Some Random Thoughts on Economic Development

By Laksiri Fernando-October 31, 2016, 8:04 pm 

There is a need to be optimistic about Sri Lanka’s future. This is also called positive thinking or PMA (positive mental attitude) in psychology. Positive thinking is necessary not only in politics but also or more so in economics. After all it is the economic progress that would enable people to be optimistic about life, their children’s future and the future of the country. Before thinking of global interdependence, the people need to have a good grasp of mutual interdependence within the country. The fate of all peoples are interwoven, whether they be Muslims, Tamils or Sinhalese or whether they believe in Buddhism, Hinduism, Islam or Christianity, or not believe anything.

The most unfortunate condition among the people undoubtedly is poverty; the lack of basic goods and amenities to meet their day to day needs. This is why the corruption, waste and misuse of resources by politicians or officials are henious crimes. Sri Lanka still is a lower middle income country. This is when the whole country is taken together. However, when we refer to the rural Sri Lanka, or areas still not recovered from the thirty years of war, the people live in lower income conditions and some even at the bottom of the pale. There are vast disparities of facilities in housing, health, education, transport or other infrastructure between the rural and urban areas. The most affected are the children and the youth. The most psychologically suffering are the women, given the constitution of our family institution.

Limitations in the State Sector

There is nothing wrong in people making money, if the means are legitimate. This right however should be available to all, and opportunities should be there for the people to undertake income generation activities. It is true that the state cannot supply employment to all. Even at present, the excess-employment in the state sector is considered a burden to the country and its coffers. Therefore, employment cannot be expanded or expanded substantially in the state sector. To some, this is a political point of view or ideology, but that is what dominant today and the facts are also clear.

There is no such burden to the country, if the private sector expands and opens up employment opportunities. In the past, there were inhibitions on the part, for example, of graduates to work in the private sector. This might be largely changed today. However, there can be a mismatch between the required qualifications in the private sector and the availables kills among the unemployed people. One among them can be English language skills. Another can be good maths knowledge, assuming our young people are fast acquiring computer skills.

However, the short term expansion in the private sector is also limited. The Prime Minister in his ‘Economic Statement’before Parliament recently has expressed that ‘since the state sector was borrowing heavily from banks in the past, there was no much room for the private sector to borrow.’ It is true that without borrowing, the private sector cannot expand. Very few have inherited money to completely start or expand businesses of their own. Private companies and banks are inter linked. However, the banks should also lend to small businesses and joint self-employment projects.

Promotion of Self-Employment

In a country like Sri Lanka, there is much room for small businesses and joint self-employment ventures. What is necessary are required skills, motivation, marketing, support from banks or other lending organizations, and insurance to cover any setbacks or calamities. For self-employment or joint self-employment, the primary requirements are the skills and also the equipment. Training of those skills could be undertaken by technical colleges or vocational training institutes. They could be like the TAFE institutes in Australia. I am not saying they are bad at present, but there can be much improvement. Training in building, construction, interior designing, plumbing, domestic or building electrification, information technology, photography or graphic designing for example could generate self-employment or joint self-employment. What I mean by joint self-employment is ventures initiated by two or more people together to supply services to customers.

What appears to be lacking in Sri Lanka of these ‘skilled workers’(apart from the required skills!) is the use of advanced equipment and required technology.That is why they waste time and energy unnecessarily. When such equipment is used, the strain on physical labour is eased. Again if I refer to Australia, there are women alongside men who are involved in these self-employment ventures. It is possible that when people get such training, some might go to the Middle East. But some may remain, or even otherwise the country is sure to get foreign remittances. To venture into self-employment, there are other skills required apart from motivation. These may entail book keeping, financial handling or know how on where and how to start. The impartation of this knowledge is up to the teachers and teaching modules.

Room for SMEs

The promotion of small and medium scale business enterprises (SMEs) in the country is different and complex. It may be true that even at present over 90 percent businesses are SMEs. The reason is that there are not much large scale businesses. Our capitalism is petty-bourgeois! The National Enterprise Development Authority is entrusted with promoting SMEs. Its role however does not appear to be impressive. Most of the SMEs are not well organized enterprises at present. They mostly survive because there are not much competition or they all are the same. There are several ingrained weaknesses identified in the SMEs. (1) There is a gender bias against women. (2) Managerial skills and knowledge of owners are low. (3) There is reluctance to observe labour standards. (4) The absenteeism levels are quite high.

High or dynamic entrepreneurship and innovation are two requirements necessary for successful SMEs. Emerging from an ancient agrarian society, it is understandable that people cannot quickly jump into modern entrepreneurship. However, this transition has dragged on now for a long period since colonial times. It is argued that the state dominance in the economy has dampened greatly the development of private entrepreneurship in the country. Therefore, releasing of market forces to develop entrepreneurship is considered necessary even if the country wants to move towards socialism in the future. It is believed that this is also the secret behind China’s miraculous growth during the last two decades. Why not utilize or experiment the opportunity?

In developing the SMEs, Sri Lanka itself is not a small market. It has nearly a 21 million people. If the SMEs are capable of going beyond, undoubtedly they have to grow beyond SME status. Whether SMEs or bigger enterprises, high entrepreneurship and innovation are important. What is the status of such attributes in the country at present? We know by the end of the 19th century,how certain local entrepreneurs entered the plantation sector as junior partners of the British planter raj. They also handled the transport services. I also remember how the textile industries sprang in my home town, Moratuwa, competitively in the 1960s. Same success could be seen in the confectionaries and soft drinks. There were several foreign franchise industries even going beyond the local market. These are random experiences. Then there was a decline in the 1970s until the open economy opened up for export garment industries and other joint ventures.

Some Disasters

There were some disasters as well. Most of them were related to people’s savings and investments while the Colombo Stock Exchange being dominated by a close group of companies or people. One successful entrepreneurship was related to the Central Finance and affiliated companies. But as we all know, some of the transactions were dubious. There were several other fraudsters like Sakvithi in the financial market. The situation showed that people had money to invest, but expected quick and high returns. The Central Bank or the other regulators were incapable of controlling the situation. There was something wrong with the business ethics as well.

For the enterprises to grow, there should be investments. For the investments to take place, there should be savings in the country. Otherwise, there should be investments from other countries (FDI). Sri Lanka could pursue both avenues. The general tendency in the country in the past has been consumerism. Consumerism do generate demand that could stimulate industries and enterprises. But if there are no local industries to supply for the demand, the tendency is to import. There are traders comfortable in importing. Importation of goods is not bad, if there are parallel exports. Then it is global trade. Otherwise, it is a liability for foreign exchange or country’s coffers.

For the local industries to grow, there should be sufficient savings in the country. These should be channelled through banks and other financial institutions. The stock exchange is also an important channel, although the people or even the entrepreneurs are not familiar with it. For small enterprises, banks might be the best sources of finance for investments.

Importance of Innovation

Enterprises have to grow through innovation. In other words, entrepreneurship should be for innovation. Has Sri Lanka invented anything in particular? Let us take the example of food industry. From Australia, there are two examples that I can give. During its industrialization and growth, Australia has invented Weet-Bix and Vegemite. These are standard breakfast items still popular in the country. Recently there has been a major demand from China for Weet-Bix. I could remember what was known as Thriposha in Sri Lanka in the 1970s. It was introduced as a food supplement for the poor by CARE Canada (during that food scarcity period), but it could have been developed as a popular breakfast cereal by any entrepreneur. It is nutritious, low cost and could have been improved into international standards.

Same could have been said about an alternative to Vegemite. I have been thinking and even experimenting about a Mungmite as a pastime! Mung or green gram has a great potential of converting itself into a processed food item. It can easily be condensed and has a unique taste in its cooked and condensed form. When added with yeast, it could compete with Vegemite or Marmite. I am saying this openly as I have no intention of starting any business! What is important is to think in terms of innovation in promoting economic development.

Sri Lanka has a great potential for its food industry and exports. When I go to a supermarket in Sydney, I can find Dilma tea but not any other Sri Lankan products (MD or other). Those are only available in small Sri Lankan shops. There is something missing in export promotion and marketing. Dilma however is very popular among average Australians. The way the Dilma has developed might be the way the others could develop with high ethical standards.

Finding market opportunities or creating them through marketing is also part of innovation. Sri Lanka should go for niche products and niche markets. I am still sticking to the food industry. Those may be available in the Middle East, India and China or in Australia. Why not allow the entrepreneurs to utilize the Halal market in the Middle East? I think I have seen a news item that it is happening. It should be further promoted. Sri Lanka should shed away parochial thinking. When the products are designed,they should be for the markets and not to our own taste. Why not produce something like ‘The Cola’ (Tea Cola), a cola based on tea. It could be healthier than Coca Cola. There is nothing wrong in marketing such a thing as an Asian product.