific-expert bodies must approve all expensive and longer-term projects in developing countries like Sri Lanka.  A law should be enacted so that political interferences of these independent authorities and commissions should be categorised as a punishable crime with jail time.  While projects must be streamlined, records of authorities’ and commission decisions must be publicly available.  Members of these independent expert bodies should be nominated and appointed by professional organisations, not by politicians or the president—the way to minimise conflicts of interest.  In the absence, project decisions would be heavily influenced by personal gains by politicians, as is distinctly seen today.  

Conflicts of interest, political instability, and the economy

Political stability and peace in the country are crucial for long-term progress and sustainable development.  Three decades-long internal wars against a small group of terrorists continue to waste the country’s precious human and economic resources.  Biased and conflicted self-appointed third-party’ mediators like Norwegians have shown no interest in resolving the conflict—instead, they favour terrorists—thus, with such biased activities, there is no hope that Sri Lanka will achieve long-term peace via such worthless negotiations.  Therefore, other options, including military intervention, must be explored.

The Sri Lankan government must handle and solve such internal issues without depending on biased outside entities, including the United Nations.  These internal conflicts have been consistently fueled by unscrupulous foreign government agencies and non-governmental organisations (I-NGOs), and religious groups to achieve their agendas and destabilise governments, and push for a separation of the country.  Besides, mentioned organisations use local people—so-called experts (enticed with money) to accomplish their unethical missions and harmful agenda.  Ironically, some educated Sri Lankans have fallen into this trap due to the gimmicks, financial gain, and other benefits.  None of the foreign powers or NGOs has genuine concerns about solving internal Sri Lanka—it is only an illusion.  

Resolution of the internal conflict and elimination of terrorism

The Sri Lankan government, especially the arrogance of foreign ministers, consistently fail to neutralise false propaganda by the diaspora that sponsors terrorists.  Instead, they focus their anger on criticising the UN and other organisations.  While these international organisations were not neutral, criticising them without adhering to a firm peace path and working with them proved counterproductive.  Sri Lankan missions and ambassadors in foreign countries must be responsible for neutralising bogus propaganda by terrorist sympathisers.  

It is crucial to permanently resolve the current separatist issue as early as possible and establish political and economic stability in the country while firmly preserving its unitary status.  Sustainable economic and social development across the country would most certainly facilitate eradicating terrorism and establishing lasting peace and sovereignty.  

Resolving internal conflicts is crucial to prevent loss of lives and destruction and stop the draining of foreign exchange.  That should allow wasted funds to be diverted to infrastructure, education, healthcare, and longer-term projects for prosperity.  However, some individuals, companies (supply chains), NGOs, and even bureaucrats and politicians want to prolong the internal war, primarily for financial gain.: it has become a new livelihood for some.  Government and the military must proactively identify and decommission these harmful sources preventing the development and the unity of Sri Lanka.  The sooner this is achieved, the easier it will be to eradicate terrorism for a better Sri Lanka.

Importance of value-added exports

In addition to value-added exports, the new economic development plan should focus on hi-tech and high-margin industries that cost less capital.  Therefore, Sri Lanka no longer needs to depend on loans or marginally profitable traditional exports like petroleum-dependent vulnerable sectors.  In this regard, the diversification of the economy would be crucial to negate the impact of endogenous or exogenous economic shocks, facilitating sustainable growth and taking the country forward socially and economically.

If Sri Lanka follows this path, it is tangible to have an average growth rate of 8-10% annually for years to come.  The author believes such a focused approach would allow growth to surpass the Singaporean economy within a decade, as described above.  Nonetheless, this requires long-range commitment and proactive strategic planning: unfortunately, such a vision has been lacking in Sri Lanka since its independence in 1948.

Adapting new technologies and transfer of intellectual property

Credible and fair mechanisms devoid of egoism must be developed to tap the highly educated and motivated expatriate population to obtain their support, assistance, and guidance.  In addition, these efforts will help bring FDIC and new ideas and technologies to Sri Lanka, allowing infrastructure and economic development without borrowing money that future generations must pay, leapfrogging wealth.  Most importantly, entrenched bureaucrats must facilitate (not hinder as they currently do) and nurture entrepreneurship and innovations, generating sustainable local job opportunities.  Expansion of the job market will lead to political, cultural, and social improvement and stability that would increase investor and customer confidence, further strengthening the economy.  This positive cycle will attract additional FDIC, and the country will tread the path to prosperity.

Technology transfers are essential to establish new Hi-Tech industries, which drive further innovations, the country’s well-being, and economic development.  In addition, improving the efficiency of ailing systems in all government departments is essential.  Examples include the post office, digital land registration process without going through lawyers, computerisation of the governmental operations (e.g., Inland Revenue, Municipality tax collections, payrolls, applications for approvals, etc.), data collection and billing for water and electricity, etc., must be streamlined and convert to digital facilities.

The mentioned automation streamlines all applications for approval and tenders.  It would tremendously help the public and provide greater control of revenue collections and control over projects such as construction and irrigation.  These will significantly expedite activities, minimise pilferage and wastage, and improve efficiency and cost-effectiveness.  However, the government must resist importing technologies or significant pieces of equipment merely on a commission basis (as they do) to achieve political mileage or under pressure from internal or external vested interests that are inappropriate for the country.

Part 3 discusses barriers to progress, healthcare reforms, and the need to shift from domestic help to high-skill labour export.

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