Daily News - 20/08/2014
The following is the continuation of Treasure Secretary Dr. J. B. Jayasundera's address to the Defence Seminar.
This scale of economic growth depends on the level of investments, productivity, improvements in the policy environment and the institutional setup to do business efficiently, application of research, technology and innovation, macro economic stability, national security and law and order. It is a much more challenging task than the previous two five – year phases, similar to an airplane that takes off on a long-haul flight, where the year 2020 will only be a stop-over destination.
This long journey needs to be supported through a strong National Budget which will bring macro economic security. It will be possible when the Budget continues to channel an increased volume of resources in support of core public investments in physical infrastructure, with parallel private investments shifting towards 30 percent of GDP from the current level of 24 percent of GDP. Equally, the Budget needs to divert a large volume of funds for the development of human resources and research and technology in excess of 6 percent of GDP, towards creating a productive and demand driven human resource base. Complementing the trust of the social responsibility of the Government, public spending on social security needs to be protected with special emphasis on the elderly and vulnerable groups. Channeling enhanced public expenditure to rural centric development initiatives and agriculture, fisheries and livestock is the core of the all inclusive development strategy of ‘Mahinda Chintana:Vision for a new Sri Lanka’ to further strengthen food security. All these are viable only if the nation is capable of providing resources for national security, which is a primary responsibility of the Government. Our challenge in the years ahead while moving ahead in this journey towards success, is to engineer the national Budget in line with these considerations.
I would argue that these multifaceted considerations along with public investments in infrastructure done by the Government and state enterprises at a stable level of 6.9 percent of GDP, have helped to sustain increased private investments – including FDIs from 176 percent of GDP in 2009 to 24 percent of GDP in 2014, with considerable efficiency improvements as well. Te challenge here is to raise private investments to 30 percent by 2020, focusing areas in which Sri Lanka has an edge while raising public investments to 8 percent – and bring total investments to near 0 percent along with continued efficiency improvements by improving ‘Ease of Doing Business’, and through technology, research, skills and manpower resource development.
Benchmarking success stories in development is important as much as making investment for growth, to keep pushing the growth momentum. Sri Lankan tea, which remained a primary export commodity for many years with a less than IUS$ 600 million export income has gained momentum in recent years and is gaining grounds through many homegrown brands and an expanded domestic value chain, having entered high-end markets covering advanced and emerging economies, international hotel chains and airlines, capable of surpassing USD 2.5 billion export earnings. This journey to achieve higher export earnings backed by a strong plantation economy and to retain its global recognition is being supported through recent Budget initiatives. Apparel is another great success story that has concentrated on international branded clothing manufacturing, while maintaining high quality, being sensitive to timely delivery, adopting best business practices, ethics and respect for decent labour practic3es in good working environments and above all having looked at emerging markets such as China, Brazil, Japan and Russia.
Government supported IT/BPO business
Like our success stories of the apparel and tea industries, the Government also pushed certain other areas to take a further lead in terms of country’s growth strategy. The Government supported IT/BPO business, which was around US$ 200 million in 2007, and is moving towards surpassing over US$ 1 billion export earnings and creating around 100,000 well paid employment opportunities by 2015 in the newly created policy and infrastructure environment supported by emerging skills in the labour force. This industry now projects US$ 5 billion net export earnings by 2022. Along with the skills development drive, the remittance income from Sri Lankans employed overseas is expected to cross the benchmark figure of US$ 10 billion by 2016.
Free trade agreements with India and Pakistan
In 2013, the Government created a legal framework to develop free ports and bonding facilities to build a Logistic Services Economy. New investments realized in logistic services, prospects of relocation of global business headquarters and generation of new activities having combined many inputs mobilized to free port areas have paved way for Sri Lanka to capitalize on its strategic location supported by newly built infrastructure at Magam Ruhunupura and greater Colombo city. The logistic industry and provision of services have just begun to attract Sri Lanka as a destination in which Headquarters of economic operations could be set up. New aspirations of a Marine Economy is emerging with prospects created having rationalized charges imposed on importers and exporters, the creation of the Shipping Corporation, the proposed setting up of a Marine Industry Regulatory Authority, coupled with the low tax regime for professionals.
Manufacture of electrical products, machinery and spare parts has also gained momentum. Energy sector related activities that are expanding, include the manufacture of high quality electrical equipment, electrical wires and cables. Shipbuilding and boat manufacturing have set the tone on the potential of high-tech industrial development. Local enterprises have entered the manufacture of multiday fishery boats, agricultural machinery such as combined harvesters etc.
The jewellery industry has also recorded a notable expansion in exports as well as in domestic trade. Manufacture of construction material, ceramics, tiles and sanitary wear, office and household furniture, home décor etc., provide new scales of investment opportunities to meet middle income aspirations. In promoting trade towards a greater volume of exports and import substitution, the trade and tariff strategy has been suitably directed in recent years. Free Trade Agreements with India and Pakistan as well as the proposed Free Trade Agreement with China to be launched shortly, are being approached to secure a greater volume of trade with these large emerging markets. Our Government shares the view of the newly elected Prime Minister of India – Narendra Modi, who said ‘sell anywhere, but manufacture locally.
Tourism industry booming
Tourism is becoming a lead industry, both in terms of foreign and local tourism and it is expected to record a turnover of US$ 2 billion by way of foreign earnings in 2014, which is expected to be US$ 5 billion by 2020. This has opened by array of opportunities, benefitting those engaged in extending home stays and boutique type hotel facilities, indigenous medical treatment combined with country’s matured western health system, hair and beauty care services, high quality herbal hair and body care product development, gift and souvenir manufacturing, furniture manufacturing, transportation and local agriculture and as also pushed the expansion of the construction industry. These are some of the visible changes in the emerging economic structure of Sri Lanka and these new activities should create the next wave of growth. Almost all of them are in the hands of the corporate private sector and SMEs. Tea, rubber, spices, herbs, fruits, vegetable, poultry and apparel products and even high quality bottled water have entered a longer value chain process from simple labour usage to skills, technology and quality while becoming brand driven businesses to be able to secure high prices and attract up-end emerging markets.
Supporting these emerging scenarios, while consolidating the new tax policy and fiscal policy strategies, a revenue administration management system and an integrated treasury management system are being lined up to be fully operationalised by 2015.
Concerted efforts are being made to simplify overlapping regulations, taxes and levies that have crept into the system due to the building up of layers of operational institutions, to reduce transaction costs and make doing business easier, particularly to SMEs. The automation of Sri Lanka Customs’ import export documentation process, is being operationalized. Work is in progress to provide 24x7 Centralized Cargo Processing facilities for cargo exports, to further facilitate exports.
In the process of advancing towards an upper middle income per capita, the Government has recognized the importance of legal and financial sector reforms as announced in the 2014 Budget. In the legal sphere – reducing laws delays, setting up dedicated courts to handle commercial disputes to ensure the early dispensation of such cases, could be heightened as dire needs. It is encouraging to note that introducing of technology to Court Houses, promoting Court assisted mediation and revision of Superior Court rules are in progress to reduce delays, among other reform initiatives that are being implemented.
Financial sector must be repositioned
The financial sector should be repositioned to meet the needs of an emerging economy, crossing its traditional boundaries through new and diverse economic activities, while also gaining ground in the region.
The operation of a large number of small financial institutions with a low capital base is a constraint to satisfy regulatory standards, particularly, in the backdrop of financial instruments getting diversified. It is in this background that the 2014 Budget proposed a medium term consolidation process to strengthen financial institutions, which is in progress. IT is a priority area in policy and institutional development. Here again, an inclusive policy strategy is being implemented in recent times bringing IT into both education and work places. These are steps taken to strengthen best practices in our governance structure.
Ladies and Gentlemen, let me stress that in the process towards graduating as a high middle income economy, the remaining facets of poverty will have to be addressed, while taking safeguards to protect vulnerable groups, uplift livelihood avenues and provide gainful employment opportunities to low income households, while also conserving Sri Lanka's bio diversity and the environment. Achieving a high income economy will make sense only if it moves parallel to addressing problems encountered in distant areas still vulnerable to adverse weather conditions such as droughts.
Incentive structures and institutional setups should be geared towards promoting advanced water management technologies and drought resistant cultivation practices among farmers to address climate related risks, including having in place stand-by funding support to mitigate extreme risks.
Considering the importance of the rural agrarian economy, the SMEs and food security and environment priorities, the continuity of the present rural centric approach towards development is likely to provide greater prospects to become a high per capita nation that is free from poverty, with an acceptable level of equity with regard to household and regional income distribution. In this process, given the high standards that are already achieved, it is equally important to target zero maternal and child mortality, while also addressing emerging challenges of non-communicable diseases among the population to improve quality of life, productivity of the workforce and maintain a healthy population whose life expectancy on average would be 80 to 85 years during the next 10 years. Hence, surpassing a higher per capita growth process has been made inclusive.
This brings together the synergy of the underlying five hubs namely, shipping, aviation, energy, trade and commerce and tourism, forming the foundation to drive the economy as a strategic global destination.
You would see that it is structurally different from the legacy up to 2005 that I explained.
It need to be doubled through a well-integrated effort by the tri service, the civil service and the private sector, while working on this common national vision.
Country to reach US$ 7,500 per capita
Country has strong prospects of reaching US$ 7,500 per capita by 2020
In Sri Lanka, the post 2005 development journey and the post conflict take - off are both vision driven, by the extraordinary leadership of President Mahinda Rajapaksa who helped the country to reach calm waters having sailed in rough seas, while placing the economy on an inclusive development strategy.
The country now has strong prospects of reaching US$ 7,500 per capita by 2020 and entering a transitional phase to become an advanced economy by 2035.
Succeeding this challenging transformation demands further strengthening of the ongoing rural centric development strategies to facilitate livelihood development and food security, a social security system for the vulnerable, a preserved natural environment with bio diversity, infrastructure development, uncompromising national security and peace, law and order and maintaining continuity from a policy perspective and to boost business confidence to advance the country steadily.
Hence, we need to place trust in the nation building strategy of the Mahinda Chinthana: National Vision, to make 20/35 development goals, a reality.
Sri Lanka an emerging nation
Sri Lanka as an emerging nation, which is increasingly integrating with the global economy, needs to be attentive to developments that are taking place around the world. Advanced G7 nations as shown in the recent Economist magazine, are performing below the potential growth in their countries owing to productivity lags, ageing population as well as ageing infrastructure. All these nations are heavily indebted and run high fiscal deficits, requiring difficult reforms with strong political commitments. The recent financial crises along with the slowdown witnessed by these economies, have raised many structural problems connected with labour markets and immigration policies.
Newly emerged BRICS nations too have slowed down and are faced with constraints to sustained high growth rates similar to those of past 20-30 years due to compressed demands from advanced economies as well as strong exchange rates, high labour and material costs, environmental issues and social safeguard concerns.
Initiatives are underway to form a new multilateral bank of BRICS nations, a bank of SARRC nations and an Asian Infrastructure Investment Bank led by China, to address capital needs of emerging and developing countries and also to address repeatedly, unheard concerns over the years of developing countries, by existing multilateral financial institutions, such as the World Bank and IMF.
The use of trade sanctions has undermined the thrust of global trade and investment arrangements under WTO. Similarly, the stand taken by the newly elected Government of India recently to oppose WTO led trade reforms in respect of agriculture in the interest of food security, reflects the Voice of Asia on this matter.
The lead taken by the Asia Pacific region in the global economy, signals of a new economic order. The operation of NGOs in non-regulated environments, had become a threat to financial management, inclusive development and law and order itself.
Widespread terrorism has threatened shipping, aviation and financial transactions that risk trade, tourism and investment. Computer crimes, drug trafficking and smuggling are also risks associated with the global economy.
Adjusting to be able to manage these risks and to de-risk economy suitably, are also challenges that we need to be mindful of, without being complaisant with the many good achievements made so far.
The following is the continuation of Treasure Secretary Dr. J. B. Jayasundera's address to the Defence Seminar.
This scale of economic growth depends on the level of investments, productivity, improvements in the policy environment and the institutional setup to do business efficiently, application of research, technology and innovation, macro economic stability, national security and law and order. It is a much more challenging task than the previous two five – year phases, similar to an airplane that takes off on a long-haul flight, where the year 2020 will only be a stop-over destination.
This long journey needs to be supported through a strong National Budget which will bring macro economic security. It will be possible when the Budget continues to channel an increased volume of resources in support of core public investments in physical infrastructure, with parallel private investments shifting towards 30 percent of GDP from the current level of 24 percent of GDP. Equally, the Budget needs to divert a large volume of funds for the development of human resources and research and technology in excess of 6 percent of GDP, towards creating a productive and demand driven human resource base. Complementing the trust of the social responsibility of the Government, public spending on social security needs to be protected with special emphasis on the elderly and vulnerable groups. Channeling enhanced public expenditure to rural centric development initiatives and agriculture, fisheries and livestock is the core of the all inclusive development strategy of ‘Mahinda Chintana:Vision for a new Sri Lanka’ to further strengthen food security. All these are viable only if the nation is capable of providing resources for national security, which is a primary responsibility of the Government. Our challenge in the years ahead while moving ahead in this journey towards success, is to engineer the national Budget in line with these considerations.
I would argue that these multifaceted considerations along with public investments in infrastructure done by the Government and state enterprises at a stable level of 6.9 percent of GDP, have helped to sustain increased private investments – including FDIs from 176 percent of GDP in 2009 to 24 percent of GDP in 2014, with considerable efficiency improvements as well. Te challenge here is to raise private investments to 30 percent by 2020, focusing areas in which Sri Lanka has an edge while raising public investments to 8 percent – and bring total investments to near 0 percent along with continued efficiency improvements by improving ‘Ease of Doing Business’, and through technology, research, skills and manpower resource development.
Benchmarking success stories in development is important as much as making investment for growth, to keep pushing the growth momentum. Sri Lankan tea, which remained a primary export commodity for many years with a less than IUS$ 600 million export income has gained momentum in recent years and is gaining grounds through many homegrown brands and an expanded domestic value chain, having entered high-end markets covering advanced and emerging economies, international hotel chains and airlines, capable of surpassing USD 2.5 billion export earnings. This journey to achieve higher export earnings backed by a strong plantation economy and to retain its global recognition is being supported through recent Budget initiatives. Apparel is another great success story that has concentrated on international branded clothing manufacturing, while maintaining high quality, being sensitive to timely delivery, adopting best business practices, ethics and respect for decent labour practic3es in good working environments and above all having looked at emerging markets such as China, Brazil, Japan and Russia.
Government supported IT/BPO business
Like our success stories of the apparel and tea industries, the Government also pushed certain other areas to take a further lead in terms of country’s growth strategy. The Government supported IT/BPO business, which was around US$ 200 million in 2007, and is moving towards surpassing over US$ 1 billion export earnings and creating around 100,000 well paid employment opportunities by 2015 in the newly created policy and infrastructure environment supported by emerging skills in the labour force. This industry now projects US$ 5 billion net export earnings by 2022. Along with the skills development drive, the remittance income from Sri Lankans employed overseas is expected to cross the benchmark figure of US$ 10 billion by 2016.
Free trade agreements with India and Pakistan
In 2013, the Government created a legal framework to develop free ports and bonding facilities to build a Logistic Services Economy. New investments realized in logistic services, prospects of relocation of global business headquarters and generation of new activities having combined many inputs mobilized to free port areas have paved way for Sri Lanka to capitalize on its strategic location supported by newly built infrastructure at Magam Ruhunupura and greater Colombo city. The logistic industry and provision of services have just begun to attract Sri Lanka as a destination in which Headquarters of economic operations could be set up. New aspirations of a Marine Economy is emerging with prospects created having rationalized charges imposed on importers and exporters, the creation of the Shipping Corporation, the proposed setting up of a Marine Industry Regulatory Authority, coupled with the low tax regime for professionals.
Manufacture of electrical products, machinery and spare parts has also gained momentum. Energy sector related activities that are expanding, include the manufacture of high quality electrical equipment, electrical wires and cables. Shipbuilding and boat manufacturing have set the tone on the potential of high-tech industrial development. Local enterprises have entered the manufacture of multiday fishery boats, agricultural machinery such as combined harvesters etc.
The jewellery industry has also recorded a notable expansion in exports as well as in domestic trade. Manufacture of construction material, ceramics, tiles and sanitary wear, office and household furniture, home décor etc., provide new scales of investment opportunities to meet middle income aspirations. In promoting trade towards a greater volume of exports and import substitution, the trade and tariff strategy has been suitably directed in recent years. Free Trade Agreements with India and Pakistan as well as the proposed Free Trade Agreement with China to be launched shortly, are being approached to secure a greater volume of trade with these large emerging markets. Our Government shares the view of the newly elected Prime Minister of India – Narendra Modi, who said ‘sell anywhere, but manufacture locally.
Tourism industry booming
Tourism is becoming a lead industry, both in terms of foreign and local tourism and it is expected to record a turnover of US$ 2 billion by way of foreign earnings in 2014, which is expected to be US$ 5 billion by 2020. This has opened by array of opportunities, benefitting those engaged in extending home stays and boutique type hotel facilities, indigenous medical treatment combined with country’s matured western health system, hair and beauty care services, high quality herbal hair and body care product development, gift and souvenir manufacturing, furniture manufacturing, transportation and local agriculture and as also pushed the expansion of the construction industry. These are some of the visible changes in the emerging economic structure of Sri Lanka and these new activities should create the next wave of growth. Almost all of them are in the hands of the corporate private sector and SMEs. Tea, rubber, spices, herbs, fruits, vegetable, poultry and apparel products and even high quality bottled water have entered a longer value chain process from simple labour usage to skills, technology and quality while becoming brand driven businesses to be able to secure high prices and attract up-end emerging markets.
Supporting these emerging scenarios, while consolidating the new tax policy and fiscal policy strategies, a revenue administration management system and an integrated treasury management system are being lined up to be fully operationalised by 2015.
Concerted efforts are being made to simplify overlapping regulations, taxes and levies that have crept into the system due to the building up of layers of operational institutions, to reduce transaction costs and make doing business easier, particularly to SMEs. The automation of Sri Lanka Customs’ import export documentation process, is being operationalized. Work is in progress to provide 24x7 Centralized Cargo Processing facilities for cargo exports, to further facilitate exports.
In the process of advancing towards an upper middle income per capita, the Government has recognized the importance of legal and financial sector reforms as announced in the 2014 Budget. In the legal sphere – reducing laws delays, setting up dedicated courts to handle commercial disputes to ensure the early dispensation of such cases, could be heightened as dire needs. It is encouraging to note that introducing of technology to Court Houses, promoting Court assisted mediation and revision of Superior Court rules are in progress to reduce delays, among other reform initiatives that are being implemented.
Financial sector must be repositioned
The financial sector should be repositioned to meet the needs of an emerging economy, crossing its traditional boundaries through new and diverse economic activities, while also gaining ground in the region.
The operation of a large number of small financial institutions with a low capital base is a constraint to satisfy regulatory standards, particularly, in the backdrop of financial instruments getting diversified. It is in this background that the 2014 Budget proposed a medium term consolidation process to strengthen financial institutions, which is in progress. IT is a priority area in policy and institutional development. Here again, an inclusive policy strategy is being implemented in recent times bringing IT into both education and work places. These are steps taken to strengthen best practices in our governance structure.
Ladies and Gentlemen, let me stress that in the process towards graduating as a high middle income economy, the remaining facets of poverty will have to be addressed, while taking safeguards to protect vulnerable groups, uplift livelihood avenues and provide gainful employment opportunities to low income households, while also conserving Sri Lanka's bio diversity and the environment. Achieving a high income economy will make sense only if it moves parallel to addressing problems encountered in distant areas still vulnerable to adverse weather conditions such as droughts.
Incentive structures and institutional setups should be geared towards promoting advanced water management technologies and drought resistant cultivation practices among farmers to address climate related risks, including having in place stand-by funding support to mitigate extreme risks.
Considering the importance of the rural agrarian economy, the SMEs and food security and environment priorities, the continuity of the present rural centric approach towards development is likely to provide greater prospects to become a high per capita nation that is free from poverty, with an acceptable level of equity with regard to household and regional income distribution. In this process, given the high standards that are already achieved, it is equally important to target zero maternal and child mortality, while also addressing emerging challenges of non-communicable diseases among the population to improve quality of life, productivity of the workforce and maintain a healthy population whose life expectancy on average would be 80 to 85 years during the next 10 years. Hence, surpassing a higher per capita growth process has been made inclusive.
This brings together the synergy of the underlying five hubs namely, shipping, aviation, energy, trade and commerce and tourism, forming the foundation to drive the economy as a strategic global destination.
You would see that it is structurally different from the legacy up to 2005 that I explained.
It need to be doubled through a well-integrated effort by the tri service, the civil service and the private sector, while working on this common national vision.
Country to reach US$ 7,500 per capita
Country has strong prospects of reaching US$ 7,500 per capita by 2020
In Sri Lanka, the post 2005 development journey and the post conflict take - off are both vision driven, by the extraordinary leadership of President Mahinda Rajapaksa who helped the country to reach calm waters having sailed in rough seas, while placing the economy on an inclusive development strategy.
The country now has strong prospects of reaching US$ 7,500 per capita by 2020 and entering a transitional phase to become an advanced economy by 2035.
Succeeding this challenging transformation demands further strengthening of the ongoing rural centric development strategies to facilitate livelihood development and food security, a social security system for the vulnerable, a preserved natural environment with bio diversity, infrastructure development, uncompromising national security and peace, law and order and maintaining continuity from a policy perspective and to boost business confidence to advance the country steadily.
Hence, we need to place trust in the nation building strategy of the Mahinda Chinthana: National Vision, to make 20/35 development goals, a reality.
Sri Lanka an emerging nation
Sri Lanka as an emerging nation, which is increasingly integrating with the global economy, needs to be attentive to developments that are taking place around the world. Advanced G7 nations as shown in the recent Economist magazine, are performing below the potential growth in their countries owing to productivity lags, ageing population as well as ageing infrastructure. All these nations are heavily indebted and run high fiscal deficits, requiring difficult reforms with strong political commitments. The recent financial crises along with the slowdown witnessed by these economies, have raised many structural problems connected with labour markets and immigration policies.
Newly emerged BRICS nations too have slowed down and are faced with constraints to sustained high growth rates similar to those of past 20-30 years due to compressed demands from advanced economies as well as strong exchange rates, high labour and material costs, environmental issues and social safeguard concerns.
Initiatives are underway to form a new multilateral bank of BRICS nations, a bank of SARRC nations and an Asian Infrastructure Investment Bank led by China, to address capital needs of emerging and developing countries and also to address repeatedly, unheard concerns over the years of developing countries, by existing multilateral financial institutions, such as the World Bank and IMF.
The use of trade sanctions has undermined the thrust of global trade and investment arrangements under WTO. Similarly, the stand taken by the newly elected Government of India recently to oppose WTO led trade reforms in respect of agriculture in the interest of food security, reflects the Voice of Asia on this matter.
The lead taken by the Asia Pacific region in the global economy, signals of a new economic order. The operation of NGOs in non-regulated environments, had become a threat to financial management, inclusive development and law and order itself.
Widespread terrorism has threatened shipping, aviation and financial transactions that risk trade, tourism and investment. Computer crimes, drug trafficking and smuggling are also risks associated with the global economy.
Adjusting to be able to manage these risks and to de-risk economy suitably, are also challenges that we need to be mindful of, without being complaisant with the many good achievements made so far.
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