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Sri Lankas Post-War

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
JUNE 2014
3 2
Saman Kelegama, DPhil (Oxon)
Dushni Weerakoon, PhD (Manchester)
Anushka Wijesinha, Editor
Charmaine Wijesinghe, Manager Publications
and Events
Savani Jayasooriya, Communications Ofcer
Thilini Perera, Consultant Designer
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
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
Twitter: www.twitter.com/TalkEconomicsSL
Karunaratne and Sons (Pvt) Ltd.
67, UDA Industrial Estate, Homagama,
Sri Lanka
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
Editor Talking Economics
(Research Economist, IPS)
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.
14 12
28 35
46 44
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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
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.
Compiled from ITC Trade Map database htp://www.trademap.org/
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
Refer Challenges remain for ChinaSri Lanka FTA htp://www.eastasiaforum.
two countries has increased steadily over the years; almost doubling
between 2008 and 2012 from US$ 1.5bn to US$ 2.7bn
. China is
now Sri Lankas second largest trading partner
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
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
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
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.
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
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
Private Sector Credit
2006 2007 2008 2009 2010 2011 2012 2013
Credit growth Credit
Figure 1: Monetary Sector Indicators
Source: CBSL, Annual Report, various years.
l lo

2006 - 2008 2010- 2012
Share of Credit Extended
Gross NPL Rato
2007 2008 2009 2010 2011 2012 2013
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
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
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
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
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
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
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
500 1000
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.
By Anushka Wijesinha
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
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
(In 2013 Anushka Wijesinha completed an Asia
Development Fellowship where he was based at the KDI
in Seoul. )
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.
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.
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
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.
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.
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.
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.
By Dilani Hirimuthugodage
14 15
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
May 2009
Saman Kelegama
[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.
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
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
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
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
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
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
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
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
. 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
. PDC used the free-trade zones and
industrial estates for focused infrastructure
development for successful global integraton
of the Penang economy.

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
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
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,
Broadly defned to include both electronics and electrical
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.
20 21
Sri Lankas economy is in a very diferent place today
than 5 years ago. What are the changes that you fnd most
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
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
- Suresh Shah
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.

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.
- 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
22 23
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.
- Indrajit
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.
- 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.
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.
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.
Several developing countries haveintroduced their own natonal
and local insttutons to spur diaspora engagement. By creatng
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.
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.
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
24 25
What is the key challenge in health in post-war Sri
There is an increase in non-
communicable diseases and we
need to strengthen healthcare
nancing to meet this
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.
Finding the best mix of
destinations, skills levels,
gender and number of migrants
to maximize the benets and
minimize the costs of migration
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
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...
Getting the private sector to come in
as equal partners to drive Sri Lankas
post-war economic growth and
development eorts
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
Improving quality of education
throughout the system and expanding
tertiary education, especially in the
elds of science and technology
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
Attracting much more foreign
direct investment and also
strengthening the SME sector
are the twin challenges. For
both these, business climate
issues need tackling
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
Developing right attitudes
and incentives to tackle
environmental issues
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
Sri Lanka needs to improve the
competitiveness of its exports in the
international markets and boost its
overall export performance
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@
Creating more productive and
decent employment opportunities
so that low-income households have
better income and social security
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
Issues with land ownership are
aecting agricultural productivity
and livelihoods in the North and
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
Chatura is a Research Economist and works on agriculture
and climate change policy issues. chatura@ips.lk
26 27
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.
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.
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
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
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
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.
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
Funded by the South Asian Network for
Development and Environmental Economics
This refers only to hotels which partcipated in the
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
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
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
By Chatura Rodrigo and Athula Senaratne
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.
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
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.

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.
30 31
Drained Out or New Potential?:
By Chatura Rodrigo and Athula Senaratne
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.
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
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
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.
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.
New renewable energy
CEB wind power
Thermal power
Major hydro
Te share of
is estimated
to reduce
from 40.2%
in 2007 to
19.5% by
2020, while
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
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?.
32 33
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
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.
Sustainable Energy Authority, 2012, Sri Lanka
Energy Balance: An Analysis of the Energy
Sector Performance, Government of Sri Lanka.
4 Public Utlites Commission of Sri Lanka,
2011, Natonal Policy for Of Grid Hydro Power
Generaton, Government of Sri Lanka.
Ceylon Electricity Board, 2009, The Electricity
Act of 2009 and the Development in the Sector,
Government of Sri Lanka.
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
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?
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
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
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
By Rajiv Kumar
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
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
The decISIve
MAndATe won
by Mr ModI wILL
enSure ThAT
he wILL hAve
LegITIMAcy And
AuThorITy To
deFIne IndIAS
whIch In Turn
wILL drIve
The counTryS
ForeIgn PoLIcy.
ThIS couLd
LeAd Mr ModI
To TAke on
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
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,
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
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
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
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
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
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
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
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-
Dividend Era
- New Report by IPS
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
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
The quality of
education in
the country
has not kept
up with global
There is a new
trend where
very aluent
prefer to by-
pass the local
system to
get a quality
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.
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
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
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,
are more
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
42 43
By G.D. Dayaratne
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.
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.
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/)
44 45
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
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.
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.
Huisman J. et al. 2008 Review of Directve 2002/96 on Waste
Electrical and Electronic Equipment (WEEE). Bonn: United
Natons University, 2007.
Bergman keet. al., State of the science of endocrine disruptng
chemicals 2012: summary for Decision-Makers, UNEP and WHO
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
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
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
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
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
. 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
. 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
. 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
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.
By Raveen Ekanayake
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
. 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
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
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
. 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.

Internatonal Telecommunicatons Union (ITU) (2013), The World in 2013: ICT Facts and
Figures, ITU, Geneva, Switzerland
Hopkins C, Mitchell A and Smith P (2012), Defning and defending consumer interests in
the digital age, Consumer Focus, UK
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
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/
OECD (2013), Empowering and Protectng Consumers in the Internet Economy, OECD
Digital Economy Papers, No. 216, OECD Publishing
Internatonal Telecommunicatons Union (ITU) 2013, Measuring the Informaton Society,
ITU, Geneva, Switerland
48 49
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
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
$800 $300
Jan 2004 Sep 2005
Federal Reserve Assets (billions) Gold - PM London Fix
May 2007 Jan 2009 Sep 2010 May 2012
The period in which pawning expanded coincided
with some of the sharpest increases in lending to
the private sector. In the three years between 2010
and 2012, out of total growth in lending to the
private sector of Rs. 1,156 bn, approximately 27
per cent was due to growth in pawning. This would
have no doubt contributed to the rapid rise in
economic actvity seen during that tme as well.
Quantitative Easing and Gold Prices
Global demand for gold can be divided into physical
demand and investment demand. Physical demand
is primarily for jewelry and in high tech electronics.
The rise in global demand for gold since 2008 is
primarily due to investment demand associated
with quanttatve easing. With the advent of QE,
investment in gold increased as a hedge against
perceived future infaton and against currency
debasement as the US Dollar depreciated when
the US Federal Reserve expanded its balance sheet.
The price of gold increased exponentally, enabling
signifcant increases in lending against gold in Sri
Figure 1: Impact of Quanttatve Easing on Gold
Source: World Gold Council
The gold bubble began to defate in September
2012, however, at that tme a depreciaton of the
Sri Lankan Rupee in mid-2012 ensured the domestc
price of gold decline was not felt signifcantly. The
impacts of the decline in gold prices in Sri Lanka
began around March 2013, when the Cyprus crisis
struck, and took on a very pronounced efect post
taper announcements in May 2013. Towards the
end of 2013 as tapering commenced, gold prices
crashed below the US$ 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.
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
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
Except for one public bank
2009 2010 2011 2012 2013

1800 600
Gold price Pawning
50 51
By G.D. Dayaratne
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.

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.
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.
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.
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.
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).
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
% of frms with female
partcipaton ownership
Figure 1:
Womens partcipaton in
enterprises (2011)
Customs for Securing and
Facilitating Legitimate
Trade in Sri Lanka
By Suwendrani Jayaratne
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
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
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,
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
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)
LPI Score Customs Infrastructure
& tracing
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
With growing trade volumes and
changing operatng environments, customs
modernizaton is vital in meetng the ofen
dynamic challenges which include (World Bank,
(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
(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
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.
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.
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.
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
Jan June 2014
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
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.
Jan June 2014
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.
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.
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
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.
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.
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.
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.

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.