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| Sunday, 24 October 2004 |
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Business |  |
| News Business Features Editorial
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What is possible and what is not by Lloyd F Yapa Having laboured on with some high 'falutin(g)' stuff about nation building visions, strategies and policies in these columns, it was felt it is time to deal with some down to earth topics, like the solutions, which some people are advocating with great passion in their desire to help the nation to overcome the problems it is grappling with. Import substitution For example, at a recent TV discussion a highly qualified person asked quite indignantly, why can't some of the goods, that we import for domestic consumption, utilizing vast sums of precious foreign exchange, be produced locally. One of the simplest answers is that sometimes it may be technically possible but not commercially feasible. For instance, although it is true, that the country spends billions of rupees importing sugar and it is quite possible to produce cane sugar in some parts of the country, the question, that should be asked is whether it could be sold to the harried housewife with a dwindling purse at the prevailing world market price and still earn an adequate return. When the country is bent on investing in such ventures for reasons other than commercial feasibility, the beleaguered Treasury invariably ends up paying a huge subsidy to the producer, whose cost per unit is invariably higher than the selling price. Perhaps it may be possible to make the local sugar production programme internationally competitive and very profitable by focusing on production on a larger scale and establishing a cluster to attract support industries and services to process and market the primary products. But then can we afford to release the necessary extents of additional arable land, which may have a more profitable use? The best way to proliferate the cultivation/production of any good is to select the crops/products concerned, which are immensely profitable to the cultivator/producer and the nation, the products of which can at the same time be sold to the consumer at a price, comparable to that of the imported product. This is something we have not been able work out since our colonial masters introduced tea and rubber. Village town expansion and plantations A similar question, which was directed towards the authorities is, why no attempt is made to stop the sale of tracts of paddy, coconut, rubber and tea for building construction purposes. The persons, who raise these questions should realize, that the owners of these lands have a right to sell such properties, if the income derived from the crops thereon is very much less than, what they could obtain by disposal among those clamouring to construct houses and other buildings for instance. The fear in the minds of people, who raise such questions is, that less land will be available for our sustenance. This is quite true as the amount of land is limited. However, the redeeming feature of cropping is that yields and returns could be raised substantially by undertaking agrarian reform such as granting of ownership rights to lease holders, large scale cultivation, the application of improved technology as well as the introduction of other high value crops, further processing and allied services. Foreign investment and SMEs This is the right moment to discuss another question, which was also asked at the above discussion and that is, why we need foreign investors, when our own investors could accomplish the task of expansion of production, if the right incentives are extended. Local enterprises are, however, too small to compete with large international firms. With the best of incentives most would find it difficult to muster the required capital ( national savings being about 20% of GDP, when the requirement for investment is over 30%), the technologies, skills and knowledge of external markets for products. So the prospect of finding employment to all the able bodied persons in the country and weaning them away from slavery in foreign lands would take ages. However, this dream could become a reality in, say, a couple of decades, if the country could attract suitable foreign investors, by becoming a safe and sound place to do business in, as stated in these columns. The main objection against foreign investors is they siphon off the profits of their operations to their home countries. This is the price we have to pay for our undeveloped status. The profits earned by such firms could be generally less than 20% of turnover. If there is social, political and economic stability in the country, a part of this would be ploughed back as investments. Indeed if there is stability in the country, long term investments in the country would be made by foreign firms and these, if they are well known names, in turn would attract others to come in. Much of the balance 80% or so of sales turnover, will be retained in the country, if local materials are used. These assets so created in addition will generate thousands of direct and indirect employment opportunities, which would never have been created in the country, if the foreigners had not come in to invest. This, however, does not mean we should not encourage our SMEs to be internationally competitive, especially by formation of geographical clusters, as Taiwan has done, to give a run for the money and market power of the foreign investors. The dictates of donor agencies Still another question asked was, why we should meekly accept the dictates of donor agencies like the World Bank, IMF, ADB and the like. It is very well known, that we as a nation have been living beyond our means and have become heavily indebted and do not possess sufficient savings to undertake development to generate jobs. Nor have we arrived at a consensus on a credible plan to overcome such problems. These donors may therefore take the upper hand and try to impose standard prescriptions, which may work elsewhere and not here, when we ask for assistance. We could very well resist such demands, if we possess practical plans of our own and an efficient public service to implement them with speed. The public needs to be educated on such issues. Correct and timely information could be as important as capital itself or any other factor of production to accelerate the development process. It is the bounden duty of the authorities and the media to satisfy this need. |
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