ECONOMY-SRI LANKA: Get Competitive or Lose Out, say Economists

By Feizal Samath Reprint | | Print |

Feizal Samath

COLOMBO, Jan 7 2000 (IPS) - Developing countries like Sri Lanka will have to modernise swiftly if they want to survive in an era of globalisation and competition, economists say.

“Our future depends on our capacity to be competitive in international markets,” asserts Nimal Sanderatne, one of the country’s top economists and a former chairman of both the Bank of Ceylon and the National Development Bank.

This, he says, means efficiency, the development of skills, the use of scientific knowledge, improvement of Sri Lanka’s education, infrastructure and good governance.

“Unlike the early 20th century, the 21st century belongs to nations which are super efficient and businesses must remember that. We have to produce good quality products at the cheapest possible prices,” said Sanderatne, now an economics lecturer at the Peradeniya University in the central town of Kandy.

Equally critical is the speed of delivery of services. “Speed is the key to industry these days,” says S. Jeyavarman, general manager of NAMAL or the National Asset Management Ltd. “If you can’t deliver services quickly and rapidly, then you lose out in this very competitive market.”

But economists agree that the greatest challenge will be the speed with which the country is able to resolve an ethnic war which has been raging for nearly two decades.

Thousands of people have lost their lives; billions of rupees have been spent on defence; billions more lost on property and business from declining foreign investment and lower tourist arrivals owing to the separatist strife led by Tamil rebels.

“The economic costs of Sri Lanka’s secessionist conflict have been substantial and are still mounting. Its cost to the social fabric appear to be even larger, even though they cannot be measured,” said the Institute of Policy Studies (IPS), Sri Lanka’s best-known economic think-tank, in a report released end- December.

“It is a burden that Sri Lanka can ill afford, particularly at this stage of its development. The country’s development prospects depend heavily on how speedily a lasting peace can be achieved,” IPS said in its 1999 ‘State of the Economy’ report.

President Chandrika Kumaratunga, who was re-elected for a second term on Dec. 21, has repeated her resolve to end the nearly 17 year war. Her efforts, during her first term, were frustrated by the lack of support from the opposition.

Independent experts and peace activists say prospects of peace hinge on the willingness of ruling and opposition parties in Sri Lanka to work together for peace.

“In the final reckoning, Sri Lanka’s economic future will depend on how successfully it is able to slough off the partisan, destructive political culture that has frustrated the full benefits of economic development,” IPS said in its report.

While economists agree that what Sri Lanka needs is national policies on the ethnic issue, unemployment and the way government jobs are given, health, education and utility services, there appears to be a national consensus on economic policy.

“In a way, there appears to be some consistency now — or even a kind of national policy — on the free market system,” says Saman Kelegama, executive director of IPS.

Except for some marginal changes, Sri Lanka’s free market system, adopted by the former UNP regime in 1977, has been promoted by Kumaratunga’s People’s Alliance government.

“Alternating economic policies discouraged investment and dislocated economic activities. The free market is a good thing for the economy and if we had a wise leadership we could tame the market to be of greater benefit and to reduce any disadvantages,” added Peradeniya University’s Sanderatne.

Kelegama advises that Sri Lanka skip a few stages in industrial growth or be left behind forever in a globalised world.

“There is no time to follow all these phases (of industrial growth) that the developed world followed like light engineering, then high-tech engineering like electronic and computers or aircraft manufacture in that order,” he said.

“We need to jump a few places like Singapore, which moved straight from the assembly age to high-tech development, bypassing the normal process of industrialisation,” Kelegama noted.

Sri Lanka’s agrarian economy is yet to modernise. The farming

community has been plagued by losses and mounting debts, late mechanisation, migration from the countryside, and competition from imports.

Economists noted that agriculture has been neglected due to mismanagement by the state and lopsided and constantly-changing policies of successive governments.

Kelegama believes that however much Sri Lanka develops in the new millennium, it would still remain an agriculture-based economy. A recent Central Bank plan to open a futures market in rice and other farm products may solve one of the biggest problems of farmers — that of prices.

The bank has evolved a scheme whereby farmers and buyers sign up either pre-season or pre-harvest contracts at an agreed price to ensure these price levels are maintained during delivery periods.

Through this process, farmers will no longer be vulnerable to the whims and fancies of traders and the middleman who dictate terms, said Kelegama.

“This is the technological jump I am talking of. Instead of going through the process of new technology mechanisms, the Central Bank has devised other ways of improving the farm economy, using the futures market like in the West,” he said.

Economists agree the possibilities are immense. What is missing is the right political climate.