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| Sunday, 2 January 2005 |
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Question mark over use of investment funds by Lloyd F Yapa Sri Lanka has never experienced the growth rates of over 8% (sometimes at double digits) achieved by some of its fellow developing nations of the East and Southeast. Such rates of growth had enabled these economies to more than double their per capita incomes every ten years. Sri Lanka has achieved an economic growth rate of only 4-5% since independence. The levels of poverty are therefore still very high, being about 23% of the population earning less than approximately Rs. 1500/- per person per month. The Socio-economic Survey 2003/04 of the Central Bank, while appearing to confirming this trend, indicates disparities in income as between the 'haves' and the 'have nots' had not narrowed at all. What is worse, the poorer regions such as the Uva, Sabaragamuwa and Eastern Provinces had felt only a trace of the 'trickle down' effect of the prosperity experienced by the Western Province (WP). (The war-ravaged areas had meanwhile moved back into a state of poverty and trauma hitherto unknown). Blaming others The favourite game even among educated circles in this country is to blame someone or something else for this unimpressive performance, other than themselves or the ethnic and other conflicts created within. Some blame the open (market) economic policies practised since 1977, or the socialist policies in vogue in the most of the sixties and seventies. Some others complain bitterly about the standard policy prescriptions imposed by its donors of aid such as the World Bank and the IMF. Whatever it is, we Sri Lankans have been consistently seeking to enhance welfare at the expense of investment. Its rate of capital formation in fact has been about 25% in GDP terms, whereas its Far Eastern and South East Asian counterparts had shrewdly invested about 40% of GDP. They are consequently enjoying a fair degree of prosperity. This column has frequently referred to the need for substantial new investment and to the conditions, which have to be created to attract it. However, another question, that has to be raised is with regard to the efficiency of the use of whatever investments the country has been able to muster in various forms. Low investment in physical and human capital Clearly one of the areas into which investment has to be directed is for development of infrastructure and for production of goods and services (both of which constitute physical capital) as well as for the enhancement of services such as health and education (human capital). Infrastructure facilities such as roads, railways, ports and airports not only help to carry outputs from points of production to points of consumption but also attract further investment into production, distribution and exchange of goods and services. It is for this reason, that most high performing economies have given priority to put in place world class infrastructure. They have also invested heavily in the development of human resources, as trained and educated labour is essential to man and manage such activities. In Sri Lanka, as stated earlier, funds also have been drained away into unproductive purposes, mainly welfare and defence. In the process governments have not only got heavily indebted, but also have been left with very little for development of infrastructure facilities and essential services. (After the 12/26 tsunami tragedies, it in addition clear, that very little attention had been paid to disaster preparedness). Capital investment in infrastructure and social and economic services in Sri Lanka have averaged only about 5% of GDP per year in recent times; only about 40% of this are spent on hard infrastructure. The better performing economies of Asia on the other hand have spent around 6-8% of GDP per year on hard infrastructure alone. Neglect of rural areas Sri Lanka also has failed to allocate whatever that was available of such resources to areas, where it is most needed i.e. in the rural areas, where poverty is rampant. People living in such areas consequently find it difficult and expensive to transport and market their produce in the absence of a network of well-maintained roads and railways. Electricity for processing of their produce is unavailable to most; telecommunications connections for contact with the rest of the country and the cities are few and far between. The country has so far been able to develop only one port and one airport up to an international level. Trading activity with the rest of the world, which generate copious job opportunities, is therefore largely confined to the areas around these ports i.e. the WP. Governments in Sri Lanka have also failed to provide sufficient funds for development of services such as health and education in such areas, so that people living in these areas have not only been historically poor but also are unable to escape poverty. Worse, when disasters like that of 12/26 and droughts/ floods strike, they sink deeper into it. Inefficiency Another aspect of the use of available funds for development is the low rate of absorption of funds and waste, which are attributable to the inefficiency of the public service, implementing development programes. Instability and ideology Under spending in capital expenditure could be as high as 20%. Inefficiency is caused by lack of internal ownership of such programes, excessive red tape- especially in procurement, lack of co-ordination due to the crazy proliferation of institutions, widespread corruption, low morale due to political interference as well as low standards of budget execution and internal monitoring. In addition, external monitoring, especially by national audit institutions, the parliament and the beneficiaries - the people, has been weak. As already mentioned several times in these columns, social and political instability also has strongly interfered with the procurement and use of funds for development. It has been worsened by a slavish adherence to various ideologies. Thus there has been at times a stubborn persistence with inefficient State Owned Enterprises and a reluctance to rope in Foreign Investments, which are well known to be the medium for transfer of the necessary technologies, management skills and knowledge of external markets. The answer to this debilitating malaise is a strong commitment on the part of the leaders and other stakeholders to act in concert to obtain a national consensus on key development strategies and to implement them in a pragmatic and professional manner to fulfill the aspirations of the people. |
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