Mahinda Chintana, a big push for Lankan economy:

http://www.dailynews.lk/2010/09/25/fea03.asp

Mahinda Chintana, a big push for Lankan economy:
Asia’s miracle - the way forward
W A D S Gunasinghe
Computer and language skills of the new generation will make Sri Lanka an attractive place for service oriented ventures. The demand for the rural products will be increased with necessary infrastructure development. First part of this article was published yesterday
Therefore, this process has to be facilitated by creating adequate gainful jobs in the urban sector where the main potential supplier of jobs is the service sector. In addition, the naval and aviation hubs in particular will increase the demand of certain agricultural products for processing and exporting. This subsequently will contribute to the increase of the quality and the productivity of the sector.
The current educational and vocational training models, skills and attitudes of the new generation also fit into this set-up where the service sector is in the driving seat. Computer and language skills of the new generation make Sri Lanka an attractive place for many service oriented ventures. Therefore, the possibility of harnessing the full potential from the active labour force provides additional justification for this strategy.
Urban and rural economies
The rationale of the development of the service sector as the engine of growth should be considered against this background. Compared with Singapore or Hong Kong which are city states, Sri Lanka has an advantage of having a substantially large hinterland of the urban centres. While developing the proposed five hubs through the provision of necessary infrastructure, the role of the hinterland will be to provide labour, agricultural and other products necessary for day-today life and for processing, raw material for construction, recreation facilities etc. to the hub centres. This will activate the rural economy in several ways. The demand for rural products will increase. This will boost the SME sector and new employment opportunities will be generated. New frontiers in the tourism sector such as eco, agro and cultural tourism will have a wider market in this scenario. In this way it will also be possible to retain the harmony between the two sectors - village and town - which is in line with the traditions in the country.
Development path
Development economic theories provide a sound basis for current strategies. The Big Push theory by Rosenstein Rodan emphasizes the necessity of a large comprehensive investment program to achieve rapid economic growth which will breach the obstacles faced by a developing economy on its way towards progress. This theory states that a piecemeal approach will not take an economy to a rapid development path.
A minimum high investment is needed in order to reap the benefits of external economies. Only bulky investment will result in social benefits greater than social costs. Investment on infrastructure is given high emphasis under this thinking.
Power sector
Coordinated public investment has to play a vital role in this process. Infrastructure projects such as power, transport, communication etc., need sizable investment and due to indivisibility excess capacity can be maintained for some time. A long gestation period is common to this kind of investment. All these factors prompt the Government to make careful decisions in selecting sectors to be promoted based on the ongoing massive infrastructure development drive. This is why the five hub concept fits well into the current development agenda of the country which aims at doubling per capita income in six years.
Large-scale infrastructure projects to boost economy. File photo
The Government has already embarked on laying foundations for the proposed hubs. The first phase of the Hambantota International Port is to be completed soon. The Colombo South harbour project is progressing under PPP arrangements. Galle will be developed as a tourist harbour. The development of supportive infrastructure for these projects such as power transmission, water supply and connecting roads is under way.
The second International Airport in Mattala will open the South to the world. In the meantime, further improvements to the Bandaranaike Airport in Katunayake will commence soon. In the power sector, the second phase of Norochcholai coal power plant with a capacity of 600 mw has commenced. The Trincomalee coal power plant will add 1,000 mw to the national capacity. Oil exploration in the Mannar Bay has been initiated and it is expected that petroleum deposits will be uncovered in the near future.
Several steps have been taken to promote the trade sector. The excise duty of many items has been reduced. The tax system of the country is being reviewed to make necessary improvements. The welfare policies adopted by the consecutive Governments after independence has created a sound human resource base in the country. Capitalizing on that base, steps are being taken to make the country a knowledge centre where educational, research, training experts will be gathered. New legislations will be introduced to attract world-class educational and training institutions here.
Service sector
Naval, aviation, knowledge and trade hubs mainly promote manufacturing related service sector activities. This will include activities such as trade, transshipment, storage, logistics, accounting, repairing of ships and aircraft, telecommunications, advertising, research facilities, management and financial services and recreational facilities. Apart from these, services such as education, print and broadcast media, health such as clinical trials, medical lab testing will also be developed. The service sector thereby will be the engine of growth.
The development of the service sector will be followed by the start of the high value added export oriented manufacturing such as grading and processing, breaking of bulk, grinding and packing of materials such as fertilizer or wheat, assembling, chemicals, paints, fibre-based products such as accessories and so on. This is, however, not by any means to discourage embarking on possible heavy industries such as oil extraction, in the coming years.
As the country goes ahead, the spillover effects of the development of the service sector and then the manufacturing will create the necessary background for the development of heavy industries and thereby facilitate the penetration into the international markets of these products. Heavy industries such as shipbuilding, machinery and equipment may be some of the possibilities.
The way forward
All this will not happen automatically. Appropriate strategies to promote this process have to be formulated and implemented by the Government.
A supportive institutional set-up is a must. A mechanism should be in place to upgrade the capabilities across the value chain of the identified industries.
It is well worth considering whether the existing institutional framework is capable of facilitating these developments. The challenge is threefold:
(a) Identifying appropriate industries and providing incentives for investors
(b) expediting the project approval and clearance process
(c) providing quality, economic, social and legal infrastructure
At present, above functions are under the purview of several institutions. As a lot of activities in the proposed development, involve networking, partnerships, outsourcing, sub-contracting among partners, an innovative institutional framework to provide hands-on support is needed. Apart from making reforms to the existing Government institutions to be flexible enough to make radical decisions, it is advisable to form a Secretariat which will take care of all aspects pertaining to the development of proposed hubs.
This institution should use pragmatic approaches to overcome identified obstacles in promoting proposed hubs in collaboration with the existing institutions responsible for above mentioned three functions.
A consultative group which will guide the Secretariat on policy directions though strategic planning can be established including sectoral experts as members.
The main thing is that everybody should be clear about where are we heading. It is also necessary to consider the views of the local industrialists, entrepreneurs and associations such as chambers in decision-making, so that the initiatives will have an indigenous touch too. Every step has to be taken to reduce the time lag between commitments by the investor and actual operations. Apart from expediting the process of obtaining clearances, making available a sound physical, social and legal infrastructure, providing ready-to-build sites, factory spaces, warehouse facilities, industrial estates, theme parks etc. is imperative.
The FDI and private sector involvement will pay a vital role in this process. BOI should play a proactive role in analyzing and identifying the potential sectors ad attracting investment for them from potential investors. In order to improve competitiveness, Government should support appropriate skills development programs for the labour force, research and development and create a conducive climate for innovations. Government also can pioneer some of the ventures through PPPs. To attract reputed foreign universities and educational institutions the regulatory framework has to be amended and necessary legislation has to be introduced.
There are several obstacles we need to be careful about. Restricting real estate speculation is one of them.
Therefore, appropriate measures have to be adopted to control speculative transactions which will lead to a construction and real estate bubble in the country. In order to arrest haphazard development in urban centres strict regulations which will not hinder investment but further facilitate it have to be imposed.
The construction industry of the country is rapidly growing in terms of capacity, quality and skilled workforce.
There will also be an increased demand for industry in coming years.
The demand for building materials, accessories, fittings etc. will increase substantially. A large part of these products are produced locally. The quality of these products which are produced locally has to be improved to meet international standards, so that the industry will maintain the high level of backward linkages.
International market
The population of the country will expect to be highly mobile in the years to come. To facilitate this, sound transport networks, rental and lease housing facilities, apartments as well as modern urban facilities have to be provided.
In a situation where a highly competitive international market exists for manufacturing products, the best option for a country like Sri Lanka is to enter into the exportable service sector market.
The service sector therefore will be the engine of the economic growth. Once a sound service sector hub is established, the country can move into manufacturing the products associated with the services provided. This will be the second engine of the economy.
Mahinda Chintana envisages a clear vision for this strategy by introducing the five-hub concept.
The implementation of this strategy will result in activating the rural economy while sustaining its traditional values and original functions. Therefore, becoming Asia's miracle for the country is no more a mirage but a reality in our hands.
Concluded
The writer is a National Planning Department Director under the Finance and Planning Ministry
The views and opinions expressed herein are those of author and do not necessarily reflect the views of the institution he is attached.