|
|
|
  |
| Sunday, 7 November 2004 |
 |
|
 |
Business |  |
| News Business Features Editorial
|
'Tap reservoir of Diaspora Investment' Continued from last week
Another document that is highly relevant to this discussion is the "World Development Report 2005: A Better Investment Climate for Everyone," published by the World Bank. The report shows that there is a close relationship between the progress each country has made in improving its investment climate and the level of success it has achieved in terms of economic growth, poverty reduction, and improved living standards. Growth rate China, India and Uganda stand out in this regard. China's spectacular growth over the last 20 years has lifted 400 million people out of poverty. India has more than doubled its average growth rate since the 1970s and made significant progress in respect of poverty reduction. Uganda achieved a growth rate during the past ten years that was eight times the average in Sub-Saharan Africa. The impact on poverty was also significant. Many countries in East Asia and Central Europe have also been making substantial progress towards realising higher levels of real per capita income, widely shared. The findings of the World Development Report clearly indicate that countries that have significantly improved their investment climate are marching ahead, leaving others behind. Sri Lanka therefore has a great deal of catching up to do. This is not to suggest that we have not been making any progress whatsoever. Despite the conflict, GDP averaged 5% growth during the 1990s, and a recent report published by the Department of Census and Statistics on the official poverty line shows that the poverty headcount ratio declined from 26% to 23% as well. These are very good achievements, bearing in mind the absence of peace and harmony for nearly two decades. Gender imbalance But let us not forget, the overall unemployment rate is 8.6%, while among educated youth (that is, GCE A/L and above), it is 16.4%, as reported by the Central Bank 2003 Annual Report. Moreover, there appears to be a serious gender imbalance. Among males the unemployment rate is 6.1%, while among females, it is 13.5%. This is a highly unsatisfactory state of affairs, reflecting inadequate growth, lack of adequate employment opportunities, especially for females and educated youth, and rigidifies in the labour market caused by outdated labour laws and regulations. Major structural reforms are therefore needed to solve the problem of high unemployment rates in Sri Lanka. The bottom line is whether a 5% GDP growth rate is sufficient to reduce the unemployment rate and also halve the proportion of the population living in poverty by 2015? Clearly not. Investment climate We have to aim for a 7-8% growth trajectory, which means we must not only achieve this rate, but also sustain it over a period of several years. According to the 2005 World Development Report, this is unlikely to happen in the absence of a sound investment climate. In other words, an enabling environment for private sector development is critical for achieving the twin objectives of faster growth and less poverty. In the words of Secretary-General Annan: "The United Nations has developed a profound appreciation for the role of the private sector, it expertise, its motivated spirit, its unparalleled ability to create jobs and wealth... In a world of common challenges and common vulnerabilities, the United Nations and business are finding common ground." We all recognize that the private sector plays a critical role in development. It creates most of the jobs, it pays most of the taxes needed to finance economic and social infrastructure development, it provides most of the goods and services, and also generates the bulk of foreign exchange earnings. Yet in the majority of developing countries, the private sector is hampered by the absence of a sound legal, institutional and policy environment. We need to take a close look at our investment climate, identify the problem areas, and come up with viable solutions. The EFC and other key stakeholders in the private sector have a key role to play in performing these tasks in partnership with the Government. Challenge To quote Devarajan and Smith of the World Bank: "The agenda is challenging, but everything does not have to be done at once. Impressive results can be achieved by addressing individual constraints, and by sustaining a process of ongoing improvements. China began by enhancing the security of property rights, India by easing red-tape and trade restrictions, Uganda by restoring macroeconomic stability and building credibility through a series of hard-won reforms. But sustaining progress is no less important, and requires commitment. Many governments are maintaining momentum through effective public education and through the creation of specialist institutions to engage stakeholders and review constraints." Reality Countries like Sri Lanka, which has been affected by conflict, not only has to think about how to improve the investment climate in general, but also had to come up with investment promotion strategies specific to the conflict-affected areas. Let us face the grim reality: Attracting private-sector investment in troubled areas is not easy. It requires innovation. A mix of economic and non-economic incentives will have to be devised. Similarly, involvement of the private sector in the larger work of formulating a strategy for post-conflict recovery will require innovative thinking. Says Allan Gerson in his paper entitled "Peace-Building: The Private Sector's Role": "In countries undergoing the transition from war to peace, the failure of economic programs aimed at growth in a free-market atmosphere can have particularly dire consequences. In this environment, a quick influx of capital and know-how is essential to serve as a counterweight to recidivist violence. In countries where fledgling peace efforts are foundering, a tangible promise of employment, trade, direct investment, and the promotion of local enterprise can have major stabilizing effect. Yet enlisting the private sector at the state where it matters the most - shortly after a peace treaty or accord is reached but when tensions remain inflamed and violence can be sparked by the slightest provocation - is problematic. Although a growing number of private sector businesses and companies can be counted on to explore economic participation in post-conflict contexts, they generally shun early engagement. Even if issues of market size and demand can be satisfactorily resolved, the absence of an established rule of law and good governance and the lack of personal security bode badly for foreign investment, especially where good opportunities abound elsewhere. Not surprisingly, therefore, engagement in areas of uncertain security and unpredictable futures is often deferred until conditions stabilize. Private-sector Herein lies the predicament: stabilization itself depends on private-sector entry; hence, waiting for stabilization as a precondition for entry becomes a self-defeating proposition. "Today's challenge is thus to find the means to make private-sector engagement attractive, especially at this early stage. Ideally, corporate participation would provide twin benefits: (1) investment, with resulting jobs and opportunities, and (2) the provision of managerial know-how and expertise to enable all the actors in the field ..... to operate in a more streamlined and synergic fashion." The Peace Secretariat has regular consultations with civil society and business leaders and I would like to submit for your consideration some key implementation issues that have been raised at these meetings. No doubt these issues must be resolved over time if an improved business climate is to be created in the North and East. We are doing our best to address some of these issues through the NCED, which is mandated to address policy constraints and implementation bottlenecks cutting across the various sectors. Let me touch briefly on these issues: 1. Very little information is available to the public on the North-East province. Government needs to develop a mechanism for disseminating key information to the private sector and civil society on an ongoing basis. 2. Government needs to identify possible sea routes for trading of consumer goods between North and South to bypass the problems of arbitrary taxes and multiple checkpoints (army/LTTE). 3. Arbitrary taxes and levies or protection money a serious issue in respect of accounting and auditing. It is also discouraging private companies in the South from investing in the North and East since there is no mechanism in place to enable these companies to recover these arbitrary charges. 4. The A9 highway is open only for ten and a half hours. The A9 should ideally be open round the clock. The Ministry of Defence recently agreed to open the A9 for twelve hours. 5. Mobile phone companies have to go through a great deal of red tape to invest in the North and East. Government should consider having a special arrangement (such as a one-stop clearing house) for approving and facilitating private sector ITC investment in the North and East. 6. The two regional chambers operating in Jaffna have got discouraged by the lack of economic infrastructure development in the North. Basic infrastructure facilities are essential for promoting private sector participation in trade and investment in the North and East. The Ministry of RRR is working hard on this. 7. Private banks are willing to support short-term income and employment generation in the North and East through lending for commercial activities, especially in the agriculture and agro-industrial sectors. But the lack of adequate marketing infrastructure (farm-to-market roads, market centres, transportation, etc.) is a serious constraint on commercialisation of smallholder agriculture in the North and East. Again, the Ministry of RRR is doing everything possible to improve the infrastructure in the conflict areas. 8. Local passenger airlines operating between Colombo and Jaffna (such as Lion Air and Serendib) should be encouraged to also undertake transportation of fruits and vegetables, so as to ease marketing constraints in the North and East. 9. Lack of property title is a major problem fro banks in respect of lending for housing reconstruction in the North and East. Government should identify options for tackling the title issue, such as authentication of legal documents and provision of Government backed title insurance. The bottom line is that property is held but not exactly owned by the poor. In some of the Latin American countries, more than 80 per cent of all their ownership is not legally represented in property documents. As observed by Hernando de Soto: "They [the poor] have houses but not titles; crops but not deeds; businesses but not statutes of incorporation". These words, uttered in the Latin American context, apply with equal force to the North and East, where as a result of the conflict, absence of property rights is rampant among the poor. 10. Government and the private sector need to identify modalities for working together as partners in furthering the peace process. The private sector could play a critical role in such areas as investment, advertising and promotion. For instance, a leading ICT company has developed a proposal for promoting the ideals of peace, harmony and ethnic reconciliation in schools, in partnership with the Ministry of Education. Just yesterday a leading advertising firm gave me a fascinating presentation of a children's game which could develop unity among our different communities. It is need the ambit of my talk to go into these modalities, since it is an area of public-private cooperation that requires specialized knowledge and expertise. Herein lies a challenge for the Employers' Federation of Ceylon foreign investors interested in doing business in the North and East and in identifying innovative policies and institutional mechanisms for promoting as well as encouraging early engagement. I would imagine that agribusiness, fisheries, tourism, information technology and communication, banking, insurance, and micro-finance are some of the areas where there is considerable scope for early engagement. Scope I would also encourage the private sector to examine the potential for rehabilitating the social and economic infrastructure of the North and East through joint ventures. Risk-sharing investment modalities, I believe, are most appropriate for areas undergoing the transition from war to peace. To repeat an earlier statement, the promotion of private enterprise can have a major stabilizing effect in the conflict-affected areas. We must make every effort to substitute the instruments of peace for the weapons of war. One of the most potent instruments of peace, I believe, is private sector led development in the troubled areas. I would even venture to say that early engagement of the private sector in the North and East is one of the most important avenues for securing peace and harmony in this island as a whole. Mr. President, Ladies and Gentlemen it is time to conclude my remarks. I have for many years been fascinated by the melody and the words of a popular Sinhala song entitled "Master Sir" which is about the employer-employee relationship. Let me quote the refrain in the song: Tug-of-war This "kamba adilla" or tug-of-war is not only between employer and employee. It goes on between ethnic groups, between religious groups and between political parties in the country. It is dysfunctional, debilitating and disastrous in terms of national integration, peace building, and economic development. It is time to stop this tug-of-war and to pull together so that we haul ourselves out of the quagmire of conflict and poverty to usher in a new era. |
|
| News | Business | Features
| Editorial | Security
| Produced by Lake House |
