Hub Ambitions: Can Hambantota Learn from Penang? A First Look at the Potential for Expanding Trade under a Sri Lanka China FTA Implications of Modis victory for Indo-Sri Lanka relations page 18 page 04 page 35 A PUBLICATION BY THE INSTITUTE OF POLICY STUDIES OF SRI LANKA JANUARY TO JUNE 2014 DIGEST POST-WAR ECONOMY: TALKI NG ECONOMI CS 3 2 Editorial EXECUTIVE DIRECTOR Saman Kelegama, DPhil (Oxon) DEPUTY DIRECTOR Dushni Weerakoon, PhD (Manchester) TALKING ECONOMICS TEAM Anushka Wijesinha, Editor Charmaine Wijesinghe, Manager Publications and Events Savani Jayasooriya, Communications Ofcer DESIGN+LAYOUT Thilini Perera, Consultant Designer CONTRIBUTING AUTHORS Nisha Arunatilake Samanthi Bandara G.D. Dayaratne Deshal de Mel (Guest) Raveen Ekanayake Dilani Hirimuthugodage Priyanka Jayawardena Suwendrani Jayaratne Rajiv Kumar (Guest) Sunimalee Maduruwala Nipuni Perera Chatura Rodrigo Madushi Seneviratne Athula Senaratne Dushni Weerakoon Janaka Wijayasiri KanchanaWickremasinghe Anushka Wijesinha Institute of Policy Studies of Sri Lanka 100/20, Independence Avenue Colombo 07, Sri Lanka Tel: +94 11 2143100, +94 11 2665068 URL: www.ips.lk Blog: Talking Economics www.ips.lk/talkingeconomics Twitter: www.twitter.com/TalkEconomicsSL PRINTING Karunaratne and Sons (Pvt) Ltd. 67, UDA Industrial Estate, Homagama, Sri Lanka I n May 2009, Sri Lanka made signifcant progress towards long-term peace and stability with the decisive end to a thirty-year armed separatst confict.Five years on, the economy is in an excitng new era, but a sense of cautous optmism prevails. The frst few post-war years also coincided with the fallout of the global recession. This meant that while the economic recovery with the end of years of destructon was a fllip to growth, the unfavourable climate for exports held growth back. In 2009 the country was struggling with a precarious balance of payments positon, pressure on the rupee, and crumbling exports. Five years on, the economy is in a distnctly diferent positon. Exports are recovering, infrastructure is improving, and investors are looking at the country favourably once more. But tensions with parts of the internatonal community, questons over human rights and governance, and uninspiring performance on foreign direct investment, contnue to be areas of concern for policymakers, private frms, and people, alike. As Sri Lanka entered into the second half of the countrys frst post-war decade in May this year, this editon of the Talking Economics Digest chose to take a closer look at the challenges for post-war Sri Lanka in a special series ttled Post-war Economy: 5 Years On. It features a number of artcles and interviews across diferent dimensions of the post-war era, including the synopsis of an incisive roundtable discussion with four of the countrys leading economic voices two reputed economists, and two private sector leaders. This editon also contains a number of special artcles and interviews on youth, educaton and employment, developed to coincide with the World Conference on Youth 2014, for which IPS was a key knowledge partner. As with previous editons, this editon too contains an array of insightul artcles across the spectrum of socio-economic issues- in environment, we debate whether Sri Lankas hydro- power potental is drained out or has more to ofer; in enterprise, we look at what lessons Korea can give us in growing the SME sector and also how entrepreneurship can boost female labour force partcipaton; in trade, we analyzethe opportunites for trade under a proposed Sri Lanka-China free trade deal; in agriculture, we review the merits and demerits of the proposed new Seed Act; in employment, we argue for beter provisions to deal with the rise of precarious work; and in health, we call for a more balanced and holistc alcohol policy. Meanwhile, in a guest artcle in this editon, a leading Indian intellectual sets out his perspectve on what Prime Minister Modis electon means for Sri Lanka. At the heart of this editon, though, is the vision for a holistc framework to take Sri Lanka into the next fve post-war years. As many of the expert opinions featured in this editon acknowledge, there is much to do to ensure that the countrys post-war dividend is harnessed to its full extent, and harnessed by not just the few. The research community has an important role to play in contnually fagging the numerous policy challenges that must be tackled boldly and without delay. Sri Lanka has much work to do. But at least now these can be done in a climate unencumbered by war. Copyright and Disclaimer All material published in the Talking Economics Digest are the copyright of the Institute of Policy Studies of Sri Lanka (IPS), unless otherwise specifed. It cannot be quoted without due acknowl edgement to the IPS and the author. It cannot be reproduced in whole or in part, without the written permission of the IPS. The content, comments and posts of the Talking Economics Digest and the IPS blog represent the views of individual authors and do not necessarily represent the views of the IPS. Five Years On ANUSHKA WIJESINHA Editor Talking Economics (Research Economist, IPS) anushka@ips.lk The Insttute of Policy Studies of Sri Lanka (IPS) is an autonomous insttuton that aims to promote policy-oriented economic research and to strengthen the capacity for medium-term policy analysis in Sri Lanka. Its mission is to contribute to the socio-economic development of the country through informed, independent and high quality research that seeks to infuence the policy process. With over two decades of substantal research expertse, IPS has emerged as a regional centre of excellence and the most infuental think tank in Sri Lanka. Research . Inform . Impact C O N T E N T S 4/ A FIRST LOOK AT THE POTENTIAL FOR EXPANDING TRADE UNDER A SRI LANKA CHINA FTA 6/ THE CREDIT DILEMMA: MONETARY AND FINANCIAL SYSTEM STABILITY IN SRI LANKA 8/ SRI LANKA NEEDS A NEW FRAMEWORK FOR PRECARIOUS WORKERS 10/ CAN SRI LANKA LEARN FROM THE KOREAN SME PROMOTION STRATEGY? 12/ DOES SRI LANKA NEED A NEW SEED ACT? 14/ POST-WAR ECONOMY: 5 YEARS ON 28/ ADAPTING SRI LANKAS COASTS AND OCEAN RESOURCES TO A CHANGING CLIMATE 30/ DRAINED OUT OR NEW POTENTIAL?: HYDRO POWER AND SRI LANKAS ENERGY CHALLENGE 33/ FOREST ATTRACTION: CAN SRI LANKA USE ECOTOURISM FOR SUSTAINABLE FOREST MANAGEMENT 35/ IMPLICATIONS OF MODIS VICTORY FOR INDO-SRI LANKA RELATIONS 37/ WCY 2014: A RECAP OF IPS KNOWLEDGE CONTRIBUTIONS TO THE YOUTH AGENDA 39/ SRI LANKA MUST BE READY FOR A POST- DEMOGRAPHIC DIVIDEND ERA - NEW REPORT BY IPS AND UNFPA 40/ COMPREHENSIVE POLICY CHANGES NEEDED TO HELP SRI LANKA REALISE ITS YOUTH POTENTIAL 42/ SRI LANKA NEEDS A MORE BALANCED AND HOLISTIC ALCOHOL POLICY 44/ THE URGENT NEED FOR E-WASTE MANAGEMENT IN SRI LANKA 46/ RISKS AND RIGHTS FOR CONSUMERS IN THE DIGITAL AGE 48/ THE UNSEEN IMPACT OF US TAPERING OF QUANTITATIVE EASING ON THE SRI LANKAN ECONOMY 50/ CONFLICTS AMONG SRI LANKAS HEALTH WORKERS ARE HURTING PATIENTS CARE 52/ WHAT WOMEN DO AND WHAT WOMEN CAN DO: ENTREPRENEURSHIP AND GENDER EQUALITY IN SRI LANKA 53/ CUSTOMS FOR SECURING AND FACILITATING LEGITIMATE TRADE IN SRI LANKA 56/ IPS NEWS 59/ FAST FACTS AUGUST 2014 AUGUST 2014 8 14 12 28 35 48 46 44 TALKI NG ECONOMI CS 4 5 mainly consist of machinery and electrical goods, which account for 34% of total imports from China (Figure 3). Textles are the second largest import item from China accountng for 27% of total imports. What is the Trade Potential between Sri Lanka and China? There appears to be potental for Sri Lanka to expand trade with China given the sheer size of the Chinese economy and its share of world trade. In 2012, China imported US$ 1,818 bn from the world (accountng for 10% of world imports) and exported US$ 2,048 bn (11% of world exports). A cursory look at the revealed comparatve advantage (RCA) indices of Sri Lanka and China tells us that there is potental for bilateral trade given that the two economies have comparatve advantages in diferent export sectors. A RCA index above 1 indicates that a countrys share of exports in that sector exceeds the global export share of the same sector, in which case it can be inferred that the country has a comparatve advantage in that sector. When looking at trade paterns between Sri Lanka and China, it appears that Sri Lanka enjoys comparatve advantage in the following sectors: 1) animal and animal products, 2) vegetable products, 3) food stufs, 4) plastcs/rubbers, 5) textles and 6) stone glass while China enjoys comparatve advantage in 1) raw hides, skins, leather, furs, 2) footwear, 3) metals and machinery, 6) electrical equipment and 7) textles, as shown in Based on a preliminary analysis of RCAs, it appears that Sri Lanka and China have comparatve advantage in quite dissimilar sectors which suggests that there are complementarites between the two countries to stmulate bilateral trade. Moreover, some of these sectors face high tarif rates in China and as such they are likely to beneft from tarif concessions negotated under a FTA. The only excepton is textles, which both countries have a comparatve advantage. Some Issues to Consider Tarif concessions alone may not be sufcient in expanding trade between the two countries. The actual capacity of Sri Lankan exporters to cater to the Chinese market, as well as non-tarif measures (NTMs), may constrain traders from fully utlizing the agreement. This is clear from Sri Lankas experience with existng free trade agreements with India and Pakistan1. Also, China has already signed FTAs with 8 other countries, with 6 more under negotaton2 which means that that other countries producing similar goods to Sri Lanka may already have preferental or duty free access to the Chinese market. In this context, it is imperatve that trade negotatons not only cover products in which Sri Lanka has a comparatve advantage but also that the concessions awarded by China should be higher or at least equal to the reducton in tarifs granted to other countries. In negotatng a trade agreement with China, some of these issues need to be taken into account to ensure that Sri Lanka and China can beneft mutually under a FTA. The Insttute of Policy Studies of Sri Lanka (IPS) has embarked on a study of the opportunites and challenges of a FTA with China, from a Sri Lanka perspectve. The fndings from the study, which will be available by mid this year, aims to stmulate an informed discussion and infuence policy outcomes. (Endnotes) 1 Compiled from ITC Trade Map database htp://www.trademap.org/ 2 The special administratve regions of Hong Kong and Macau are excluded in the analysis throughout this artcle as an FTA with China is likely to only include mainland China 3 Refer Challenges remain for ChinaSri Lanka FTA htp://www.eastasiaforum. org/2014/03/28/challenges-remain-for-china-sri-lanka-fa/ 4 htp://fa.mofcom.gov.cn/english/index.shtml two countries has increased steadily over the years; almost doubling between 2008 and 2012 from US$ 1.5bn to US$ 2.7bn 1 . China is now Sri Lankas second largest trading partner 2 as well as the second largest source of imports (afer India). In 2012, China accounted for 14% of the total imports of Sri Lanka but is less prominent as an export market for Sri Lanka. It ranked as the 16 th largest export destnaton and accounted for only 1.2% of total exports from Sri Lanka in 2012. Nevertheless, the importance of China as an export destnaton seems to be on the rise given that exports to China have been growing vigorously over the years, recording an annual growth of 27% per year during 2008-2012. This was higher than the growth in Sri Lankas exports to the world (6%) during the same period. Meanwhile, imports from China have grown at a faster rate (29%), resultng in an expanding trade defcit (Figure 1) which by 2012, stood at US$2.4bn. In view of the widening trade imbalance, the move to sign a bilateral trade agreement is tmely.
What is Sri Lanka Currently Trading with China? Refectng Sri Lankas export structure, the export basket to China is dominated by textles (41%) (Figure 2). Plastcs/rubber, vegetable products and mineral products account for around 13% each. These four sectors together accounted for 81% of Sri Lankas total exports to China in 2012. These sectors no doubt stand to beneft from greater market access under a FTA with China. Sri Lankas imports from China A First Look at the Potential for Expanding Trade under a Sri Lanka China FTA By Nipuni Perera and Janaka Wijayasiri Sri Lanka and China have embarked on a joint feasibility study of a Free Trade Agreement (FTA) and an agreement is expected to be sealed by the end of the year according to a number of reports in the media recently. However, there has been little analysis or discussion about the potential for trade expansion under a Sri Lanka-China FTA beyond general statements on how it would potentially boost bilateral trade. In this context, this blog delves into trade data to examine Sri Lankas trade patterns with China in recent years, and identifes some sectors which could stand to beneft from a negotiated trade agreement. Emergence of China as a Major Economic Partner While historical and cultural relatons between Sri Lanka and China go back to many centuries, modern day economic and politcal tes were established with the signing of the historic Sino-Lanka Rubber- Rice Pact in 1952 and establishment of formal diplomatc relatons in 1957. Over the past 55 years, bilateral economic cooperaton has expanded under very cordial relatons established between the two countries. More recently, economic relatons have been elevated to a higher level with China emerging as Sri Lankas largest aid donor as well as an important source of investment. According to trade statstcs, bilateral trade has also seen a notable expansion. Total trade between the Descripton Sri Lanka China Animal and Animal Products 1.2 0.41 Vegetable products 6.32 0.27 Foodstufs 1.16 0.44 Mineral Products 0.3 0.12 Fuels 0.02 0.1 Chemicals & Allied Industries 0.17 0.53 Plastcs/Rubbers 2.51 0.85 Raw Hides, Skins, Leather, & Furs 0.32 2.4 Wood & Wood Products 0.75 0.71 Textles 10.87 2.96 Footwear / Headgear 0.52 3.73 Stone / Glass 1.2 0.94 Metals 0.1 1.03 Machinery/Electrical 0.16 1.74 Transport 0.25 0.55 Miscellaneous 0.21 1.15 Table 1: Revealed Comparatve Advantage (RCA) Index for Sri Lanka and China Source: Compiled fromWITS database Figure 1: Key Trends in China-Sri Lanka Trade Relatons Source: Estmated based on ITC Trade map US$ Million TALKI NG ECONOMI CS 6 7 faced liquidity problems in 2009. In spite of this, the sector contnued to grow, with eight Specialized Leasing Companies (SLCs) elevated to Licensed Finance Companies and six new licenses issued to LFCs post-2009, bringing the total NBFIs to 58 (48 LFCs and 10 SLCs) by 2013. On the heels of yet another NBFI facing liquidity problems in 2013, the CBSL announced a proposed fnancial sector consolidaton plan. Whilst it undoubtedly has long term objectves, the immediate concern is primarily to minimize systemic risks posed by deposit taking insttutons deemed to be at some risk. The immediate consolidaton process aims to bring down the numbers of NBFIs from 58 to 20. These have been divided into three categories of A (19 NBFIs), B (38 NFBIs), and C (1 NBFIs). Category B NBFIs are to merge with local banks or Category A NBFIs, or merge among themselves so that they fulfll conditons of Category A NBFIs, the most important being an asset base of over Rs. 8 billion. Whilst fnancial sector consolidaton is in the right directon, obligatory mergers and acquisitons may not be the most efcient way to set about it. In the long term, efcient fnancial intermediaton to support economic growth and stability comes from prudent monetary and exchange rate policy management, and regulatory oversight. The Sri Lankan economy has been subject to stop-go policy cycles since 2008 an acutely unsetling phenomenon for private sector investors. A moderate infatonary environment alone will not induce greater investor appette. Investors and fnancial insttutons must be also ofered a measure of policy consistency and stability, be it in setng exchange rate policy, interest rates or other regulatory requirements. F ebruary 2014 marked fve consecutve years of single-digit rates of infaton in Sri Lanka supposedly the longest spell in the countrys post-independence history. Quite rightly, the Central Bank of Sri Lanka (CBSL) can take its share of credit for this success, especially in view of historic high and volatle infaton rates of the past. Indeed, the scale of monetary stability becomes clear when considering the fact that infaton rates hit a peak of 22.6 per cent in only 2008 before setling to single digit levels from February 2009. Despite fve years of a moderate infatonary environment and higher average economic growth during that period, private investment trends have been modest. The monetary authorites are struggling to revive credit appette in spite of signaling the end of a tght monetary policy stance way back in December 2012. Credit growth to the private sector was extremely sluggish at 7.5 per cent in 2013. It has contnued in the same vein so far in 2014, recording a growth of only 4.4 per cent year-on-year in February. The private sector thus seems to be rather indiferent to the successful slaying of Sri Lankas infaton bogey, and inducements to borrow for investment. The later has been pushed through an aggressive easing of monetary policy: a 25 basis point reducton in policy rates in December 2012, followed by a further rate reducton of 50 basis points in May 2013;slashing the Statutory Reserve Requirement (SRR) of Licensed Commercial Banks (LCBs) by 2 percentage points from 8 per cent to 6 per cent in June 2013; requiring all LCBs to reduce penal rates of interest charged on all loans and advances including credit facilites already granted to a level not exceeding 2 per cent per annum, whilst fnance and leasing companies were requested to reduce the penal rate of interest to 3 per cent per annum from August 2013; and a further policy rate cut of 50 basis points in October 2013. import tarif reductons and adoptng a fexible exchange rate policy in February 2012. The latest round of monetary policy easing comes in the wake of a doubling of credit growth to the private sector between 2009 and 2012. It is perhaps not surprising that the credit overload of the past is stll to work its way through the economy, deterring fresh uptake by the private sector. Such excesses constrict not only investors, but also the fnancial sector as well. Credit booms have been fuelled by consumpton (Figure 2). In 2010-12, the take-of in pawning-related consumpton lending that sufered subsequent to a drop in gold prices added to the distress. With a slower rate of economic output post-2012, the combined impact has been to expose the banking sector to rising NPLs just as the rato stabilized afer the last credit bout. The gross NPL rato for banks climbed sharply to 5.6 per cent in 2013 while that for the non-bank fnance insttutons (NBFIs) rose to 6.7 per cent. Another casualty of the recent credit booms has been the NBFIs. The environment of cheap credit during 2007-08 proved a trigger point for the collapse of a number of fnancial insttutons. A total of eight NBFIs By Dushni Weerakoon Lending rates that remained fairly sluggish in the frst half of 2013 owing to high government borrowing have adjusted. The Average Weighted Prime Lending Rate (AWPR) fell from 14.4 per cent in February 2013 to 9.4 per cent in February 2014. The reasons for the overdue credit pick-up are perhaps partly explained by Sri Lankas growth patern of recent years. Much of the higher growth is coming from non-tradable services sectors and industry sectors such as constructon and utlites. Many of these also have large state involvement. Booming sectors where businesses can plug-in investments is more limited than the overall high GDP growth numbers would suggest. Not surprising then that in tmes of credit growth, much of it goes into consumpton and related sectors. A second explanaton lies in past over-kill in pushing credit up-take by the private sector. Sri Lanka found itself grappling with a more complex monetary and exchange rate policy setng post-2007 in the face of high domestc demand fnanced by external debt. As capital fows in, if monetary authorites choose to intervene in the foreign exchange market to hold the currency from appreciatng, it leads to an expansion in the monetary base and the potental for greater liquidity in the economy and excessive credit growth. There was excessive credit growth in 2007-08, alongside rising infatonary pressure. The monetary policy response was slow, allowing real interest rates to be negatve over tme, fuelling a culture of cheap credit (Figure 1). Credit growth to the private sector peaked at over 25 per cent in mid-2007, with signifcant growth in consumpton and housing related loans, before being brought under control by year end. Despite high infaton and a sharply deterioratng current account, interventon to maintain stability in the exchange rate saw Sri Lanka teetering on the edge of a balance of payments crisis, averted afer an agreement with the IMF in 2009. The reckoning came in the form of lower growth and a weakened private sector appette for credit. From mid-2010, Sri Lanka once again began to push for private sector credit growth. Policy rate adjustments, abandoned in favour of reserve money as the primary operatng target for monetary policy in 2007, got underway from mid-2009. The banking sector, yet to fully recover from the excesses of the preceding credit boom that saw gross non-performing loans (NPL) ratos rise to 8.5 per cent in 2009 were subject to moral suasion to speed up lending to the private sector. Credit growth to the private sector accelerated from mid-2010 even as policy rates remained unchanged throughout 2011 fuelling an import surge and precipitatng the impositon of a mandatory ceiling on commercial bank credit growth. Sri Lanka once again tried to hold the currency steady against a sharply deterioratng current account and was compelled to change directon by reversing 2006 2007 2008 2009 2010 2011 2012 2013 25 20 15 10 5 Repo AWPR CCPI Private Sector Credit 2006 2007 2008 2009 2010 2011 2012 2013 3000 2500 2000 1000 1500 500 Credit growth Credit Figure 1: Monetary Sector Indicators Source: CBSL, Annual Report, various years. T r a d in g C o n s u m p t o n H o u s in g In d u s t r ia l P e r s o n a l lo a n s A g r ic u lt u r a l S e r v ic e s In d u s t r y A g r ic u lt u r e &
F is h in g 2006 - 2008 2010- 2012 Share of Credit Extended 5 10 15 20 25 30 35 40 % Banks NBFIs Gross NPL Rato 3 2 2007 2008 2009 2010 2011 2012 2013 4 5 6 7 8 9 10 % Figure 2: Financial Sector Indicators Source: CBSL, Annual Report, various years. Te Credit Dilemma: Monetary and Financial System Stability in Sri Lanka Infaton and interest rates TALKI NG ECONOMI CS 8 9 As the global economic crisis put various pressures on employment, it is not only the loss of jobs, but also the rise of temporary forms of employment that have become more prevalent in both developed and developing countries. In response to economic insecurity and market instability, the increase of jobs of a precarious nature is receiving more atenton. Despite the pressures of the global downturn, Sri Lanka managed to reduce unemployment rates to as low as 4% by 2012. However, the country has simultaneously seen an increase in the incidence of precarious work in recent years, and now more than half of all employees are temporary or casual workers. This raises serious concerns on the status of decent work in Sri Lanka. What is precarious work? Precarious work is part of a global business strategy - a practce adopted by employers to shif risks and responsibilites onto workers. Precarious workers are those who perform dutes and tasks of permanent employees but are not protected with the rights of permanent employees. These workers are employed on temporary contracts for varying duratons. Another form of precarious work is a disguised or ambiguous employment relatonship a lack of clarity on the identty of the employer. For example, frms SRI LANKA NEEDS A NEW FRAMEWORK FOR PRECARIOUS WORKERS MORE THAN HALF OF ALL EMPLOYEES NOW ARE TEMPORARY WORKERS hire workers for their core business actvites through agencies, ofen through subcontractors, franchisers and manpower agencies. These workers are hired by an agency or subcontractor but perform their dutes for a separate company. It is a precarious work arrangement because it is ofen unclear as to who is responsible and accountable for workers rights and benefts. Why should we worry about precarious workers? Temporary contracts usually undermine the benefts accrued to employees - a lack of access to social protecton and benefts, legal and practcal obstacles to joining a trade union and bargaining collectvely, and susceptbility to hazardous working conditons. These workers are highly insecure as they know they are easily replaceable. The Internatonal Labour Organizaton (ILO) recognized this spread of precarious work as a worldwide corporate atack on the right to organize and bargain collectvely, by shifing to subcontractng and individual contracts, atacking sectoral and natonal bargaining, and evading employer responsibilites by complicatng what should in fact be a direct employment relatonship with their workers. Recent trends in precarious work Sri Lanka is seeing an increasing prevalence of temporary/casual employees. In 2012, out of total public sector and private sector employees (4.6 million), 2.5 million, or 54% were precarious workers temporary/casual workers or workers without a permanent employer. Moreover, temporary and casual workers have increased at a faster pace than permanent employees over the 2006-2012 period (see Table 1). By 2012, 16% of all employees did not have permanent employer. By Priyanka Jayawardena The increase in private sector employment in recent years has mainly been in temporary and casual jobs. To increase enterprise proftability and to circumvent rigid labour laws, Sri Lankan frms have been keeping their permanent workforce to a minimum while increasing temporary or casual workers. LFS data reveals that 92% of temporary and casual workers are atached to private sector. Between 2006 and 2012, temporary and casual workers in the private sector increased by 21% while permanent employees increased only by 5%. This refects the fact that in recent years the private sector has created more precarious jobs than permanent ones.. From an employers perspectve, the reasons behind this include high labour turnover, catering for seasonal demand, the cost of regular labour, and also nature of service (outsourcing for call centers, janitorial and security staf of work places. Figure 1: Private sector job expansion has been mainly in temporary and casual work Rise of agency-hired workers in EPZs Although data limitatons prevent an accurate estmaton of the extent of agency-hired workers (through manpower agencies), it is a well known practce in Sri Lanka, partcularly in the countrys Export Processing Zones (EPZs). Formal manpower agencies supply workers for EPZ frms for their core business on temporary or even without writen contracts, leaving them very vulnerable to precarious work arrangements. There are arrangements for daily hiring of workers where manpower brokers hang around the EPZs and supply workers for frms to meet their daily labour requirements. Some frms form their own manpower agencies from which they can hire workers at a cheaper rate, with diluted worker rights. However, depending on hired workers does have negatve implicatons for frms as well. For instance, problems with irresponsible workers, inexperience workers, and problems associated with longr-term human resource gaps. Transforming precarious work to decent work One way of transforming precarious work to decent work is by paying more atenton to creatng more and beter jobs. This can be done through introducing tghter labour standards under company/business registraton related to restrictons on temporary hiring for core business actvites. Meanwhile, frms must strive to limit the use temporary and agency-hired workers to legitmate instances only, for instance, in meetng seasonal demand of frms and to provide supplementary services (security, janitorial, etc.). Firms should also not be allowed to increase temporary or agency-hired workers above a reasonable threshold. Another way of transforming precarious work to decent work is by beter regulaton of precarious work in order to safeguard workers rights. As agency workers are not protected by most labour laws, it is important to devise a regulatory mechanism that beter protects their rights addressing issues of stability, equality of employment conditons, social protecton, etc. As a frst step, the issuance of leter of employment to all temporary employees should be made compulsory for the frms. Also, mandatory employee insurance is recommended for all hired workers to cover all workplace-related accidents. Meanwhile, a far-reaching awareness campaign on the rights of agency- hired workers will help in protectng their rights as both frms and workers will have more informaton and avenues for legal redress.. Further, rigorous monitoring of EPF/ETF registraton, and frequent labour inspectons, will help with the transformaton. Much of this cannot be achieved without beter regulaton of manpower agencies At the very least, all the manpower agencies should be registered under the Department of Labour. In the past 5-6 years alone, the number of precarious workers those not covered by labour laws and susceptble to their rights being violated, rose by over 300,000 in Sri Lanka. These workers are in a highly disadvantaged positon. They ofen earn lower wages regardless of their experience and educaton and sufer job insecurity due to uncertainty on whether their contract will be extended or faceunjustfed terminaton of employment. Beter regulaton, and a reformulaton of the policy framework, is urgently needed to tackle this, in order to secure the best interests of workers, while also recognizing the evolving labour needs of Sri Lankan frms. This artcle is based on the policy brief ttled Precarious Work in Sri Lanka : The Need for a New Policy Framework contained in the forthcoming Sri Lanka: State of the Economy 2014, the IPS fagship annual publicaton. 2006 2012 Permanent 46.2 45.7 Temporary/casual 36.1 38.3 No permanent employer 17.7 16.0 Total 100.0 100.0 Table 1: Permanency Status of Employee (%) Source: Authors calculations based on Labour Force Survey data for 2006 and 2012 2012 2006 500 1000 Thousands 1500 2000 temporary/casual permanant Source : Authors calculations based on LFS 2006, 2012 data. 10 11 linkages between SMEs and large enterprises, enhancing SMEs technical capabilites, and stmulatng SME start-ups and new venture businesses. Having reviewed the experience of Korea with respect to the above, the paper argued that Sri Lanka cannot (and probably should not aim to) follow Koreas example with regard to the frst pillar -protecton - but should certainly draw from the second - promoton. The reasons for not drawing from the protecton pillar are many. SME- mandated insttutons in Sri Lanka are too scatered and ill equipped to efectvely identfy SME-specifc markets and monitor their reservaton for SMEs. Undertaking such measures without strong and capable experts could prove disastrous. Moreover, Sri Lankas present industrial context is not the same as Koreas when it frst began and so would be inappropriate to emulate. As Korea later recognized as well (following liberalizaton and deregulaton in the early 1990s), such protecton policies do have negatve consequences (inefciency, over investment in less-than-proftable actvites, etc.) and could lead to skewing of the compettve landscape of the economy. Yet some of the promoton measures, for instance, in access to fnance and expanding markets, could hold valuable lessons. Access to Finance: Credit Guarantee Fund As widely acknowledged in Sri Lanka, access to fnance is a signifcant and persistent challenge in the SME sector, despite successive rounds of concessional loan schemes by the government as well as aid donors. In that context, Sri Lanka could learn from the array of strong and comprehensive measures adopted by Korea on boostng SME lending. One such example is the Korea Credit Guarantee Fund (KCGF), now Korea Credit (KODIT). There is an urgent need for Sri Lanka to establish a similar natonal insttuton a SME Credit Guarantee Fund (SCGF). The insttuton ought to be separate from the Central Bank of Sri Lanka and functon independently. Capital (funding) for it can come in part from the government and in part from private commercial banks. For instance, in the KODIT case, all banks pay in an annual 0.225% of total outstanding loans into the fund (0.5% in early years). The SCGF ought to have multple regional branches to cater to SMEs where they are located and in line with the government vision of developing lagging regions. Like in KODIT, qualifed graduates ideally from a business administraton or management background, working as analysts, must staf it. The SCGF can provide between 75 90% of loan coverage for an SME seeking a loan facility, which is ofered following a credit ratng exercise done by it (possibly using credit informaton from the Credit Informaton Bureau that already exists in Sri Lanka). Under the Knowledge Sharing Partnership, there could be a government-to- government capacity building efort to help Sri Lanka establish an SCGF, learning from KODIT. The impact of KODIT is impressive; as I learnt during an in-depth discussion I had with a Deputy Director there, Mr. Jong-goo Lee. He observed that, In 1975, around 35% of all loans in the Korean banking system were to SMEs, but by 2013 it was 77%. The credit guarantee scheme contributed a lot to this. Market Access: Public Procurement and Linkages with Larger Firms Sri Lanka may not be able to do all the access to market expansion measures that Korea undertook as many of them bordered on heavy protecton and regulaton. However, certain elements could be adopted; for instance, the promoton of public procurement from SMEs. Government agencies can be directed to increase the amount of procurement made from SMEs, track this and report on progress to the Ministry of Finance and Planning. They could also be required to demonstrate annual incremental increases in this. Another measure could be to encourage inter-enterprise cooperaton and sub- contractng. Similar to the legislatve measures adopted in Korea like the Small and Medium Enterprises Sub-Contractng Promoton Act and the Inter-Enterprise Cooperaton Promoton Act, larger enterprises could be given incentves for incorporatng domestc SMEs more in their supply chains. The incentves could either be direct for instance, tax concessions based on some formula of the value of inputs procured from SMEs, or indirect natonal recogniton scheme (awards, etc.) for large enterprises that demonstrate the best supply chain linkages with SMEs. CAN SRI LANKA LEARN FROM THE KOREAN SME PROMOTION STRATEGY? By Anushka Wijesinha KOREA IS NO STRANGER TO ECONOMIC HARDSHIP, RECOVERY, AND PROGRESS. The Korean War during 1950-53 took 1.5 million lives and destroyed close to 40% of the countrys industrial facilites. Yet, it overcame this turbulent history to become a developed country in less than a generaton an achievement fondly referred to as The Miracle on the Han River. As it joins the ranks of donor countries, a key part of Koreas growing internatonal cooperaton is in the form of knowledge sharing essentally sharing the Korean success story and its policy lessons. Last week, a team of experts from Korea, who had been tasked with developing recommendatons on fve policy areas for Sri Lanka, submited their fnal report to the Sri Lankan authorites. Their work was conducted under the Knowledge Sharing Program of the Korea Development Insttutes (KDI) School of Public Policy and Management, and looked at SMEs, food processing industry, technical, vocatonal educaton and training (TVET), FDI, and techno-entrepreneurship. I was partcularly interested when I read the news of this visit as I just completed a Visitng Fellowship at the KDI where my key research area was on industrial policy in Korea, with a special focus on SMEs. In the fnal research paper, I put forward some thoughts on aspects of the Korean SME development that may hold lessons for Sri Lanka. This artcle highlights some of those ideas for further debate. Koreas Post-War Industrialization With a combinaton of strong state leadership, policies based on expert advice, and a strategic approach to economic development, Korea quickly emerged as an industrial powerhouse. In this transformaton, SMEs were certainly not the headline story. It was the chaebols; the large private conglomerates that led the countrys Heavy and Chemical Industries (HCI) drive like Hyundai, Samsung, Daewoo, and LG. But the SME sector was indeed a key part of this story. The growth of these large frms paved the way for the development of SMEs, as they required a wide range of parts and intermediate goods in their manufacturing. It is at this stage that government policy support for SMEs began. The frst, and groundbreaking, step was the introducton of the Basic Small Business Act as far back as 1966. Since then Korea has introduced over 15 legislatve measures and policy initatves to support SME development during various stages of its industrializaton. Koreas SME Efort: Protection and Promotion Some of the key features of state support for SMEs in Korea revolved around two pillars protecton and promoton. As extensively reviewed in the paper, Korea adopted many policies to restrict and reserve certain sectors for SMEs exclusively in order to enhance market access for SMEs. Concurrently, it adopted several promotonal measures in various aspects improving SME fnancing, encouraging BIG CONGLOMERATES LIKE SAMSUNG WERE AT THE HEART OF KOREAS INDUSTRIALIZATION DRIVE, BUT SMES PLAYED A KEY ROLE IN ENHANCING THEIR SUPPLY CAPACITY. (IMAGE BY ANUSHKA WIJESINHA, SEOUL, 2013) Strengthening Apex Institutions Implementng the host of SME support measures in Korea was possible because of the strong insttutonal mechanisms behind it. Sri Lanka, too, needs strong, capable natonal insttutons to implement and/or oversee SME support and promoton policies. Currently, the SME-mandated state insttutons are scatered, measures are ofen taken on an ad-hoc basis. Sri Lanka can look at insttutons like the Small and Medium Business Administraton (SMBA) and Small Business Corporaton (SBC) of Korea learn from how they are stafed, what functons they carry out, and how they give leadership to the SME agenda. While the Natonal Enterprise Development Authority (NEDA) was originally envisioned as the apex SME body to cater to these needs (established under a recommendaton of the SME White Paper that IPS gave leadership to) the current status of NEDA leaves much to be desired. The paper detailed a set of seven aspects for NEDA to strengthen, learning from Koreas SMBA and SBC. Two specifc points there relate to informaton and analysis for efectve and data-driven SME policy development and implementaton. Without good data on the SME sector any new initatves will be ill informed, would waste public money, and fail to fully cater to enterprise needs. Does Korea Hold Lessons for Sri Lanka? In short, the answer is yes. Some may argue that Koreas SMEs have ofen taken second place, behind the powerful chaebols. However, I would argue that without the actve promoton of SMEs in Korea, the chaebols couldnt have risen in the way they did. Of course, more recently this has caused an over-dependence of SMEs on them. No doubt there are many outstanding issues with the Korean SME sector at present. In fact, Sri Lanka can learn not only from Koreas successful SME policies but also from the ones that were less successful also. Yet, what is clear (and as shown in the paper) is that policy approaches to SME development in Korea have and contnue to be genuine in their intent, strong in their conceptualizaton, extensive in their reach, coherent and focused in their implementaton, and consistent over tme. These are no doubt valuable lessons for Sri Lanka as it contnues to grapple with the challenge of SME development. (In 2013 Anushka Wijesinha completed an Asia Development Fellowship where he was based at the KDI in Seoul. ) TALKI NG ECONOMI CS TALKI NG ECONOMI CS 12 13 Over seven hundred onion farmers in the Dambulla area sufered losses due to substandard seeds bought from a private company in the area. Farmers in the area stated that they had to depend on this imported Indian variety. According to the existng laws, farmers who are afected are not able to get any compensaton from companies or from the government. They had to bear the entre loss which was estmated around 25 Million. This report was just one of many recent news items from across Sri Lanka about substandard seeds being distributed to farmers. Who is responsible for reining this in? Can farmers get their money back from seed dealers? Why do farmers have to depend on imported seed varietes? What is the government doing to tackle it? These are some of the questons being raised by farmer societes, seed companies and policy makers. This artcle analyses the existng seed protecton system in Sri Lanka, and discusses the changes that are being proposed under a new Seed Act. WHAT SEEDS ARE PRODUCED IN SRI LANKA? Before delving into the regulatory aspects of seed producton, its useful to explore the nature of seed producton in the country. There are three major generatons in rice seed producton: breeder seeds, basic seeds and certfed seeds. Breeder seeds are produced by the Department of Agriculture (DoA) at their Rice Research Development Insttutes (RRDI). It is then multplied at DoA farms to produce basic seeds. These basic seeds are then distributed to the public and private sector to produce certfed, quality-assured rice seeds. Currently, it is the government and farmers who are mainly involved in producing rice seeds in Sri Lanka. According to the Department of Agriculture, there are nearly 800 farmers who are engaged in this. The majority of farmers had been contract seed growers of the Department of Agriculture (DoA) in the past and so they possess the technical know-how to produce quality seeds, and are recognized as good seed producers at the village level. Meanwhile, for potatoes, the majority of the seeds are imported. While nearly 86 hectares are registered for potato seed producton in the country, only 81% of that is accepted as quality seed producton area. And nearly, 640 MT of seed potato were certfed in the year 2012. Vegetable seed producton, too, is at a very minimal level. Breeder and foundaton seeds are produced by the government, and then multplied by the private sector. Hybrid vegetable varietes are imported by the private sector. In 2012, the total vegetable seed imports were 3,398 MT, and local vegetable seed producton was around 43 MT. In 2012, over 2,300 permits were issued for seed imports, of which 30% were for vegetable seeds, and for plant and plantng materials imports. SEED PRODUCTION AND REGULATION Untl the late 1980s, seed producton in Sri Lanka was handled solely by the government. Since 1984, the private sector started to import seeds, and subsequently (in the 1990s) got into seed producton. With more private sector involvement in seed producton, the government introduced the Natonal Seed Policy in 1996 to ensure high quality of the seeds. Its main objectve was to establish viable seed enterprises for local farmers, and help them access high quality seeds and plantng materials. Yet, this was not entrely successful and problems with regard to seed quality began to emerge. So in 2003, the government enacted the Seed Act No 22 of 2003, to regulate the quality of seed and plantng materials, and to safeguard farmers as well as the seed handler from malpractces that would harm the seed industry of the country. Although it was passed in 2003, the Act came into practce only in 2008. By now, around 1,926 seed handlers have been registered under this Act, and a Natonal Seed Council has also been established. The main responsible insttutons in seed producton are the Ministry of Agriculture and the DoA. Two insttutons in the DoA, in partcular, are responsible for seed producton, marketng, and distributon in the country - the Seed Certfcaton and Plant Protecton Centre (SCPPC) and the Seed and Plantng Material Development Centre (SPMDC). The main objectve of the SCPCC is to promote seed industry development and assure the quality of seeds and plantng materials.The SPMDC performs regulatory functons pertaining to assuring the quality of seeds and plantng materials available to farmers. The SPMDC is also responsible in implementng the Seed Act. THE PROPOSED NEW ACT Moves are underway to introduce a new Seed Act, and several debates are going on about its merits and demerits. There are some critcal gaps in the current legislaton that can be tackled under a new one. Firstly, under the current system, there is no compensaton system for farmers who are victms of substandard seeds. Farmers who buy seeds from unregistered dealers face issues like lower yields and lower productvity, and sometmes even unexpected outcomes like the crop turning out to be of a totally diferent variety to what was planted. Farmers themselves have to bear the costs of this fallout. As Sri Lanka contnues to depend on imported seed varietes, especially for hybrid vegetables, the risk of farmers falling into this trap is higher. It is essental that a robust compensaton system for farmers is provided for. Secondly, the existng Act, implement ten years ago, does not take into account changes that have taken place in Sri Lankas agricultural sector. With the introducton of new technology in agriculture, new developments like the introducton of genetcally modifed seeds have occurred. Therefore, the existng Act needs to be changed to address new issues that emerge from this. Thirdly, the Natonal Seeds Council needs further strengthening and the proposed bill seeks to do that. There will be a Seed and Plantng Material Technical Advisory Commitee, consistng of the Director General of Agriculture, experts in the feld, dealers in seed and plantng materials, and other stakeholders. Fourthly, the existng legislature has not given due consideraton to the important area of traditonal crop varietes. There is no legal framework at present to protect traditonal agricultural crop varietes and plant genetc resources. The proposed new Act states that Rules and guidelines to confrm the identty of traditonal agricultural crop varietes and of crop varietes important to agriculture maintained by the farmers shall be prepared by the varietal release commitee and they shall be published by the Director-General, and the task of protectng plant genetc resources will be given to the Plant Genetc Resource Center (PGRC) of the DoA. Finally, given that there are several insttutes involved in this area of seeds and plantng material, coordinaton has been problematc. The new Act has proposed the appointment of a Registrar responsible for supervising, coordinatng and assistng in implementaton of the Act. CRITICISMS AND CONCERNS Among the critcisms of the proposed Act is that it will restrict farmers from exchanging seeds with fellow farmers at the village level, due to tghter rules on certfcaton of seed handlers. This concern stems from a clause in the proposed Act which states that all seed and plantng material handlers have to be registered and need to obtain a certfcate. However, this concern is misplaced, as it has since been made clear that the rule will only apply for commercial actvites. Another area of concern has been the secton on ofences and penalty which states that any person who is found guilty of violatng the terms of the proposed Act will be fned a minimum of Rs. 50,000 and imprisoned for six months. Former government ofcials familiar with this area, as well as farmers, are concerned about this high minimum fne, and the lack of menton of any upper limit on the fne. This has to be made much clearer. The proposed Act also empowers the Director General of Agriculture, the Registrar, Assistant Registrars, and other authorized ofcers to inspect and monitor the premises of seed and plantng material handlers, obtain relevant informaton, reports anddocuments, samples of seed and plantng material as and when necessary. To avoid any lack of transparency in the case of disputes, it would be best to have an independent monitoring body or at least a credible appeals system. IS A NEW SEED ACT NEEDED? Yes. A revisit of the existng legislaton is tmely, as it is clear that the gaps in the current laws will be addressed with a new Act. Presently, only 20-25% of seed and plantng material used in the country comes from registered producers; the rest is from unregistered sources. This is hardly a desirable scenario. Meanwhile, much of the seed supply to Sri Lanka is imported and the private sector plays a major role in seed supply. It is important to have a proper system where only registered producers can supply seeds, to ensure the quality of the seeds and also to guarantee high productvity and yields. This in turn will ensure that farmers are not lef in the lurch due to substandard seeds. The proposed legislaton has the potental to achieve this and more, by creatng a win-win situaton for both farmers and seed suppliers. Note: The proposed Bill is currently being fnalized at the Legal Drafsmens ofce. It will then be forwarded to a Cabinet Sub- Commitee, before being drafed as an Act to be debated in Parliament. DOES SRI LANKA NEED A NEW SEED ACT? By Dilani Hirimuthugodage TO MARK INTERNATIONAL DAY FOR BIODIVERSITY (22 ND MAY) TALKI NG ECONOMI CS 14 15 POST-WAR ECONOMY: 5 YEARS ON As Sri Lanka marks the frst 5 years since the end of the armed confict in May 2009, the IPS launches a special series of posts on our blog Post-War Economy: 5 Years On. In this frst of the series, we feature an interview with Dr. Saman Kelegama, IPS Executve Director, who shares his perspectves on how the country has fared since the end of the war, and what challenges are in store for the next 5 years. Kelegama reviews the rapid post-war development in several areas of the economy, with partcular reference to the accelerated completon of infrastructure projects. The post-war period facilitated the quick completon of these projects, he noted. War-afected provinces are now making strong contributons to the natonal economy, and he pointed to the example of the Eastern Under normal circumstances, Sri Lanka would have joined the ranks of many countries across the world gripped by economic uncertainty in the wake of the worst global economic crisis in 60 years to be forecast for 2009. For Sri Lanka, however, 2009 will represent a remarkable turnaround in the political arena and possibly in the economic sphere as well
Those were the opening lines of the Sri Lanka: State of the Economy (SOE) 2009 report, released just months afer the 18 th May 2009 IN CONVERSATION WITH Saman Kelegama POST-WAR ECONOMY: 5 YEARS ON [Scan to watch full interview] Province that is now the largest paddy-producing region of the country. Yet, he observes that Sri Lanka was faced with an adverse global economic climate, despite the opportunity that opened up with the end of the war. He reminded us that, when the war ended it coincided with the global recession startng and making an adverse impact on all developing countries including Sri Lanka. When asked whether Sri Lanka has fully reaped the post-war dividend, he asserted that, No, we have not fully harnessed that opportunity there is a very large unfnished agenda. He pointed to a few key aspects. First, Sri Lanka has not been successful at atractng FDI. Compared to Vietnams 4% of GDP, our FDI has been fuctuatng between 1 to 2% of GDP, he observed. On reasons for this, he argued, is that the country has not been giving the right signals to foreign investors. We have to give predictable and consistent signals without policy backtracking. He cited instances like the private sector pension bill, the bill to permit private partcipaton in higher educaton, the Act to acquire private enterprises, etc., giving mixed signals. Second, Sri Lankas export performance remain weak, and the export share of overall GDP is low. Third, Sri Lankas relatonships with Western countries have seriously faltered. He remarked that, We have not been able to fully convince the Western countries who are stll our major export markets that the post-war reconciliaton and development is on the correct path. That is why we lost GSP Plus in 2010. There is a lot more to be done on reconciliaton and also our dialogue and discussions with the Western countries. Dr. Kelegama also discussed the countrys weakening tax revenue positon, as a critcal area to tackle in the next fve years, and recalls the reform proposals made by the Presidental Commission on Taxaton. He also cautons against depending heavily on foreign borrowings to fnance the savings- investment gap This borrowing is not sustainable, he said. During the course of the interview, his comments cover the gamut of Sri Lankas development trajectory since May 2009, including infrastructure, foreign investment, policy inconsistency, government revenue, reconciliaton, exports, and more. POST-WAR ECONOMY: 5 YEARS ON SPECIAL SERIES milestone in Sri Lankas history, and amidst a turbulent global economic climate. The SOE, published annually, is the IPSs fagship publicaton, and selects a contemporary theme each year and delves into it through a series of chapters and policy briefs. The opening chapter in each SOE Policy Perspectves gives an independent assessment of the Sri Lankan economy, in brief, across a spectrum of areas macroeconomic developments, internatonal economic developments, overall natonal economic policy issues, and emerging socio-economic challenges. In this post, we recap the key insights and arguments put forward in the Policy Perspectves chapters of the frst fve post-war editons of the SOE. In 2009, we were optmistc about the immediate gains from the The end of the armed separatst confict in 2009 ushered in a new era of optmism and opportunity in Sri Lanka. A key challenge that now needs addressing is - what must be done to ensure that the country consolidates the post- war gains and build a prosperous future for all its people? This special segment brings you a collecton of artcles and interviews around this queston, drawing together insights from IPS researchers as well other experts TALKI NG ECONOMI CS 16 17 rapid growth, but policies that are also sensitve to issues of equity in the distributon of, and access to, resources. In 2012, we moved beyond the post-war theme, to discuss how the hard fought gains can translate into a more sustained growth trajectory over a longer term. Amidst subdued growth in the industrialized West, Sri Lanka was proving to be a rising star in emerging market economies, postng a speedy rebound with GDP growth averaging at 8% per cent since the country saw an end to its long-drawn confict in May 2009. We argued that growth, at the end of the day, is the cornerstone both politcally and economically, and commented that, While economic growth alone should notbe the sole yard stck by which governments atempt to gain legitmacy, growth does mater. Rapid growth over a period of years allows countries such as Sri Lanka to grow from low income levels to middle-income status. The trickier part is to ensure that the growth process is sustainable and inclusive.This is partcularly so for a country emerging from a prolonged and divisive confict. With rapid, sustained and inclusive growth, we argued, Sri Lanka would be able to cater to the rapidly evolving aspiratons of a post- war populace. This transiton raises legitmate economic, politcal, and social aspiratons that call for a steady and politcally harmonious growth process, we reiterated. In the 2013 editon, we reviewed Sri Lankas impressive post- war economic performance thus far, remarking that While the country has no doubt struggled to sustain the boost seen in the years immediately following the end of the confict, this does not take away from the impressive gains in prosperity made in recent years. Indeed, across unemployment, poverty, and regional income disparites, Sri Lanka had seen notable improvements. Reviewing these developments, we observed that, Unemployment has fallen from 5.8 per cent in 2009 to 4.0 per cent in 2012 and poverty nearly halved between 2006/07 and 2009/10. The traditonal lagging regions are catching up, with the Western Province GDP dominance falling from 50.8 per cent in 2005 to 44.4 per cent in 2011, and provinces like Southern, Northern, North Central, and Uva showing steady increases in their contributon to natonal output. All of these contribute to a changing scenario of social mobility in the country. Private consumpton expenditure (PCE) has risen steadily in recent years, growing by 70% between 2008 and 2012. With higher growth and falling poverty comes the potental for a rising middle class. The main focus of the SOE 2013 was the middle-income transiton Sri Lanka is currently undergoing, and the opportunites and challenges that it throws up. We partcularly focused on the gradual emergence of a middle-class populaton in the country, and introduced Sri Lankas frst-ever analysis on the subject (also captured in this artcle). On this, we noted that, There are signs of upward mobility and an emerging middle class in the country. This is evidenced by, inter alia, a sharp decline in the incidence of poverty, growing demand for advanced services, luxury and consumer durable products, greater spending on private health care and educaton services, as well as the proliferaton of technology and services that connect more Sri Lankans to global informaton and commerce. Yet, we acknowledged that this rise of the middle class will not be without fricton - demands on beter governance and quality of insttutons will increasingly come to the fore. A growing middle class has greater demands on, and want a greater voice in, how they are governed and the insttutons that govern them. This tendency has been seen in countries like India, with a rapidly growing middle class -- whether it be demanding a change from police in acton against sexual abuse, protests against corrupton (for instance, the Anna Hazare movement), or the increasing number of public interest litgaton using the Right to Informaton Act. Similarly, in countries like Turkey, where years of steadily growing incomes fostered a large middle class, which became increasingly less tolerant of an overbearing state and ultmately erupted in the kind of dissent seen recently. The efcacy of insttutons to meet the evolving needs of people and the quality of rule of law in protectng their rights would become increasingly more important to the upwardly mobile social class, and the government needs to be cognizant of this. We ended the 2013 chapter on a positve and progressive note, The rising socio-economic prosperity in Sri Lanka, if fostered cleverly and inclusively with progressive public policies, can spur economic dynamism, innovaton, and social progress, and place the country on frmer ground, as it makes a decisive transiton into a middle-income economy and beyond. So, between 2009 and 2013, IPS research and analysis contained in each SOE has covered the gamut of socio-economic issues facing post- war Sri Lanka from ensuring that post-war growth is inclusive and sustainable, to tackling the reforms needed to place the country on a steady footng as it transitons to middle-income. The optmism we expressed at the beginning of the SOE 2009, certainly stll holds true to today. We wrote, The military victory over an armed separatst confict spanning three decades has brought the prospect of long term peace and stability a step closer. In the economic sphere, despite the near term economic gloom, it has brightened the prospects signifcantly for sustained socioeconomic development of the country in the longer run. Yet, as we have acknowledged across all the post-war SOE editons, there is much to do to ensure the post-war dividend is harnessed to its full extent, and harnessed by not just the few. We have fagged numerous policy challenges that must be tackled boldly and without delay. Sri Lanka has much work to do. But at least now it can be done in a climate sans-war. [IPS is currently preparing its 2014 edition of the SOE, which is due for release in October.] end of the war and the prospects it held for future development. This paragraph summed it up well, The economic benefts of peace will bemanifold, ranging from a halt to the destructon of the countrys human and social capital, its infrastructure, and confdence in its economy. It will also help in opening markets and reintegratng economic actvites. The end of armed confict will also allow the rehabilitaton and reconstructon of the Northern and Eastern Provinces of the country to commence, with spill-over efects to invigorate economic growth across the country. But we cautoned that the immediate post-war bump cannot be sustained without a more strategic, long-term approach. A reconstructon related economic boom can lif Sri Lankas economic growth in the medium term. But, if it is not accompanied by eforts to improve overall efciency in the economy that retains the confdence of investors the boom can be relatvely short-lived, and leave behind macroeconomic instability in its wake. What is required is to ensure that are constructon related economic impetus is allowed to transform into a sustained longterm growth path through an appropriate economic reform process. By the tme the SOE 2010, was released, Sri Lanka had been graduated into middle-income emerging market status by the IMF, and out of the Poverty Reducton and Growth Trust set of poor countries. Yet, we observed in that editon that the unfavourable global economic climate put a damper on post-war economic dividends. Sri Lanka made signifcant progress towards long term peace and stability in 2009 withthe successful end to a 30 year armed separatst confict in the country. The economic dividends, however, were slow to materialize, held down not only by a severe global economic downturn but also by the distractons of Presidental and Parliamentary electons. In the midst of such developments, Sri Lankas relatvely low GDP growth of 3.5 per cent for 2009 went almost unnotced.The reasons were primarily two fold. First,the adverse knock-on efects of the global economic crisis on the Sri Lankan economy were antcipated well in advance. And secondly, any residual concerns about the downturn were eclipsed by optmism of new opportunites for growth that a post-conficteconomy could generate in the medium term. As the euphoria surrounding the end of the war contnued to echo resoundingly, in the SOE 2010 we delved a bit deeper into the economic dimensions of confict that we considered most crucial to bear in mind. This was especially important given the theme of that years report, which focused on inclusive growth and the reducton of inequites. We discussed that, Usage of the term post-confict implies many things, including the many politcal nuances it contains in relaton to issues of confict resoluton. At its simplest, however, it can be taken to imply a phase of reconciliaton and reconstructon, with intended politcal and development objectves. In so far as post- confict development relates to the economic sphere, the primary objectve is to reduce the major risk factors of confict recurrence by formulatng economic policies that are sensitve to issues of inequites among groups. While there can be many commonalites in the policies adopted by confict-afected countries towards this end, there is no recommended one-size-fts-all approach. Sri Lanka, like other confict-afected states, must fashion an approach that is context- appropriate to its own circumstances. Above all, it must be owned, formulated and driven by natonal actors. In that editon we acknowledged that a post-confict economic recovery phase driven by accelerated infrastructure spending can see the country achieving an annual average growth rate in excess of 7 per cent in the next few years. Indeed, we have clearly seen this average 7%+ growth in the years that followed. Yet, as growth contnued its upward momentum, we cautoned that Sri Lanka must avoid being lulled into a sense of complacency. While recognizing the sharp increase in spending allocate to the North and East, we argued that there must be clear growth strategies beyond the immediate recovery eforts. As some macroeconomic imbalances during that tme contnued to worry all stakeholders, we remarked that without a sound medium term macroeconomic framework that under pins a strategy of growth with stability, Sri Lanka may fall victm to thephoenix efect - where countries rebuild and grow faster in the immediate post war era, but is not sustained in the longer run. In that report, we were also unequivocal about the need to ensure confict-afected regions play a strong and equal part in the new growth opportunites emerging. We said that, The traditonal livelihood practces and the know-how that took advantage of the natural resources in the North and East were discontnued dueto decades of confict, while most productve resources in the area were oriented towards military eforts. For sustained development,it is essental that the people in the North and East areable to take advantage of their natural endowments and be economically independent. To achieve this, they must be assisted in reviving their traditonal livelihoods, including tourism, fsheries, agriculture and other industries. Assistance is needed in a variety of ways including, skills training, managing local assets, and improving access to credit. But it wasnt just the pure economics of it, but the botom-up, collectve approach for post-war recovery that was emphasized. The long duraton of the confict has also damaged the social infrastructure and the trust of the people in the area. Eforts must be put in place to encourage community-led approaches to developing the producton base in the North and East and help rebuild the damaged social fabric in these war torn areas. In 2011, we complemented the previous years post-war themes with a discussion on how to make this new growth more inclusive. The underlying argument was that Sri Lankas growth path must be one where it is not the few who beneft from, and play a part in creatng, growth, but the many. We cautoned that growth inequites will risk reversing the gains of the end of the war. We wrote, For Sri Lanka, emerging from a costly era of a long drawn confict, rising socio-economic aspiratons must be met to help restore and cement social harmony in its post-confict development eforts. That calls for economic policies that will not only deliver broad-based POST-WAR ECONOMY: 5 YEARS ON THE RISING SOCIO- ECONOMIC PROSPERITY IN SRI LANKA, IF FOSTERED CLEVERLY AND INCLUSIVELY WITH PROGRESSIVE PUBLIC POLICIES, CAN SPUR ECONOMIC DYNAMISM, INNOVATION, AND SOCIAL PROGRESS USAGE OF THE TERM POST-CONFLICT IMPLIES MANY THINGS, INCLUDING THE MANY POLITICAL NUANCES IT CONTAINS IN RELATION TO ISSUES OF CONFLICT RESOLUTION. TALKI NG ECONOMI CS 18 19 With the aim of maximizing spinof benefts of both of these two mega infrastructure interventons, the government has been declared themfree ports and a 1100-hectare Special EconomicZonearound the sea port has been earmarked for private investment. The atracton of Foreign Direct Investment (FDI) in partcular has been prioritzed to kick start industrial progress in the area. Yet, the performance so far has been lackluster, and strategic foreign investments into the area have been slow to come, mirroring the overall picture in the economy of sub-par FDI infows (just 2.8% increase in 2013). With questons emerging about the realistc potental of the area, it is a good tme to look elsewhere for lessons on what can be done. Malaysias Penang Export Hub holds salutary insights for Sri Lankan policymakers.The success of the hub is borne out in its development impact in four decades,Penangs regional GDP per capita went from being 12% lower than the natonal average to being 125% higher than the natonal average. Penang Export Hub Penang is a state located on the northwest coast of the Malaysian Peninsula. It comprises of Penang Island, an island of 293 square kilometres located in the Strait of Malacca; and SeberangPerai, a narrow hinterland of 753 square kilometers on the Malay Peninsula. The state is home to 1.5mn people, however in terms of natural resources relatve to its populaton, it is the least favorably endowed of all states of Malaysia. In 1969,the state government had to take into account the regions limited agricultural potental and lack of mineral resources, and called for a new strategy to plug in the Penang economy into the global economy. It aimed to atract clean industries that required the movement of materials and products by air-transport such as electronics, medical and other precision and machining industries, and high weight-to- value products such as household electrical appliances that depend on the shipping port and railways for the movement of material and products. Under the leadership of its then Chief Minister,Dr.Lim Chong Eu, the electronics sector was chosen for promoton 1 . This was because of itsrelatve labour-intensive nature and its compatbility with Penangs tourism industry (as electronics is a relatvely clean manufacturing process). The state government established free trade zones to atract electronics multnatonal enterprises (MNEs) to set up producton facilites in the region. What stands out the most with respect to Penangs FDI atracton strategy was the way it set about promotng investments to the region. At the outset, a new statutory body the Penang Development Corporaton (PDC) - was established for coordinatng actvites of the municipal administraton and the state government. The apex policy-making body of the PDC - the State Planning and Development Commitee (SPDC) - was chaired by Dr. Lim himself. The PDC operated with the work ethic and management style of a privatesector company, with rewards for employees based on productvity and performance. The SPDC took all decisions relatng to permission for land acquisiton and development. All proposals were reviewed within three months of receipt, correspondence was replied to within seven working days, and responses to complaints were given within 21 working days 2 . PDC used the free-trade zones and industrial estates for focused infrastructure development for successful global integraton of the Penang economy.
SRI LANKAS POST-WAR HUB AMBITIONS: CAN HAMBANTOTA LEARN FROM PENANG? By Anushka Wijesinha and Raveen Ekanayake In this third article in the special series Post-war Economy: 5 Years On published on Talking Economics, Hambantotas hub ambitions come under the spotlight, and the authors argue that lessons can be learnt from Malaysia in developing a smarter strategy to attract investment. Over the course of fve years since the end of the war, Sri Lanka has embarked on an ambitous physical infrastructure drive, with the aim of taking advantage of the countrys strategic geographical locaton. With its close proximity to major internatonal shipping lanes and to the Indian subcontnent, Sri Lanka can be positoned as a leading trading hub in South Asia. The once backward agrarian region of Hambantota has been the leading benefciary of this policy stance. November 2010 witnessed the commissioning of the frst phase of the MagampuraMahinda Rajapaksa Port. Meanwhile, the countrys second internatonal airport,constructed at Matala,was commissioned in March 2013. These are key components of the governments post-war economic development vision of creatng Five Hubs, artculated in the2010strategy documentMahinda Chintana: IdiriDekma. Attracting Foreign Firms, and Keeping Them Happy From its incepton, PDC undertook promoton missions to various countries, but they were not ad hoc visits abroad. The promoton campaigns were carefully designed in close collaboraton with a foreign consultant who had worked with electronics frms in Singapore. These campaigns very efectvely conveyed the message that the Penang peoples skills and adaptability could efectvely complement the needs of high-tech industries.The PDC also understood the importance of catering to the needs of investors already located in Penang. Afer sales service was viewed just as, if not more, important than the inital promotonal work. Delegatons led by the PDC Chairman ofen called upon CEOs of the export hubs companies to maintain close relatonships, to understand their concerns and address them, and to obtain inputs on a contnuously evolving investment promoton campaign. Rather than organizing large, generic seminars and conferences, the PDC opted for a more targeted approach. Theywould conduct meetngs with individual companies so that full atenton could be paid to their specifc needs and issues could be tackled in a more focused manner. Its no surprise then, that within a span of fve years of its establishment, eight of the worlds top electronics MNEs such as Intel, AMD, Sony, Motorola, Sanyo, Dell and NEC, were operatng in the Penang hub, a clear indicaton of the strategys success. Fostering SME-MNE Links and Addressing Skills Shortages The PDC also played an important role in fostering links between the MNEs and the SME sector, which was key in ensuring good spillovers into the wider economy. Based on close tes with the local business community, Dr. Lim encouraged MNE afliates to procure components locally and forge subcontractng relatonships with local frms. The PDC also encouraged and provided insttutonal support to MNE afliates to initate vendor development programmes to strengthen backward input linkages with local suppliers. The agency was instrumental in developing the required human capital to facilitate the expansion of the industry. By the late 1980s, a skills shortage severely hampered the ability of the electronicsfrms located in Penang to expand. Given the close links it had forged with MNE afliates, the PDC recognized this in a tmely manner, tookthe lead role in setng up the Penang Skills Development Center - a successful public-private partnership model which involved MNEs in human capital development. PSDC has been instrumental in ensuring that Penangs workforce has kept pace with the evolving demands of the industry. Key Success Factors This artcle does not advocate for a cookie-cuter approach country contexts and inital conditons difer, and must be considered. Rather, the artcle advocates taking a close look at why Penang succeeded and what transferable lessons can be extracted from it. Firstly, and most crucially, was the focused and strategically- developed investment promoton strategy.Secondly, the actve involvement by the Chief Minister in the investment promoton processwhich sent a clear, consistent message to investors about development priorites and government commitment. Thirdly, post-investment care proved to be an atracton, and agency ofcials wereable to stay abreast of investor requirements and contnually adapt their support to the changing investment climate. Finally, bringing the frms themselves on board to market the Hub globally.Because of the remarkably good relatons, the PDC was able to convince the topforeign frms to join overseas investment promoton campaigns, where the foreigners themselves sold the virtues of being located in Penang. This was a unique and powerful signal to prospectve investors. Next Steps for Hambantota Over four years since the hub strategy was artculated, strong progress has been made on setng up the infrastructure, but much of the foreign investments have not been in to these hubs they have largely been in tourism and mega property developments in the city of Colombo. If Sri Lanka is to fully harness the power of the mega infrastructure drive, it is clear that a more systematc and strategic approach must be pursued. Sri Lanka will have to seriously rethink which government agency gives leadership to such an efort. The strategy of having the Sri Lanka Ports Authority (SLPA) in charge of atractng investment into the new zone around the Hambantota port and airport is questonable. Without the specialized skills in investment promoton, understanding of investor needs, being atuned to global FDI trends, and an awareness of the underlying economic strengths and weaknesses of Hambantota as a hub an agency tasked with mobilizing investment into the zone is hardly qualifed to do so. A new and specialized unit could be set up the Magampura Integrated Investment Agency - with expertse drawn from the SLPA, Board of Investment, Ministry of Finance, other relevant government ofcials and independent expertswith overseas MNE business development experience(Sri Lankans and foreign natonals). Moreover, the focus needs to be not only on how do we bring foreign investorsinto the zone?, but also on how do we keep them there?. Post- investment care, close consultaton to understand issues, and credible mechanisms to address investor concerns, must be at the heart of the investment promoton strategy. What Sri Lanka needs to do now is, like in Penang, design interventons to atract major foreign investors to the special zone around the Hambantota port and airport, and help them become meaningfully embedded in the natonal economy. This artcle draws on the comprehensive review of the Penang case in Athukorala, P. (2012), Growing with Global Producton Sharing: The Tale of Penang Export Hub, Arndt-Corden Department of Economics, Working Paper No. 2011/13, Crawford School of Economics and Government, ANU College of Asia and the Pacifc, Canberra. (Endnotes) 1 Broadly defned to include both electronics and electrical goods 2 Singh, Chet (2011), Insttutons for Regional Development: The PDC as I know It (1970-90), in Insttute for Strategic and Internatonal Studies (ISIS), Malaysia: Policies and Issues in Economic Development, Kuala Lumpur: ISIS, 597-622. POST-WAR ECONOMY: 5 YEARS ON TALKI NG ECONOMI CS 20 21 LOOKING BACK, LOOKING AHEAD Sri Lankas economy is in a very diferent place today than 5 years ago. What are the changes that you fnd most noteworthy? Sri Lanka is struggling to fend of international animosity surrounding the wars end. To what extent has this afected the economy over the past 5 years and will afect the economy in the next few years? Tere was a lot of optimism among the private sector, economists and others on the post- war dividend. Do you believe Sri Lanka has seen this dividend fully materialize? SURESH SHAH : Firstly that the entre country is open for business. Secondly, the signifcant change in the operatng environment opens up greater opportunites to atract investment into the country. The country can also now pursue its full tourism potental. Overall, the corporate sector gained tremendously as a result of the more conducive business environment. Both top and botom lines improved signifcantly in 2010 and 2011. NIMAL SANDERATNE: Peace has enabled farming, fshing and other economic actvites that are important for the livelihoods of people in the East and North to be restored. The increased output of goods and services in the war afected areas has contributed much to the inital thrust in growth afer the war. The end of terrorism has had overall benefts on the economy. The increase in tourism and its backward linkages have made signifcant contributons towards increasing employment and raising incomes, besides improving the balance of payments. The higher annual economic growth average of over 7 percent is evidence of this overall economic growth. The rebuilding and reconstructon of the North and East and the vastly improved economic infrastructure especially roads, bridges, railways and fsheries harbours are positve developments.
INDRAJIT COOMARASWAMY: The restoraton of peace, coupled with the eliminaton of the war risk premium, has given a substantal boost to the development potental of the country. The growth framework has been strengthened through infrastructure development which has improved domestc and external connectvity, though there are concerns regarding costs and quality. Overall, Sri Lanka enjoys the most propitous set of circumstances for over 50 years. Unlike in the past, there are no major drags on the countrys economic prospects. The graduaton to lower-middle-income country status and the consequent loss of access to concessional assistance has been a major development over the last 5 years. As a result, there has been a sharp increase in foreign commercial borrowing. The most disappointng aspect of the last 5 years has been the lack of structural reforms to move towards a FDI/export driven growth model.
SUNIL WIJESINHA: 2009 was a difcult period since the full brunt of the recession in the West was felt mostly in 2009. Today exports are rising and are more compettve. They are more value added and at a higher technology level than the price merchandise of the past. SURESH SHAH : This afects us both in terms of atractng FDI and in fulflling the potental of the tourism industry. Sri Lanka should be atractng close to 5% of GDP as FDI but today atracts approximately 1.5%. At least part of this gap can be atributable to the negatve press the country gets overseas. If we dont atract the desired level of FDI it will certainly put pressure on our ability to build up the necessary stock of infrastructure, technology transfer, transfer of management skills, our ability to diversify our export product portolio, etc. Similarly in tourism. Although we have seen very healthy growth in tourism arrivals, it could have been even beter, had the country atracted positve press overseas. NIMAL SANDERATNE: Uncertainty about internatonal actons owing to UNHRC resolutons has deterred investment. An acceptance of the realites of internatonal concerns on human rights and countervailing measures to address these and to ensure a beter record on human rights are needed to improve the investment climate and improve the countrys export performance and tourism prospects. The inadequacy of FDI afer the end of the war is partly due to the negatve publicity the country is facing. Unless the country is able to restore internatonal confdence on human rights, reduce religious violence that is escalatng, ensure the rule of law and law and order, economic prospects are fragile.
INDRAJIT COOMARASWAMY: The economic impact of the internatonal animosity towards Sri Lanka has been manageable over the last fve years.While the loss of GSP Plus led to a loss of employment and foreign exchange, the efects at the macroeconomic level have been relatvely muted. But the lives of the individuals who lost employment and whose businesses were afected would have been disrupted. There has been very litle FDI from Western countries. Labour costs have been rising rapidly and subsidies are largely absent, forcing companies to be more productve. There are fewer demands for concessions and subsidies. Manufacturing and service industries are more focused on facing the compettve challenges and less focused on lamentng. We see many overseas business delegatons visitng the country and showing interest in investng and trading. The main complaint today is the ease of doing business. THE CORPORATE SECTOR GAINED TREMENDOUSLY AS A RESULT OF THE MORE CONDUCIVE BUSINESS ENVIRONMENT - Suresh Shah POST-WAR ECONOMY: 5 YEARS ON There are a number of reasons for this, including the efects of the Great Recession and the negatve factors related to the domestc investment climate. It is difcult, therefore, to assess the impact of the internatonal animosity on FDI fows to-date. Looking forward, the outcomes are difcult to predict. The most likely impact will be on investor confdence in the West, partcularly if pressure from the US and Europe contnues to be ratcheted up.
SUNIL WIJESINHA: I dont believe that we have had any signifcant impact of this over the past fve years. In fact it is noted that the overseas partners are more concerned about dealing with reliable partners, consistency of shipments, and quality of products. However any sanctons and further bad publicity may have an impact. Exporters may be afected if there are campaigns to boycot Sri Lanka products. THE INADEQUACY OF FDI AFTER THE END OF THE WAR IS PARTLY DUE TO THE NEGATIVE PUBLICITY THE COUNTRY IS FACING. - Nimal Sanderatne SURESH SHAH : Certainly the post war environment is much improved. As mentoned previously, the corporate sector top and botom lines grew signifcantly in 2010 & 2011 immediately afer the war. Has the dividend fully materialized? No. But it would also be unfair to expect it to fully materialize in 5 years. Afer all, we are playing catch up for almost 30 lost years. I think what we should aim for is the right trends in terms of fscal and monetary management, ease of doing business, FDI, exports, educaton, SME development, infrastructure and so on. And a lot of good work has been done. But many challenges stll remain.
NIMAL SANDERATNE: The country has only obtained an interim dividend and awaits the full dividend. Unfortunately, lack of ethnic reconciliaton, societal harmony and violatons of the rule of law are preventng the realizaton of the full potental of the economy. Beter economic management, more certain economic policies, economic reforms and good economic management are needed to propel the economy towards sustained economic growth and development. What have the frst fve years of the post-war Sri Lankan economy looked like and what is in store for the future? Four of the countrys most respected voices two economists and two corporate leaders - share their insights TALKI NG ECONOMI CS 22 23 POST-WAR ECONOMY: 5 YEARS ON INDRAJIT COOMARASWAMY: There was considerable pressure for a tangible peace dividend at the end of the War. This led to a policy-induced boom in 2010 and 2011 when the economy grew by over 8%. This was based on macroeconomic policies that were clearly unsustainable. The authorites have successfully stabilized the economy following courageous measures introduced since Feb/March 2012. However, this stability has been achieved by the economy slowing down well below the 8% target. The growth framework should be strengthened through structural reforms to increase the productvity and compettveness of the economy. SUNIL WIJESINHA: Not yet. Perhaps the slow pick up also had its benefts. We needed tme and space to disengage from the earlier mindset. A sudden boom could have caused problems.Many business people have cited the shortage of labour and the shortage of skills as the biggest hurdles. This will take tme to adjust. The rapid shifing of policy has also been a concern, where businesses complain about the inability to make long term plans without a clear and consistent policy. However the economy is expected to pick up afer the next round of electons. We need more human resources that are trained in science and technology, rather than literature and philosophy. SRI LANKA MUST ALSO IMPLEMENT A PACKAGE OF STRUCTURAL REFORMS IMMEDIATELY AFTER THE NEXT PRESIDENTIAL/ PARLIAMENTARY ELECTIONS. - Indrajit Coomaraswamy If you had to sum up the frst fve post-war years of the economy and the challenge that lies ahead, what would you say? SURESH SHAH : Overall, there has been a tremendous improvement in the operatng environment from which the private sector has benefted greatly. But it could have been even beter.There are a few issues that in fact pre-date the end of the war - policy inconsistency, ease of doing business, and availability of good talent. Meanwhile, a fourth factor, a more recent phenomenon, is the deterioraton of law and order. These need to be dealt with. NIMAL SANDERATNE: We need to unsure ethnic harmony, reconciliaton and law and order; improve the priorites in public spending by increasing investment in social infrastructure and reducing expenditure on uneconomic and unproductve large infrastructure projects; and improve the investment climate through private sector friendly policies.
INDRAJIT COOMARASWAMY: Contnue with fscal consolidaton to transform the economy from a high defcit, high infaton, high nominal interest rates, an overvalued exchange rate, to an economy which has sustainable budget defcits, low-infaton, low-nominal interest rates and a slightly undervalued and stable exchange rate. This has been the recipe adopted by the successful countries from East and South East Asia. Sri Lanka must also implement a package of structural reforms immediately afer the next Presidental/Parliamentary electons.
SUNIL WIJESINHA: Unfortunately the start of the post-war period coincided with the start of the economic woes of the West. Perhaps this was a good tme for us to ratonalize and adjust, and that we seem to have done. The inital optmism declined but seems to have picked up lately. The stable exchange rate, the low rate of infaton, the stability and modernizaton of the banking system, the increase of efciency in the Government Departments and the leapfrogging we see in the felds of IT, and science and technology augur well for the future. The challenge will be to manage the human rights accusatons, law and order, and the ease of doing business. PERHAPS THE SLOW PICK UP ALSO HAD ITS BENEFITS. WE NEEDED TIME AND SPACE TO DISENGAGE FROM THE EARLIER MINDSET. - Sunil Wijesinha Despite the newfound appreciation for diaspora groups as significant drivers of growth, many developing countries are unsure as to how to successfully engage them. Sri Lanka too needs to leverage the potential of our diaspora in post-war development efforts, beyond just attracting the capital flows, to extend to deeper and meaningful engagement. In this special segment, Madushi Seneviratne - an Asia Foundation LankaCorps Fellow 2014 from Canada who is currently placed at IPS - highlights some initiatives by other countries that Sri Lanka could draw lessons from. BEYOND THE MONEY Conventonal views of diasporas solely as sources of fnancial fows do not do them justce. They are also sources of knowledge and skill for the enrichment of human capital. Diaspora groups have become increasingly vital to create networks for people and insttutons in their countries of origin to access foreign technologies and new capabilites. Diasporas also act as bridges between their host countries and homelands, promotng foreign direct investments via their knowledge of local practces and economic climate. So what are some of the ways to harness the potental of the diaspora beyond just remitances and other fnancial fows? There are global frameworks, natonal initatves, special visa and citzenship schemes, and unique brain gain programmes that Sri Lanka could learn from. GLOBAL FRAMEWORKS In 1977, the UNDP initated the Transfer of Knowledge Through Expatriate Natonals (TOKTEN) program to ofset the efects of mass emigraton of skilled professionals from developing countries. TOKTEN represents a global initatvethat engages both diaspora groups and local insttutons to providedevelopingcountries with much-needed transfers of knowledge in specialized felds including agriculture, technology, urban planning, and many more. In post-confict natons such as Sudan, expatriate volunteers provide insttutonal support for private and public sectors, educatonal establishments, and non-governmental organizatons. An incentve structure that covers travel costs, daily allowances, and medical insurance ensures that this program is atractve and feasible for skilled diaspora members who are inspired to give back to their communites and homelands. NATIONAL INITIATIVES FOR DIASPORA ENGAGEMENT Several developing countries haveintroduced their own natonal and local insttutons to spur diaspora engagement. By creatng LEVERAGING THE DIASPORA: Its Not Just About the Money ministry-level and local government insttutons, countries are acknowledging the need to address the mult-facetedissues facing diaspora involvement in their countries of origin. A model of a diaspora-directed ministry in a developing country is Indias Ministry for Overseas Indian Afairs (MOIA). Launched in 2004, the ministry was developed to not only encourage diaspora partcipaton and investment from afar, but also to promote the temporary return of second and third-generaton Indian emigrants to understand the social and economic conditons of their homeland. The long-term efectveness of these agencies has yet to be determined. However, similar eforts in Africa, Latn America, and many other parts of Asia show that these eforts are gaining popularity. ATTRACTING NEW SKILLS AND TALENTS Distnct inclusionary programshave also been set up to target specifc groups of highly educated diaspora members to return and partcipate in the skilled labor force of their countries of origin. Inaugurated in 1997, the Reverse Brain Drain Project (RBD) in Thailand provided diaspora professionals and academics in the felds of science and technology with sufcient funds to return to the country and contribute to itssocial and economic development. The unique nature of this program in employing diaspora insttutons in the United States, Canada, and Japan could hold lessons for diaspora engagement eforts elsewhere in the developing world. Chinas Thousand Talents Programdemonstrates a similar structure. The programgrants a high fnancial incentve to atract frst- rate, young professionals and academicsto ensure that the countrys economy gains the maximum benefts from these members of the Chinese diaspora. CITIZENSHIP AND VISA INITIATIVES While there are stll a number of regulatory and legal obstacles that prevent full social, economic and politcal partcipaton of diaspora members, many countries have initated separate visa and residenceagreements to facilitate their acceptance and engagement. In Pakistan, members of the diaspora are issueda Pakistan Overseas Card(POC) that grants expatriatesfull property, fnancial, and visa-free entry rights as citzens. Policy strategies that allow diaspora members to easily move between their host countries and countries of origin constructvely impact their decisions to engage in their countries of origin. States willing to grant the dual citzenship program have benefted from greater investment and earnings of their diaspora groups as a result of the willingness of dual citzenships holders to engage in the social and economic development of their countries of origin. However, defciencies in efcientadministraton, reduced insttutonal capacites, and/or fnancial imitatons, ofen cause botlenecks in these initatves. TALKI NG ECONOMI CS 24 25 HEALTH What is the key challenge in health in post-war Sri Lanka? There is an increase in non- communicable diseases and we need to strengthen healthcare nancing to meet this challenge - DR. SHANIKA SAMARAKOON Sri Lanka is currently facing an epidemiological transiton. Non-communicable diseases (NCDs) account for about 70% of all deaths. Improving the healthcare system by strengthening healthcare fnancing is important to face the challenges posed by this trend. Also, meetng the epidemiological challenges in post-confict areas that have litle access to healthcare services is essental to keep regional disparites at a minimum. Shanika is a Research Economist and works on health economics and related policy issues. shanika@ips.lk MIGRATION Finding the best mix of destinations, skills levels, gender and number of migrants to maximize the benets and minimize the costs of migration - DR. BILESHA WEERARATNE Migraton supports the economy through remitances (9.5% of GDP) and employment (20% of labour force), but has negatve implicatons on migrants and their families, and causes shortages of labour in certain jobs at home. So, migraton cannot be promoted blindly. It needs beter planning, to ensure that growth and development in post-war Sri Lanka are not adversely afected. Bilesha is a Research Economist and works on internal and internatonal migraton and related policy issues. bilesha@ips.lk OUR View WHAT ARE THE SOCIO-ECONOMIC CHALLENGES FACING POST-WAR SRI LANKA? IPS researchers work across a variety of thematc areas from Policy Efciency and Compettveness and Poverty and Vulnerability, to Migraton and development and Environment, Natural Resources and Agriculture. We asked the senior research team what they felt are the key challenges facing post-war Sri Lankaacross these socio- economic areas. Here is what they had to say... MACROECONOMY Getting the private sector to come in as equal partners to drive Sri Lankas post-war economic growth and development eorts - DR. DUSHNI WEERAKOON So far, Sri Lankas post-war recovery has been largely a state- led efort through an ambitous infrastructure programme. Higher economic growth is being driven by domestc demand fnanced with external debt, leading to a skewed growth process and raising the countrys vulnerability to external shocks. We must match infrastructure development with greater private sector engagement in economic actvites through reform eforts to diversify, upgrade and deepen the countrys producton and export base. Dushni is Deputy Director at IPS and leads research on macroeconomic policy issues. dushni@ips.lk EDUCATION Improving quality of education throughout the system and expanding tertiary education, especially in the elds of science and technology DR. NISHA ARUNATILAKE Quality is not only about improving the O-level and A-level pass rates. It is also about encouraging creatvity and non- academic actvites so that youth who come out of the system not only have the foundatons for further educaton, but also the personalites and refned abilites to contribute productvely to the social, economic and cultural actvites in the country. Nisha is a Research Fellowandleads IPS research on human resources development policy, including educaton and employment. nisha@ips.lk POST-WAR ECONOMY: 5 YEARS ON PRIVATE SECTOR Attracting much more foreign direct investment and also strengthening the SME sector are the twin challenges. For both these, business climate issues need tackling - ANUSHKA WIJESINHA Whether FDI or local SMEs,private sector growth is essental to achieving the ambitous GDP targets. While security, infrastructure and macro fundamentals are positve, factors like policy consistency, rule of law, and regulatory transparency have weakened lately. They must improve. Meanwhile, business climate factors holding SME growth back must also be tackled to ensure inclusive private sector development across the country. Anushka is a Research Economist and leads IPS research on industry and innovaton related policy issues. anushka@ips.lk ENVIRONMENT Developing right attitudes and incentives to tackle environmental issues - DR. ATHULA SENARATNE The general attude in post-war Sri Lanka is that we should follow Asian success stories, but Asian growth has come at signifcant environmental costs - a grow now and clean later attude. The world is at a point where such an attude will not work any further. Despite popular hype about it, developing the right attudes and incentves to genuinely tackle environmental issues is a major challenge. Athula is a Research Fellow and leads IPS research on environment, natural resources and climate change policy issues. athula@ips.lk INTERNATIONAL TRADE Sri Lanka needs to improve the competitiveness of its exports in the international markets and boost its overall export performance - DR. JANAKA WIJAYASIRI The government needs to reduce the cost of doing business, remove unnecessary barriers to trade, atract foreign investment and beter integrate the country with regional markets. Sri Lankas overall rank in Doing Business Index dropped from 83 in 2013 to 85 in 2014 out of 189 countries. Much more can be done within the country so that we could beter compete with other countries. Janakais a Research Fellow and leads IPS research on internatonal economics and trade policy issues. janaka@ ips.lk POVERTY AND VULNERABILITY Creating more productive and decent employment opportunities so that low-income households have better income and social security - DR. GANGA TILAKARATNA Despite the 4% unemployment rate, over 60% of those employed are stll in the informal sector with litle or no social security. Ofen, their income is not only low, but also irregular and uncertain. Employment in the agriculture sector in partcular, where poverty remains high, is largely informal and ofen vulnerable to various risks such as natural disasters. Ganga is Research Fellow and leads IPS research on poverty and social protecton issues. ganga@ips.lk AGRICULTURE Issues with land ownership are aecting agricultural productivity and livelihoods in the North and East- CHATURA RODRIGO Even though agricultural lands were open for cultvaton afer the war, farmers did not have deeds for many of these, so they struggle to get loans from banks and are not motvated to cultvate due to the lack of private ownership. With 50% of livelihoods in the East and 25% in the North based on agriculture, this is hurtng productve use of these lands. Chatura is a Research Economist and works on agriculture and climate change policy issues. chatura@ips.lk TALKI NG ECONOMI CS 26 27 MAKING SRI LANKAS POST-WAR TOURISM BOOM MORE ENVIRONMENTALLY- FRIENDLY MONTHLY UPDATES ON THE SIGNIFICANT INCREASES IN TOURIST ARRIVALS HAVE BEEN TOPPING THE NEWS HEADLINES, ever since the end of armed confict fve years ago, this week. The statstcs show that arrivals have been contnuously on the rise, though the rate of growthhas been varying over the months due to seasonality and other factors. Consequently, Sri Lanka has been in the spotlight among the emerging tourism destnatons worldwide, has received many accolades, and has been featured prominently in several of the worlds premier must visitdestnatons lists and popular travel shows.Yet, as a recent artcle on Al Jazeera points out as well, the future of Sri Lankas tourism necessarily lies in making the sector more environmentally conscious and sustainability-oriented.As the writer of that artcle summed up, An economic renaissance for South Asias fnest island hinges on a visionary green tourist policy. TOURISM GROWTH The Government of Sri Lanka has recognized tourism as an important growth sector, having the potental to contribute considerably to the countrys post-war economic development. It is even being listed as an add-on to the original Five Hubs - Five Hubs Plus Tourism. In 2013, Sri Lanka welcomed nearly 1.3 million tourists, as per ofcial statstcs. The governments target is to atract 2.5 million tourists by 2016. Together with the increasing number of arrivals, it is expected that more jobs will be created, and tourisms contributon to the natonal economy will grow, as we stated in anIPS policy brief in 2011. The growth of the accommodaton sub-sector -the constructon of new hotels, and expansions and refurbishments to existng ones - has been one of the most visible signs of the growing tourism industry. Yet, an important but less visible aspect of this is the environmental and natural resource impacts it has, as was emphasized in anIPS policy brief in 2012.Though there is heavy emphasis on promotng tourism By Kanchana Wickramasinghe and increasing its economic gains, there appears to be concurrently less emphasis onthe environmental implicatons of the accommodaton sector, including the efciency with which natural resources, like water, is used. ENVIRONMENTAL MANAGEMENT Efciency in energy and water useas well as responsible waste management, are important aspects of making the accommodaton sector more environmentally sustainable. However, as highlighted in one of our blog artcles in 2012, there was an absence of comprehensive research-based informaton on these areas, and this was provingto be a major barrier in formulatng beter policies. An on-going IPS research study 1 is bridging this informaton gap. The study is based on a comprehensive survey of SLTDA-registered hotels in the Western Province,to assess their energy, water and waste management practces. The interim fndings of the survey were highlighted in an earlier blog artcle. It appears that efcient POST-WAR ECONOMY: 5 YEARS ON water management is constrained due to a lack of records at hotels and a lack of awareness on proper water management practces. Thelack of records has been an issue for energy management too. Only 37% of hotels in the sample were found to bemaintaining proper energy, water and waste records. The study also atempts to understand why some hotels are making eforts to improve their environmental (energy, water, waste) management voluntarily, while others are lagging behind.The statstcal analysis shows that the size of the hotel, in terms of the number of rooms, is a major determinant of environmental-orientaton. Accordingly, larger hotels (over 50 rooms) as well as chain-afliated hotels were found to be more likely to adopt beter environmental management. This fnding is interestng because,of 11 new hotels that have come up in the Western Province during the post-war period (20102013), almost half (6) are in the small category (less than 50 rooms) and most (9) are not chain-afliated 2 . It was also found that hotels that are involved in projects and schemes promotng environmental management show a signifcantly higher number of environmental management practces, when compared to other hotels. This indicates that awareness, technical guidance, and training could go a long way in beter environmental management in the accommodaton sector. Meanwhile, the study is currently assessing energy consumpton aspects, and will aim to provide incremental consumpton/cost of electricity due to increasing tourist arrivals to the country, which will be an important fact for policymakers. NEW OPPORTUNITY The tourism industry in Sri Lanka has alwaysheld much promise. Yet, because of years of confict, tourism in Sri Lanka grew at a modest pace and it did not have the destructve environmental impact that many other countriesin the region experienced, where unplanned and unsustainable tourism has led to many problems. Startng from a relatvely cleaner slate, Sri Lanka now has a unique opportunity to do things diferently and give rise to a sustainable tourism sector. This will not only be benefcial for the country from a pure environmental standpoint, but will also help beter positon the industry globally, at a tme when foreign tourists are becoming more environmentally- conscious.As the Al Jazeera artcle noted, It is in Sri Lankas gif to lay the foundatons for a visionary green tourist policy, unlike no other in the region. Now is the tme to make it happen. Tourism businesses especially the accommodaton sub-sector as highlighted in our study must become more environmentally-oriented, through efcient energy, water and waste management. The eforts are internal and voluntary, and there needs to be greater awareness among hoteliers on moving towards greener practces. Meanwhile, the government must support it with appropriate green tourism policies. The post-war tourism boom should not come at the cost of environmental degradaton. (Endnotes) 1 Funded by the South Asian Network for Development and Environmental Economics (SANDEE) 2 This refers only to hotels which partcipated in the survey. 28 29 The impact of climate change on sea level rise and oceanic environment is crucial for Sri Lanka in several respects. Being an Island, sea level rise will pose many challenges to coastal communities, their livelihoods, and coastal ecosystems. Changes in the oceanic environment will threaten sheries resources in terms of the availability and quality of sh catch. Many livelihoods are dependent on these resources and they also make a signicant contribution to Sri Lankas GDP. So, changes in the sea level as well as the oceanic environment should be priority policy areas for Sri Lanka. The impact of climate change on sea level rise and the oceanic environment is well established. Governments around the world are startng to develop adaptaton and mitgaton plans and policies to mainstream climate change consideratons into broader development plans. Sri Lanka already has a natonal climate change policy and a natonal climate change adaptaton strategy. However, the country is yet to have a natonal adaptaton acton plan. It seems that Sri Lankas climate change policy is oriented more towards adaptaton than mitgaton. Despite some preparatory measures being taken, a queston that remains is whether we are ready for the future challenges of sea level rise and changing oceanic environments. NEW KNOWLEDGE Over the period 1901 to 2010, the global mean sea level rose by 0.19m and will contnue to rise during the 21st century. With this rise, coastal systems and low- lying areas will experience adverse impacts such as submergence, coastal fooding, and coastal erosion. In many regions, changing precipitaton and meltng of snow/ice are altering hydrological systems, afectng water resources of the ocean in terms of quantty and quality. There is evidence that many marine species have shifed their geographic ranges, seasonal actvites, migraton paterns, and relatve abundance and species interactons in response to climatc changes. Ocean acidifcaton poses substantal risks to marine ecosystems, especially polar ecosystems and coral reefs, associated with impacts on the physiology, behavior, and populaton dynamics of individual species from phytoplankton to animals. The progressive expansion of oxygen minimum zones and anoxic dead zones is projected to further constrain fsh habitats in Asia. Global marine species redistributon and marine biodiversity reducton in sensitve regions will challenge the sustained provision of fsheries productvity and other ecosystem services for many developing countries in Asia. These changes have complicated the mitgaton and adaptaton policies and strategies in response to coastal and ocean related climate change impacts. All these will have adverse efects on the livelihoods of the coastal communites of Sri Lanka and will determine the future of the coastal vegetaton and ocean resources. So, appropriate mitgaton and adaptaton measures are needed to minimize the impacts. There are many policies and strategies that can be adopted by countries depending on the specifc types of impacts they face. While adaptaton is more individual country-focused, efectve mitgaton will not be achieved if individual countries only advance their own interests independently. SRI LANKAS POLICY RESPONSE Sri Lanka launched its climate change policy in January 2012. It has identfed sea level rise as a key impact of climate change. The policy proposes incorporatng adaptaton measures into coastal resource management to minimize the impacts. The natonal climate change adaptaton strategy, introduced in December 2010, recognizes the importance of sea level rise and changes in the oceanic environment under the areas of fsheries, urban development, and human setlements. Even though the populaton growth rates have slowed down over the years, Sri Lanka is gradually becoming urbanized. By 2025, Sri Lanka will have an urbanizaton level of 18% where the majority of the coastal areas will be heavily urbanized. The majority of Sri Lankas economic development actvites are concentrated in western, southern and northern and eastern regions of the country with new sea ports, airports, and highways. Therefore, coastal areas of the country play an important role in the economic development and urbanizaton of the ADAPTING SRI LANKAS COASTS AND OCEAN RESOURCES TO A CHANGING CLIMATE By Chatura Rodrigo and Athula Senaratne TO MARK THE WORLD ENVIRONMENT DAY (5 TH JUNE) AND WORLD OCEAN DAY (8 TH JUNE) TALKI NG ECONOMI CS country. The Ministry of Environment and Natural Resources, Coast Conservaton Department, Urban Development Authority, and Ministry of Disaster Management are jointly developing coastal area development and resource management plans to address the adverse impacts of sea level rise. Urbanizaton plans are taking into account the possible sea level rises in demarcatng boundaries for human setlements, as well as rehabilitatng storm water discharges and salt water intrusion pathways. There are coastal communites that are working together with government insttutons and other stakeholders to develop community-based adaptaton programmes. Early warning systems are being established and coastal communites have been given many hours of training on how to respond to short term and sudden sea level rises. All these actons suggest that there are certain strategies in place to counter the possible sea level rises in the future due to climate change. FISHERY RESOURCES Atenton towards managing ocean resources however seems to be limited, partcularly, managing the countrys fsh stock. Possible changes in fsh catch due to changes in the oceanic environment, as well as the impacts of changes in the sea water fows and possible adjustments in fshing tmes, areas and fshing efort may need more adaptaton interventons. Sri Lankas coastal fsheries are managed as a common property. While operaton licenses are required and the boats have to be registered, quota systems are not in place to prevent over fshing. While thorough research is required to identfy the changes in the fsh catch and quality due to climate change impacts, regulatory mechanisms such as quota systems are needed to prevent overfshing and deterioraton of the fsh stock in the future. TOURIST IMPACT Sri Lanka is an atractve tourist destnaton for its scenic beaches, beach recreaton sites, corals and ornamental sea fsh. Climate change will impact the existence of these natural endowments, resultng in signifcant impacts on the tourism industry. Countries have developed many mechanisms to protect these ocean resources from climate change impacts. Declaraton of protected areas and identfcaton of climate resilient varietes of coral and ornamental sea fsh are two widely discussed strategies. There are four main marine protected areas in Sri Lanka and they are located at Ruumasssala, Kalpitya, Hikkaduwa and Pigeon Islands. The biggest marine protected area is located at Kalpitya and it is 30600 ha. However, more research is required to identfy potentally vulnerable areas with coral and ornamental sea fsh and they should be protected.
CONCLUSION Sri Lanka is not fully ready to tackle the potental impacts of climate change on coastal and ocean environments. More consideraton and research is needed to beter manage ocean resources such as fsh, corals and ornamental sea fsh. Sri Lanka must take these into consideraton when the natonal adaptaton acton plan is formulated. Moreover, planning for the future and investng in mitgaton is essental. By implementng well-designed adaptaton and mitgaton policies and strategies, Sri Lanka will be beter placed to face the impacts of sea level rise and a changing oceanic environment. BY IMPLEMENTING WELL-DESIGNED ADAPTATION AND MITIGATION POLICIES AND STRATEGIES, SRI LANKA WILL BE BETTER PLACED TO FACE THE IMPACTS OF SEA LEVEL RISE AND A CHANGING OCEANIC ENVIRONMENT. TALKI NG ECONOMI CS 30 31 TO MARK WORLD WATER DAY (22 ND MARCH) Drained Out or New Potential?: HYDRO POWER AND SRI LANKAS ENERGY CHALLENGE By Chatura Rodrigo and Athula Senaratne WATER AND ENERGY ARE LINKED WITH AN ETERNAL BOND. Many countries blessed with rivers and waterfalls have harnessed their inherent kinetic energy through hydro- electricity in fullling their energy needs. Sri Lanka is one such country. But the rising demand for electricity and the limited generation potential of existing hydro plants have reduced the relative contribution of hydro power in the countrys electricity generation. As a solution to this, the Sri Lankan government has taken a policy decision to move towards thermal and coal for electricity generation. However, this is leading to to issues such as rising electricity prices and negative environmental externalities. The challenge for countries like Sri Lanka is to redene the water-energy nexus to nd sustainable solutions for the countrys future. DEMAND AND SUPPLY OF ELECTRICITY IN SRI LANKA Sri Lanka faces an increasing demand for electricity. This has grown gradually over tme where the increase in the average per capita electricity consumpton from 2010 to 2012 was 14.6%. Approximately, 94% of households are provided with electricity and the government is determined to raise this to 100%. Further, the country provides grid electricity to about 80% of households, while around 3% of households use of-grid systems. At the moment, about 40% of electrical energy is used in households, 40% in manufacturing industry and the rest in the commercial sector1. Since the commissioning of the frst hydroelectric power plant in 1950 at Laxapana, hydropower has played a major role in power generaton in Sri Lanka. In fact, the largest share of electricity generaton came from major hydro development projects untl the mid-1990s. Since then, electricity generaton has been in a transiton from a predominantly hydroelectric system to a mixed hydro-thermal system, presently dominated by oil. As shown in Figure 1, thermal power has currently become the major source of electricity generaton about 70.8%2. Between 2000 and 2012, contributons from the major hydro plants have seen signifcant fuctuatons - from a high 46% to a low 23%. Nevertheless, a signifcant porton of electricity demand contnues to be met by conventonal and non- conventonal renewable energy sources which include mini-hydro. Therefore, even though the contributon is decreasing, hydro stll plays a major role in Sri Lankas electricity generaton mix. HYDRO POWER POTENTIAL OF SRI LANKA It is widely claimed that all available signifcant sources of hydro potental have been exhausted and the possibility of further expansion is rather limited. However, hydro power is the least-cost electricity source for many countries. Research done by United Sates Geological Survey (USGS) shows that hydroelectricity systems have a life tme of close 100 years, produce clean and green energy, and helps to stabilize the price efects of coal and oil power systems3. Hydro power generaton potental has two major sources - conventonal hydro power and non-conventonal hydro power. Conventonal hydro, also known as major hydro, refers to large hydro power generaton facilites that have been in operaton since the early periods of the energy industry in Sri Lanka. This includes power plants such as Laxapana, Norton and Maussakele, and statons established under the Mahaweli scheme like Randenigala, Victoria, and Kotmale. The major hydro schemes that are being newly developed include Upper Kotmale, Broadlands, Uma Oya and Monaragala. Today, it seems that whilst the demand for electricity is contnuously increasing, the exploitable capacity of major hydropower is stagnatng. On the other hand, non-conventonal hydro is a term that refers to the small scale, grid-connected hydro resources. In the past 15 years, there was a growth in the non-conventonal hydro, with capacity additons surpassing 180 MW of grid power, generatng more than 4% of the total capacity. A considerable porton of small hydro potental remains to be explored. These have capacites varying from a few hundred kW to 40 MW. Some studies have estmated the total potental to be around 500MW4. THE CHALLENGE Overall it seems Sri Lankas capacity for further expansion of hydroelectric potental in both large and small developments - is limited. So, Sri Lankas electricity generatng system (currently dominated by oil-fred electricity generaton) is likely to be dominated by coal-fred power plants in the future - being the cheapest alternatve to oil-fred generaton. The share of hydropower is estmated to reduce from 40.2% in 2007 to 19.5% by 2020, while coal-fred thermal generaton is estmated to reach 70.9% by 20205. Furthermore, there is ample evidence to suggest that Sri Lankas climate has already changed. Variability of both southwest monsoon Figure 1: Electricity Generaton in Sri Lanka by Source (%) - 2000 to 2012 Gross electricity generaton GWh Source: Sustainable Energy Authority, Sri Lanka Energy Balance: 2012. 2012 Others 2011 New renewable energy 2010 CEB wind power 2009 Thermal power 2005 Major hydro 2000 Te share of hydropower is estimated to reduce from 40.2% in 2007 to 19.5% by 2020, while coal-fred thermal generation is estimated to reach 70.9% by 2025 and northeast monsoon rains and rains of convectonal origin during inter-monsoon seasons has increased signifcantly in recent decades. These changes will have direct impacts on water availability for hydro power generaton. Meanwhile, the dependency on coal will also increase electricity prices and negatve environmental externalites. A recent study done by Harvard University reports that the life-cycle efects of coal, and the waste stream generated, is costng the U.S. public between a third to over half a trillion dollars annually. Moreover, many of these externalites are cumulatve. When the environmental damages are accounted for, the price of a unit of electricity generated by a unit of coal is higher than any other renewable resource, especially hydro. Therefore, leaning towards coal as a long-term soluton needs rethinking. Against this backdrop, it is essental to ask some basic questons - (1) Are there any management practces that can be employed to increase the efciency in hydro power generaton?; (2) What are new innovatons that could boost the efciency of hydro power generaton?; and (3) How can we address the adverse impacts that climate change would have on generatng power through hydro?. TALKI NG ECONOMI CS 32 33 THE WAY FORWARD Even though it is widely believed that the major hydro systems have reached their potental, there could be ways to improve the efciency. Beter management of catchment areas and upper catchment areas can be one opton. A catchment area is the area drained by the water body or the reservoir, while an upper catchment area is just above that and is generally covered by forests. Deforestaton in upper catchment areas causes heavy soil erosion and causes siltaton in the catchment area. Beter management of these areas could improve water storage of existng reservoirs, allowing more water to be available for power generaton over a longer period of tme. Today, deforestaton and soil erosion has caused siltaton in many of the major reservoirs, signifcantly reducing their water holding capacites. Therefore, it might be useful to protect these catchments areas, manage them properly to ensure larger storages during rainy seasons. Many new innovatons that are emerging can boost the performance of hydro power generaton systems, for instance Pump Water Storage Power Plants (PWSPP). These systems allow the pumping of water from lower reservoirs to upper reservoirs using renewable energy such as solar power. These storage mechanisms have been reported to possess efciency levels of around 85%. Some studies on implementng this in Sri Lanka are now underway. Potental capacity improvements have been assessed for sites such as Samanalawewa (Keriket Oya), Maussakele (Adams peak falls), Randenigala (Halgran Oya), Kotmale (Maha Oya, Gurugal Oya, Kada Oya) and Upper Kotmale (Dambagatalawa, Agra Oya)6. Climate change has created drastc changes to rainfall paterns. In the long run, wet zones will receive more rainfall while dry areas become drier. Rainfall will not be evenly distributed and rainfall intensites will be higher. Therefore, water collecton and release plans, reservoir and dam maintenance and reconstructon plans need to be geared to tackle these changes. By doing so, it would be possible to avoid unfortunate situatons where dams are closed for repairs during periods of ample rainfall. Finally, we believe that it is too early for Sri Lanka to focus too heavily on coal energy for the future. Even though hydro will not be sufcient to cater to the growing electricity demand in Sri Lanka, there is more potental that can be explored. With focused research on beter management practces and innovatons, the contributon from hydro could well be more than the 19.5% by 2020 as currently predicted by energy planners. (Endnotes) 1 Fernando, M.M.C and Gunawardana R.J, 2010, Electricity Generaton from Renewable Energy in Sri Lanka: Future Directons, Ministry of Power and Energy, Government of Sri Lanka. 2 Sustainable Energy Authority, 2012, Sri Lanka Energy Balance: An Analysis of the Energy Sector Performance, Government of Sri Lanka. 3 htp://water.usgs.gov/edu/hydroadvantages. html 4 Public Utlites Commission of Sri Lanka, 2011, Natonal Policy for Of Grid Hydro Power Generaton, Government of Sri Lanka. 5 Ceylon Electricity Board, 2009, The Electricity Act of 2009 and the Development in the Sector, Government of Sri Lanka. 6 Abeygunawardana, A, 2013, Towards Sustainable Energy in the Power Sector, Presentaton made at the Conference Organized by, Energy Forum, Sri Lanka. Deforestation in upper catchment areas causes heavy soil erosion and causes siltation in the catchment area. Better management of these areas could improve water storage of existing reservoirs, allowing more water to be available for power generation over a longer period of time. Eco-tourism and Forests Ecotourism, by defniton is a sustainable concept. Accordingly, the concept of ecotourism encompasses consideraton for the well-being of local communites; conservaton of the environment; socio-cultural integrity of the areas and environmental educaton to generate awareness; and the inculcaton of attude and encouragement towards environmental conservaton among the visitors, as well as the host communites. Although the global ecotourism market is growing at a rapid rate, ecotourism in Sri Lanka is stll at its infancy, partcularly forest-based ecotourism. Forest-based ecotourism is a non-consumptve, market-based approach to forest utlizaton, and can be used to portray the economic benefts of forest conservaton. In Sri Lanka, the principles of forest-based ecotourism are especially applicable because it possesses an enormous potental: together with the Western Ghats in India, it is listed as one of the worlds 25 biodiversity hotspots possessing a natural advantage that can be utlized for the development of forest-based ecotourism. What hinders the potential? Lack of awareness and understanding of the true concept of ecotourism among the relevant stakeholders remains a major obstacle. Due to this, various agencies involved in forest-based ecotourism have diferent defnitons of ecotourism. Ecotourism, in most cases, is viewed as synonymous with conventonal nature tourism. Nature tourism involves travel to natural places, but it does not necessarily include aspects such as benefts to local communites, positve contributons to natural environment, etc., that are pivotal for ecotourism. Understanding of the sustainability concepts of ecotourism is vital in order to ofer true ecotourism products and to gain win-win benefts, in terms of conservaton and economic gains. In additon, there is no coordinated efort among the relevant government stakeholders of ecotourism. The forest resource managing agencies have not given enough emphasis to thefavourable benefts of ecotourism, partcularly on the contributon it can make towards conservaton. From the tourism sector also, there is no natonal level initatve to promote ecotourism. Since Forest Attraction: Can Sri Lanka use Ecotourism for Sustainable Forest Management? By Kanchana Wickramasinghe Tucked away amidst a tea plantation and bordering the Deniyaya side of the Sinharaja Rainforest is a unique ecotourism venture that could hold valuable lessons on the future of forest-based ecotourism in Sri Lanka. The Rainforest Eco Lodge, owned by a unique consortium of respected Sri Lankan corporates like MAS, Dilmah and Aitken Spence, has been able to bring a new appreciation to the value and preservation of the Sinharaja Rainforest - both locally and globally while ensuring that the highest principles of sustainable ecotourism are maintained. Ecotourism based on natural forests has been receiving much attention recently and, in Sri Lanka, natural forests like Sinharajaare a key tourist attraction. Ecotourism, when planned and implemented based on its sustainable principles, can generate a number of economic and non-economic benefts. Sowhat is Sri Lankas status in terms of forest-based ecotourism and how can we maximize the benefts that ecotourism can offer? TALKI NG ECONOMI CS 34 35 Guest cabins at Rainforest Ecolodge located on the Deniyaya side of Sinharaja. Photograph by Anushka Wijesinha, 2013 forest-based ecotourism has both environment and tourism components in it, coordinated actvites are necessary for the development of forest-based ecotourism. However, at present, the environment and tourism agencies are operatng within their boundaries, with minimal or no coordinaton. The natural forest resources of the country are legally owned and managed by two state agencies, namely, the Forest Department (FD) and the Department of Wildlife Conservaton (DWLC). The agencies do not possess the required resources and skills to manage forest-based ecotourism. As a result, the role of the private sector has become pivotal, as they have the required skills, investment capability, links with tourism networks, as well as previous experience in tourism, which is a considerable advantage when promotngforest-based ecotourism. However, bringing together these two categories of stakeholders is a challenging task. Some of the businesses that atach the moniker eco to their names do not comply with the sustainable concepts of ecotourism. This leads to thecreaton of a mismatch between the demanded products, and the actual products ofered, and consequentlythe ecotourists are likely to lose confdence in the Sri Lankan ecotourism industry. This might also lead to the deterioraton of the countrys image as a future destnaton for ecotourism. Moreover, the present legislatve framework is not comprehensive enough to provide legal regulatons for forest-based ecotourism. The Environment Act (number /year ??) provides legal regulatons for only mass tourism actvites and small-scale tourism actvites, butecotourism is ignored.Since forest-based ecotourism takes place in fragile natural environments and socio-cultural set-ups, a legal framework should be in place to assure sustainability. Present environment and tourism policies are not adequate to address the issues of the possible negatve environmental and socio-cultural impacts of forest-based ecotourism. What needs to be done? There is aneed to establish a well-coordinated mechanism among the tourist agencies and environment agencies. At a ministerial level, this could be facilitated through an Inter-Ministerial Commitee to identfy the existng conficts among tourism policies and initatves within environment policies. This has to be followed-up by assignment of clear roles for relevant stakeholders. Formulaton of required rules and guidelines, setng required standards, efectve law enforcement, monitoring and facilitaton, and marketng, can be undertaken by the state agencies. The private sector will have to play an important role in managing the businesses as entrepreneurs. NGOs can play the role of assistng local communites engage inforest-based ecotourism, and facilitate the achievement of community benefts. The role of provincial councils is also important in the efectve allocaton of resources for the development of forest-based ecotourism, at local level. At the same tme, private sector partcipaton in forest-based ecotourism should be enhanced. Partnering with the private sector is a pre-requisite in forest-based ecotourism, since the resource managing agencies (FD and DWLC) do not have experience in managing tourism. Private entrepreneurs can engage in ecotourism, under the rules and regulatons imposed by the state, in order to avoid possible negatve consequences. Private-public partnerships can play an important role with regard to this. Finally, the establishment of a certfcaton programmefor forest-based ecotourism is essental in order to avoid the fake ecotourism businesses. It will help to ensure that existng businesses are adhering to true ecotourism principles, and genuine forest-based ecotourism products are ofered and thereby, secure Sri Lankas potental as a future ecotourism destnaton. for him and his promises. This mood was best captured by the BJP itself when it changed its TV advertsements in the midst of the electon process, to give prominence to the partys symbol as some voters had reportedly abstained from votng because they did not fnd Mr. Modis picture on the electronic votng machine. BJP won 178 seats from the 342 rural consttuencies as compared to a mere 27 by the Congress. This demonstrates the spread of Mr. Modis appeal even to populaton segments that were hitherto considered to be Congresss secure vote bank. Two signifcant implicatons for Indo-Sri Lankan relatons have emerged from this decisive electoral outcome. These emerged even ahead of Mr. Modis taking over as the prime minister. Firstly, by spontaneously invitng the heads of governments of all of Indias neighbouring countries to his Cabinets swearing-in, Mr. Modi has demonstrated his decisiveness and that he will run his own foreign policy. All the apprehensions that he will take his directons from the parent organizaton, the Rahstriy Swayamwewak The outcome of Lok Sabha (lower house of the Indian Parliament) electons on May 16th was unexpected and unprecedented over the last three decades. The trend towards more fractured and fragmented outcomes has been reversed decisively. The people have quite clearly risen above regional, provincial and caste concerns to give a resounding majority to Mr. Narendra Modi. In a presidental style electon, he has won the peoples mandate to usher a change in India. All over the country, voters apparently did not really care about the partcular candidate from Mr. Modis Bhartya Janta Party or the BJP. They voted IMPLICATIONS OF MODIS VICTORY FOR INDO-SRI LANKA RELATIONS SPECIAL GUEST ARTICLE ON TALKING ECONOMICS By Rajiv Kumar TALKI NG ECONOMI CS 36 37 Sangh (RSS) or allow Indias foreign policy to be hijacked by provincial or narrow sectonal interests have been dispelled by this one acton. Foreign policy, while taking into account, these concerns, will seek to sub-serve broader natonal interests. Therefore, Colombo can engage with New Delhi on substantve issues without the constant fear of bilateral relatons being held hostage by or having to be reversed due either to the whims of politcal dispensaton in Chennai or right wing formatons. Secondly, Mr. Modi has signalled that Indias neighbourhood will be the focus of his governments foreign policy. This will be a very welcome change from the earlier dispensaton in which the President of the UPA, who wielded real politcal power, had zero interest in improving Indias relatons with its neighbours. As a result, these relatons foundered and drifed without any directon, with the government and the party working at cross purposes on many occasions. Quite ofen bilateral relatons with our neighbours were held hostage by provincial leaders pushing their sectarian and sub- natonal politcal agendas at the cost of the larger natonal interest. This will no longer be the case. The decisive mandate won by Mr Modi will ensure that he will have the politcal legitmacy and authority to defne Indias strategic natonal interests, which in turn will drive the countrys foreign policy. Indo-Sri Lanka relatons can henceforth be put on an even keel in pursuit of longer term strategic goals that are mutually benefcial. I cannot visualize Mr. Modi being distracted from his longer term strategic goal of creatng abiding tes with Indias neighbours by distractons such as the Rem Sethu, howsoever hard these might be pushed by some sectonal interests. In return he will expect Colombo to also pursue a strategic approach towards India and not let minor issues like fshermen rights and events in any Indian province afect bilateral relatons But having been himself a Chief Minister, Mr. Modi recognizes that provincial governments some degrees of freedom to pursue relatons with external partners that are of direct beneft to the state. Moreover, he is also commited to pursuing a more consultatve and collaboratve style of governance with provincial chief ministers. These two features together imply that the Government of India will be able to evolve a more coherent, nuanced and constructve policy stance towards its neighbours in consultaton with the state governments. Such a policy will take into account the specifc circumstances of our border states and their concerns vis-a-vis the countries across their borders. Thus, a Modi government could take on board the specifc concerns of the Tamil populaton on both sides of the Indo-Sri Lanka border, discuss them bilaterally with Colombo as between two sovereign naton states and come up with constructve and win-win solutons that provide tangible benefts to displaced persons and are supported by their compatriots across the border. The third beneft for Sri Lanka from a Modi government will emerge from India revertng back to a high growth path. Mr Modi is commited to removing Indias twin governance and infrastructure (including educaton and health) defcits. This will re-ignite the investment cycle pushing economic growth in India back to the high single digits. Higher economic growth in India has multfaceted benefts for Sri Lanka, whose exporters will fnd new demand; investors will fnd newer opportunites; and Indian tourists will fock to Sri Lanka in increasing numbers. An expanding Indian economy will hopefully take away the fears and insecurites of those in Sri Lanka who apprehend a rush of investments and exports from India. These investors will have their hands full in meetng the domestc demand and perhaps absorb more Sri Lankan investments and exports than the other way round. Thus, the long hanging Comprehensive Economic Cooperaton Agreement between the two countries could fnally be fnalised. But for me the biggest beneft for Sri Lanka will come from accelerated progress of regional economic integraton in South Asia which could be part of Mr. Modis focus on South Asia. Greater intra- South Asian economic and commercial interacton is the necessary conditon for building greater mutual trust, to move towards open borders, and to reverse the process of mutual suspicion and rising insecurity in the region. Mr Modi has a well earned reputaton for efcient project executon and for taking on board bold new initatves for implementaton. This could lead Mr Modi to take on ambitous projects like an overland link between Sri Lanka and India and connectng the two countries into a common electricity grid for optmising the exploitaton and utlizaton of the regions energy resources. Mr. Modis likely focus on South Asia holds out a real promise for the emergence of a peaceful, more secure and prosperous South Asia. This will directly beneft Sri Lanka, which has been one of the pioneers in South Asian regional economic cooperaton. This is a special guest artcle from the IPS blog Talking Economics. To read it online and to comment, visit www.ips.lk/talkingeconomics Rajiv Kumar, a renowned economist and the author of several books, is currently a Senior Fellow at the Centre for Policy Research (CPR) in New Delhi. Previously he has been the Secretary General of the Federation of Indian Chambers of Commerce and Industry (FICCI) and Director/Chief Executive of the Indian Council for Research on International Economic Relations (ICRIER). Kumar holds a D.Phil. in Economics from Oxford University and a Ph.Dfrom Lucknow University. The decISIve MAndATe won by Mr ModI wILL enSure ThAT he wILL hAve The PoLITIcAL LegITIMAcy And AuThorITy To deFIne IndIAS STrATegIc nATIonAL InTereSTS, whIch In Turn wILL drIve The counTryS ForeIgn PoLIcy. ThIS couLd LeAd Mr ModI To TAke on AMbITIouS ProjecTS LIke An overLAnd LInk beTween SrI LAnkA And IndIA And connecTIng The Two counTrIeS InTo A coMMon eLecTrIcITy grId In 2013, the IPS undertook a landmark initatve to explore the link between the UNs Millennium Development Goals (MDGs) and youth in Sri Lanka. Youth are represented in many of the MDGs, but there are no explicit indicators for measuring how young people in partcular are faring across the MDG goals. To fll this research gap, the IPS teamed up with the Ministry of Youth Afairs and Skills Development and analyzed some of the important youth related MDGs. The study was very tmely. The discussions surrounding the post-2015 MDG goals, and the need to mainstream youth into it, were just kicking of and IPS was able to make an early knowledge contributon to this efort. We published an artcle marking Internatonal Youth Day 2013 to draw atenton to some of the fndings and recommendatons coming out of the study, ttled Shaping Up the Future: Can Sri Lanka Set an Example in Achieving MDGs for Youth?. In it, author Chatura Rodrigo asserted that, While Sri Lanka has achieved so much in addressing youth issues of employment and poverty, there are lingering issues in the education and health sector that needs careful attention. Tis is quite challenging since education and heath are determinants of employment and ultimately, poverty. He also cautoned that the achievements so far cannot be built- upon without an efectve insttutonal setup and a solid policy framework where monitoring and evaluaton are part of the structure. Nevertheless, as youth delegates and politcians gather for the WCY 2014, we must recognize that Sri Lanka stands as an example in placing youth at the centre of the discussion on a post- 2015 MDG agenda. IPS has been researching and commentng on issues related to human development, youth, jobs, unemployment and educaton for many years. Heres a recap of some of the more recent work. In 2012, IPS prepared the UNDPs Natonal Human Development Report which comprehensively explored the current status and future challenges in development faced by Sri Lanka. The analysis contained useful data disaggregated by age group where relevant, WORLD CONFERENCE ON YOUTH 2014 SPECIAL SERIES The World Conference on Youth 2014 (WCY 2014) was held in May with over 1000 delegates from across the world gathering in Sri Lanka to celebrate the role and potential of youth, to debate the critical challenges facing young people today, and to advocate for mainstreaming youth issues in to the post-2015 Millennium Development Goals agenda. The Institute of Policy Studies of Sri Lanka (IPS) is proud to be associated with the event, as a key knowledge partner, with several IPS researchers serving as resource persons at the event. As the WCY 2014 kicked off, we presented a multimedia overview of IPS engagement with the issues coming into focus at the summit, in this special recap. and has some insightul fndings on youth and human development in Sri Lanka. Watch this video where the lead author, Dr. Nisha Arunatlake, introduces the main messages. In August 2012, coinciding with Internatonal Youth Day, we had a unique panel discussion on The Jobs Challenge, where a cross- secton of people, including youth representatves, discussed what is holding back youth in Sri Lanka from accessing beter jobs. It also focused on how young people can move from being dependent on receiving jobs, to becoming job creators, i.e., entrepreneurs, themselves. A key speaker at the event was RashithaDelpola of the Natonal Youth Services Council, who is now the head of the WCY 2014 Secretariat. The full video from this event is available in a 3-part series here. Alongside this, we released a special editon of the Talking Economics Digest on The Jobs Challenge. In the editorial of that editon, Anushka Wijesinha, emphasized that, WCY 2014: A Recap of IPS Knowledge Contributions to the Youth Agenda SPECIAL REPORT COMPILED BY THE TALKING ECONOMICS EDITORIAL TEAM TALKI NG ECONOMI CS 38 39 To bring down unemployment and raise up our youth, Sri Lanka needs to move fast on: essential education reforms; revisiting archaic labour market regulations; improving the quality of training; promoting private sector initiative; fostering a culture of entrepreneurship and work experience among youth; and ensuring a secure stream of innovative funding to support them. To reach the Knowledge Hub aspiratons that the country has, Sri Lanka must expand tertary educaton and build a skilled and adaptable workforce. However, as this artcle by IPS researcher Priyanka Jayawardena observes, Sri Lanka lags behind. She writes that, Each year, more than 100,000 qualifed students are forced to abandon their ambiton to enter a university. Tertary enrolment rates are alarmingly low fewer than 8% of 20-24 year olds were enrolled in a university or a technical and vocatonal training (TVET) course, compared to the lower middle-income country average of 23%. Read the artcle here for more analysis. Even for those who manage to get in to university, getng jobs afer graduaton becomes problematc because of the administratve delays and shut-downs in state universites. This issue was explored in an artcle ttled, Lankan University Graduates: Late Birds, No Worms?. Heres an infographic that captures the key message - the average university student in Sri Lanka graduates as late as three years afer their peers in the West! Meanwhile, there is a lot of debate in the country, including among young people and their families, on what is a beter job?. The aspiratons of young people towards certain types of work are changing as the Sri Lankan economy evolves into middle-income. These issues came under the spotlight in two artcles What Really is a Beter Job in the Sri Lankan Context?, and Sri Lankas Youth Unemployment Challenge: A Dilemma of Attudes and Aspiratons. In the later artcle, author Kaushalya Atygalle concluded that, If Sri Lanka is to overcome this challenge of fnding a point where the aspirations of youth match up to the opportunities available to them, where youth are less averse to private sector jobs, where certain types of jobs are not stigmatized by society, and where proper structural reforms to address these problems are introduced and function efectively, it is crucial that there is a shift in perceptions a shift that takes place in all aspects of Sri Lankan society, and at all levelsfrom families right up to national decision makers. To complement these insights, we opened up the debate to young people online (via a Google Moderator poll), and asked the queston How can we create more and beter jobs in Sri Lanka?. The feedback was revealing. The ideas sent in from across Sri Lanka and overseas, are captured here. Meanwhile, in January this year, IPS research Chatura Rodrigo, who co-authored the IPS-Youth Ministry report Youth and Development: Realizing the MDGs for Sri Lankan Youth - made a presentaton at the seminar on Mainstreaming Youth in the Post 2015 Development Agenda with Special Focus on the World Conference on Youth (WCY) 2014 organized by the Ministry of Youth Afairs and Skills Development. His presentaton can be downloaded here or browsed online (on the IPS Scribd page) here.Meanwhile, IPS Executve Director was invited as a key speaker at the Commonwealth Youth Forum, held on the sidelines of the Commonwealth Heads of Government Meetng, on the 10 th November 2013. He presented the key highlights of the report, and a summary of the session can be found here. As the WCY 2014 begins, let us remember that youth are the lifeline of any economy and can drive the socio-economic growth momentum of a naton. Even though Sri Lanka has been successful in achieving many of the youth related MDGs, and stands as an example of youth development in South Asia, challenges in maximizing youth potental stll remain. Unemployment, poverty, abuse, and educatonal dilemmas are some of the numerous barriers in the way of a promising future for Sri Lankas youth. These are not unique to Sri Lanka, and it is important that countries commit to this agenda together. All countries gathering in Colombo this week, must tackle these challenges head on. As we are seeing around the world today, youth are proving to be an integral part of the changing politcal, economic and social landscape in every country.
Visit the blog Talking Economicswww.ips.lk/talkingeconomicsand follow us on Twiter @talkeconomicssl for our latest tweets around the#WCY2014. A new report prepared by the IPS and UNFPA ttled, Investng in the Demographic Dividend: Successes, Challenges and Way Forward for Sri Lanka, launches at a special side event on the fnal day of the World Conference on Youth 2014 today. It suggests measures for Sri Lanka to get ready for a post- demographic dividend phase in the country, and makes recommendatons on where critcal investments need to be made. In this blog, IPS Research Economist Chatura Rodrigo (CR), lead author of the report gives Talking Economics (TE) a quick overview of the report and how its fndings can be used in future policymaking. TE: Whats unique about this publicaton and whats the issue its trying to address? CR: This is the frst report to take a look at Sri Lankas investments in reaping the demographic dividend, and the results of it in terms of harnessing the potental of youth in the country. It is built around fveareas - investments in family planning, health,educaton, employment, and infrastructure.It argues that Sri Lanka has used up most of the demographic dividend period, but with more investments we can reap the maximum beneft out of what is lef. TE: What are three of the key messages coming out of it, thats important for all of us to think about? CR: The frst is that investments in family planning and in health are key factors, since they afecteducaton, employment, labourforce partcipaton and poverty among Sri Lankas youth. The second is that investments in infrastructure such as housing, sanitaton, and drinking water should also be prioritzed, since safe living is a basic human right, and it is important for young people and women especially. Third, Sri Lanka has to be ready to face an ageing populaton, and so more atenton should be given to healthcare, pension schemes and elderly care. TE: How will the fndings be used by various insttutons, whetherin government or development agencies? CR: There are key messages for health, educaton, economic development and housing ministries.Opportunites for funding by the INGO and NGO community and private sector have been identfed. Policy recommendatons are provided at the end, from which the government can take the lead so that others will follow. TE: As the lead author of this report, what was the most rewarding and what was the most challenging part of preparing this report in tme for the WCY 2014? CR: The main challenge was piecing the puzzle together, since all the issues are interconnected. Forexample, women labourforce partcipaton is not only a mater of the unavailability of jobs, quality of educaton or social norms; it is afected by issues around sexual and reproductve health, especially in the estate and rural areas. The most rewarding part for me was the formulaton of recommendatons. At the end of the day, we need to plan for the future based on the past and current situaton, and I hope this report will make a strong contributon to do that successfully. The report contains rich analysis and atractve infographics to highlight the key fndings. It can be accessed online via the IPS Scribd page here, or browsed in the embedded document below. Earlier this week and coinciding with the opening of the WCY 2014, we uploaded a recap of previous IPS work relevant to the youth agenda and can be accessed here. Visit us on Twiter (@talkeconomicssl), to follow our conversatons around the #WCY2014. Sri Lanka Must Be Ready for a Post- Demographic Dividend Era - New Report by IPS and UNFPA WORLD CONFERENCE ON YOUTH 2014 SPECIAL SERIES TALKI NG ECONOMI CS 40 41 The IPS was a knowledge partner of the World Conference on Youth 2014 (WCY2014) in Sri Lanka. Coinciding with the event, we presented an incisive interview with Dr. Nisha Arunatilake, Research Fellow and Head of the Labour, Employment and Human Resources Development Unit of the IPS. She discusses the challenges that must be tackled across a spectrum of issues - education quality, skills shortages, retaining talent, and improving the entrepreneurship climate. She says its time for comprehensive policy changes, as selective changes alone will not be able to change the system adequately, and points to initiatives by China and Singapore from which Sri Lanka can draw useful lessons. one of the key thematc areas of wcy2014 is realizing equal Access to Quality educaton. Sri Lanka seems way ahead of many developing countries on this aspect, dont you agree? The Sri Lankan educaton system explicitly does not discriminate any one from accessing quality educaton. But, the educaton sector does indirectly marginalize individuals at all levels. For example, at the entrance to primary level, the best primary schools are situated in urban areas. The selecton criteria for these schools (both based on distance and old pupils) favour more afuent children, as richer people tend to live in urban areas and those from good schools tend to be in beter jobs.At the entrance to secondary level, children from more afuent families automatcally get selected to a good school as most good public schools are integrated schools. As such, they do not need to sit for the grade 5 scholarship exam to get to a good school. Even amongst those who sit for the exam, the children from more afuent families fare beter as they have access to beter training for the exam. When one analyses the available secondary data one see that the more afuent have a higher probability of doing well in public exams (such as O-levels and A-levels) and being selected to university. The quality of educaton in the country has not kept up with global changes. There is a new trend where very afuent households prefer to by-pass the local educaton system to get a quality educaton in private insttutons at a high price. This new trend is already creatng class diferences in the work place. Local graduates have to undergo additonal training to acquire skills that are in demand in the job Comprehensive Policy Changes Needed to Help Sri Lanka Realise its Youth Potential WORLD CONFERENCE ON YOUTH 2014 SPECIAL SERIES The quality of education in the country has not kept up with global changes. There is a new trend where very aluent households prefer to by- pass the local education system to get a quality education in private institutions at a high price market while those receiving a beter quality educaton are already equipped with those skills. Another thematc is Full employment and entrepreneurship. what do you think is a key challenge facing countries like Sri Lanka on this thematc area? I think a main challenge is culture. In Sri Lanka, individuals are more comfortable seeking employment than startng their own businesses. This is partly due to the fact that the employed (especially in the state sector) enjoyed social security and other privileges that were not available for otherssince 1970s. The playing feld will need to be made more even to change this culture of seeking good jobs. Some initatves have already started to promote entrepreneurship amongst school children. But, promotons and know-how alone will not be enough to atract sufcient interest in entrepreneurship. On the one hand, to facilitate business ventures, the environment for doing businesses and creatvity and technical knowledge needed for entrepreneurship will need to improve. On the other hand, to encourage people to take the risks of doing business, the social protecton and insurance for those venturing to start their own businesses will need to be developed. In your research, what are some of the interestng policy initatves you are seeing around the world when it comes to ensuring beter educaton to help youth get good jobs? I think we need comprehensive policy changes. Selectve changes alone will not be able to change the system adequately. First, we need more resources to upgrade and modernize the educaton system. This can be done by spending available funds more efciently as well as looking for new sources of funds. China managed to expand access to higher educaton signifcantly in the last three decades. Part of this was done through an enrolment expansion project, which allowed students not receiving qualifying marks to enter university for a fee. Second, we need greater accountability in the system.China has a very good system in place to ensure accountability accountability of teachers to students as well as the accountability of schools to teach students. In Singapore, training programmes for teachers are rigorous, and teachers are evaluated periodically to ensure that their training is up to date. Third, the educaton insttutons need beter autonomy, so they can develop independently according to the needs of the communites they are serving. And lastly,these insttutons need beter leaders. For example, in Chinathe best principals are sent to the most challenging schools. For small, middle-income countries like Sri Lanka, what are some of the critcal areas to tackle around these themes, when we talk about the post-2015 era? Increasingly we see that the lack of skills and talent is an obstacle for growth. According to a recent news item quotng the IT industry body, SLASSCOM, the revenue from IT services has increased overtme in the country but, growth is constrained by lack of skilled people. Other industries, such as the hospitality sector and the health sector, are also experiencing such skill shortages. WORLD CONFERENCE ON YOUTH 2014 SPECIAL SERIES Part of this skill shortage is due to low supply of qualifed and skilled workers. First, we do not produce sufcient numbers of graduates in diferent required felds. Second, even of those who qualify, not everyone is equipped with the necessary sof skills. Another part of the skill shortage is due to emigraton of skilled workers. Around the globe we see countries competng to atract talent. Advanced countries around the globe have changed their immigraton policies to encourage the immigraton of skilled people. We constantly see companies advertsing to lure professionals to immigrate. All this shows how much the advanced economies value talent. In this global competton for talent, we have been losing talented workers. So it is critcal that the educaton systems is modernized, expanded and diversifed to cater to the growing economic and skill demands in the country. Second, employment prospects and living conditons in the country need to improve so that talented workers choose not to leave the country for employment abroad. Lastly, the business environment in the country needs to improve so that people are encouraged to start their own businesses and to create employment. This interview is available on the IPS blog Talking Economics www.ips.lk/talkingeconomics. Visit to leave your comments and to see other special artcles marking the WCY 2014. I think a main challenge is culture. In Sri Lanka, individuals are more comfortable seeking employment than starting their own businesses. This is partly due to the fact that the employed (especially in the state sector) enjoyed social security and other privileges that were not available for otherssince 1970s. TALKI NG ECONOMI CS 42 43 By G.D. Dayaratne MORE ALCOHOL, MORE REVENUE In Sri Lanka, drinking customs and habits are prevalent in the countrys mult-ethnic culture, mainly as a result of nearly four centuries of colonial rule, and also, later due to the infuence of globalizaton. Therefore, over the years, alcohol producton and consumpton in the country has increased - from the more locally-based drinks such as toddy to widely popular drinks such as arrack and beer. With the privatzaton of Sri Lankas key alcohol industry in 1992, the producton of liquor has been increasing exponentally. This was further heightened since the end of the North-East war in 2009, with the emergence of new markets in the former confict-afected areas. The producton and sale of alcoholic beverages can be considered an important contributor to the Sri Lankan economy. It generates revenue for the government from the excise taxes imposed on both local and foreign legal alcohol, creates employment opportunites, and earns substantal profts for the industry entrepreneurs. Alcohol is certainly no ordinary commodity in the market. This was clearly exemplifed in the recent past, where tax revenue from liquor increased from LKR 16 billion in 2005 to LKR 60 billion in 2012 an increase of 275% within seven years. However, despite the economic benefts generated from the industry, misuse or excessive consumpton of alcohol can result in many adverse efects, on human health and on society as a whole. The existence of a thriving illicit alcohol industry, which accounts for nearly 65% of the total alcohol market in Sri Lanka, has also aggravated alcohol-related health problems in Sri Lanka. Therefore, it is useful to explore the implementaton of efectve measures to prevent or reduce the harm caused by alcohol in the country. As this artcle goes on to argue, this will require the formulaton of a more balanced and a holistc policy framework. IS THERE AN ALCOHOL POLICY IN SRI LANKA? Alcohol policies or the regulatons, laws and rules which govern the manufacture, promoton, distributon, sale and use of alcohol are consequental in efectvely monitoring the industry and also to reduce or prevent alcohol-related harm. Throughout the past century, these policies have changed all over the world. In countries such as Australia, Canada, and many in Western Europe, positve results have been achieved through altering the paterns of drinking, specifcally through shifs from hard to sof liquor. More atenton is also given to promote moderate drinking for adults, considering the many health concerns and other social dilemmas atributable to alcohol. In the Sri Lankan context, the country never had a comprehensive or a pragmatc alcohol policy. Yet, it has followed certain ad hoc policies from tme to tme. In 1998, Sri Lanka atempted to formulate a Natonal Alcohol Policy which only included a ban on alcohol related advertsing on television and radio, but on the other hand, allowed liberal imports of alcoholic beverages. Even the Mathata Thitha (End to Alcoholism) concept enshrined in the Mahinda Chinthana Vision (2005) comprises ambitous objectves on the sensible use of alcohol. However, there has been no clear target or designed programme or a clear tmeline for the strategic implementaton of a policy so far. The highly politcized nature of the alcohol industry - in producing liquor, in issuing of alcohol licenses or in enforcing legislatve actons (partcularly in relaton to illicit liquor) - has also complicated maters. Meanwhile, shortcomings in the existng taxaton of alcohol producton, where taxes are imposed only on legal alcohol and disregards illicit liquor, can also be seen as a drawback in efectvely addressing this policy concern. WHAT NEEDS TO BE DONE? In this light, the need for a well framed natonal acton policy on alcohol producton and consumpton in Sri Lanka is indispensable. In order to achieve this, frst, it is important to understand the drinking culture in Sri Lanka. This will help get a beter sense of creatng a level playing feld between the legal alcohol industries (producers), the government (law enforcer), as well as the consumers. Policy makers should clearly understand the harm caused by illicit liquor, partcularly among the rural and urban poor, and include an efectve mechanism to monitor its producton and availability in the country. Re-evaluatng the credibility of alcohol license holders, introducing heavy penaltes for violatng excise laws, and developing public awareness on alcohol-related abuse are some of the mechanisms that need to be included in a more holistc alcohol policy for Sri Lanka. Afer all, the most signifcant aspect of an efectve alcohol policy lies not only in having good legislatve actons, but, in implementng and enforcing it in a coherent and an efectve manner. (Te above article is based on the latest IPS publication State of the Sri Lankan Alcohol Industry and Analysis of Governing Policies (Working Paper Series No.19) authored by Mr. G.D. Dayaratne. It is the frst research publication in Sri Lanka that takes an independent and pragmatic look at this issue in order to infuence this important area of national policy. Te publication can be purchased at IPS and leading bookstores. For more information, visit http://www.ips.lk/publications/) SRI LANKA NEEDS A MORE BALANCED AND HOLISTIC ALCOHOL POLICY ALCOHOL SALES WOULD HAVE NO DOUBT PEAKED DURING THE LAST WEEK OR SO, ALONG WITH AVURUDHU FESTIVITIES ACROSS THE COUNTRY RURAL AND URBAN ALIKE. THE USE OF ALCOHOL IS EMBEDDED IN THE DAILY LIVES OF MANY ORDINARY CITIZENS IN OUR ISLAND NATION. DESPITE CERTAIN EFFORTS BY THE GOVERNMENT IN REGULATING THE PRODUCTION AND CONSUMPTION OF ALCOHOL, THE SRI LANKAN ALCOHOL INDUSTRY HAS REACHED NEW HEIGHTS. LIKE HOW A BAD MIX OF ALCOHOL WILL GIVE YOU A BAD HANGOVER, A BAD MIX OF POLICIES CAN GIVE BAD RESULTS. THIS ARTICLE ARGUES THAT SRI LANKA SHOULD AIM FOR A HOLISTIC AND BALANCED POLICY MIX IN DEALING WITH THE PRODUCTION AND CONSUMPTION OF ALCOHOL. THE HIGHLY POLITICIZED NATURE OF THE ALCOHOL INDUSTRY - IN PRODUCING LIQUOR, IN ISSUING OF ALCOHOL LICENSES OR IN ENFORCING LEGISLATIVE ACTIONS (PARTICULARLY IN RELATION TO ILLICIT LIQUOR) - HAS ALSO COMPLICATED MATTERS THE MOST SIGNIFICANT ASPECT OF AN EFFECTIVE ALCOHOL POLICY LIES NOT ONLY IN HAVING GOOD LEGISLATIVE ACTIONS, BUT, IN IMPLEMENTING AND ENFORCING IT IN A COHERENT AND AN EFFECTIVE MANNER. TALKI NG ECONOMI CS 44 45 THE URGENT NEED FOR E-WASTE MANAGEMENT IN SRI LANKA By Samanthi Bandara With the rapid developments in technology and the growing demand for new products, the producton and consumpton of more Electronic and Electrical Equipment (EEE) has signifcantly increased around the world. This has also resulted in the acceleraton of the rate of replacement of new products, creatng a substantal burden on the waste stream in general. The rise of outdated EEE - which is known as Waste Electronic and Electrical Equipment (WEEE) or e-waste, is estmated to be around 40 million tons per year1. Hassles of Electronic and Electrical Disposals E-waste contains both hazardous as well as valuable substances, such as lead, mercury, cadmium, copper, gold, silver, Polychlorinated Biphenyl (PCB), and Brominated Flame Retardants (BFR). Unless e-waste is processed, recycled or disposed in a proper way, it will have serious impacts on human health as well as on the environment. Once toxic substances are exposed to the surrounding environment, they contaminate the air, soil and water sources, and could eventually enter the human body and other living organisms via ingeston of food, dust, water, inhalaton of gases and partcles in the air, and also through skin intake2. However, we are ofen not aware of these substances or their implicatons on our health, and chronic exposure to these chemicals and their accumulated efects may become evident later in life. For instance, lead is used in a variety of EEE products, such as lead-acid bateries, printed wiring boards (PWB), Cathode Ray Tube (CRT) monitors for televisions and old computers. Exposure to lead partcularly, by young people, can cause damage to the nervous, blood, and reproductve systems. Mercury, which is contained in the fuorescent lamp in LCD monitors, CFL/tube bulbs, and thermometers, is another chemical which can cause serious health efects to the human brain and liver. Furthermore, Cadmium, which is used in the old CRT monitors, rechargeable bateries, and switchers, can primarily afect the kidneys and lungs, and can be a cause for prostate cancers. Polyvinyl chloride (PVC) which is a popular plastc material, mostly used in pipes, electronic and household appliances, is toxic when it burns as it releases hydrogen chloride gas, forming hydrochloric acid that can cause companies in the country, which reuse these materials for a variety of products. This factory has also created new jobs for skilled and unskilled personnel as well. Asia Recycling Company under Orange Electric, which is the frst recycling company in South Asia, is another registered factory that partcularly recycles all types of CFL and tube bulbs. They extract materials such as glass, plastc, metal, and wood, which are sold to diferent companies within the country for reuse, and chemicals such as mercury and phosphorous powder are exported to Germany for refning, thus earning foreign currency. POTENTIAL INITIATIVES Despite these initatves, Sri Lanka is stll far away in terms of e-waste management compared to most countries. Thus, existng botlenecks need to be addressed in order for Sri Lanka to be a sustainable e-waste recycler. Strengthening policy and legislaton is vital. Apart from the existng policy and regulaton, the government could reinforce regulatons, specifcally on the imports of EEE. For instance, regulatons should be enacted on discouraging the imports of used EEE, and to import equipment that has less hazardous elements; for example, LED/LCD monitors can replace CRT monitors, since CRT has more hazardous elements. In additon, suitable technology and skills need to be implemented in order to streamline the sustainable e-waste recycling system in the country. Proper mechanisms should also be developed to take out the informal market for e-waste recycling in the country. Improving the knowledge on e-waste within the community is crucial. Conductng programmes which highlight the social and ecological impacts of improper handling of e-waste, and the importance of disposing e-waste in proper places and in proper ways can be efectve in raising public awareness. This can be provided through the public health staf, startng from grassroots levels. Also, the media can play a pivotal role in disseminatng the message and making the mass community aware of the impacts of improper handling of e-waste as well as the proper mechanisms in recycling and its benefts. E-waste should not be considered as normal junk. It may not impact you instantaneously, but could do so later in life. Therefore, much atenton should be paid to this issue, considering the many health impacts that could be instgated by the e-waste around us. (Endnotes) 1 Huisman J. et al. 2008 Review of Directve 2002/96 on Waste Electrical and Electronic Equipment (WEEE). Bonn: United Natons University, 2007. 2 Bergman keet. al., State of the science of endocrine disruptng chemicals 2012: summary for Decision-Makers, UNEP and WHO 2013. 3 Bergman ke et. al., State of the Science of Endocrine Disruptng Chemicals 2012: Summary for Decision-Makers, UNEP and WHO 2013; Cobbing Madeleine, Toxic Tech: Not in Our Backyard Uncovering the Hidden Flows of E-Waste, Greenpeace Internatonal, Netherlands, 2008 4 Waste: Investng in energy and resource efciency, UNEP, 2011. respiratory diseases for humans. Another such harmful chemical contained in EEE is Arsenic. Once exposed, it can cause lung cancers, skin diseases, and nervous system disorders. 3 E-WASTE MANAGEMENT CAN BE PROFITABLE Considering the numerous risks caused by e-waste on human health and the environment, it is important to manage the improper disposal of e-waste through methods such as recycling. Therefore, the three main subsequent steps which should be followed for potental benefts include the following: (i) collecton; (ii) pre- processing (sortng/dismantling); and (iii) end-processing (refning/disposal). Adoptng a proper recycling system brings positve externalites in terms of health, environment as well as economically. Countries such as China, Singapore, Belgium, Germany, and Japan, which invest in e-waste recycling plants, are good examples of leading e-waste recycling markets in the world, highlightng it to be an economically proftable market. Furthermore, e-waste recycling industries in Brazil, China and USA have created jobs for 12 million people4. One such registered e-waste recycling factory in Sri Lanka, which recycles all types of e-waste (except CFL and tube bulbs), was able to recover 35,724 kg of plastc, 58,526 kg of metal, 83,358 kg of glass out of the total e-waste collecton of 177,609 kg in 2012. Furthermore, out of the total quantty of metal, around 6,368 kg of complex metal were exported for refnement to the worlds largest precious metal refnery. In additon, they earned foreign currency by trading the extracted gold, silver, palladium, and copper in the London Bullion Market (LBM) and London Metal Exchange (LME). The rest of the materials were sold to diferent One such registered e-waste recycling factory in Sri Lanka, which recycles all types of e-waste (except CFL and tube bulbs), was able to recover: 35,724 kg of plastic
58,526 kg of metal
83,358 kg of glass
out of the total e-waste collection of 177,609 kg in 2012. TALKI NG ECONOMI CS 46 47 Every day we are moving closer to having almost as many mobile subscribers as there are people on earth. Close to 40% of the worlds populaton are now online and some 750 million households globally are connected to the internet 1 . New devices and platorms such as smartphones are constantly shaping; when, where and how consumers interact, use services and access informaton. More and more of us are conductng everyday domestc commerce online. Whilst digital consumers beneft through increased choice, improved ease, speed and immediacy, this online commerce poses its own challenges. This artcle takes a cursory look at the potental risks and challenges confrontng the digital age consumer and the need to strengthen consumers rights in this new arena. Sri Lanka would need to look at its policy and regulatory apparatus to address the emerging challenges confronted by the modern Sri Lankan consumer. Issues of Privacy in a Surveillance Society The modern consumer is no longer a faceless entty, consumers leave behind a digital trail of data when- and where-ever they go online; use their mobile phones and even when they use public transport 2 . This data is most ofen personally identfable and could be easily captured, stored, analyzed, shared and has huge and growing commercial value. In this context the incentves to extract more personal informaton from consumers is growing. Consumers are ofen unaware that the data is being collected, exactly what data is being collected for, by who, who has access to it, or how the data is being used. They have litle or no control over these decisions thus compromising consumer privacy 3 . Allowing consumers to stpulate data sharing permission; opt-in or opt out-of data collecton, sharing and use would come a long way in addressing privacy concerns 4 . Enactng data protecton policies also is vital to redressing privacy related issues. unFAIr TerMS oF dATA-ShArIng Some shopping sites collect personal data and sell it to other organizatons for their advertsing and other use. It has become a highly proftable way of exploitng consumers ignorance about the value of their personal data. Currently, the terms under which individuals data is captured and shared is set by terms and conditons which consumers have to agree to (by tcking a box in an online process) if they want to access the product or service in queston. Most consumers do not read these T&Cs, and have no means of infuencing their content if they do. Most ofen consumers have litle or no ability or power to control their data, opt-out or negotate diferent terms and conditons. RISKS AND RIGHTS FOR CONSUMERS IN THE DIGITAL AGE By Raveen Ekanayake TO MARK WORLD CONSUMER RIGHTS DAY (15 TH MARCH) IMPerFecT InForMATIon dIScLoSure Informaton disclosures are ofen long and complex, and not always easily accessible online. Key pieces of informaton are sometmes presented in small text, buried in footnotes, or accessible through a series of web links or windows. As a result, consumers, in many instances, do not read some of these vital pieces of informaton, leading them to sufer detriment in the form of a) dissatsfacton with a product that did not meet expectatons; b) surprisingly high bills (i.e. bill shock); as well as c) frustraton with the procedures and costs that may be incurred in terminatng a transacton and trying to obtain redress 5 . With a view towards providing consumers with relevant informaton that enables them to make informed decisions in e-commerce, work could be conducted on enhancing consumer access and understanding of such informaton InForMATIon AcceSS And TruSTworThIneSS Whilst more and more informaton is available online, a key issue that arises is that; can all this online informaton be trusted?. The internet can be highly democratc-consumers can have their say and input their views. Alone customers complaint can go a long way in gaining atenton and force a large corporaton to change its policies. The downside however is that it is no longer possible to distnguish between good and poor quality informaton. There have been well-publicized examples of organizatons misleading consumers byway paying bloggers to upload positve comments about their organizatons/products. Back in 2006, leading US retailer Wal-Mart was discovered to having paid two bloggers to post positve comments about Wal-Mart stores as they travelled across the US 6 . rIghTS And reSPonSIbILITIeS Understanding consumer rights and responsibilites is becoming more complex; consumers may unintentonally infringe laws and contracts, and make spending commitments. . Unintentonal and contractual legal breaches can arise simply because people fnd reading and understanding terms and conditons, which can sometmes be excessively complex, difcult. Also digital products delivered in the process of downloading or streaming are not considered to be tangible goods and so are exempt from the consumers right to redress. As a result, consumers buying digital goods and services are exposed to risks where products are not ft for purpose or undelivered. There have also been instances where organizatons link consumer to free ofers to a commitment to purchase in the future. Consumers may opt-out online to such an agreement, but sometmes there are no obvious reminders and unintended purchases are undoubtedly made. ProTecTIng The Modern-dAy SrI LAnkAn conSuMer Sri Lanka is home to over 20 million mobile phone subscribers and close to 20% of the countrys populaton uses the internet 7 . With the embrace of technology more and more Sri Lankans are seen engaging both domestc and internatonal frms through e-business channels in the pursuit of securing their day-to-day needs. Local business can also be seen increasingly embracing online e-business channels to cater to the growing base of digital consumers. Sri Lankan mobile telecommunicatons service providers have been seen introducing new contactless payment system to exploit the emerging opportunites in the e-commerce sector. In the preceding light given the growing importance of digital consumerism both domestcally and globally, it is of critcal importance that domestc consumer protecton legislaton be updated and further bolstered to address the emerging threats on consumer safety. At present the key authority tasked with safeguarding consumer rights is the Consumer Afairs Authority (CAA), however given that digital consumerism also encroaches upon the jurisdicton of ICT and ICT related laws it is important that the CAA work closely with ICT regulators in developing policy.
(Endnotes) 1 Internatonal Telecommunicatons Union (ITU) (2013), The World in 2013: ICT Facts and Figures, ITU, Geneva, Switzerland 2 Hopkins C, Mitchell A and Smith P (2012), Defning and defending consumer interests in the digital age, Consumer Focus, UK 3 Kuneva M (2008), Key Challenges for Consumer Policy in the Digital Age, Roundtable on Digital Issues London, Experts of Speech by the European Consumer Commissioner, London 4 Brown B, Court D, McGuire (2014), Views from the front lines of the data-analytcs revoluton, McKinsey Quarterly, viewed online at <htp://www.mckinsey.com/ Insights/Business_Technology/Views_from_the_front_lines_of_the_data_analytcs_ revoluton?cid=other-eml-alt-mkq-mck-oth-1403> 5 OECD (2013), Empowering and Protectng Consumers in the Internet Economy, OECD Digital Economy Papers, No. 216, OECD Publishing 6 Internatonal Telecommunicatons Union (ITU) 2013, Measuring the Informaton Society, ITU, Geneva, Switerland TALKI NG ECONOMI CS 48 49 THE UNSEEN IMPACT OF US TAPERING OF QUANTITATIVE EASING ON THE SRI LANKAN ECONOMY Guest Article By Deshal De Mel, Senior Economist Hayleys PLC Today the Sri Lankan Rupee has recovered its mid 2013 losses to a great extent and the level of foreign holdings of government securites is similar to what it was pre- US tapering announcements in May 2013. In fact, afer tapering actually commenced in December, the Rupee has gained in value and foreign investments in treasuries has also increased. Therefore on paper it appears that there hasnt been much impact from the US taper. Credit Growth and Pawning in Sri Lanka There has however been a more subtle but very signifcant impact of tapering on the Sri Lankan economy. One of the more puzzling phenomena noted in recent months has been the lack of credit growth in the economy despite interest rates dropping to near record low levels since mid-2013. Part of the answer to this is connected to US tapering. Pawning is the name given to the practce of lending by using gold as collateral. This has been going on in Sri Lanka for many years, and has been an important aspect of fnancial inclusion since for most of rural Sri Lanka, gold jewelry has been the only plausible asset that can be used as collateral to access fnancial markets. The commercial banking sector 3 had litle or no involvement in pawning, with this segment of fnancial markets being dominated by fnance companies and specialized pawning agencies. However, in recent years, with the rise in price of gold, pawning increased exponentally. Traditonally, the practce has been to lend up to around 65 per cent of the value of pawned gold (loan to value rato), and as the price of gold increased post 2008, the lending against gold increased signifcantly. As more banks got involved in pawning, competton increased, with the key element in compettveness being the quantum of lending per sovereign. Accordingly, loan to value ratos also edged up beyond 85 per cent in some cases. This resulted in a massive expansion in credit due to pawning. In efect, there was a Rs. 320 billion monetary stmulus between 2010 and 2012. Furthermore, a signifcant proporton of borrowing against gold is by lower income rural and agricultural communites, therefore much of this borrowing is for consumpton, which has signifcant multplier efects on overall aggregate demand as well. Sri Lankan authorites ofen point out that Sri Lanka has not been as badly afected by the Federal Reserves tapering of quanttatve easing (QE) as other emerging/fronter economies. In a conventonal sense, this may be correct. Countries like India, Indonesia and several other emerging economies have experienced currencies depreciatng signifcantly along with a rise in domestc interest rates, resultng in a growth slowdown post June 2013. A lot of this was as a result of foreign investors in debt and equity markets selling out of domestc assets. Sri Lanka faced some early manifestatons of QE tapering in June 2013 as the Sri Lankan Rupee depreciated by around 6 per cent to a record low of 134 to the US Dollar as some foreign investors sold government debt holdings. However this was largely contained, as the total sales of such securites were not very signifcant. The majority of foreign investments in Sri Lankan debt are by large insttutonal funds, most of whom are long term players who hold to maturity. Their investment decision is based on the yield spread between Sri Lankan government securites and benchmark US government securites, factoring in a provision for currency depreciaton. For example, the yield on a 5 year Sri Lankan treasury is around 7% whilst the 5 year US treasury yields around 1.75%. Factoring in a historical average 4% per annum Rupee depreciaton, stll leaves a clear 1.25% margin on the Government of Sri Lanka paper, which is stll somewhat atractve for investors 2 . $800 $300 Jan 2004 Sep 2005 Federal Reserve Assets (billions) Gold - PM London Fix May 2007 Jan 2009 Sep 2010 May 2012 $1200 $500 $1600 $700 $2000 $900 $2400 $1100 $2800 $1300 $3200 $1500 $3600 $1700 $1900 The period in which pawning expanded coincided with some of the sharpest increases in lending to the private sector. In the three years between 2010 and 2012, out of total growth in lending to the private sector of Rs. 1,156 bn, approximately 27 per cent was due to growth in pawning. This would have no doubt contributed to the rapid rise in economic actvity seen during that tme as well. Quantitative Easing and Gold Prices Global demand for gold can be divided into physical demand and investment demand. Physical demand is primarily for jewelry and in high tech electronics. The rise in global demand for gold since 2008 is primarily due to investment demand associated with quanttatve easing. With the advent of QE, investment in gold increased as a hedge against perceived future infaton and against currency debasement as the US Dollar depreciated when the US Federal Reserve expanded its balance sheet. The price of gold increased exponentally, enabling signifcant increases in lending against gold in Sri Lanka. Figure 1: Impact of Quanttatve Easing on Gold Prices Source: World Gold Council The gold bubble began to defate in September 2012, however, at that tme a depreciaton of the Sri Lankan Rupee in mid-2012 ensured the domestc price of gold decline was not felt signifcantly. The impacts of the decline in gold prices in Sri Lanka began around March 2013, when the Cyprus crisis struck, and took on a very pronounced efect post taper announcements in May 2013. Towards the end of 2013 as tapering commenced, gold prices crashed below the US$ 1,200 per ounce mark. They have since recovered slightly on the back of global risk aversion due to crises in Ukraine and several other emerging economies, but will not return to peak levels. Figure 2: Gold Prices and Pawning in Sri Lanka Source: Industry Sources and World Gold Council Implications in Sri Lanka With the crash in gold prices, lending against gold has declined signifcantly in Sri Lanka. This has been due to a decline in both the value of gold against which credit can be lent and a decline in loan to value ratos to past levels. By the end of 2013, total outstanding lending against gold had declined by around Rs. 143 bn, in efect a major monetary contracton. To put this fgure in context, total increase in lending to the private sector in 2013 was around Rs. 175 bn. This monetary contracton, coupled with fscal tghtening in 2012 and 2013 in the form of reduced energy subsidies, would have been an important contributor to reduced aggregate demand in the Sri Lankan economy. Going forward, the pawning increases of 2010-2012 are unlikely to be repeated, and therefore we may not see the levels of credit growth in Sri Lanka experienced in 2010 and 2011, which were important contributors to economic growth. Banks have curtailed their lending against gold and as pawning Non-performing Loans (NPLs) have increased, it is understandable that a degree of risk aversion takes hold. Therefore US tapering has in fact had a very signifcant impact on the Sri Lankan economy, in terms of monetary contracton, consumpton, bank asset quality and also in terms of fnancial inclusion. (Endnotes) 1 The views expressed in this artcle are those of the author alone and do not necessarily represent the positon of any of the insttutons that he is associated with or of the Insttute of Policy Studies of Sri Lanka 2 However, pre tapering, the carry efect was far higher. In April 2012 for instance, the Sri Lankan 5 year treasury was trading at around 14 per cent and the US 5 year was at 0.7 per cent - giving a 9.5 per centmargin afer accountng for 4 per cent depreciaton. 3 Except for one public bank 2009 2010 2011 2012 2013 G o ld p r ic e U S $ / o u n c e O u t s ta n d in g p a w n in g a d v a n c e s L K R
B illio n 1800 600 500 400 300 200 100 1400 1000 600 200 Gold price Pawning TALKI NG ECONOMI CS 50 51 CONFLICTS AMONG SRI LANKAS HEALTH WORKERS ARE HURTING PATIENTS CARE By G.D. Dayaratne ALL HEALTH SECTOR WORKERS DOCTORS, NURSES, MIDWIVES AND OTHER PARAMEDICS SHARE THE RESPONSIBILITY FOR DELIVERING GOOD HEALTH SERVICES IN GOVERNMENT HOSPITALS. DUTIES AND ROLES OF THESE PROFESSIONALS ARE INTERTWINED. HEALTH WORKERS WHO ARE DISCHARGING DUTIES IN HEALTH FACILITIES ARE THE PRODUCTS OF YEARS OF SPECIALIZED TRAINING. UN-INTERRUPTED DELIVERY OF CARE IS INBUILT IN THEIR ROLES OF RESPONSIBILITIES, WHICH THEY HAVE UNDERTAKEN TO PERFORM. BUT MORE RECENTLY, THIS HEALTHY COLLABORATION HAS COME UNDER INCREASING STRESS IN SRI LANKA, WITH CONFLICTS BETWEEN THE DIFFERENT ACTORS CRIPPLING SOME CRITICAL ASPECTS OF PATIENT CARE. A STRAINED HEALTHCARE SYSTEM Sri Lankas public health sector, which is focused more on free of charge and pro-poor delivery of care for patents, has been constrained by a stagnaton of government expenditure on health between 1.7 and 2.0% of GDP in recent years. This has severely afected health sector development programmes, including improvements to human resources, infrastructure, medicine and bio- medical technology. For instance, on the human resource side, Sri Lankas public hospitals are experiencing a severe shortage of trained nurses, and a signifcant percentage of nursing posts remain unflled. These hospitals are also faced with an inadequate number of specialists, where the demand for specialty health services far exceeds the supply. Currently, the functons of government hospitals are already afected by new technologies introduced in private hospitals. These can only be used properly by specially trained physicians. Thus, more public sector specialists are now drawn to practce in private hospitals and they spend less tme in public hospitals. This situaton further exacerbates the shortage of specialty services. As a result the doctors and nurses in government hospitals are burdened with a heavy workload, creatng a confusing and unmanageable situaton in the respectve roles that they are assigned to. This afects the working relatonship among themselves. This has lead to an agitaton to redefne their respectve roles of some of the health workforce, undermining their responsibilites of caring for patents well being.
CONFLICTS AND STRIKES The on-going tussle between doctors, nurses and midwives is a result of this difcult situaton, which has led to midwives keeping away from their normal schedule of dutes (ward preparaton actvites of the pregnant mothers prior to transferring them into labour rooms). This has caused critcal difcultes for many pregnant mothers who are warded for delivery of their babies. The lives of expectant mothers in the maternity wards throughout the country were in jeopardy as the midwives had refused to carry out the preparaton work for them and even resulted in the death of one mother and the death of an infant. Midwives have threatened to keep away from deliveries in maternity hospitals and any work related to maternity clinics across the country as a sign of protest against nurses being given midwifery training. On the other hand, the nurses group complains that trainee nurses at the Nurses Training School and the Mental Hospitals have been deprived of midwifery training. Meanwhile, the doctors stress that they refuse to work in labour rooms with un trained nurses. According to the Medical Ordinance, only a doctor accompanied by a midwife could atend the labour room. The nurses agitate that the Medical Ordinance should be amended to facilitate midwifery-trained nurses to atend labour rooms. Over this issue, an island-wide work stoppage has been initated by the midwives placing the lives of thousands of pregnant mothers in great danger while the health policy makers maintain a somber attude on the whole episode. The latest development in this regard is that the nurses have given an ultmatum that they will resort to trade union acton if the issue is not resolved quickly. In this scenario, midwives have resorted to the ultmate sancton available by taking industrial acton to protect their positon. From an ethical point of view, such acton by medical professionals cannot be justfed because they have a direct impact on the lives of the very patents they are bound to look afer. Codes of ethics have been a long-standing element in the professional control of the medical professionals and indicate a commitment to act with integrity in extreme circumstances. Global best practces show that medical staf, actng together in the best traditon of trade unionism, remains a powerful and infuental force through which a great deal could be achieved by infictng minimum harm on the recipients who are depending on their services. When patents seek medical care they are not entering an ordinary social relatonship; they ofen feel vulnerable but need and are ready to expose and share intmate and important aspects of their lives with the caregivers. In the labour room, complex cases require evaluatng treatment optons, formulatng recommendatons, and artculatng the benefts and risks to patents. This requires teamwork among physicians, nurses, midwives and non-clinicians, including physical therapists. TACKLING THE CHALLENGE It appears that in Sri Lanka there is a policy vacuum related to the respectve roles of the doctors, nurses, and other healthcare workers in government hospitals. The ongoing tussle between doctors and nurses is a culminaton of this. To overcome it there is a need to urgently review the most important factors afectng the employability of medical staf, in order of importance. For instance, workload, stafng, tme with patents, fexible scheduling, respect from medical administraton, promoton and scholarship opportunites, etc. It is reasonable to assume that in government hospitals the dissatsfacton among the medical staf with regard to their working environment has a strong impact, together with workload and pay. Under these circumstances, there is a need for strategic initatves to evolve, adapt and innovate in order to contnue to provide efectve patent care amidst ever increasing demand, emerging technologies, and limited resources. This could be achieved only through commited cooperaton among the healthcare workforce and health administrators. As an innovatve model, a Voluntary Bonding Scheme and demonstratons of new workforce roles could be helpful in overcoming the recurring conficts in the health sector. Furthermore, a mult-disciplinary team could work to break down professional barriers among physicians, nurses, and midwives and facilitate beter collaboraton across the full spectrum of care, so that patents get the best from health service delivery. TALKI NG ECONOMI CS 52 53 The United Natons celebrates 2014 Internatonal Womens Day under the theme of Equality for women is progress for all. Ensuring gender equality maters in many ways to the development process of a country. Gender equality maters in its own right and has been recognized as smart economics. Experiences from various countries confrm that gender equality enhances economic efciency, and improves other development outcomes. WHAT WOMEN DO? 2012 data for Sri Lanka estmate that out of the total economically actve populaton (i.e. labour force) of the country, females account for only 33.4 per cent and out of the total economically inactve populaton, 70.3 per cent are women. This implies that there is a large untapped reservoir of womanpower that could be utlized for the development of the country, while empowering the individuals (i.e., females) and beneftng the entre society as a whole. On the other hand, atractng more women in to the labour force is of utmost importance, and of course a challenge, given the fact that the majority of the populaton in Sri Lanka is female. WHAT WOMEN CAN DO? Fostering women entrepreneurs can be an efectve way of capturing womens potental in the development process of a country. Promotng and developing women entrepreneurship can beneft the economy in many ways. It enhances inclusive economic growth by generatng employment opportunites and boostng the private sector at the local level; in additon, it improves the social, educatonal and health status of women and their families as women invest more in educaton, health and well-being of the family. On the other hand, womens entrepreneurship is especially signifcant in the context of moving Sri Lanka towards becoming an upper middle-income economy, as female-operated Small and Medium Enterprises (SMEs) could well cater to the demands of the rising middle class. Though women entrepreneurs have been designated the new engines for growth and the rising stars of the economies in developing countries to bring prosperity and welfare, in Sri Lanka gender biases against women are common in the SME sector, a sector in which women should ideally be able to start up their careers as entrepreneurs. Regardless of the sizes of the business, fewer women are employed in top managerial positons and less number of women partcipates in ownership compared with men (Figure 1). TO MARK INTERNATIONAL WOMENS DAY (8 TH MARCH) WHAT WOMEN DO AND WHAT WOMEN CAN DO: ENTREPRENEURSHIP AND GENDER EQUALITY IN SRI LANKA By Sunimalee Madurawala Apart from the challenges faced by the SME sector as a whole (i.e., accessing adequate and tmely fnancing, policy and regulatory issues, insttutonal weaknesses, limited access to larger markets in terms of market linkages, transport, telecommunicatons, and informaton and lack of innovaton) lack of adequate fnancial literacy, negatve norms and attudes towards entrepreneurship as a career opton, limited mobility, lack of access to networks and communicaton, an unequal share of family and household responsibilites, and no maternity protecton further hinder the visibility of women in the SME sector. Easing these obstacles is of utmost important considering the high contributon by the SME sector to the countrys economy (SME sector accounts for 80-90 per cent of the total number of enterprises of the country, it employs 26 per cent of the labour force and have a value additon of 17 per cent) and the potental the sector has in increasing gender equality through employment generaton for women. Source: World Bank (2011), Enterprise Surveys, Sri Lanka Country Profle % of frms with female top manager % of frms with female partcipaton ownership Figure 1: Womens partcipaton in enterprises (2011) SRI LANKA SMALL FIRMS (1-19 EMPLOYEES) MEDIUM FIRMS (20-99 EMPLOYEES) LARGE FIRMS (100+ EMPLOYEES) 26.1% 21.5% 38.5% 49.5% 4.8% 7.1% 9.5% 8.8% TO MARK THE INTERNATIONAL CUSTOMS DAY Customs for Securing and Facilitating Legitimate Trade in Sri Lanka By Suwendrani Jayaratne 26 th January was International Customs Day. Te theme for this year is, Communication: Sharing Information for Better Cooperation. Trade facilitation measures are important means of achieving improved communication and transparency, and hence the focus of this article is on the subject with reference to Sri Lanka to markthe International Customs Day this year.In 2012,US$ 18.3 trillion of goods crossed international borders(WTO, 2013). Each of these shipments would have passed through customs controls at least twice at entry and at exit. Given the customs role in the trading process, awell-functioning customs that is transparent, predictable and fast in clearing goods is crucial to a country and its people in securing the benefts ofnternational trade. Documentation and procedures are necessary to monitor and control the movement of goods, transfer of services and fnancial fows (UNESCAP, 2011). However, withslicing up of the value chain and integration of trade and disintegration of production (Feenstra, 1998), customs and other border procedures which govern the movement of goods can create delays and increase trade costs(WTO, 2013). Trade facilitation initiatives become important in this context as the potential reduction of costs through trade facilitation is estimated to be signifcant. What is Trade Facilitation? Trade facilitaton implies enhanced efciency in the administraton, procedures, and logistcs associated with cross-border trade (Wilson et al, 2003). A more comprehensive defniton of trade facilitaton include streamlining of regulatory environments, deeper harmonizaton of standards, and conformance [of processes and procedures] to internatonal regulatons (Woo and Wilson 2000). Minimizing transacton costs and complexity of internatonal trade, while maintaining efcient and efectve levels of government control is a major objectve of trade facilitaton (UNESCAP, 2011).Trade facilitaton can involve the improvement of both hard infrastructure (i.e., ports, railways) and sof infrastructure (i.e., customs management, transparency, etc.).Trade facilitaton isalso a major component of the current WTOs Doha Round negotatons. The WTO Trade Facilitaton Agreement will create binding commitments for its members to expedite the movement and release of goods, improve cooperaton on customs related maters and facilitate developing country implementaton (WTO, 2014). The benefts of these measures for the world economy areestmated to be between US$ 400 billion and US$1 trillion (WTO, 2014). Trade Facilitation in Sri Lanka Indicators such as port efciency, customs environment and regulatory environment, and also logistcs performance indicessuch as World Banks Logistcs Performance Index (LPI) and Trading Across Borders enable stakeholders to compare a countrys performance in the relevant areas, over tme as well as with the rest of the world.Sri Lankas performance in trade logistcs has been commendable compared to other South Asian countries. According to the LPI, a comprehensive trade logistcs performance index, Sri Lanka has improved its performance over tme,in the relevant areas (see Figure 1). Ranking 81 st among 11 natons, its overall LPI score is higher than the average LPI score of South Asian countries andthe average of lower middle income countries (see Figure 2).Ranking at number 46,India leads the South Asian region with a LPI score of 3.08. Singapore leads in the performance indicators and Sri Lanka TALKI NG ECONOMI CS 54 55 has much to achieve in the area. It is important that trade facilitaton isa key component of the governments development agenda. Sri Lanka Customs and its Role in Trade Facilitation A countrys Customs have to discharge the ofen complex tasks of collectng revenue, and managing security, environmental and health concerns. In the process, the Customs or the Government of a country may necessitate direct access and where necessary, temporary custody of import and export consignments (WCO, 2011). Documentaton requirements and the tme taken for these controls which halts the overall movement of goods is a concern for traders, governments and other stakeholders(WCO, 2011). Sri Lanka Customs has a history of over 200 years, having marked the milestone of 200 years in 2009. Its functons include: (i) the collecton of revenue, (ii) preventon of revenue leakages and other frauds, (iii) collecton of import and export data for statstcs, and (iv) cooperaton and coordinaton with other Government departments and stakeholders of imports and exports. (Sri Lanka Customs). In 2012, Sri Lanka Customs collected 55% of the natonal tax revenue (see Figure 3 for details), with 2,092 personnel supportng the customs operatons(Sri Lanka Customs, 2012). Apart from the main agencies of, the Customs, the Board of Investment (BOI ) and Sri Lanka Port Authority, there are more than 30 other government and non-government agencies that are part of the import-export process in Sri Lanka, i.e.,Sri Lanka Tea Board (permit for tea exports), Plant Quarantne Department (phytosanitary and fumigaton certfcates)(Wijayasiri and Jayaratne, 2009). Being a main stakeholder in the import/ export process, Sri Lanka Customs has taken several initatves to introduce some key trade facilitaton measure Paperless Trade and Moving Towards a Single Window A Single Window (SW) facility enables all partes involved in trade and transport to lodge all necessary trade-related documents and informaton to be submited once, at a single entry point to fulfll all trade and regulatory requirements.This also allows for sharing of informaton, standardized informaton and documents and coordinated controls and inspecton. The benefts of a SW/paperless system arevast. Moving to such a system is also challenging, with the need among others to, (i) analyse and standardize natonal data, (ii) have an enabling legal framework, (iii) inter- agency collaboraton, and (iv) have an enabling technical and management system. Hence, the need for a SW project to be included into a natonal trade facilitaton strategy of the country and a clearly identfed natonal focal point to drive such aprogramme in Sri Lanka. Technical assistance and expertse can be drawn from countries like Singapore and Korea, who have established Single Windows in their countries. Sri Lanka Customs has initated several programmes to reduce documentaton and clearance tmes in the trading process, such as the recent Sri Lanka Customs Paperless Exports Clearance Initatve. Once implemented, the Customs expects the number of documents in the export process to decrease from the current 12-16 documents, to 4-5 documents.Some of the initatves under this programmeinclude, (i) Warrantng the Customs Declaraton (CUSDEC) form without the papercopy being submited to Exports Ofce. Introduced in December 2013, e-warrantng is however, stll at the inital stages with a limited number of exporters currently using this facility; (ii) Calculaton and payment of all charges including the fee for Panel Examinaton will be done in one instancerather than having to make payments at diferent points of the process; (iii) Year LPI rank LPI Score Customs Infrastructure Internatonal shipments Logistcs competence Tracking & tracing Timeliness 2007 92 2.40 2.25 2.13 2.31 2.45 2.58 2.69 2010 137 2.29 1.96 1.88 2.48 2.09 2.23 2.98 2012 81 2.75 2.58 2.50 3.00 2.80 2.65 2.90 Figure 1: Performance of Sri Lanka in LPI 2012 Note: LPI rated on a scale of 1 (worst) to 5 (best) Source: World Bank (2012) Figure 2: Comparison of Sri Lanka with South Asia and Lower Middle Income Countries: LPI 2012 Source: World Bank (2012) Establishment of Centralized CargoExaminaton facility. Currently being developed within close proximity to the port, this will enable the cargo to be examined at the central facility rather than having a customs ofcer visit individual factories to carry out the panel examinatons; and (iv) Beter utlizatonof the Green Channel. The customs introduced the green channel system to facilitate the low-risk consignees. Currently being tested with 35 selected importers, it is to be extended to about 100 importers shortly. The system is expected to reduce the turn-around tme by 6-7 hours.In 2012, from the 189,617 import CUSDECs(home use) registered at examinaton points, close to 50,000 cargo containers with low risk commodites were released under green channel clearance (Customs, 2012). Modernization of Customs and Challenges With growing trade volumes and changing operatng environments, customs modernizaton is vital in meetng the ofen dynamic challenges which include (World Bank, 2005), (i) Sophistcated and demanding clients who have invested signifcantly in modern logistcs, inventory control, manufacturing, and informaton systems (ii) Policy and procedural obligatons that are associated with internatonal commitments (iii) Proliferaton of bilateral and regional agreements which increase the complexity of the administraton of border formalites and controls (iv) Security concerns including threats from organized crime and terrorism (v) Widespread revenue fraud In the process of modernizing the customs, it is necessary for Customs in countries like Sri Lanka where revenue collecton is a major objectve, to fnd an appropriate balance between trade facilitaton and regulatory control. In terms of trade facilitatonin Sri Lanka, research studies such as those carried out by IPS highlight key areas that need improvement in facilitatng trade. The necessary interventons broadly include:(i) the need to take forward the computerizaton and automaton of trade procedures and have a fully automated system in order to minimize human interventon, reduce documentaton and tme taken to trade; (ii) the necessity of a change in mind-sets to embrace new technologies, (iii) enabling customs clearance during weekends and holidays; and (iv) having all trade-related agencies that need to be visited to get approvals, permits and other documentatonunder one roof. References Sri Lanka Customs, 2013, Sri Lanka Customs Annual Performance Report 2012, Sri Lanka Customs. De Wulf, Luc and Sokol, Jose B, 2005, Customs Modernizaton Handbook, The World Bank. TALKI NG ECONOMI CS 56 57 Panel Discussion on Mainstreaming Youth in the Post 2015 Development Agenda with Special Focus on the WCY 2014 IPS Research Economist Chatura Rodrigo was a member at the panel discussion on Mainstreaming Youth in the Post 2015 Development Agenda with Special Focus on the World Conference on Youth (WCY) 2014 organized by the Ministry of Youth Afairs and Skills Development, National Youth Services Council, held at the BMICH on 4th January 2014. Mr Rodrigo made a presentation on Millennium Development Goals (MDGs) and Young People in Sri Lanka. Te panel included Resident Coordinator of the United Nations in Sri Lanka. Young professionals, youth activists, public and private sector ofcials and the Youth Led Task Force of the WCY also participated at this event. Presidents Awards for Scientifc Publication 2007, 2008, 2009 Kanchana Wickramasinghe, Research Ofcer at the IPS, won the Presidential Award for Scientifc Publications at the Presidents Awards for Scientifc Publication 2007, 2008, 2009, organized by the National Research Council of Sri Lanka. Kanchana won this award for the paper titled Cost to Government Health-care Services of Treating Acute Self-poisonings in a Rural District in Sri Lanka, published in the Bulletin of the World Health Organization in 2009. She received the award from the Chief Guest of the event Hon. PataliChampikaRanawaka, Minister of Technology and Research. Invest in East- the First International Investment Forum of Eastern Sri Lanka Dr. Saman Kelegama, Executive Director of the IPS was the key note speaker at the Invest in East Forum, organized by Ministry of Agriculture, Animal Production and Development, Rural Industries Development, and Fisheries of the Eastern Province, in collaboration with the Ministry of Economic Development and Ministry of Investment Promotion at the Hotel TajSamudra, Colombo, on 17th January 2014. Tis was the frst international investment promotion event focusing on Eastern Sri Lanka. Meeting with a High-Level Delegation from Chinas National Development and Reform Commission A delegation led by Mr. Qin Yucai, Director General of Department of Western Region Development, National Development and Reform Commission of P. R. China (NDRC) met with Executive Director of IPS, Dr. Saman Kelegama and IPS Research Fellow Janaka Wijayasiri, to discuss Economic Belt Along Silk Road and Silk Road on Sea (Maritime Silk Road - MSR) based on the idea to improve maritime connectivity and common development. Te meeting took place with 12 delegates at the IPS Executive Lounge on 24th February 2014. Forum on Startup Lessons Learned: Building of Sri Lankan Tech Ecosystem IPS Research Economist Anushka Wijesinha was a panelist at a recent event which was the frst of its kind to explore the emergence of tech entrepreneurship in Sri Lanka, the lessons learned from ongoing initiatives, and what more is needed to grow the sector. Te event was held on the 3rd of March at Orion City IT Park in Colombo. Anushka spoke in the second panel which looked at the role of government in this efort and what critical policy bottlenecks need to be addressed. Launching the Meeting the Development Challenges of Migration (MED_MIG) Project Te IPS launched the Meeting the Development Challenges of Migration (MED_MIG) Project, which aims to facilitate and conduct and timely research to fll knowledge gaps in developing efective policies to maximize development benefts of migration. Te project is funded by the End of Phase 1 Opportunity Fund of the Tink Tank Initiative (TTI) was launched on 6th March at the IPS Conference Room. Under the project a number of activities are earmarked for 2014 including training of researchers at IPS, targeted policy oriented research, establishing a Migration Resource Centre (MRC) within the IPS library, hosting of a workshop and an international conference, and disseminating research fndings through multiple channels. IPS NEWS Jan June 2014 Special Tribute Seminar in Honour of Dr. Gamani Corea Executive Director of the IPS, Dr. Saman Kelegama, spoke on Gamani Coreas Contribution to Commodity Price Stabilization at the Special Tribute Seminar in Honour of Dr. Gamani Corea organized by the South Centre in Geneva on 20th March 2014. Te seminar took place at the Palais des Nations and was supported by the Permanent Mission of Sri Lanka in Geneva. A number of dignitaries paid tribute and spoke on the intellectual legacy of late Dr. Corea. Te proceedings of the seminar will be published by the South Centre later this year. Deconstructing South-South Cooperation: A South Asia Perspective Dr. Saman Kelegama, IPS Executive Director, made a presentation on Te South Asian Experience with South-South Cooperation: Te Case of Sri Lanka, and was a Discussant to the Session on Te Framework for South-South Cooperation, Modalities, and Experience at the Southern Voices on Post-MDG International Development Goals dialogue on Deconstructing South- South Cooperation: A South Asia Perspective. Te one day seminar was organized by the NCEAR, New Delhi and CPD, Dhaka and took place on 28th March 2014 at the India Habitat Centre in Delhi, India. Technical Workshop on Updating and Improving the Social Protection Index Dr Ganga Tilakaratna, Research Fellow at the IPS, participated in the technical workshop on Updating and Improving the Social Protection Index organized by the Asian Development Bank (ADB), held in Manila, Philippines during 3-4 April 2014. Te workshop aimed at strengthening the technical capacity of ADBs member countries on monitoring and assessment of social protection programs. Te sessions covered methodology for constructing social protection index (SPI) for the countries in the region, importance of SPI for better targeting and assessment of social protection programs and sharing country experiences on preparation and implementation of SPI in member countries. Tis workshop brought together a large number of social protection experts, policy makers and practitioners from many countries in Asia and the Pacifc. Te IPS is preparing the Social Protection Index (SPI) for Sri Lanka with the support of ADB. Seminar on Dr. Gamani Coreas Contribution to Domestic & International Economic Policy A half day seminar was organized to pay tribute to late Dr. GamaniCorea by the Gamani Corea Foundation (GCF), IPS and the Marga Institute. Te seminar had four sessions. Te frst session analyzed Dr. Coreas contribution to Sri Lankas Economic Policy with special reference to planning, second and third sessions analysed Dr. Coreas contribution to the developing countries in the global setting, in particular, Commodity Markets, North-South Dialogue, New International Economic Order, and the South Commission. Te fnal session focused on Dr. Coreas contribution in Sri Lanka, in particular to institutional building the Marga Institute, IPS and the Sri Lanka Economic Association. Several Scholars, former diplomats and government ofcials familiar with Dr. Coreas work made presentations. Te key note address was delivered by the Chief Guest at the occasion, Hon. TissaVitarana, Senior Minister of Scientifc Afairs. Dr. Gamani Corea became the frst Chairman of the IPS in 1989. IPS NEWS Jan June 2014 58 Female Entrepreneurship and the Role of Business Development Services in Promoting Small and Medium Women Entrepreneurs in Sri Lanka By Kaushalya Attygalle, Dilani Hirimuthugodage, Sunimalee Madurawala, Athula Senaratne, Anushka Wijesinha and Chopadithya Edirisinghe Small and Medium Enterprises (SMEs) are of vital importance to the socio-economic growth of a country. In Sri Lanka, SMEs contribute to 50% of GDP and employ 26% of the labour force. Unfortunately, these SMEs face a number of constraints that hinder their growth, including both fnancial and non-fnancial constraints. Non-fnancial services (also known as Business Development Services - BDS) have a crucial role to play in creating a business friendly environment for SMEs, especially for Women owned SMEs. Since promoting female entrepreneurship can be regarded as an efective way of attracting more females into the labour force, IPS undertook this study with the objectives of examining the socio- economic and cultural barriers which hinder womens progression to SME sector. It also looks at the existing and future opportunities for women to enter and lead SMEs, with a special focus on access and availability of women - friendly BDS. Increasing awareness on available BDS, improving access to BDS, improving social acceptance and recognition for female entrepreneurs, and having a nationally accepted uniform defnition for SMEs are some of the key recommendations coming out of the study. Tis is a joint publication by IPS Sri Lanka and Oxfam GB Sri Lanka. Project Meeting on Informal Workers in Latin America, Asia and Africa Anushka Wijesinha, Research Economist, represented the IPS at a project meeting for a new global research project titled Health Inequalities and Access to Social Security for Informal Workers in Latin America, Africa and Asia: Sharing Lessons Learned. Te meeting had several plenary and breakout sessions to brainstorm on the design and implementation of the research. Te project, which is taking place at a regional and global level, is supported by the Rockefeller Foundation and led by FLACSO-Chile. Te meeting was held at the Rockefeller Foundation Bellagio Center in Italy from 8-10th April 2014. IPS Knowledge Contributions at the World Conference on Youth (WCY) 2014 Te WCY 2014 which was held during 6-10thMay was successfully concluded with the aim of mainstreaming youth in the post 2015 development agenda. Te IPS is pleased to have been part of the conference both as a key knowledge as well as a resource partner. Chatura Rodrigo, IPS Research Economist, chaired the Publications Subcommittee of the WCY which overlooked the preparation and dissemination of all publications materials in the conference. He also participated as a panelist at the last roundtable session on Poverty Eradication and Food Security. IPS Research Economist, Anushka Wijesinha, also shared insights as a panelist at the second roundtable session on Poverty Eradication and Food Security.A new report Investing in the Demographic Dividend: Successes, Challenges and Way Forward for Sri Lanka, jointly prepared by the IPS and UNFPA was also launched at a special side event of the WCY.Apart from this, IPS research publications including the recently launched Youth and Development: Realizing the MDGs for Sri Lankan Youth, and the July-December 2013 edition of the Talking Economics Digest were also made available to delegates from all over the world. Fourth Regional Meeting of Tink Tank Initiative (TTI- RM4) - Asia in the New World: Emerging Research Temes Deputy Director of IPS Dr. Dushni Weerakoon and IPS Research Fellow Dr. Nisha Arunatilake participated at the Fourth Regional Meeting of Tink Tank Initiative (TTI-RM4). Te focus of this meeting, held during 9-10thJune in Kathmandu, Nepal, was on the needs for and the ways of greater cooperation among think tanks in the region.Te meeting concluded with a panel discussion on What does recent events in worlds largest democracy mean for research uptake and policy infuence in South Asia? Moderated by Mr. AkhileshUpadhaya, Chief Editor of Te Kathmandu Post. Speaking at this session Dr. Weerakoon drew similarities between the current leaders of India and Sri Lanka and expressed hope that these commonalities will help to mend the previously strained relationship between India and Sri Lanka on the issues of human rights and governance. She also spoke at a session on Transiting into organic and vibrant South Asian TTI collective. Dr. Nisha Arunatilake was also a panelist at a session on Four years of TTI: Integrating learning within organizations refecting on achievements and challenges. IPS NEWS Jan June 2014 41 FAST FACTS 20,866 In the rst 7 months of the year, the Ministry of Health said it handled 20,866 possible dengue cases from all over the country. The majority of the cases reported have presented themselves in Colombo within the month of June,a peak time for the disease. $20 mn In April 2014, the Government of Canada resolved to defer $20 million of funds allocated to the Commonwealth as a result of inaction in the face of accusations of human rights abuses committed by Sri Lanka. Sri Lanka currently holds the Commonwealth Chair-in-Oice. 133 In the frst half of the year, Sri Lankas police force took confscated 133kg of heroin, in the latest eforts to crack down on increased drug smuggling actvites throughout the island. While the majority of arrests under the drug laws were for the possession of marijuana, Sri Lanka has been identfed as a transport hub for hard drugs between Brazil, Nigeria, Peru, and Thailand. 25% The Sri Lankan Tourism Development Authority reported an infux of 727,353 tourists between january and june 2014. This is approximately a 25% leap in the number of tourists that those reported to have visited Sri Lanka in the same period of tme in 2013. The decision of the Australian government to surrender 41 SRI LANKAN ASYLUM SEEKERS to the Sri Lankan authorizes in July2014 came under harsh criticism from human rights groups and the UNHCR.It is the current policy of the Australian government concerning asylum seekers who arrive by boat to dispatch them to detention camps in Papua New Guinea or Naruand resettle them in those regions. 250 MEGAWATTS The Ceylon Electricity Board has drawn up plans to generate a series of 250 megawat liquefed natural gas plants every year, from 2024 to 2032. While liquefed natural gas is considered to be more expensive than coal, it has been found to be a cleaner form of energy. 300 On July 16, 2014, Sri Lankas frst medical reference laboratory was opened at government- owned Lanka Hospitals Ltd. It is designed to produce a more efcient means of generatng diagnoses, while also ofering 300 new tests that were previously unavailable to laboratories around the country. A report presented by the charity Medecins Sans Fronteres revealed that approximately 35 million people are living with AIDS, but the epidemic can be brought under control by 2030 with increased eforts to diagnose and treat the disease. An alarming 63% of diagnosed individuals lack access to antretroviral therapy. 2030 567,000 Under the ongoing Colombo Urban Regeneraton Project of the UDA, 567,000 people are estmated to lose their original homes, and will receive apartments in state-built complexes in return. For some it is a positve opportunity step up, but for many it is a substantal compromise in quality of living. 18,000
Technological pioneer Microsof is poised to reduce its workforce by 18,000 jobs, a move designed to cut costs following the procurement of Nokia in April. This magnitude of job losses has not been witnessed in the companys entre history of 39 years. 17 days The Sochi 2014 Winter Olympics that lasted 17 days is considered to be the most expensive in history, witha price tag of US$51 billion, approximately 2.4% of RussiasUS$2 trillion GDP. 814 mn In April 2014, 814 million voters took part in the worlds largest act of democracy the Indian general electons. With 66% of voters turning out, the electons saw the victory of NarendraModi a former Chief Minister of Gujarat. 60 /insttuteofpolicystudies /TalkEconomicsSL www.ips.lk/talkingeconomics /IPSsrilankavideo