by Michel Nugawela and Pesala Karunaratna
Four decades of inaction since introduction of open economy – Sri Lanka has never missed an opportunity to miss an opportunity
Globally and regionally, country is unplanned and unprepared to drive forex earnings; exports, FDIs, and foreign-earned wage remittances record very slow growth rates below CAGR 5%
With CAGR 13.69%, tourism sector shows resilience despite no concentrated effort or national strategy; emerges as priority sector in medium-term to be No 1 forex earner
Nature and wildlife tourism has most potential to drive Sri Lanka as a hot destination for high value travellers as global mobility returns in 2021
A single elephant, alive, contributes $0.16mn a year or $11mn over its lifetime to tourism sector; 350 elephant deaths in 2019 amount to economic value of $3.9bn had they lived their lives fully
Forest cover reduced by 130,349 hectares from 2010-2019 reflecting a sharp increase of 8.6% of net forest change
The coronavirus crisis throws into sharp relief the tenuous state of Sri Lanka’s economy. The government is committed to export expansion but remains handicapped by decades of unpreparedness in strengthening the underlying enablers of competitiveness.
This opinion paper proposes a refocus on tourism as the priority sector to drive growth as Sri Lanka begins the difficult and lengthy task of reforming, restructuring, and strengthening national competitiveness. This will require shifting away from one-size-fits-all marketing under the mass tourism model to developing a product differentiation strategy that targets the best tourists – the high value traveller – with our best assets – nature and wildlife. This broad and diverse segment of travellers outspend mass tourists by 3-4 times and will be the first to travel and visit other countries once global mobility returns in 2021.
However, the high rate of deforestation dismantles the only competitive advantage Sri Lanka has to compete internationally and increase its exports of services. By stripping away nature and wildlife assets, the destination will be left with only its beaches and reputation for cheap sea-sun-sand tourism in the future.
Stagnant exports of goods and services
Exports of goods and services (% of GDP) was reported at 18.8% in 2019 of which goods accounted for 14.2% and services for 4.6%. In the years 2015-2019, total exports of goods grew from $10,547mn to $11,940mn – CAGR 3.15% – while total exports of services increased from $3,266mn to $3,888mn – just CAGR 4.45%.
Sri Lanka continues to lag other emerging economies in Asia that have successfully transitioned from an overreliance on primary goods to achieve export diversification and sophistication. In 1989, our total exports of goods and services as a percentage of GDP was 21.4% against Vietnam’s 16.5%. Thirty years later, our exports had shrunk to 18.8% as Vietnam’s increased to 119.3%. The reasons for this disparity can be found in the underlying enablers of export competitiveness where Sri Lanka’s capabilities are weak or entirely lacking.
Enabler #1 – Resource abundance
We have none. Consider the example of India’s BPO industry which is around 1% of the country’s GDP and 6% share of global BPO, directly and indirectly employing 10mn people. According to Tholons and AT Kearney Indexes of 2019, India remains the leading country to outsource because of cheap labour costs, a huge talent pool of skilled, English-speaking professionals (India’s English proficiency: #35/100 in the world and #5/25 in Asia), and tech-savvy manpower, despite competition from The Philippines, Vietnam and other Asian countries.
Enabler #2 – Price and contribution of unskilled or market-ready labour
We are stagnating at middle-income levels. The unskilled labour market demands higher wages and Sri Lanka lacks a pool of skilled market-ready workers (unlike the example of India, above).
Enabler #3 – Trade agreements that give producers access to a larger market
Domestic interest groups in Sri Lanka have opposed and successfully pressured governments to abandon free trade agreements. Meanwhile, emerging economies like Vietnam have made huge economic advances through trade liberalization and global integration. Since its Doi Moi reforms, the country has signed 12 (mostly bilateral) FTAs that have increased trade by ten-fold – from US$30bn in 2000 to almost US$300bn by 2014 – shifting it away from exports of primary goods and low-tech manufacturing products to more complex high-tech goods like electronics, machinery, vehicles and medical devices. The competitiveness of its exports will continue to increase, firstly, through more diversified input sources from larger trade networks and cheaper imports of intermediate goods from partner countries, and secondly, through partnerships with foreign firms that transfer the know-how and technology that is needed to leap into higher valued-added production.
Enabler #4 – Ability to enter, establish or move up regional or global value chains and production networks
Today, global firms optimize resources by investing or outsourcing the design, procurement, production, or distribution stages of their value chain activities across different countries. Yet since 1978, Sri Lanka has only captured share in the manufacturing and design stages of the global apparel value chain. The examples of Vietnam and Thailand demonstrate how both economies have become integral to different stages of the smartphone and automobile value chains for Samsung and Toyota.
Vietnam attracted Samsung at the early stages of smartphone evolution. Samsung established its first factory in Vietnam in 2008, when smartphone penetration was 10.8% globally; today it has three factories in Vietnam and world smartphone penetration is at 41%. Samsung remains the single largest foreign investor in Vietnam, with investments totaling $17bn (20% of Sri Lanka’s GDP) whilst Vietnam’s exports of smartphones and spare parts, mostly produced by Samsung Electronics, account for $51.38bn (20% of Vietnam’s GDP). On top of the current $220mn Samsung R&D center, Vietnamese Prime Minister Nguyen Xuan Phuc has requested Samsung Chairman Lee Jae-yong to next invest in a chip manufacturing plant, further strengthening the country’s competitiveness and sophistication in exports.
Toyota’s decision to enter the Thai automobile market in 1962 was largely due to the country’s industrial policy regime. Today – after 6 decades of concentrated effort between the Thai government and Toyota – Thailand is becoming a global passenger car production hub. Toyota’s investments have also helped to transfer knowledge and technology into Thailand, strengthening the R&D capabilities of Thai engineers. Toyota Thailand president Michinobu Sugata has expressed complete confidence in both Thailand and the company’s future direction in the country.
Since 1978, Sri Lanka has repeatedly missed opportunities to enter or establish itself in global value chains and production networks. We continue to be unplanned and unprepared in strengthening the underlying enablers of export competitiveness. Expect meagre export growth to continue.
Slow flowing foreign direct investment
These enablers of competitiveness are also the most important considerations to increase foreign direct investment. Inflows between 2015-2019 totalled $6.4bn, averaging $1.2bn every year and merely growing by CAGR 0.93% (this excludes the 99-year lease of Hambantota port to China in exchange for $1.1bn). Without improving supply-side constraints, international investors will remain reluctant to sink substantial resources in the country.
Strengthening the underlying enablers of competitiveness will take time. Expect stagnation in FDI inflows to continue.
Sluggish foreign worker remittances
Sri Lanka has become a major country of origin for unskilled workers with minimal economic value. Wage receipts, which amounted to $6,717mn in 2019 or 8% of GDP, negatively grew by CAGR -0.96% between the years 2015-2019. In 2019, the highest inflow ($3,459mn) came from the Middle East, a segment that participates in the lowest economic positions and lacks the skills, abilities and qualifications to mitigate any downturn in value in remittance flows.
However, the demographics are changing for neighbouring countries like India, where an increasing number of skilled white-collar workers (a growing cohort of professionals in the IT and engineering fields, according to MoneyGram) are quadrupling the average volume per each remittance.
To export quality human capital and increase our share of foreign-earned wages, Sri Lanka must introduce transformational policy reforms in education. Our university system – supported by proactive primary and secondary education systems – must be restructured to produce market-ready workers with the skills and adaptability to learn, grow and respond to change.
Reforms in the education sector will take time. Improving value in wage receipts remains a remote opportunity in the near future.
Amid no support or concentrated effort, tourism receipts grow double-digit
Tourism continued to expand and record double-digit growth of CAGR 13.69% between the years 2015-2018, despite the absence of a national strategy and a high percentage of low-income visitors. As a single sector, tourism receipts amounted to $4,381mn in 2018 or 4.96% of GDP and trended towards topping that in 2019. As Sri Lanka is weak or entirely lacking in the underlying enablers of competitiveness, and continues to be unplanned and unprepared in all other means of earning foreign exchange, tourism is the priority sector to drive economic growth in the short to medium-term.
The myth of mass tourism
For Sri Lanka, mass tourism has its advantages; it produces high revenues at high seasons by attracting tourists looking for the cheapest way to holiday (Sri Lanka’s largest inbound mass tourist markets are India, Britain, China, Germany, France, Australia, Russia, the US, the Maldives, and Canada). The mass tourism sector is also one of the largest employers in the country, providing direct and indirect employment to about 400,000 people.
But there are inherent constraints to the mass tourism model – such as its high seasonality, low average length of stay and low occupancy rates – which accelerate a downward pressure on prices. By repeatedly discounting for shrinking tourism dollars, mass tourism suppliers attract tourists who don’t spend (enough) and the tourism product stagnates: service quality decreases and consumer dissatisfaction increases over time. Finally, the destination gains popularity and is promoted for inexpensive travel.
First registered undergraduate of BCI Campus inducted by President
President Gotabhaya Rajapaksa paid a special visit to BCI Campus, Negombo (Benedict XVI Catholic Institute) on Jan.15 on the invitation of Malcolm Cardinal Ranjith, the Archbishop of Colombo.
The event was conducted under strict health protocols and was attended by a limited audience among which were the Archbishop of Colombo , Rector of BCI ; Rev. Fr. Quintus Fernando ,Professor G L Peiris, Minister of Education , Prasanna Ranatunga, Minister of Tourism,(Dr.) Nalaka Godahewa, State Minister – Urban Development, Coast Conservation, Waste Disposal, and Public Sanitation, Dr Sudharshini Fernandopulle, State Minister of Primary Health Care, Epidemics and COVID Disease Control, Nimal Lanza, State Minister – Rural Roads and other Infrastructure Development, Chief Air Marshal Roshan Gunatileke, Governor of the Western Province, Prof Kapila Perera, Secretary to the Ministry of Education, Prof Sampath Amaratunga, chairman of the University Grants Commission and Prof Sudantha Liyanage, Vice-Chancellor of the University of Sri Jayewardenepura, Prof. Ajantha Dharmasiri, chairman/Director – Board of Management, Postgraduate Institute of Management (PIM) and member of BCI Academic Council along with several other dignitaries.
Welcoming the gathering Rev. Father Quintus Fernando; Rector of BCI, said ‘BCI Campus was established 6 years ago with a holistic and unique approach to higher education. Our emphasis is not limited to developing graduates that are industry ready, armed with knowledge and skill, but we aspire to make BCI Campus a breeding ground for well-disciplined, humanely nurtured, and responsible citizens. We ‘Aspire to Inspire’ our students to become professionals who possess academic knowledge and skill sets, whilst also mentoring them to assert their dignity and integrity as true human beings”. The reverend father also drew special attention to the invaluable support President Gotabhaya Rajapaksa has rendered to BCI, over the years. Special mention was made to President is involvement in expediting the reconstruction and renovation work of BCI in 2015 as the campus prepared to welcome Pope Francis who visited BCI during his visit to Sri Lanka.
Speaking at the event, Malcolm Cardinal Ranjith who drew attention to the innumerable efforts of the Catholic Church to provide a sound Education to children and youth the world over, stated that ‘education today is not just a matter of mastering science and technology only, but also, and much more, a matter of assisting a young person to master life itself. So, Institutes of higher learning should not be so much profit making as much as academies of moral and spiritual formation for the youth’.
‘India leads from the front’
Prime Minister Narendra Modi launched the all-India rollout of COVID-19 vaccination drive on January 16 via video conferencing. Considered to be the world’s largest vaccination program, it covers 30 million health care and frontline programme workers across India in the first phase. The endeavor is to cover 300 million in the second phase. Elderly population and those with serious illness would be the focus groups in this phase.
A total of 3006 session sites were virtually connected during the launch with around 100 beneficiaries being vaccinated at each session site on the inaugural day. The massive vaccination programme is powered by Co-WIN, an indigenously developed online digital platform, which will facilitate real time information of vaccine stocks, storage temperature and individualized tracking of beneficiaries. A dedicated 24×7 call centre has also been established to deal with all issues pertaining to administration of the vaccines.
Speaking at the launch, Prime Minister Modi highlighted various steps undertaken by government of India in combating COVD-19. India released its first COVID-19 advisory on January 17, 2020 and was among the first countries to start screening passengers at its airports. Specifically on vaccines, he said that Indian vaccines were built on tried and tested technology in India and added that these vaccines will give a decisive victory to India in fighting the pandemic.
Hayleys Group drives bullish market
By Hiran H.Senewiratne
CSE activities were positive and bullish throughout the day and they were mainly driven by the Hayleys Group headed by Dhammika Perera, which saw a subdivision of all 14 listed Hayleys companies’ shares to enhance the Group’s market capitalisation, stock market analysts said.
It is said that Hayleys share prices appreciated by 32 percent or Rs. 187.50. Its shares started trading at Rs. 577.50 and at the end of the day they moved to Rs. 764. Dipped Products’ shares moved up by 31 percent or Rs. 138. Its shares started trading at Rs. 441 and at the end of the day they moved up to Rs. 579. This sub division would not increase the stated capital of any company, but would increase the liquidity of the shares as the number of existing shares increases. Confirming this, all these companies recorded huge price increases yesterday.
LOLC share prices appreciated by 24 percent or Rs. 56. Its shares started trading at Rs. 232 and at the end of the day they moved to Rs. 282.
Amid those developments both indices moved upwards. All Share Price Index went up by 246.60 points and S and P SL20 went up by 100.38 points. It is said that the All Share Price Index surpassed 8000 points for the first time in history, which closed at 8.184 points at the end of trading. Meanwhile, the S&P SL20 index, which includes the 20 largest and most liquid stocks also increased by 100.38 points (3.24%) to close at 3,196.73.
Turnover stood at Rs. 14.2 billion with ten crossings. Those crossings were reported in Sampath Bank, which crossed 3.1 million shares to the tune of Rs. 526 million and its shares traded at Rs. 170, HNB (Non Voting) 1.4 million shares crossed for Rs. 172 million its shares traded at Rs. 118, Dipped Products 292,000 shares crossed for Rs. 160.7 million and its shares traded at Rs. 550, CIC two million shares crossed for Rs. 137 million, its shares traded at Rs. 68. Meanwhile, DFCC’s 825,000 shares crossed for Rs. 61 million, its shares trading at Rs. 74, JKH 300,000 shares crossed for Rs. 35 million, its shares traded at Rs. 160, Aitken Spence 500,000 shares crossed for Rs. 35 million, its shares fetching Rs. 70, Tokyo (Non Voting) 3.56 million shares crossed for Rs. 27.3 million, its shares traded at Rs. 76.80, HNB Assurance 400,000 shares crossed for Rs. 24 million, its shares traded at Rs. 60 and Vallibel One 420,000 shares crossed for Rs. 20 million, its shares trading at Rs. 48.
In the retail market top five contributors to the turnover were, Dipped Products Rs. 1.8 billion (3.2 million shares traded), Hayleys Rs. 1.3 billion (1.8 million shares traded), Vallibel One Rs. 856 million (15.3 million shares traded), LOLC Rs. 797 million (three million shares traded) and JKH Rs.0.7 million (3.7 million shares traded). During the day 377.7 million share volumes changed hands in 66574 transactions.
Sri Lanka’s rupee was quoted around 197.50/198.50 to the US dollar in the one-month forwards market on Thursday while bond yields were steady, dealers said. Rupee last closed around 196.00/198.00 in the spot-next market on Wednesday against the greenback. The Central Bank’s indicative spot rate was 194.7980 on January 19, up from 193.6458.
SLAF on hazardous wall, Sri Lanka Air Force has sent us the following statement……
GL sounds far-reaching educational reforms
China slaps sanctions on 28 Trump administration officials, including Pompeo
7-billion-rupee diamond heist; Madush splls the beans before being shot
The Burghers of Ceylon/Sri Lanka- Reminiscences and Anecdotes
Unfit, unprofessional, fat Sri Lankans
Sports3 days ago
Eight Sri Lanka cricketers fail fitness tests
Opinion7 days ago
Govt. selling political decision as scientific!
news5 days ago
TNA, allies call for outfit like IIIM in Syria to probe SL
Features6 days ago
T. S. Eliot: A response to Kumar David’s “dislike”
Sports4 days ago
Spotlight on Dickwella after Galle defeat
news6 days ago
Roy Wijewickrama appointed Chief District Court Judge in North Carolina
news4 days ago
Proposal for recruiting lawyers as CIs discarded
news6 days ago
SL hopeful of getting first stock of Covid-19 jab within weeks