New broom at  Foreign Ministry

New broom at Foreign Ministry

A cohesive approach to foreign relations

Dinesh Gunawardena, a veteran politician, experienced at cabinet level, took office in November, as Foreign Minister. He has the task of steering Sri Lanka’s relations with foreign countries and with international bodies back to the straight and narrow.

At a press conference following taking up his duties, Minister Gunawardena said that the new government was committed to maintaining the non-aligned policy while giving utmost priority to national security. These two items figured importantly in President Gotabaya Rajapaksa’s election manifesto.

“The non-aligned nations have had very close relations with us,” the Minister said. “We should give priority in rebuilding these relations… The main task at hand of the new government is to strengthen national security and rebuild the lost confidence both domestically and internationally.”

He must implement the Rajapaksa Government’s neutral and non-aligned foreign policy, while attempting, at the same time, to maintain friendly relations with all countries. This may prove difficult, given the detours taken since 2015.

Ill-defined

For the past four years, Sri Lanka’s foreign policy has been ill-defined and disjointed, and many observers perceived it as detrimental to the national interest; by deviating from non-alignment, it alienated many non-aligned countries.

The Government also went against Sri Lanka’s long-standing policy of supporting the rights of the Palestinian people, by abstaining from voting on the 2016 resolution on Al Aqsa at UNESCO, which called upon Israel to stop its continued excavation of East Jerusalem to heed previous Resolutions on Jerusalem.

Sri Lanka’s abstention, in the UN General Assembly on 22 May this year, highlighted the extent to which the previous Government had veered away from neutrality and non-alignment. The vote was on a resolution, welcoming an International Court of Justice advisory opinion on the legal consequences of separating the Chagos Archipelago from Mauritius in 1965, and demanding that the United Kingdom unconditionally withdraw its colonial administration from the area.

The significance of the abstention lay in Sri Lanka’s historical role in supporting resolutions on de-colonisation and, more specifically, its sponsorship of the Indian Ocean Zone of Peace proposal, which would mean the removal of the USA’s military base on Diego Garcia, in the Chagos Archipelago.

Obviously, the former Government bent over backwards to placate the Western bloc. Nevertheless, when the same Government leased the Hambantota Port to China for 99 years, the West took affront, although they intended merely to escape from the foreign exchange crisis in which the country found itself.

A similar situation prevailed in 1952, when the UNP Government entered into a Rubber-Rice pact with China. This was at the height of the Cold War and, notwithstanding the then Government’s overtly pro-West and anti-Communist stance, the USA put the country under sanctions – which it only removed following the visit of the pragmatic Vice President Richard Nixon.

“Partnership dialogue”

This time around the USA did not place the country under sanctions. However, it did engage more intensely with the Sri Lanka. In 2016, the two nations began a high level “partnership dialogue”. The highly controversial ACSA, SOFA and MCC agreements now took centre stage.

These agreements contributed in no small way to the downfall of the Yahapalana regime, being important topics of discourse amongst taxi drivers and Buddhist monks alike – both vital parts of the informal news media. Notwithstanding the assertion last week at the Woodrow Wilson International Centre for Scholars by US Principal Deputy Assistant Secretary of State for South and Central Asia Alice Wells that the MCC agreement would be “launching soon in Sri Lanka”, it is difficult to see how the new Government can agree to it.

“There is no doubt,” Minister Gunawardena told the press, “that we have to review and carefully go through all bilateral agreements inked after 2015 and remove any line, clause or paragraph detrimental to our national security, sovereignty, well-being of our people and negatively affect our economy, trade and industry…”
Sri Lanka must tread carefully in its relations with the USA and the other countries of the Western bloc. In expressing the country’s sovereignty and independence, the new government must not tread on any sensitive toes.

Alice Wells’ remarks at the Wilson Centre are not indicative of a softening of US attitudes toward enterprises such as China’s Belt and Road Initiative (BRI). This is unfortunate, since the BRI is vital to improving Sri Lanka’s economic standing, and to developing alternative markets for its goods and services.
The new administration will explore more alert foreign policy approaches, bearing in mind that the centre of world gravity has shifted from Europe and the Americas to Asia – which now accounts for almost a third of world income and world trade but, crucially, 40% of world manufacturing. Of course China and India are the biggest emergent powers in the region.

China and India

President Gotabaya Rajapaksa expressed the new government’s attitude towards Chinese investment very clearly, when he invited other countries not to leave investment in Sri Lanka only to China, but to come in themselves.

The President has been quite clear that Sri Lanka’s neutrality does not mean playing power games. By acknowledging India’s importance in the region, and especially by recognising that Sri Lanka cannot act in such a way as to put in jeopardy India’s security, he is not engaging in a balancing act. Both India and China are important to Sri Lanka.

The former Rajapaksa administration, after building up a strong relationship with India, allowed this bond to weaken. Many Sri Lankans consider India as a “big brother” – more in the Orwellian sense than as kin. However, the Government must develop the connection across the Palk Strait, to underwrite the unitary structure of the country.

It is in this context that we should look at another item in Gotabaya Rajapaksa’s election manifesto, which said his government would “work closely with India to ensure regional security and also engage with other SAARC and BIMSTEC nations.”

The second part of this statement shows that the new Government intends to pursue a multilateral security framework for the region. Sri Lanka has been an active member of both SAARC (South Asian Association for Regional Co-operation) and BIMSTEC (Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Co-operation), and engaging with these nations could mean a comprehensive security framework, enveloping the area stretching from Afghanistan in the west to Thailand in the east.

The latter has particular importance at present, since President Rajapaksa occupies the BIMSTEC chair. Consequently, he is strategically placed to carry through this part of his manifesto. The grouping has tended BIMSTEC has the added significance of encompassing two South East Asian nations, Myanmar and Thailand, which also have strong religious ties with Sri Lanka, and could be useful in developing religious-based tourism. Meanwhile, the Bay of Bengal is crucial to Sri Lanka’s eastward commerce, and serves as a convenient bridge between the economies of the littoral states.

In the context of the growing importance of Asia, Sri Lanka should perhaps also place more emphasis on is the Shanghai Co-operation Organisation (SCO), of which it has dialogue partner status and of which it has applied for observer status. China and two SAARC countries, India and Pakistan are members. India, in particular, has been engaging with the SCO vigorously, especially with the security aspect.

Good pilot

The seas of diplomacy which Sri Lanka must navigate in the coming period are treacherous, but President Rajapaksa has picked a good pilot in Foreign Minister Gunawardena. He possesses the requisite diplomatic skills, and has engaged with the representatives of foreign governments almost continuously for the past two decades.

His background suits the post as well. He understands the Western mind-set, receiving his tertiary education in the Netherlands and the USA. He has excellent relations with both China and India.

His parents, Philip and Kusuma Gunawardena, were involved heavily in the Quit India movement, which led to Indian independence, and maintained ties with their fellow freedom fighters. They were also pioneers in Sri Lanka’s relationship with China. He has maintained the goodwill they generated, and has expanded on it. He also has excellent relations with other Asian countries, such as Japan, South Korea and Vietnam.

He will, of course, need to rely on all those skills and connections in order to keep Sri Lanka’s foreign policy on an even keel through choppy waters. He will, of course, have one great advantage over the previous administration’s foreign ministers – a coherent, cohesive foreign policy.

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Business Climate will Improve – Ajith Nivard Cabraal

Business Climate will Improve – Ajith Nivard Cabraal

Interview with the Senior Adviser to the Prime Minister on Economic Affairs

Reports in the media claim that the government’s tax cuts will lead to an unsustainable budget deficit.

Earlier this year, the government in power budgeted to achieve an income of LKR 2.1 trillion (2,100 bn) and then they ended up with 1700 bn. So there was a shortfall of LKR 400 bn. Did these tax rates which the government imposed and throttled the people with, and brought business and the country to its knees with, yield the right results? Obviously not. Although they thought they were going to collect so much of taxes, they just couldn’t do it because there wasn’t a tax base. There wasn’t enough income within the country. That’s why we have addressed that question in a very practical manner.

First of all, you have to allow people to do business for the economy to grow. If the economy grows, then you can collect taxes. If there is no income, there’s no income tax. If there’s no turnover, there’s no tax on turnover. If there are no imports, there are no import duties. So it’s useless having high tax rates if that doesn’t work on the ground. We are a practical government. We have to understand what the people can afford and what they will do when taxes are low. We have reduced the taxes so that there will be much greater growth in business, which will then translate into much greater volumes of taxes. So this bogeyman that they are expecting will not materialise because the economy will grow fast, and there will not be a major decline in tax revenue.

Second is the interest rate. When Mahinda Rajapaksa’s former government left, the total interest on debt that the country had to suffer from was only 3.3 billion dollars. Today it is nearly double at 6 billion. Why did that happen? Because the interest rates had gone up so much they actually doubled. Any person on the street will tell you that they cannot do business because the interest rate has doubled. We have to make sure that there is more investment coming into the country to release pressure in the money markets. Then the amount of interest that people have to pay will come down. That will provide them with additional capital to utilise in their business and grow it further.

Third is that a lot of the businessmen are struggling today. Their names are in the CRIB, they cannot borrow, and some have had their assets seized. They are in serious difficulty, so we have to give them some support to get out of this situation. We have to revive those businesses. That is why we have told banks to only accept interest payments for the time being and give a moratorium as far as capital payments are concerned. There’s a freeze for about 18 months, that we have suggested. During that time, the formation of capital can take place again.

With these strategies you will find that the total business climate will improve tremendously. There will be more and more people doing business and coming into the country. Already we are seeing several new investors coming into the country. Once they come, you will find that Sri Lanka will start going into a growth rate of nearly 6% again. The previous government was able to bring down growth from7% right down to 1% – that is their track record. We are reversing that, and growth will now come back to our target of 6% or higher. With that, we’ll see the tax burden not being a burden at all. It will be paid by people, there will be enough money. Interest rates have come down, so the government’s budgets will be much easier to balance. We will get back into that growth mode once again.

There was a news report that Sri Lanka’s credit rating is due to go down because of this tax question. Reports also claim that the amount of foreign investment and bond yields have gone down.

We will have to allay any fears that investors have. You would have seen that investors have taken their money and gone out over the last five years. We haven’t seen any new investment coming in. That is one of the problems we are having. So we are now offering local and overseas investors a platform to have a vibrant Sri Lanka that is going forward instead of going backwards. I’m sure the message will go across to many investors and they would come back and invest, even though in the short term they may be a little nervous. Once you explain things to investors, they will see the logic behind our move and I’m sure they will continue to support Sri Lanka and stay with us. If you take your mind back to 2014, we had as much as USD 3,400 m of overseas investment in our treasury bills and treasury bonds. Today, we have only about USD 600 m. All the rest of it has gone, but I believe there will be investors who will come back and start investing in Sri Lanka again. We’re going to talk to them and tell them, “Look, if you you come back you will be better off. The country will also be better off. Interest rates will come down and you will make a profits.” So it will be a win-win situation for everyone. Sri Lanka will have a lower interest burden. I think, contrary to what is being said now, we will probably have a greater number of investors coming back in due course than the few who may have gone out.

How will you deal with the question of inflation?

The last time we had been in government, and I was in the Central Bank, we brought inflation to heel. We had been a country where inflation in single digits had not been maintained for more than 23 months, prior to my becoming the Governor of the Central Bank. After I became Governor, we maintained inflation at single digits, and mid-single digits at that, for six years at a stretch. That track record has been extended by the current government to 11 years, which is good. We will maintain that and keep an eye at the rate at which prices are going up and take the necessary monetary steps. I’m sure the Central Bank will be looking after that side, and we will soon see inflation under check alongside increasing growth. There’s no use of saying we had inflation under control if we have no growth. Both have to be there. It’s like saying I have no diabetes, but I have a heart problem. So you have to be able to manage all these factors together. Not one after another or one during one time and the other during another time. All factors have to be managed simultaneously.

The previous government spoke a great deal about the middle income trap, that for the last few years we have stagnated at the same level. How can we escape this trap?

I think the last government are the ones who got us into the trap. In 2014, growth was rising fast and we had come to a per capita income of USD 3,800. Normally, the middle income trap is considered to be around the USD 4,000 per capita income mark. We had come up to USD 3,800 and had plans to move away from the middle income trap, and for growth to take place so that we would achieve something like USD 6,500 per capita income by 2020. But we have been trapped by the previous government and kept there. We need to break from from these shackles. There are a few strategies that have to be done in order to break away.

One is that we have to have continuous investment coming into the country. Two is that we have to have a clear improvement of our knowledge as well as the skill levels in the country. Three is that our infrastructure has to be developed continuously well beyond the USD 4,000 per capita income mark, reaching out to the USD 10,000 and 12,000 mark. All strategies these are being planned and done by our government. So I think we won’t get stagnant. We are well aware of the dangers of being trapped so we will have to take these steps quickly to ensure that there is robustness in the economy. We will move much faster in the next few years to come.

Finally, there is the question of rural poverty, because it’s still a big problem. How are you going to address that?

. Excellent question. Rural poverty cannot be addressed by giving the poor a pair of slippers once a year or giving a midday glass of milk once a day. Those things can help, I’m definitely not denying that, but we have to empower our people and get them into a shape where they can look after themselves. No one likes to go behind a politician to get their slippers or to get their glass of milk or to get some sanitary service. People can do these things themselves provided they have the means. The way that you get rural people out of poverty is to ensure that they have the ability to rise and grow. For that, you have to create opportunities around the country. You have to provide good education because if people are educated well, they will probably do much better. I know of so many children who have come from rural backgrounds who are excellent specialists today. They have started off very modestly but rose because they were educated. There are top engineers and accountants who come from very modest rural beginnings and they are proud of that. There are enough case studies of this nature which we must use as energisers to get others activated. I think education, infrastructure in rural areas, and promotion of the Small and Medium Industries will provide the means for rural areas to prosper. One of the reasons why we built highways was so that every area would become accessible. People would have been wondering why we spent money on major highways and thousands of kilometres of roads. Why we put bank branches in rural areas and gave electricity to people across the country. All that was done in order to uplift people. During our time, poverty levels dropped from about 15% to 6%. But during the last five years that trend has reversed, which we have to now stop. We have to empower people with the strategy that I have just mentioned. I’m confident that the people of this country from all areas will improve their living standards and poverty will be a thing of the past in the next five years.

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Northern People Need Leadership

Northern People Need Leadership

Douglas Devananda speaks about what needs
to be done to develop the Northern parts of Sri Lanka

The new Minister of Fisheries and Aquatic Resources Kathiravelu Nythiananda Devananda, commonly known as Douglas Devananda, leads the Eelam People’s Democratic Party (EPDP). A former separatist guerrilla who joined the democratic parliamentary path after the signing of the Indo-Sri Lanka Peace Accord of 1987, he is Member of Parliament for the Jaffna District, in the Northern Province, where Tamil people are the vast majority of the
population.

He believes that the Tamil people have not received proper leadership, that the existing leadership lacks competence. “The Tamil community got so many opportunities,” he says, “which the Tamil leadership didn’t use properly. Even the late SJV Chelvanayagam [1950s-60s leader of the Federal Party] could not settle the problem. In his last days he said ‘Only if god comes, can the Tamil problem be settled.’ From my experience, if the Tamil Community is being misled like this, even if God comes, you won’t be able to settle the problem.”

Revenge

The main issue, the Minister believes, which impedes the development of the northern parts of the country, is the sense that some sort of revenge needs to be extracted from the Sri Lankan state, for the defeat of the Liberation Tigers of Tamil Eelam (LTTE) in three decades of civil conflict.
“America bombed Japan and Germany in the Second World War,” he reminds us, “but after the leadership changed at the end of the war, the new leaders shook hands with the Americans, and were friends, without any idea of taking revenge for their defeat. Because of their friendship, they were able to grow their economies faster than the USA itself. Now we use all Japanese and German goods, whereas in the old days we used to use American equipment. They have developed that much, economically, technology-wise.”

The implication is that the Tamil community needs to forget the past and concentrate on building its future, in a united Sri Lanka.
“In Tamil there is a saying: ‘only if a person sits properly in a chair, can the barber cut his hair properly’ … once we took up arms, we thought that through an armed struggle … because comrade Mao said that ‘Power grows from the barrel of a gun.’ After the Indo Sri Lanka agreement, we did not use it properly. If we had, today the Tamil-speaking community would have been in a land floating in milk and honey.”

Master plan

Devananda’s base of support in the Jaffna Peninsula lies in the islands and the coastal regions, populated by people of the fisher caste, and he is very conscious of the need to dissipate caste consciousness – an archaic social differentiation which stands in the way of development. This significant barrier to progress does not feature often in economic discourse.

“The fishers’ name, also I am not happy about,” he says. “There are other communities, as well as the fishers. They brand fishing as caste-based employment, but this is an economic activity, not a caste based activity. We need to give fishers an income commensurate with their hard work. The people of some castes may not like me saying this.

But I believe all people are humans, we are Sri Lankan. So if we upgrade the poorer people’s livelihood, that system will also disappear. If we develop these things economically, caste will no longer be a barrier. In the Northern Province, we have plenty of aquatic resources, we are going to develop it.”
Devananda speaks about his plans for the Ministry in the next few months before the dissolution of Parliament (expected in March) and the general election.
“If you take the fisheries and aquatic resources sector, there is immense potential. Now we are preparing projects for utilising the resources of the sea and of the inland waters, our lagoons, estuaries and tanks. We are preparing a master plan.”
He does not expect that they can achieve any of the requisite targets within three months, but he is assured that they can give confidence to Sri Lanka’s fishers very soon.

Resources

Devananda thinks that the opportunity exists to develop many sectors in the North, including agriculture, tourism and human resources. He does not think the existing assets have been made use of.

“We didn’t tap northern water resources, he complains. “At the same time we couldn’t bring Mahaweli [River] waters from the South. The Tamil leadership said ‘they will also take over the northern water resources and settle Sinhalese people there’. But that is not correct.”
He imagines immense potential for tourism in the North, especially on the islands, which are close to the popular concept of the lonely desert island. In developing the economy of the North, he makes clear that simultaneously, the economic framework must be transformed towards encompassing the tourism sector. People in the area should be trained to adapt to ecological tourism, community tourism and fishing tourism.

The Jaffna peninsula is known for its highly educated populace. However, a large section of the less-privileged fall though the educational net.
“Our president has raised the matter at cabinet level of people with sub-standard education. In the old days, when Dudley Senanayake was there, they had the Land Army. Similarly, we must collect them, the poor element of the population, living under the poverty line, to identify them and train them as skilled labour, so that they can be employed either in Sri Lanka or abroad.”

A major human crisis in the North is indebtedness particularly that of people caught in a micro-credit debt trap.
“We have not yet discussed at the cabinet level,” he explains, “what we are to do about people who have been rendered destitute due to misuse of micro-credit. I intend to meet the President in the near future and discuss how we can alleviate rural indebtedness. If these people have some form of livelihood, they will not delay repaying their loans. The people who have no income, who cannot earn their livelihood, they are the ones who cannot repay their loans.”

Investment and biriyani

The Minister admits that there has been far too little investment in the North. He thinks that the negative outlook of the leadership the people received, hitherto, has stymied and discouraged investors – including small and medium investors in the vast Tamil Diaspora. Nevertheless, he exudes confidence.
“After the government changed, the share market went up. If this steady leadership continues, I think we can get the foreign investors to come here. There are plenty of people in the Tamil Diaspora who are willing to come and invest, but unfortunately the Tamil leadership has not given them guarantees. Now I think I will be able to do so.”

He understands that there are more than a million people in the Tamil Diaspora, which he considers a vital resource available to the North. These potential investors have not come forward to invest in the North, although many have invested in the South. Devananda wants to give them the confidence to invest in the North.
“If a half-million of the over one million in the Diaspora just gave us tea money, say USD 10 per month, we can tap that, use that to develop the North.”
Much given to idiomatic Tamil, he says the government’s aim “is not to give people biriyani, but make such an arrangement that the people can earn money and eat biriyani.”

The idea being that they do not intend to follow purely welfarist policies, but to create an economy and society where the people can prosper by their own efforts.

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Rebuilding is a difficult task – Minister Prasanna Ranatunga

Rebuilding is a difficult task – Minister Prasanna Ranatunga

OSL-THE Investment Magazine interviews Tourism and Aviation, and Industrial Export Development and Investment Promotion Minister Prasanna Ranatunga, about the task of Herculean proportions facing him, in developing production and attracting investment and tourists to the country.

Minister, you have a very complicated responsibility, reflected in the length of your ministry’s name.

This Ministry is actually divided into two ministries, with two state ministers connected to them accordingly. Keheliya Rambukwella is State Minister of Investment Promotion, and Arundhika Fernando is State Minister of Tourism Promotion. Therefore, this Ministry has four secretaries and three ministers. That in itself shows the gravity of this ministry. This is not a ministry which can be handled by one person, and receiving the assistance of these ministers is a great encouragement. This ministry is that which affects economic growth the most. A challenging ministry.

We have been given the challenge of increasing foreign exchange earnings, by developing both tourism and exports. Although this government will be dissolved following the General Election expected in March, we are not limiting ourselves, but will work to strengthen the foundation on which our next government will invariably have to build. We will introduce some short-term programmes to win the confidence of our customers.

How do you intend to promote investment?

As we said in the election manifesto, it is a difficult task, because in the past four years, the economy has gone down, and investment didn’t come up. The BOI is also a challenge. It did not create a friendly environment for investors. In the recent past, investors have come and been forced to kick their heels, wasting their valuable time and money, which caused a decrease in numbers of investors.

So we find it very difficult, with all the terrorist attacks in Sri Lanka. Investors stopped coming amid the security concerns following the April bombing incidents. So it is a challenge for the new government.
However, after the election of President Gotabaya Rajapaksa, the share market has gone up, indicating a certain amount of stability, which was lacking previously. Based on that new-found enthusiasm, we take it as an imperative to develop the BOI as an investor-friendly institution.

I have told the officials that, when the investors come, we have to give them a particular time frame, once they submit their documents, within the period, we have to finalise matters and get the business going. After the investors apply, we on the government’s side must do all that they require in the shortest possible time. We intend to discuss these matters with the officials concerned and implement the necessary changes as a matter of priority. Only then will the investors come. We are going to work out how to promote more investment in Sri Lanka.

How are we going to increase industrial exports?

It is a challenge, but we have to do it. In order to build up our foreign exchange reserves, we must create a market for our goods in the world. To do so, we must carry out promotional programmes, and also, in conjunction with the Finance Ministry, pay more attention to the standards of manufactured goods.
We have to make quality goods and we want to export it to the relevant countries, where we get the foreign exchange, so we will give more benefits to exporters. We want to give them tax-free benefits and we want to make them confident about what they are doing. At the first cabinet meeting we have given good tax concessions, and as such we want to give the manufacturers the benefits so the country will get more foreign exchange through manufacturing.
We will need all possible help from the media as well as the investment promotion agencies to help us get more investors. We will definitely help the investors who want to come to Sri Lanka, to make their investments in the country. The BOI will be there for the investors.

Tourism is an important sector of the economy, and you are the minister in charge.

Actually, tourism is the third highest earner of foreign exchange that comes to Sri Lanka. During the war time before 2009, it was below 400,000 tourists was here. This a country endowed with abundant natural resources, but was unable to reap the benefits due to the 30-year civil conflict. However, with the end of the conflict in 2009, we were able to boost the number of visitors from less than 400,000 to over 1.2 million by 2015, and our expectation is to go up to 10 million. That is what our manifesto says.
So we had discussions with officials of the Tourism ministry. It seems that after the Easter attacks, the hoteliers and people who are involved in this sector were not happy, visitors did not turn up – the number of visitors decreased by 60 or 70% – all the hotel bookings had been cancelled, and they had financial difficulties. This affected badly the people involved in tourism. We intend to give them some concessions, to provide them with a package of relief and a programme of infrastructure development, so that they are strong enough for the next tourist season.

Many countries, such as Thailand and Vietnam, which are coming up in the world, and others which have already come up, like Japan and Taiwan, have many Buddhists. Is there any to bring more religious tourists from those countries?

Religious wise, it is in the system, we have to promote that.
When tourists come to Sri Lanka, there should be more entertainment, so that they don’t just come and go for nothing. Once the people come, they should be encouraged to go and promote the country. They should be happy.

Likewise, we have natural resources. When you go to Kandy or Nuwara Eliya you get the cold climate, there are sites to see around the country, we have eco-friendly resources. We want to identify and develop more places in Sri Lanka as tourist zones.
In the recent past they have identified the Ella area and have developed it for tourism. We want to have more tourist zones, and give them whatever benefits the government can give, and have entertainment centres as well.

One of the problems that foreign investors have is that, when they come to build hotels, there is not enough land for them.

We have to identify land for them. Under the previous Mahinda Rajapaksa administration, the Tourist Board identified Ella and that area as a zone.
Meanwhile, the Tourism Promotion Bureau, wants to go, especially, to India and China, and also Europe, which provides the highest number of tourists coming to Sri Lanka. We also need a programme to sell our tourism brand in a broadened band of target markets. While promoting areas such as India, China and Europe, we want to go up to the USA as well. The Tourist Promotion Bureau has been working on it, and we want to get more tourists coming to Sri Lanka.

Don’t we need more airlines coming to Sri Lanka?

SriLankan Airlines is the talk of the town, loss-making and so on. But if we have more airlines coming into Sri Lanka, there will be more tourists coming with the airlines. Colombo airport was developed for 600,000 passengers per annum. Now it gets almost 10.1 million passengers per year. The enlargement of Colombo airport has commenced, and it will have to be finished speedily. We also built Mattala airport as an alternative airport to Colombo. Before independence, they built about eight airports in Sri Lanka. After that, Mattala is the only one built by our people. Mattala was conceived as an airport for goods rather than for passengers, being part of a holistic vision which included the Expressway to Hambantota and the Hambantota Port. The highway is up and will be opened soon. Once Mattala is developed, we can transport goods and so on. There are a lot of plans for that.

We have to do it [develop Mattala]. If we are trying to increase the number of airlines and the trips, it is not possible to accommodate them all at Colombo airport. So to develop Mattala we have to give concessions to the airlines and some incentives, so that airlines will come more to Hambantota. If this is happening in time to come, Hambantota will develop like Colombo, so there will be two alternative airports like Colombo. We have to take a policy decision [regarding restarting Sri Lankan flights from Mattala]. I want to have a discussion with the Treasury, as well as the people who are involved in this trade. We have to take and implement the best possible decision. So it is too early to comment on that.

But the previous government stocked paddy there and they have ruined Mattala Airport. A considerable amount of public funds must be expended to rehabilitate it. Despite this, the former government went ahead and developed Jaffna, without even an environmental impact assessment (EIA) report.
However, unlike the previous government, we do not intend to store chillies [extensively cultivated in the Jaffna area] in the airport! We intend to carry out swiftly the development of the three airports: Mattala, Jaffna and Batticaloa. We want to increase the number of internal flights, as a method of encouraging tourists to come here. So we want to develop all the airports and increase the domestic airlines. That is a challenge.

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Proper plan needed-Bandula Gunawardena

Proper plan needed-Bandula Gunawardena

Bandula Gunawardena, Minister of Information and Communication Technology and Higher Education, Technology and Innovation, prefers to get down to brass tacks. Barely three weeks into the new administration, he has already laid down a rough plan for the months ahead; months which, by all accounts, will be stormy depending on how the government and cabinet handle them.

With hiking debt levels, inflationary pressures, depleting foreign reserves and foreign exchange, and of course declining growth, the challenge must and will always be to rescue the economy from recession and also encouraging people to invest, buy, and save. In a context where research and development takes up barely 0.16 % of GDP, however, this is going to be difficult; indeed, no proper initiative was taken by the previous government to combat the latter problem, one which has ailed the economy for over half a century.

Blueprint

Speaking to OSL-THE Investment Magazine, Gunawardena was quite emphatic on the point that a proper plan needs to be formulated. “Unfortunately with elections around the corner, this government has a very limited time frame within which it can work. The cabinet is small, in keeping with the president Mr Gotabaya Rajapaksa’s election manifesto. The plan thus needs to be for both the short and long term.”

More or less a blueprint for the future of the economy, it will no doubt delve into areas of vital importance: to name a few, investment in innovation and technology, higher education reforms, and the revitalisation of tourism. Whatever policy decisions are taken, they will fall squarely within what Gunawardena considers as the two main objectives of Rajapaksa’s manifesto: “The protection and the security of people and their property in our country, and the establishment of an environment in which our most precious resource, our people, can find a way to realise their educational and career aspirations.”

Given that a large proportion – statistics don’t tell us exactly how much – of youth voted for Rajapaksa this time, there’s no doubt that youth issues will preoccupy him and his team for quite some time; indeed, for his entire first term. “People wanted a change from the change supposedly voted into office four years ago because they were tired. In that context, they are in no mood to entertain more of the same. Our actions so far prove that we’ve understood that and more to the point, that we are only too willing to listen to them.”

As evidence, he points out that after assuming power, “the president quite clearly laid it down that there should be no waste or pilferage in government offices.” At the first cabinet meeting, moreover, “we came up with a wide ranging economic stimulus package which slashed taxes, reduced the cost of living, and gave the common man some breathing space.”

Tax cuts

By all accounts the stimulus programme is ambitious, if only overtly so. Far more expansive and expansionary that Ravi Karunanayake’s much touted “Robin Hood” interim budget of 2015, the package included the abolition of withholding tax on interest income, the capital gains tax on the stock exchange, and the Nation Building Tax on household goods, services, and products, as well as the reduction of taxes on the construction industry from 28 % to 4 % and the Telecommunications levy to 25 % and the simplification and consolidation of VAT and NBT from 15 and 2 % (a total of 17 %) to 8 %.

Moreover, the president has pledged to abolish all taxes relating to ICT, in a bid to bolster investment in that sector. Probably more carefully planned out than Karunanayake’s budget (which saw, inter alia, the imposition of a facilely anti-rich mansion tax), Rajapaksa’s pre-election bonanza has gleaned mixed reactions for the most from local and foreign analysts.

The question, obviously, is that of financing these goodies, which seem to be heavily tilted to the middle class, along with those engaged in agriculture. Gunawardena categorically denies that these were implemented purely to secure victory at the parliamentary election next year, arguing that Rajapaksa was voted into office on a mandate to ease the burden on people, and this necessitated an across the board reduction of taxes.

“In the long term we hope to reduce intervention in the market while being mindful that there needs to be some sort of management. The stimulus was needed because people didn’t invest. It’s holiday season. People need to spend and get money circulating around the economy.” In other words, these are all a foundation to far more ambitious yet rational proposals next year.

“We are trying to avoid an interventionist line as much as possible,” Gunawardena tells us, adding that the problem with the last regime was their mishandling of economic affairs which “sent debt levels spiralling out of control and forced us to go begging to the IMF. We have commitments to keep to the IMF and we will stick to them. Meanwhile, we will implement reforms that will allow us to grow out of our dependency on them.”

Education

Though it’s probably his favourite subject, economics isn’t the only thing on Gunawardena’s priority list. He’s also in charge of ICT and higher education, two fields that are inextricably bound to each other. When queried as to what he wants the future generation of the country to think about him, Gunawardena confidently smiles and says, “Just think that father has finally come home. I’ve been in education for over 30 years, as a teacher and a minister. I’ve never radicalised students and I’ve always had their future as my priority.”

According to Gunawardena, there are currently two issues which need to be resolved, if not combated. “On the one hand, we have so many students passing through their O Levels and A Levels and securing a good enough mark to enter university who are nevertheless debarred from entering it. They can’t progress beyond school life and this tends to ferment discontent. That is a problem of intakes, and I think we can resolve that by expanding the State university sector and by making available a wide range of educational and career options to students.

On the other hand, discontent is always going to be there and students invariably resort to strike action to make their grievances felt. Often this obstructs traffic. My proposal is to appoint for each university an ombudsman, the first resort a student will have to present his grievances. I will be meeting the chancellors of State universities and we will be implementing an action plan to create an ombudsman’s office. We will do the best we can to resolve grievances at the negotiation table, rather than out on the road at Lipton Circus.”

As for research and development and ICT, “at present we will get universities and research centres, including the Arthur C. Clarke Institute, to help us increase the contribution of R and D by the time we present the budget next year. We need a fully fledged plan encompassing research and ICT, a two-pronged strategy that involves every sector and person. You will no doubt ask me how we can grow out of the mess we are in through these reforms. Well, the answer to that is obvious. Once all of us, in the public sector as well as the private sector, get into a culture of working, instead of relying on handouts, we will get the economy moving. You work, you do, you earn, and you bring money in. Simple. That is the only real solution we have. We in the new government will help facilitate the transformation that will be needed to help get us out of this rut. That is the promise we give to you.”

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Learning  about  blockchain

Learning about blockchain

OSL and Taesung to co-host seminar early in 2020

In 1944 “Colossus”, the world’s first electronic computer, started work in the British code-breaking centre at Bletchley Park, inaugurating the “Digital Revolution” – the ongoing process of social, political and economic transformation brought about by the shift from mechanical and analogue electronic technology to digital electronics, with the adoption and propagation of digital computers and digital record keeping.

The Digital Revolution went through four phases, data processing, personal computers (stand-alone computers powered by local software), network computing (the internet), and cloud computing (access to information, applications, communications, and storage over the internet).

The fifth phase, which may upon us, is likely to be the blockchain phase – creating the so-called “Internet of Value”, transforming the world of business.

First step for Sri Lanka

Sri Lanka took a step towards participation in this, latest phase of the Digital Revolution, when Lawfirm Taesung of South Korea, on 23 December signed an agreement with investment facilitator Opportunity Sri Lanka in Colombo.

“We hope to have some good partnership between Opportunity Sri Lanka and our law firm in South Korea,” said Lim Jung Hoon, Representative Attorney spoke to OSL-THE Investment Magazine after signing the agreement on behalf of Taesung. “We will promote business between Sri Lanka and Korea and I will introduce companies which have some interest in investment, but need some help, especially in Sri Lanka, and we will give them legal advice. In this area, the best partner we could have is Opportunity Sri Lanka.”

The area of interest is blockchain, the technology underpinning digital cryptocurrencies, such as Bitcoin, Litecoin, and Ethereum. Cryptocurrencies are virtual or digital money, taking the form of digital tokens or “coins”, the “crypto” part denoting to their complicated cryptography, allowing them to be generated, stored, and transacted securely and anonymously.

Government cryptocurrencies

Cryptocurrencies have gained in importance since Bitcoin’s introduction by “Satoshi Nakamoto” in 2009, and governments’ interest in them has been growing.
In 2017, the Venezuelan government launched its own cryptocurrency, the Petro (Petromonedar), to trade in petroleum, with a view to bypassing sanctions imposed by the USA. It uses the Petro in funding part of its Gran Mision Vivienda Venezuela programme to build five million houses by 2025, and in paying Christmas bonuses to government workers and pensioners.

Venezuela was followed early this year by the Marshall Islands, which introduced the Marshalese Sovereign (SOV), apparently in an attempt to reduce costs of migrants’ remittances, which account for 12-18% of its economy.
Meanwhile, in July, Cuba announced it would consider applying Bitcoin in national and international commercial relations, in order to deal with US-imposed sanctions. An online cryptocurrency exchange, Fusyona, is already enabling Cuban small and medium enterprises (SMEs) to bypass sanctions.
In September, Alejandro Cao de Benos, the official in charge of North Korea’s cryptocurrency conferences, told web infotainment channel VICE about that country’s preparations to launch a cryptocurrency to resist US-imposed sanctions.

News agency AP reported in December that President Hassan Rouhani of Iran, who legalised blockchain-related activities in August, has proposed creating a Muslim cryptocurrency to cut reliance on the US Dollar, as well as to endure the vagaries of the market.

More than cryptocurrencies

However, blockchain is much more than just cryptocurrencies. It can deal with a broad range of applications, to which its structure suits it.
Blockchain is a structure of data, which has been called an “open digital ledger”, stored in a distributed network, able to record, efficiently, verifiably and permanently, transactions between two parties. It has high integrity, resisting modification of data, because the technology allows the distribution of digital information, but not it’s copying. Each transaction, or “block” is signed digitally, to assure its authenticity and prevent tampering.
“Why is blockchain very important?” asks Lim rhetorically. “Blockchain has the ability to decentralise immensely, and can give a good chance to the poor, to the ones with no power.”

Unlike a traditional, centralised database, under a single administrator, a blockchain is duplicated across many computers – it is decentralised – making it transparent, and participants may verify or audit transactions independently and cheaply.
“You cannot change the Blockchain system with power; it is made secure, and trusted, and then the system will provide justice, and a stable system for society.”
This makes blockchain’s versatility stretch beyond cryptocurrencies. It may be used, for example in executing “smart” contracts (releasing automate payments of fulfilment of terms); maintaining shared, long-term, transparent and secure systems of records of assets; maintaining property “pedigrees” in land registries; maintaining healthcare providers’ patient medical records; auditing supply chains by tracing ownership of goods up to the source; verifying insurance coverage instantly; following up on enforcement of judicial sentences; and, diving into the political domain, enabling fraud-free, instantly counted, voting.

China, Japan, South Korea

According to Lim, “In the blockchain industry, the leading countries are China, which has made many AI initiatives in this area; Japan and South Korea.”
China, which has banned cryptocurrencies, has nevertheless adopted a law governing strictly the encryption of data, and especially blockchain technology. The importance attributed to the technology may be gauged by the speech, made in October by President Xi Jinping, as part of the collective study of the PolitBuru of the Communist Party of China on the development and trend of blockchain technology.

“We must take the blockchain as an important breakthrough for independent innovation of core technologies,” Xi said, adding that the technology has a wide array of application within China, ranging from business financing to mass transit and poverty alleviation. He said they should “clarify the main direction, increase investment, focus on a number of key core technologies, and accelerate the development of blockchain technology and industrial innovation.”

He pointed out the need to implement “the rule of law network” into blockchain systems, and proposed a top-down approach concerning implementation, calling for guidance and regulation, and extensive testing of the technology before implementation, with investment into training platforms and “innovation teams”. He also posited creating “Blockchain+”, a platform for personal development, including basic needs such as education, employment, food and medicinal safety.

“In South Korea, there are several uses for blockchain,” says Lim. “We never sold a lot in the Blockchain area, but Korea is a very fast country, especially in the IT area. Three years ago, we adopted Blockchain, and the young people got a good chance.”
Korean electronics innovator Samsung has come out with an electronic blockchain wallet, for use with its more recent mobile smartphones. This is now available in Sri Lanka.
He adds that the leading countries in blockchain finance are Switzerland, and Singapore – which is setting itself up as the world centre in this field.

Why Sri Lanka?

“South Korea is one of the top nations when it comes to innovations and technology,” says Lim. “It is a fast mover especially in the ICT Area. They move very aggressively into other countries. They want to enter into partnerships with other countries. Sri Lanka is the best place to break ground.”
But why Sri Lanka? He points out that it has a geographical advantage, with ease of access to the markets of South Asia, Africa and Europe. Because its business is based on the English language, it can communicate readily with other English-based markets.

“Sri Lanka is the perfect country. It has a potential to become a world pioneer in blockchain, to become the main beta-test area. It can develop into a fast mover, because it is an English-based country and need not go through the same processes as Korea. Korea had a lot of time to develop, many decades after the Korean War. It had to go through several developmental stages. Now, other countries do not need to follow that pattern, repeat that period. They can catch up, leapfrog forward, because the AI industry can do many things. So we have to find the best scenario.”

The first thing, he thinks is that the people, especially decision-makers, must know about Blockchain, because knowledge is important for that area – without knowledge they cannot make a positive effort, focus on one area to maximise achievement, instead of spreading their exertions over the entire field.

Seminar

“For that, we need to give the people knowledge,” Lim explains. “I hope to have some seminars in Sri Lanka, perhaps for the first time, to give people an interest in blockchain, enable them to learn about it, about what it is, and how it can be a future industry.”

It will take some time to organise these first-in-Sri Lanka seminars, but the first, a two-to-three day affair, will probably take place within the second quarter of 2020, with the aim of establishing a blockchain association in Sri Lanka, on the South Korean model, as well as a blockchain thinktank, to develop the industry.
Lim expects about 50-100 overseas participants, including Blockchain Association members, and industry leaders and product owners from South Korea and blockchain leaders from other countries including Singapore and Sri Lanka’s immediate neighbours. “We want to have a seminar with worldwide leaders,” he says.

He expects to see Sri Lankan participation from the IT industry, the universities and from the legal and accounting professions, among others, reflecting the spread of blockchain capabilities. He emphasises the need for youth participation, given the novelty of the field, and the need for fresh talent and a fresh look at the opportunities inherent in the technology.
“With our help,” says Lim, “I hope Sri Lanka can leapfrog quickly, to become a fast mover like South Korea.”

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Port City to catalyse  investment in Sri Lanka

Port City to catalyse investment in Sri Lanka

Colombo welcomes 269 new hectares of prime real estate

Sri Lanka’s multi-billion dollar Port City Colombo is now open for business. Five years into its making, the reclamation of land is complete, and the project company is directing their energy towards making it commercially viable. The new city is positioned not only as an immense draw for Colombo’s central business district but also as a catalyst for investment in Sri Lanka.

At a ceremony to mark the project’s entry into the second phase of construction, at the newly constructed sales gallery, on the reclaimed land, Port City Colombo was issued a commemorative stamp and a first day cover. Prime Minister Mahinda Rajapaksa was the Chief Guest at the ceremony. He was accompanied by the Chinese Ambassador to Sri Lanka Cheng Xueyuan.

In a special interview given on the sidelines to the launch, Tang Qiaoliang, President of China Harbour Engineering Corporation (CHEC), parent company of CHEC Port City Colombo, said, “The timing of the launch of Port City is significant because this is the era of development for South Asia. Asia as a whole has been developing in waves, from the end of the Second World War to the present day, and this is the final stage. With India’s economy booming, other South Asian countries have begun to follow, and now, Sri Lanka is on the verge of taking that quantum leap in economic development.”
Port City Colombo is a unique development project not only for Sri Lanka and its people but for the entire region. It will be a game changer that will have a significant impact socially, economically and environm entally.

Benchmarking international standards, Port City launched Development Control Regulations (DCR) in 2018. The DCR has a detailed plan to be followed in all areas such as Urban Design, Utilities, Landscape and Sustainability, which are compulsory for all developers within Port City.

Tang further stressed on the global connectivity and local essence intrinsic to the project, which he said comes from it being a part of China’s Belt and Road Initiative. He said that the new city needed to be looked at as an opportunity, because it not just connects Sri Lanka to China, but connects the island to the entire world. While many would see it as globalisation, the president of CHEC says the project was a true example of glocalisation, where it thinks local, and acts global.

“Every Sri Lankan must know that even though we are marketing this as an international city it is first and foremost, a Sri Lankan city. Today, we celebrate the vesting of this plot of 269 hectares of land as a part of Sri Lanka. And every bit of the strategy we employ has first to be connected to what is Sri Lankan. It is from this platform that we can act global – from marketing to investments, to lifestyle and sustainability.”

Port City will soon be investing in the first building to come up on the new land, which would be the Colombo International Financial Centre (CIFC) complex.

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Production Villages

Production Villages

A programme for improving livelihoods through increased production

Neel Bandara Hapuhinne, currently the Director General of Manpower and Employment, took a large part in the development of the “Samurdhi Model Production Villages” programme, while Director General of the Department of Samurdhi Development. Intended to provide livelihoods for disadvantaged rural populations by improving labour skills and developing infrastructure facilities, the programme aimed, ultimately to remove the burden of livelihood support from the state. Hapuhinne spoke to OSL-THE Investment Magazine about the programme’s potential for developing the country.

Can you tell us, briefly about how you got involved in these production villages?

When I was the Director General of Samurdhi Development Department we had a very big problem of poverty. There should be a strategy for poverty alleviation. When we discussed this with our consultants and other people involved in this field, we identified production villages as the most influential and practical way of alleviating poverty in Sri Lanka.

What does a production village entail?

The villages we select for this particular project produce some item or product which is currently in demand by some sectors. There should be a very good local or international market for it. Only then do we decide to develop particular village based on their product.

What was your experience with these villages, how many did you set up?

We developed nearly 50 villages. I’ll tell share with you a few examples. There is one village in Matale called Udahapuhinde. Here the villagers produce sweets like aasmi, kavum and mung kavum. We started in a very small scale, but there was a very big demand for the product. Ultimately they couldn’t produce enough of the product to meet the demand. We got support from the Samurdhi Bank. Initially we had given LKR 10,000 to LKR 20,000. Ultimately, they needed around LKR 500,000 for their production equipment and delivery vehicles. It was a very successful story.

In Polonnaruwa, there were nearly seven combined villages that cultivate the bougainvillea plant. This industry is mainly handled by women. They were eventually in a position to produce nearly seven lorry loads of bougainvillea to Colombo and urban market.

In Ampara and Gampaha there are villages that produce nice saris, for which there is a very good demand. There is another village in Ampara that produces gourds. That was also very successful story. When we select a village, there should be a very good demand for their product. When you’re producing something with a very good demand, it is easily marketable. In some cases, we can use research and apply some modern technology. I think if you want to develop Sri Lanka, this is going to be a very good strategy in the future.

What about the skills of the villagers?

When you start to produce something, you eventually discover shortcuts and begin to improve your technology. That’s a very good thing. Rather than focusing on various products, focusing on one or two products is definitely easier to cater to.

How can you get foreign investors involved in this?

I think that depends on the demand. If some countries need some kind of product from Sri Lanka in bulk, like ceramic, then they can invest in this particular area. They can provide technical assistance, quality control and ultimately they will be the market. We need to emphasise the market. When there is a market, then we can definitely get foreign investors. It’s not a very modern concept. Many countries are doing this in mass scale production towns. But we in Sri Lanka can at least develop more than 500 production villages, mainly to produce flowers like orchids, roses because there is a very big demand for that.

What kind of remuneration did the villagers get out of this?

I have dealt with many Samurdhi recipients. There are three categories of Samurdhi recipients. One family gets LKR 1500, another gets LKR 2500, and the maximum amount is LKR 3500. Can an ordinary family live with the LKR 3500 maximum?
Families in production villages got an income more than LKR 50,000 per month. They said, “Sir, you keep your Samurdhi card, we don’t need this anymore.” They are really proud about this. If we really want to, we can do this.

That provides a big opportunity for both investors and the local community.

Of course.

What kind of technology are you talking about?

These are very simple technologies, but we can gradually add advanced technology. If we are going to produce agricultural products like food, then we don’t need higher, sophisticated technology. But if we come into a position to add that type of advanced technology, then profitability will definitely go up.

So how can we take this process forward in the future?

Samurdhi is the backbone because there are around 1,074 Samurdhi bank branches. They are dedicated to this. If somebody wants to get a loan, they can do so within a few hours. If you can believe it, the repayment rate is 98%. There is no bad debt. So this is a very good mechanism. It is a very good channel for distributing money. After borrowers develop to some extent, they can then go to commercial banks. But we should focus on safeguarding the incubator investors and incubator entrepreneurs. That is my personal experience.

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A MEMOIR OF DEVELOPMENT

A MEMOIR OF DEVELOPMENT

How past small-scale manufacture gives pointers for future industrialisation

Today our economy is in the doldrums, with imports running sky high. If we are to reverse this position, we need to develop our industries, which requires commitment from both the government and the private sector. My experience as a government officer involved very deeply with development work, has given me insights how this might be done.

Harking back to the Fifties the Government, had a major problem to mill paddy into rice. Let us see what the then Government did. I quote from my 2006 book, How the IMF Ruined Sri Lanka & Alternative Programmes of Success:

“In 1980, when I met the Secretary to the Ministry of Agriculture, a former colleague of mine, they were pondering as to what to do with the excess rice. I replied that there should be no problem because the people preferred rice flour to wheat flour. To my amazement, I was told that the Jayawardene Government had signed a contract with Prima, a foreign company, for the Government to provide a definite quantum of wheat for a number of years and that this contract cannot be cancelled.”.

That was the contract to import wheat, mill it and hand the white flour to the Government and take away the high value bran. Earlier we imported wheat. A high ranking officer, a Deputy Controller of Food was in charge of buying wheat and getting it milled. Under the new Prima agreement it was Prima that bought the wheat.
That happened under President Jayawardene, when he embraced the IMF’s Structural Adjustment Programme of privatisation.

Rice mills…

Again from my 2006 book:
“To those who think that our private sector cannot act fast, and cannot be trusted let me narrate how the private sector rallied round rice milling. I was an Assistant Commissioner of Marketing in the Fifties and worked in charge of the Southern Province and later at Anuradhapura; key paddy producing areas. Paddy production increased and paddy had to get milled. The [then] UNP Government did not search for foreign multinationals. Instead the Government imported a few rice mills and installed them in key districts – Anuradhapura, Amparai and Hambantota. Then the Government called for applications from the private sector, to establish rice mills and said that if they were to establish rice mills they would be given a quota of paddy weekly for milling, for which they would get paid. The private sector responded quick – they were given guidance about importing machinery for which they were given foreign exchange, and told to put up buildings for storage and establish rice mills. I was one of the Assistant Commissioners who vetted and recommended and guided them, cnd I guided some 190 rice mills coming up in the Southern Province. To a man they worked fast, and private rice mills came up overnight, and what is important is that they all paid taxes, unlike Prima, which functioned on a tax holiday. When Prima’s first tax holiday was over, another tax holiday was given. The lesson in this is that we, Sri Lankan entrepreneurs can attend to development tasks ourselves.”

…and crayons

The success of the Co-op Crayon, which I established at Morawaka in 1971, which had islandwide sales till 1978, when the Jayawardene Government axed it, tells me that we can make most of what we import. A crayon is a sophisticated product and the Crayola recipe for crayons is a highly guarded patent, locked securely and sealed tight. Our Co-op Crayon was made to be equal to Crayola in quality. Under my direct supervision, at the Rahula College science lab in Matara, we fine-tuned the crayon making till it was perfect. That was achieved by my Planning Officer, Vetus Fernando, a chemistry graduate. Then it took Sumanapala Dahanayake, the Member of Parliament for Deniyaya to establish it as a co-operative concern. There were islandwide sales from 1971 to 1978. Harry Guneratne the Controller of Imports axed all crayon imports, and Coop Crayon was a hailed as a success by stalwart Ministers TB Subasinghe and TB Ilangaratne.

What this tells me is that Sri Lanka can produce everything we import and for that task our private sector is the only method. It is simple: Identify the product, turn it out at a school laboratory and allocate the task of making it to the private sector. In my recently published work, Wind power for Sri Lanka’s Energy Requirements (Godages), I have proved that if only a few hundred wind turbines are installed in our hill country, we can produce all the power we require within six months. That is a task in which our private sector will thrive. Instead of paying for foreign coal and foreign power suppliers, that money will stay in our own country.

… and paper

Is it not sad that ours is perhaps the only country in the world that does not make its own bicycle. It is the simplest of tasks. Let us not travel far. We produced paper at Valaichchenai till the LTTE took it over. It was our own scientists who found the art of making paper from straw. Today while we do not produce a scrap of paper, India and China are making paper out of straw. Let our Government consider identifying the ideal small scale paper-making machinery from either China or India, and request our private sector to invest and establish paper making industries all over the paddy producing areas. This is a task that can be done within six months and I can vouch for the fact that we will recoup the foreign exchange we pay out for the machinery within a year. This will be a grand success. We can be self sufficient in making paper within a year!

Let us hope that we will develop the will to do these tasks ourselves. There is no other way ahead. If we do not act, we stand to be doomed for ever.

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Investors need Stability

Investors need Stability

Sri Lanka requires a consistent economic policy  – Nalaka Godahewa

“Sri Lanka’s economy is currently in very bad shape,” says Nalaka Godahewa. “However, with the presidential election on 16 November, we expect a big change in the economic prospects for Sri Lanka under the new government.”

Academically qualified in the three very different disciplines of Engineering, Marketing and Accountancy, Godahewa acquired a reputation as a change expert. As chairman of Sri Lanka Tourism, he formulated the new tourism development strategy. Appointed as Chair of the Securities Exchange Commission of Sri Lanka, he oversaw the turnaround in the stock market following a prolonged slump in the early 2010s. He spoke to OSL Magazine about the likely policy changes if the opposition wins the presidential election on 16 November.

“The economic policies will be more people-centric,” he says, “which will focus on all sectors. Services, agriculture, industries, we want to develop all of those, and be on par with global expectations. Most importantly, we believe there will be stability in the economy, which is lacking today. Today, politically, economically, socially, there is unrest everywhere. The chaotic situation is affecting the confidence of both local and foreign investors. I believe the new government will bring that stability back, which will give the confidence required for investors to come and invest.”

Consistent policy

Godahewa stresses the need for stability and a consistent policy, a vital need for foreign investors –who must know that, after investing in a country, that they will receive continuous returns, and that unpredictability will be limited. Investors know the difference between different economies, and the opportunities available. They understand that a lot of business can be done within, as well as from Sri Lanka, because of its geographical advantage, as long as there is a politically stable environment. They will invest if an investment-friendly environment is created.

“It is very simple. First of all, you must have a policy! One policy, which doesn’t change all the time. If you look at the current government, which came to power in 2015, one would be surprised to know that they have presented nine different economic policies during the first four years. The tenth didn’t come this year, probably because people started laughing at that. That kind of lack of consistency, lack of direction, is what caused the current economic crisis in this country.”He assures that the new government will have one policy, which have already been declared, and are open to the public now, which will be consistent and not change.

Technology

Building up the local supply chain, he acknowledges, must be taken into account very seriously. “Local industries have to be developed. Sometimes when you say you are following open economic policies, you are allowing everything to come in, that does not help the local economy. I think globally, now there is a trend, that the leaders realise that they have to protect the local economy. That is the same from China, to Russia to the USA. Even President Trump has realised this. So why don’t we do the same thing? We need to protect our local entrepreneurs, local businesspeople and allow them to get involved in production that will service the supply chain, not only producing locally, but also going and competing in the global market, which they will do if we help them to stand up and develop their industries. Give them the right technologies, the right training, and government assistance and they can make a difference.”

There are two sides to technology. The software side is something that can grow very quickly, because Sri Lanka’s next generation are capable of learning fast to be on par with other countries, as long as they are supported with high-speed internet, and other infrastructure. The experience of other Asian countries, such as Bangladesh, which have tech-savvy younger generations. The ICT industry, currently a USD 1 billion industry, has great potential to grow.
“They say that if you give them a sufficient number of people, they can in a very short period take it to a USD 3-5 billion industry.”

High tech

The other side of technology, high-tech manufacturing, is an area into which foreign investors should be encouraged to enter. Godahewa thinks that this kind of industry should receive incentives, on a selective basis. The government should pick and choose, not give incentives to just any foreign investor. Whatever incentives and facilities are required should be granted to foreign investors in this field, to set up and transfer technology, and to import machinery and equipment that are necessary but cannot be produced in Sri Lanka.

Local research and development (R&D) cannot be ignored either. “Those people who are innovative and creative must be given financial assistance, such as low-cost loans,” he says. “We have realised that the future for Sri Lanka becoming a developed nation is in the technological sphere. That is the trend that we should not miss. The new government will be very focussed on developing the technological segment.”

One of the key priorities of an incoming Science and Technology minister would be to develop technological capability in Sri Lanka. This would require investment in research and development, separate funds for supporting which will be established. Human capital would be developed by investing in education, and changes to be brought in are expected to create a far more creative generation of youth.

Confidence

The current economic crisis, Godehewa holds, has much to do with the level of confidence. Businesspeople have lost faith in the system, and will not invest. “They are holding their monies back. Look at the stock market, the way it is performing. It is a pathetic situation. In 2015, the last time I was regulating the capital market in the country, we were considered the best in Asia, and today it is the worst in Asia. That shows the level of confidence that people have.”
He advocates bringing back the confidence of local investors – to incentivise foreign investors. The starting point would be simplifying the complex tax system, and that requires abolishing the Inland Revenue Act, No. 24 of 2017, copied from an African country and not suited to Sri Lanka, the tax system of which has more than a century of learning behind it.

Currently, most businesspeople struggle with their banking facilities, being on the CRIB (defaulters on the list of the Credit Information Bureau of Sri Lanka). They need some practical action to get some relief, some time and space to bounce back. This includes those on the CRIB who have good past track records. The new government will negotiate a moratorium for them with the banks.

Taxation

“We are very particular about reducing tax,” he insists, “at both the corporate and individual level. We must let people save their money and let people have more money to spend. That is how we can create more money circulation in the economy.”

Tax cuts, he points out, need not result in decreased revenues. They would make businesses more active, and individuals spend more, starting the country’s economic growth; invariably, growing taxable income, so tax revenue would increase. Of course steps must be taken to ensure collection. There is a multiplicity of taxes on incomes, consumption and imports. Loopholes in the system, which can be manipulated, combined with corruption, mean that collection is far from comprehensive. These can be eliminated by introducing the right technology, as other countries have done, and minimising the involvement of people in the decision chain; tax collection will immediately improve.

“For example, take customs,” he says. “Customs can very easily decide their rates based on a system. If you know the weight of an item, the volume of an item, why can’t you decide the tax rate, why do you need an individual to go and decide on that? Sometimes, you might miss out here and there, but overall, it will be much simpler, and less prone to abuse, which will immediately increase your revenue from the current dismal level, itself.”
The Inland Revenue has been trying to implement an income tax system for many years, which can be done, eliminating dependence on individuals and boosting collection relatively easily.

White elephants

Godahewa explains that, in order to develop the country, you must start looking for its strengths, which are a good location, a good climate and an intelligent base of human resources. All these strengths must be utilised to plan the future. In particular, the location, geographically in the centre of Asia, connecting East with West, makes logistics a logical potential sector for economic development. This made connectivity, and hence Hambantota Port and Mattala Airport, important. He thinks their description as “white elephant” was a politically motivated creation

“They were not white elephants. People who can’t understand this, and can’t see the big picture, look at these investments and say they are white elephants. How can they be white elephants? They were just produced, there was no time to give returns, and Hambantota port, within three years of operation, started making profits.”
He thinks that Mattala Airport is similar: a second airport was necessary to bring international airlines, looking for a second airport, to the country. Furthermore, Mattala was not built as an isolated airport, nor the port as an isolated port, but as part of the industrial city coming up in Hambantota, to support an industrial zone. That was the big picture which, he says, the new government failed to see.

Wrong picture

Godahewa is adamant on the issue. “This current government tried to project a picture that it is a huge debt burden to the people. This is an absolute lie, because Hambantota was never built by the Treasury’s money.”

He points out that the port was actually constructed by the Sri Lanka Ports Authority (SLPA), a profit-making government institution, which borrowed about USD 1,250 million, from China to do so. Adding to this the interest component, the total pay-back amounted to USD 1,750 million over a period of 22 years. Within five years, the Ports Authority paid back USD 500 million, and still managed to make a profit.

“So if you can pay back USD 500 million out of USD 1,250 million, even before the port became fully operational, you can easily imagine, had they continued, they wouldn’t have needed 20 years to pay back that loan, they would have paid it back within 10 years. Without saying that, the current government gave away the Hambantota Port. That is the stupidity. The inability to see the future.”

He does not reserve his judgement on the current administration, the incompetence of which, he says, led to the “pathetic situation” in which, with the entire region is growing at more than 5%, Sri Lanka become “Asia’s sick man”.

“I think we went through a very bad period over the last five years, everything went wrong, people expected things to be better than what it was, at a time things were going right. What happened was everything started falling on its face, and today, the economy, which was growing at 7% plus, during the latter part of the 2012-2014 period, is down to 1.6%, as the Central Bank chief himself admitted.” However, he finishes on a positive note about the future.

“So we need to now take a decision, remove this incompetent lot, say goodbye to them and bring back a set of leaders who have vision for the country. Bring back a set of technocrats who can develop this country, and get on with our job once again. I think if we work together, we can bounce back.”

Vinod Moonasinghe

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