The current economic slowdown in South Asia comes against the backdrop of a global public health crisis that has halted economic activities across many economies in the region and beyond. Growth in South Asia is expected to average 2-3 percent in 2020 and then improve to 4-6 percent in 2021.
With the domestic outbreak of COVID-19, Sri Lanka’s growth projection for the next six months comes with significant downside risks—growth could be lower by another one percentage point, depending on the severity and the duration of domestic infection going forward.
However, quick measures to contain the domestic spread of the virus and the policy action to provide relief to those adversely affected has mitigated the fallout to a
Looking beyond the immediate challenge of weathering the ongoing health crisis and its economic fallout, there is an urgent need to reduce our over-reliance on our narrow production base, which can amplify the effect of adverse shocks.
Sri Lanka needs to participate aggressively in global value chains, which if increased, could help to diversify the country’s economic base. Traditionally, our industries have stronger backward linkages than forward linkages—they tend to rely more on foreign intermediates than they supply to foreign producers of final products. In both these aspects, Sri Lanka trails Malaysia and Viet Nam but is on par with South Asian neighbours such as Bangladesh, Pakistan and India.
Policy measures are therefore required beyond the immediate challenge of weathering the ongoing health crisis and its economic fallout. There is an urgent need now to reduce our reliance on our narrow economic base. Attributes such as entrepreneurship, innovation and management are required to drive this change in a post-COVID economy.
The first is the entrepreneurship to seek out opportunities and to take calculated risks. Standing still is a sure way of extinction. The second attribute, innovation, is what creates new products and processes that add value. The third factor is good management.
To grow, companies have to open up new markets and create new distribution channels. The economy will be driven by new knowledge, new discoveries in science and technology, innovation that are taken to the market by entrepreneurs. So, discovering new knowledge, research and development, management and marketing, banking and finance and the myriad of new subjects, will need to be mastered.
We would need to have inventors, innovators, venture capitalists and entrepreneurs; they must bring new products and services to the market to enrich the lives of people.
Also the global landscape for investments is changing fast. First, the advances in technology and virtualisation have reduced the cost of outsourcing, made distance less of a barrier and changed the economics of how businesses can best structure their operations across countries.
Second, technology and innovation have become more important for economic creativity. Investors will distinguish between innovative countries and countries that are merely good recipients of technology transfer, reflecting the weight investors give to technological sophistication and not simply low wages.
Third, competition for investment has intensified. The key to innovation and technology is people. We must develop and nurture our talent so that innovation and creativity will be integral to education and training. Our education system will be forced to revamp to nurture innovation and creativity, from kindergarten to university and on to lifelong learning.
The new global marketplace for goods, services, capital and knowledge will become even more mobile and online. These developments will accelerate the integration of regional markets. However, in order to benefit, countries must ensure that their laws and financial institutions facilitate the global flow. There is a fundamental need for the rule of law. It ensures stability and predictability.
Next, between participating countries, a congruence of laws and rules governing trade and investment will develop. This will ease economic activity by lowering transaction costs. The Roman and British Empires were examples in history of how trade flourished for hundreds of years, under the protection of a comprehensive unified system of laws.
Businesses due to digital tools will source for talent and opportunities globally. They will invent, collaborate or acquire technologies and capabilities globally to sustain their competitive edge. As the Internet post COVID-19 makes markets more contestable, businesses in Asia must compete on this platform or be
Societies that will succeed now on are those which easily assimilate talent virtually. Silicon Valley is such a place. Not only is it ‘colour blind’ and uniquely meritocratic, it has a culture that draws newcomers in.
Businesses will therefore need to reboot to stay alive to this new reality. COVID-19 is by far the biggest challenge economies have had to deal with in the recent history.