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The art of mishandling the economy

20 April 2015 05:31 am - 0     - {{hitsCtrl.values.hits}}

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Amidst the Avurudu festivities and resultant hangovers, there is at least one item of bad news. Our economic growth forecasts have been downgraded for the second time. 

Now the World Bank says the economy would grow at 6.9 per cent this year due to the slowing down of the mega construction activities initiated by the previous regime. 

Earlier, the ADB downgraded economic forecasts from an earlier 8 per cent to 7 per cent, also citing the current political climate. 

What is clear is that while we have been debating over good governance and democratic reforms (And ex-president Rajapaksa is busy hatching a plot to make a political comeback), our economy is getting a beating. 

Those figures are not just numbers. The projected losses due to the lost economic growth, measured at 1 per cent of $ 67 billion local economy, would amount to $ 670 million (Approximately Rs. 80 billion). 

That is equal to Rs 88.7 billion allocated for Education and Higher Education Ministries under the 2014 budget. 

It is natural that economic activities slow down during the election period; however, the problem is how long the prevailing uncertainty over the government’s economic policies would last. 

Granted that there are serious concerns over corruption in mega development activities blamed on the previous administration. However, instead of proactively addressing those concerns, the current government has been vacillating and procrastinating. None of the suspended major mega development projects have resumed. No new projects are given clearance. Our infrastructure gridlock is continuing. 

Long speeches of good governance are not worth the paper they are written on, unless the government addresses the urgency of economic development in the country, given its current development stage. 

That is exactly why the first executive president J.R. Jayewardene introduced the executive presidency when he unshackled our economy and famously said, “let robber barons come”. 

That he failed to deliver on his economic promises, and instead left the country besieged by two prolonged insurgencies is a different, though sad, story. But, it was the same ‘robber barons’ who went to invest in Taiwan, South Korea and later in China. Today’s East Asian technological and industrial power houses were sweatshops four decades ago. The growth is gradual and takes time and space. But, at the end, a rising economy lifts all. That may also explain how the Sri Lankan garment industry which was accused of exploitation during its incipient years, is now producing ‘garments without guilt’. 

Instead of kick-starting the economy, this government has stalled major economic projects for esoteric reasons; flimsy arguments which would be ideal as case studies in NGO reports and university dissertations, but lack economic logic for a country at our development stage. Now the mega projects such as the Colombo Port City have been stalled due to perceived environmental concerns and administrative reasons, coupled with vested political considerations.
The Sunday Times reported yesterday: “The Environmental Impact Assessment (EIA) (Of the Colombo Port City) prepared by the developer, the Technical Review Committee has noted, contained a number of discrepancies. Noting that no sensible EIA report can be prepared without a feasibility study and a detailed construction methodology, the Committee has faulted the Coastal Resources Management Department for granting conditional approval. This Department has not said that the EIA does not address impacts during construction or operation phases, is not accompanied by a land use plan or identified a ‘project impact zone,’ an essential prerequisite. In addition social and community consultation that should have been carried out in a project of this magnitude that could affect the livelihood of many strata of the city community and suburbs had been grossly inadequate, the Committee has pointed out.”
“The Technical Review Committee has reached six different conclusions. Among them, it has said, that there appear to be many lapses in the supporting documents to the EIA done by the University of Moratuwa on behalf of the Sri Lanka Ports Authority and the project company. Among them is the potential blockade of the Beira Lake outfall. It has also held that the project developer/project company has used various project footprints for regulatory approvals.” 
So, the report basically says that there are unresolved questions over the environment impact. However, a more pertinent question to ask would be whether the impact of any of those mentioned would overweigh the long term economic benefits Sri Lanka would have from the country’s hitherto largest foreign investment, which at its conclusion is expected to bring in $ 15 billion foreign investment and expected to add an additional 2.5 per cent to the GDP. 
That is the real question that the law makers with a long term economic vision should ask. It is that vision Sri Lanka is lacking since the independence, (Perhaps with the exception for the early years of J.R. Jayewardene) Mahinda Rajapaksa shared some attributes, but his regime was too kleptocratic and he let his stooges, who were proved to be nincompoops to run key economic ventures and they made an ass of it as you would now read in the Board of Inquiry (BOI) report on the SriLankan Airlines. (Whereas J.R. appointed economic managers with a proven record to run the key ventures).

Then the Sunday Times quotes the committee as saying “the project could still be streamlined and an appropriate scale of development could be identified,” The committee has raised two questions:

(1) Whether this is the opportune time to initiate the Port City development, considering the wider perspective of the Colombo Megapolis Development (in accordance with Regional Structure Plan 2030 of the Western Province Megapolis).

(2) Whether the current scale of massive development is the most appropriate scale of development.

“Whether the current scale of massive development (Which is a 100 per cent  foreign investment) is the most appropriate scale of development”, sounds more ludicrous than logical in any economic sense for anyone who has taken a ride around Colombo and witness what a mess the city is.  
Compared to any of its peer cities in the middle income countries, Colombo is utterly underdeveloped. It remained so for decades, for the political leadership lacked a long term vision and political will. 

On that count, one should thank Gotabaya Rajapaksa for launching the slum relocation programme to uplift slum dwellers from their miserable existence and to salvage prime land that had been squatted. That those efforts are not properly acknowledged may also prove our inherent bias against decisive political action to propel economic growth.

If you are living on the borderlines of a jungle, in the subsistence status, there are two ways to live. One is, of course, eat tree leaves or manioc breathe fresh air and enjoy the beauty of the nature. Your children will be malnourished, your women have to toil in the rich man’s house in the city (In our case, in the Middle East). 

Still, you live and die early. 

There is another way. Let an investor to come, clear the land and grow bananas or open a factory and a school. That would, of course, disrupt your traditional life, in the beginning and some villagers may not like it. But, your family will have a better nutrition standard; men and women go to work in the factory; children will go to school and some of them, later go to college. 

Once this process is kicked into action, it takes a life of its own and creates more opportunities. However, for this process to take place, it should be propelled by a political will. Instead of giving that political leadership, Sri Lankan leaders have made its public eat tree leaves.Finally about environment: Sri Lanka is putting the cart before the horse. A look at the history of industrialisation and development would reveal that it took every country to accumulate certain amount of national wealth and reach a certain level of development, before they obsessively worry about environment. 

That was the case with Taiwan, South Korea, now China or even the 50s London. The problem in Sri Lanka is that we have not reached that development level. 

Sri Lanka has more pressing economic priorities now. We have to bring back our women working in Arab houses in near slave like conditions, and create viable economic opportunities for them back home, before we worry about the wellbeing of the flamingos in the Beira Lake. We have to create economic opportunities in the service sector for the estate youth in order to prevent them being trapped in an intergenerational cycle of poverty in the plantations. Those should be our priorities. The rest is secondary and superfluous. In a way, Rajapksa was right to dismiss the later with contempt. 

Follow Ranga Jayasuriya @rangajayasuriya onTwitter

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