Ceylon Chamber comes up with ‘10 Principles’ to guide the transformation of Lankan economy

15 October 2015 06:30 pm

1. Good governance, policy stability and regulatory quality 

•    A competitive private sector can contribute to Sri Lanka’s growth and development if provided with a transparent and rules-based governance system that is applied fairly. Private sector activity can thrive in an environment that provides a stable policy framework, which does not create distortions and does not create uncertainty. Regulatory systems that are non-discretionary, streamlined and modern, can ensure that entrepreneurs can unleash their potential and businesses can grow, while ensuring public concerns are not compromised. Government policies that promote or that regulate private sector activity must be predictable and not subject to ‘ad hoc’ changes. More broadly, good governance provides an overall conducive climate for a well-functioning society, in which private sector activity can thrive.
•     The chamber advocates for respecting good governance practices, transparent and independent institutions, stable policies and fair regulations that provide a conducive climate for entrepreneurship and for overall private sector activity to thrive.

2. National integration, harmony and inclusiveness 

•     Recognising that Sri Lanka is a multi-ethnic, multi-lingual and multi-religious country, with diverse socio-cultural and religious underpinnings, respecting diversity, inclusivity and harmony amongst all its citizens become crucially important for the country to move forward. Regional disparities in access to resources and opportunities deprive many citizens from making a more valuable contribution to the national economy and achieving their true potential. Post-independence history provides sufficient evidence of many conflicts, some of which lasted for long periods of time, with large numbers of lives lost and economic progress being stifled. A rational and a responsible private sector believes that only if this diversity is recognised and respected, with action taken to reduce disparities and foster inclusivity, can a stable socio-political environment be achieved.
• The chamber advocates for national integration, harmony and inclusiveness amongst all citizens and supports creating a society where all citizens are treated with respect and dignity and have equal opportunity to contribute to the economic development of the country.

3. A market-oriented and private sector-led economy

•     Sustained, high growth can only come from a dynamic and thriving private sector, where businesses of all sizes and across many sectors, contribute to the economy of the country. For this, a basic pre-requisite is that the market-orientation of the economy needs to be ensured, accompanied by a reasonable degree of regulation to ensure that the public good is preserved. In recent decades, the public sector has emerged as a stronger economic actor than before – at times distorting the playing field through direct activity, and at other times overregulating through restrictive and archaic practices. Greater public sector participation in the economy where it is not justified on public good needs can hurt private sector activity and restrict entrepreneurship.
• The chamber believes that Sri Lanka’s economy must be market-oriented and should be led by the private sector – including firms of all sizes, across the country. The role of the public sector should be to foster a climate for entrepreneurship to thrive, to effectively provide public goods that the private sector cannot and enforce predictable and fair regulation where needed.

4. An economy based on competitiveness and driven by exports 

•    Sri Lanka is a small economy dependent on international trade. Its geo-strategic location and strong human development fundamentals provide ample opportunities for the country to emerge as a leading exporting nation, with the right policies and focused implementation. But in recent years, exports have formed a smaller share of gross domestic product (GDP) and Sri Lanka has lost valuable world market shares. A competitive and dynamic export sector can contribute to faster growth. Exports are also boosted by a more open trade regime, but trade openness has slipped over the past couple of decades.

    A re-look at the tariff, para-tariff, and non-tariff barriers that hinder both exports as well as imports, is needed. Factors that affect export competitiveness, like trade facilitation, regulatory barriers, skills, technology, access to global supply chains, energy and infrastructure must be improved. 

• The chamber believes that exports must drive the Sri Lankan economy and greater openness to international trade, along with improving factors that impact competitiveness of exporters, can contribute strongly to this.

5. Forging mutually beneficial trade agreements 

•     As an economy with a limited domestic market, Sri Lanka must actively expand its export markets. While concentrating on expanding products and services exports, Sri Lanka must focus on diversification of the products as well as markets to which it exports. Sri Lanka must seek to establish stronger trade relations in important export markets. In this context, bilateral, regional and multilateral trade agreements forged by the government can help businesses tap in to new markets under a rules-based framework. Trade agreements that Sri Lanka becomes party to must be mutually-beneficial, must recognise size asymmetries between our economy and the others, must be signed after prudent, transparent and broad-based domestic consultations with the relevant stakeholder groups and must be anchored to the country’s national and strategic interests. Importantly, decisions on entering into trade agreements or not must take an all-of-economy view and should not be based on narrow considerations of a few players. 
•     The chamber supports the expansion of Sri Lanka’s trade interests through signing mutually beneficial and well-designed trade agreements that are forged after transparent and broad-based consultations with the private sector.

6. A strong and thriving small and medium enterprise sector 

•   While Sri Lanka has a successful large corporate sector, the majority of the country’s private sector consists of micro, small and medium enterprises providing the majority of employment. Inclusive development necessarily means boosting this segment of the private sector. Small and medium enterprise (SME) development would not only expand the private sector overall and generate more jobs in regions outside the Western Province, but also expand supply capacities for larger firms. Often the go-to tool for SME development has been concessionary loan schemes and tax breaks. While recognizing the role of better access to credit and a lower tax burden, the competitiveness and growth of SMEs will largely depend on technology upgrading, improved management and skills, linking to supply chains and greater export orientation. 
• The chamber supports inclusive private sector development through enhancing the competitiveness and growth of SMEs.

7. Bridging regional growth disparities through business partnerships.

•     Integrating small producers – whether it is in manufacturing or agriculture and fisheries – into national value chains is an important element in bridging regional growth disparities and strengthening incomes at the local level. The catalyst in this is the large corporate sector that has the ability to unlock supply potential in provincial economies, help livelihood diversification and provide access to larger, more lucrative markets than before. On-going initiatives by some of the chamber members have already shown the substantial mutual gains that can come from such partnerships. 
•     The chamber supports and encourages bridging regional growth disparities through win-win business partnerships.

8. Attracting quality FDI and making Sri Lanka a preferred investment destination 

•     With low domestic savings, Sri Lanka’s rapid growth is crucially hinged on attracting capital from abroad. In this, Sri Lanka should seek to attract foreign investments that help grow the existing sectors, create new competitive sectors, generate additional employment and skills and open up new markets for Sri Lankan exports. Unlike in the past where tax incentives were the primary tool for attracting foreign direct investment (FDI), the focus must now shift to other – often more important – factors like highly skilled and competent workers, rule of law, good governance, transparent and stable policies, quality of infrastructure and efficient and effective public administration that proactively supports economic growth. The openness of the economy (particularly on trade) is also a key factor determining FDI attractiveness and Sri Lanka stands to gain from exploiting the trade-investment nexus. 
•     The chamber advocates for the attracting value-adding FDI (efficiency-seeking FDI) and encourages the continual improvement of the climate for investment, with clear and consistent policy signals.

9. Sustainable and development-focused technology advancement and innovation

•    As Sri Lanka goes through a middle-income transition, fast and sustained growth will necessarily depend on the country’s ability to enhance the productivity of capital as well as rise up the value chain. The product and export mix of the economy is narrow and has remained largely stagnant over recent decades. This has affected the competitiveness of our exports, except in a few product areas. A key factor in reversing this is technology and innovation. Both the private and public sector needs to spend more on research and development (R&D), foster technology transfer eco-systems to help businesses access technology both domestically and internationally and promote innovation through a mix of business climate policies and targeted interventions and incentives. It is critical to bridge the disconnect between the industry and the research community and proactively engage on innovation.  
• The chamber advocates for a stronger focus on R&D, technology upgrading and innovation, to boost the competitiveness of the economy and ensure a successful transition through middle-income and beyond.

10. Demand-focused education and skills development

• With its legacy of free education and healthcare, Sri Lanka has strong progress in factors that influence basic human development and places Sri Lanka on the Human Development Index (HDI) on par with many emerging markets in Asia and far above neighbouring South Asian markets. Nevertheless, Sri Lanka significantly lags behind when it comes to skills, competencies and productivity, affecting the competitiveness of the workforce. Only a small share of the school-going population has access to Tertiary and Vocational Education and Training (TVET). The existing TVET programmes are very much supply-driven initiatives done by the public sector, except for a few initiatives of the private sector. It is critically important for Sri Lanka to focus on revamping the education system enabling it to develop the emerging human resources needs, with the right education, knowledge, skills and attitudes. The private sector too has a crucial role to play and therefore a public-private partnership (PPP) approach is essential to address the issue expeditiously.
• The chamber supports and advocates comprehensive reforms to the national education and TVET systems, including encouraging greater private sector involvement, where every child in the country will have access to high quality education and training to be able to effectively contribute to the economic development of the nation and businesses can thrive with a highly skilled and competitive workforce.