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Lanka needs to make the right connections: Prof. Sally

24 Dec 2012 - {{hitsCtrl.values.hits}}

With old friends alienated and close friends like India at bay, and China, Libya and Russia among main allies, Sri Lanka’s foreign economic policy is completely lopsided. This order of relations is in contrary to Sri Lanka’s needs, Professor Razeen Sally a leading economist from the Lee Kuan Yew School of Public Policy, Singapore said at a lecture at the Lakshman Kadirgamar Institute recently.

His lecture titled “Emerging World Order and Sir Lanka’s Role” revolved around 3 main themes; shift to the East, the big three and what implications for Sri Lanka. Distilling from the present situation and past trends, Professor Sally provided a quick assessment of the global economy interplay with a forward look.

Touching on the geoeconomic and political shift to the East, Professor Sally shared his insights to determine whether the shift would continue or accelerate or whether it would slow down eventually. “The Global Financial Crisis has expedited the sharp divergence between developing and emerging economies and the advanced economies in terms of the economic performance. South East Asian countries have recovered from the Asian financial crisis and are having healthy balance sheets. The developing economies are manifesting faster growth rates in their GDPs than the developed countries. In addition, there is clear cut distinction in the increasing contribution of Asia. Given the trend the Asian economies are taking, it is estimated that Asia will overtake the rest of the world by contributing more than half to the global economy by 2030”. Professor Sally also argued that because of the financial crisis, this process would be quickened and that Asia would come to its rightful place with respect to the proportion it contributed to the global economy by 2020.

While addressing the current political-economic trends in the US, EU and China, Professor Sally was optimistic about the US role in international politics. He stated that the absence of an American leadership has negatively affected the international trade. However, he was of mind that the unique structural transformations in the US economy and the inherent characteristics of the US socio-political system would benefit US in the coming years. “For example, the US is experiencing an energy revolution which will provide cheap energy inputs for manufacturing.

USA has started to exploit its natural energy reserves and emerging to be the biggest natural gas producer. At the moment, Shell gas production accounts for 50% of the domestic gas requirements. In the near future, US will also rival Saudi Arabia in producing crude oil. Revenue obtained from the royalties of crude oil and gas would amount to US $ 100 billion per annum by 2020. In addition, USA is also experiencing a manufacturing revolution with the use of advanced material and technologies. The services sector in the US is also displaying enormous progress. The best services companies are American owned. For example, in Apple, all of the value addition regarding pre and post production work is still done in the US. Professor Sally stated that the next leverage of growth is in services sector, not in the manufacturing.”

“Trends in both EU and China are not positive. Decreasing current account balances and slowing down of the growth of external reserves would affect the Chinese economy negatively. Professor Sally contended that if things are to improve the unsustainable practice of pumping money to public sector enterprises which are inefficient from the public sector, banks will have to be stopped. In addition, negative demographics will also compound on the Chinese growth rates. Therefore, the Professor claimed that China will have to move to a new growth model in order to overcome the challenges caused by the systemic ills. However, such a transformation is very unlikely since these decisions are very closely connected to Chinese politics. With the decelerating growth rates, there will be increasing conflicts between the middle class society and the unreformed political system which will eventually lead to the downfall of the Chinese Communist Party.

“Negative trends in the EU and China alerts the need to make contingency planning in Asia. In addition, geopolitical rivalries between US and China will also intensify along with the deepening rivalries between other rising powers in Asia like India, China and Japan. Professor Sally also argued that effectiveness of multilateral forums and global governance will also reduce with the increasing multi-polarity and increasing membership.”

Speaking on what Sri Lanka ought to be doing, Professor Sally stated that establishing more links with the four states of South India would be the quickest way for Sri Lanka to integrate with the global economy. Given that China accounts only for a very small faction of the Sri Lanka’s exports, Prof. Sally also said that Sri Lanka will have to focus more on making the right connections. Finally, Prof. Sally stated that the image of Sri Lanka will have to be of a multi-ethnic one and about reconciliation which goes beyond markets and investments.

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Lanka needs to make the right connections: Prof. Sally

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