How does Sri Lanka hope to get out of the present crisis?

by Sunil Abhayawardhane

It is only a matter of time, before even those who are supporting us with bi-lateral assistance, would ask how we intend to overcome the situation we are presently in.

If the answer would be that we expect the situation to get back to ‘normal’ with adequate supplies of fuel, food and medicine, it would be utterly unconvincing, as the ‘normal’ situation that prevailed, was what caused the present situation in the first place.

Even in that ‘normal’ situation, we still required external support to get by. The real problem lies in our balance of payments, which has been chronic over the years.

The IMF, in its characteristic style, focuses on the symptoms and not the cause of the problem. Therefore, one should not place much hope in an institution that could not come up with proper practical solutions for the developing world.

We need to develop export industry, which has been neglected and expected finance led growth to see us through. Even the euphoria that was created with the Port City Project to induce flow of Foreign Exchange seems unrealistic, at least for the present.

The present exercise is only directed to make the existing debt ‘sustainable’.

What do we do?

There are no short cuts to development and that should be well understood. Developing manufacturing industry should be the main thrust that would be the core that would draw other possibilities that would develop simultaneously.

We should avoid the economy to be hijacked by the financial sector and keep manufacturing as the base of our industry for long term prosperity.

Some possibilities

Some of the areas that could be designed and developed for immediate implementation are listed below.

1) Increase local textile manufacture for the apparel industry.

2) Develop the Gem & Jewelry industry, and make Colombo a ‘Gem Center’.

3) Establish an Oil Refining Center in Trincomalee and add storage capacity.

4) Increase Pharmaceutical manufacture for export.

5) Re-orient the Industrial structure to include vertical and horizontal integration.

6) Re-organize rural farming on a cooperative basis to be able to sell rice instead of paddy, thereby increasing rural prosperity.

7) Develop rural industry utilizing local raw materials, for export.

8) Establish an institutional framework to develop local innovators.

9) Bring back Development banking with adequate Capital.

10) Develop a short term plan, that would be able to get at least some of the above going.

If we are able to get even some of the above listed going, it should be able to bring about $10 Billion income a year. It would therefore, be much easier to seek funds for investment rather than for consumption. If a viable plan is presented, it would prove that Sri Lanka is determined to come out of the situation we are in. However, there has to be complete commitment towards such an effort and rent seekers completely eliminated from the process for it to generate confidence.

The major project listed above is the development of the Trinco oil facility, which should have been done at the time of independence, but never was. This single project if it was developed in the past would have been sufficient to meet all the foreign exchange needs of the country. Today, it is still not too late, if done properly. The best possible option, if we are unable to do it by ourselves, would be to do it on the basis of a joint venture with India, as refinery costs today could be in the region of $3-5 Billion. The shortest time a refinery had been established in the world is one year, in South Korea.

This project could be started in Trinco by utilizing the funds that’s to be used to expand the present refinery at Sapugaskanda. A 50/50 joint venture would require around $1.5 Billion from each side and additional for the expansion of the storage facility.

The Gem project, to make Colombo the Gem Center, if done properly could easily enhance the present earnings of $500 Million to at least $5 Billion. The Thai exports of Gems are around $18-20 Billion/year. It is no secret that quite a bit of those Gem Stones are of Sri Lankan origin.

The biggest obstacle

The invisible obstacle that not only Sri Lanka, but all developing countries face is something that is unseen, but very much a spoke in the wheel of development.

Most of the so called economists that are around are those that have studied orthodox mainstream economics who believe in ‘the magic of the market’ and the ‘invisible hand’. They do not believe that markets do fail and that market forces do not always work for the best and that left to themselves finance does not seek development.

Therefore, it is quite clear that there should be a certain amount of intervention and direction towards development. Economists, who are able to understand this are very few.

It is only now that the western universities are teaching a more plural economics curriculum and would therefore take some time before students break away from those orthodox economic ‘myths’ and failed neo-liberalism, to come around. The Japanese and Koreans understood this long ago.

How these economists become an obstacle is because due to their loyalty to what they were taught and are following, many other options and tools which could have been used are considered taboo and therefore, unused. Though it has been proved that the orthodox theory was wrong and those taboos were not warranted, mainstream economics has not come round to face reality.

Those who broke away from the orthodox mainstream have succeeded, while the others are still struggling.

It was Mark Twain who once said “It ain’t what you know that gets you into trouble. It’s what you know for sure, that just ain’t so”.

Sunil Abhayawardhane was CEO of Sri Lanka’s largest heavy construction company, CDE, which had successfully completed many major projects before the onslaught from foreign contractors. Was constantly showing the governments in the 80’s and 90’s that the policy towards foreign contractors would end up with an unsustainable foreign debt. He is a social activist and student of macroeconomics seeking ‘out of the box’ solutions, and holds a Master’s degree from the University of Wales in Business Administration. He is presently working on his Phd.