Deputy Minister of Public Enterprise Development EranWickramaratne, in an interview with Dailymirror, says preferential market access to India is always important. He says the current Free Trade Agreement (FTA) with India should be expanded from goods to services. He shared the following with us:-
QHow important is it for Sri Lanka to have trade agreements with different countries?
International trade is increasingly based on trade agreements. Most countries in the world will be party to multiple trade agreements. Sri Lanka has about four trade agreements of which the Indo-Sri Lanka agreement is the most significant. Trade agreements are not the panacea for increasing exports. However, it will certainly be more difficult to increase trade without having preferential treatment into markets.
QIn that context, how important is to sign the proposed Economic and Technology Cooperation Agreement (ETCA) with India?
India is the fastest growing economy in Asia. It’s present GDP growth is about 7.6%, while Sri Lanka’s will be about 5%. China’s sustainable economic development strategy will also yield a lower growth than India over the next decade. We are at the gateway to the world’s fastest growing market. Are we to ignore this opportunity? All opportunities are time bound. If we miss this opportunity, other countries through preferential agreements, will benefit. With India’s adverse relationship with Pakistan, an even greater opportunity exists for us. Presently, more than 50% of goods going into India are trans-shipped through the Colombo port. We are the ‘last port of call’ into India.If we do not capitalise on this, it is a matter of time before others will take advantage through trade agreements to nullify the advantage we have geographically. Today, trade must be seen wholistically: not just goods, but goods and services. Technology is the glue that binds both goods and services.
QThere are concerns raised by local exporters on the shortcomings in the current Free Trade Agreement (FTA). How do you respond?
There are shortcomings in the current trade arrangements. Most of these shortcomings are related to non- tariff barriers. Moving goods across Indian states and the differential treatment and delays have caused much frustration amongst SL exporters.
These issues are being constantly raised by the SL side in trade negotiations. In August 2016, the Lokh Sabha unanimously passed a Constitution Amendment Bill that enabled the Goods and Services Tax Bill (GST) to replace a number of different state and local.
This could potentially turn India into the world’s largest single market. It may take some time to take effect but may address some of the issues we face in terms of state border delays.
In the Economic and Technological Cooperation Agreements (ETCA) we are also making the case for Mutual Recognition Agreements (MRA’s). Then, a Sri Lankan exporter will be able to obtain an export standards certificate from Sri Lanka which will be acceptable in India and vice versa. This would speed up the movement of goods.
QHow can Sri Lanka secure greater market access to India?
The FTA with India needs to be expanded beyond goods to services. The ETCAs go beyond the present agreements. The opposition to ETCA is mainly based on the fear that the larger, more powerful neighbour would unequally benefit from any arrangements. The present FTA has increased SL’s exports to India by over 30% from 2006 to 2015, while imports from India have grown. But SL’s exports to India have grown faster than India’s exports to SL. 68% of SL’s exports to India are under the FTA while more than 90% of India’s exports to SL are outside the FTA. We import vehicles to small industrial items from India because it is price competitive and not because of the FTA. If we do not import these items from India, we would have to do so from China, Korea or Japan. The imports will be more expensive than importing from India. It is clear that our exports to India receive preferential treatment. We must expand that market opportunity and overcome the non-tariff barriers we face.
QHow can we reduce the trade gap with India?
The trade gap with India will worsen in the short-run as long as Indian goods are the cheapest for Sri Lankans to access. But over time the potential for us to export to India will be much bigger than our ability to consume Indian goods. SL has a great opportunity to sell value added services not only to India but to the world. We cannot compete in the low-end labour intensive BPO industry. But we can produce quality professionals - Engineers, doctors, para-medics, caregivers, accountants, finance professionals, lawyers, ICT professionals etc.
We need to increase these numbers not only to cater to our local market but also to the international market. These are quality professionals for high quality value added services. Technology is changing the way we do business. We do not have to export these professionals. They can live here and provide services globally. That window is opening. The government with its limited resources cannot do it. The private sector has taken the lead in some areas. Why not open the door for the private sector in other areas too? The government must regulate standards. That is the way forward.
QApart from the ETCA, what are your views on the current budgetary position of the government?
Economic growth for the year is estimated at around 5% and with the continuing fiscal consolidation efforts of the government, the budget deficit is expected to be around5% - 6%. Revenue collection has improved but will still be under 14% of GDP. Government expenditure has not been cut due to the fulfilment of election pledges. It is in this context that the 2017 budget has to considered. Governments have to be concerned about short term expenditure of the population while ensuring long term growth and stability of the economy. We have to manage the irresponsible debt burden we inherited, while creating macroeconomic stability by reducing the budget deficit.
As there is little flexibility in trimming government expenditure the focus is on enhancing revenue collection through better implementation of proposals, widening the tax net and reducing the burden of direct taxes which is more socially just. Increasing economic activity and growth is more dependent on the credibility of actions rather than on the proposal itself. Financial markets and investors respond more favourably to consistency of policy rather than on the policy itself.
QWhat are the plans for reforming the State ventures?
Recognising the urgent need to address the problems in SOEs the government set up a separate ministry to focus on public enterprises. More than 50 SOEs are gazetted under this ministry. They cover a wide range of operations hence they have been categorised under different clusters such as banking and finance, aviation, plantation, services and industries. Restructuring efforts are underway in these enterprises. Given the enormous losses being made in the airlines, there was an urgent need to restructure the airline. A restructuring plan which includes the rationalisation of routes and fleets is currently being undertaken and the process to look for a strategic partner is ongoing.
In the banking sector, there is a process to rationalise the small state banks while encouraging the larger banks to prepare themselves to face the challenges arising from greater competition, enhanced regulation and the fine tech revolution.
The fundamental reason why Sri Lanka’s SOE sector have underperformed is due to the absence of a system to hold the owners (Boards of Directors) and Managers of SOEs accountable for losses and the direct control over strategic and operational decision making by politicians and bureaucrats, which often leads to compromises in efficiency. Further, in many areas that SOEs operate, they are not subject to competition. Politicians will make political decisions rather than economic ones and these decisions will tend to be focused on the short term benefits, ignoring long term consequences. There is a preference to postpone tough decisions than risk unpopularity, which is why state enterprises are able to keep running losses continually. SOEs underperform due to a host of commonly experienced governance problems. The focus of the government’s current reform process is to restructure the existing SOE governance framework by establishing an independent entity which will be the central body of power over all SOEs. The functions of this entity would be to professionalise the Boards and Management of SOEs; ensure a performance driven culture by identifying key performance indicators (KPIs) and regularly monitoring their progress. Listing even a small percentage of the shares of an SOE will improve corporate governance as it will have to meet the requirements of the Securities and Exchange Commission.
Q How far have you progressed in working out the PPP model for it?
PPP contracts are tools that can be used for the government to leverage the private sector’s knowledge, experience, financial capacity, to improve the quantity and quality of public services. In PPP arrangements the skills and resources of both sectors (public and private) are shared, while both bear the risk and reward in delivering a service to the public. Private involvement helps to ensure that projects are driven by economic and commercial priorities. If social objectives need to be met these are accounted for transparently and provided for by the government. PPP can help address the resource constraints faced by the government while ensuring public services are provided. The major advantage in PPPs is that risk can be shared and each sectors strengths can be capitalised on. Private sector strengths such as management efficiency and rapid technology adoption, can be combined with the public’s interest.
There are many sectors that the government is engaged in at present which lend themselves to PPPs. In the Ministry of Public Enterprise Development, we have begun to look at PPPs in sectors such as aviation and plantation. The plantation sector has been making colossal losses partly due to market conditions but also due to management issues. The government has indicated that it is not prepared to continue to funding these loss making enterprises. The Ministry is looking at a PPP model to turnaround this sector. Several projects have been identified where the government would enter into PPP with the private sector to manage or start new ventures on plantation lands.
QWhat is the progress on introducing this model for Sri Lankan Airlines?
The significant losses accumulated by the airlines has forced the government to look at alternative models for the airlines. A PPP model was considered the most suitable as it would bring in the required capital infusion and management capabilities which would be necessary to turn around the airline. In this regard, Cabinet appointed financial advisors to advise the government on the restructuring of the Sri Lankan Airlines and Mihin Lanka. An advertisement was placed both international and local media calling for interested parties to submit their expressions of interest (EOI). EOI were received from several parties which are currently being evaluated by the financial advisors. Based on the evaluation a few candidates will be shortlisted to submit detailed proposals on the restructuring of the airlines.
QHow do you view the current political challenges of the government?
The Sirisena-Wickremesinghe administration has made great strides in restoring the rule of law and democracy. As in any transition from a more authoritarian administration to a more democratic one the exercise of freedom without responsibility can be viewed as somewhat chaotic. The government’s majority is solid and its resolve to carry out its mandate must not be underestimated.People are disappointed with our ability to bring to justice those who have plundered the economy and blatantly abused power. People are getting frustrated with the delays in the judicial process. This is not something new but has been like this for a few decades. But the difference now is that people’s expectations are very high. The Justice Ministry,the Attorney General’s Department and the Judiciary need to take note of this. People’s confidence in their governments have been questioned from time to time. But their confidence in the judicial process must not be eroded. It is time to act fast.