6 September 2010
Dr. Anura Ekanayake
C.R. de Silva: Mr. Ekanayake before you commence I wish to thank you on behalf of the Commission for having come over here with a view of facilitating our work so that we quite appreciate the fact that you have been able to find the time to come here and assist us in our deliberations.
Now at the very outset I wish to outline the general procedure regarding the work of this Commission. Now you are entitled to make representations either in public or in camera – the choice is yours. At the end of your deliberations the Commissioners are entitled to ask you questions to clarify any matter that arises in the course of your evidence or any matter that is relevant to the terms of the Warrant, and you are entitled to respond either in public or in camera and the choice is yours. Nobody else can ask you questions other than the Commissioners. Members of the public who are here can’t ask you questions; only the Commissioners can ask you any questions. You may start.
Ekanayake: Thank you sir. I would also like to record my personal thanks and also that of the Ceylon Chamber of Commerce for having given us time to make our representations. Sir I am quite happy to make my submission in public and the submission is based on the document we have already submitted to the Commission. I don’t propose to bring in any new points although I would like to elaborate some of them in a little more detail.
The primary perspective or point of view of the Ceylon Chamber in making this submission is to highlight the negative impact of the conflict on the economy, business, employment and poverty and then focus on what we feel are the necessary remedial measures to prevent any recurrence. So our submission has 3 parts or sections. One is about economic and social infra structure development followed by measures required for post conflict reconstruction and reconciliation and then finally constitutional provisions to promote good governance and devolution.
With regard to…let me start with the economic impact. We note that the conflict resulted in a range of direct and indirect impacts on the economy of Sri Lanka. Now although it is generally understood that conflicts result in loss of economic output and opportunity, the scale and magnitude of such losses are hard to measure and therefore not well known, and this is an area I want to dwell on a little bit. It is particularly so when the economy has been growing in absolute terms at an apparently reasonable rate of growth year on year. We all know that the economy of Sri Lanka grew at an average rate of about 5% per annum over the period concerned and this may have led most people to believe that the cost of war were mostly localized to the war zone and that it had no impact on the entire economy. However, our position is that the cost of the war was economy wide and were of great magnitude.
Now, the correct approach to measure the impact of the conflict on the economy is to calculate the destruction of production factors to determine the country’s potential output without war and then compare this with the actual output. So if there was no war what would have been the output and what was the real output while the war was on. Now in reality such an exercise is really an arduous task due to measurement difficulties of certain areas and also data constraints. The easiest to understand of the cost of war is the military cost aspect. In economy wide terms the military expenditure incurred by the insurgents, or in this case the LTTE, is also part of the cost.
Now, as the Commission would appreciate, there are records of military expenditure and the data published by the Central Bank shows what the cost of that in economy wide terms but we have no data on the cost incurred by the LTTE. Then along with that goes the cost of providing the needs of the IDPs – internally displaced persons – and the damage to the capital assets and land. They are also direct costs of the war. Then thereafter we get the cost of rehabilitation of the capital assets – the destroyed assets. Now indirect costs – those are direct costs – the indirect costs are much harder to be understood let alone to measure.
Loss of income due to foregone investment as a result of conflict is a very, very important area. Because there is a conflict, people do not invest as much as they would have done otherwise. Here the crowding out of both public and private investment due to increased military expenditure is very important. The crowding out of public investment due to military expenditure in the budget is obvious. What happens is you put more money in the budget for military expenditure and less for development purposes. But there is another one; that is when the Government borrows from the financial markets, funds available for the private sector to invest get reduced. That is another crowding out and that one is hard to measure. And then the next one of course is the reduction of potential domestic and foreign investment in the economy due to the perceived higher risk in a conflict ridden economy. A fairly easy to measure…understand cost of the war is loss of income due to reduced tourist arrivals compared to the potential.
Output foregone due to the displacement of people and the resulting disruption of their economic activities is another impact. Now loss of income due to deaths and injuries is another aspect; it is easy to understand but very hard to quantify. Finally of course the psychological trauma associated with violence and terror also do have economic cost. The people so affected cannot go about their daily tasks in the normal manner and so their economic output will also suffer. If not properly addressed this can cause under performance in the long term and even cause further conflict, that is people who have been traumatized, if that issue has not been addressed, properly treated etc., their future output will also be foregone and there can be future conflict arising out of such areas which have not been properly addressed particularly when the numbers of people are large.
Now we can share with the Commission a few examples easily measurable – examples of the cost of the economy. In 1983 the defense budget of Sri Lanka was only 1.4% of GDP. Thereafter it ranged between a maximum of 6% of GDP in 1996 and a minimum of 1.67% in 2003. The average for the period 1985 to 2009 was 4.32% of GDP compared to 1.4% before. Then in 1984 public investment was 15% of GDP – public investment. During the subsequent period it dropped sharply and in recent years it ranged around 6% of GDP – 6% versus 15%.
When it comes to tourists in 1982 Sri Lanka reached or recorded 400,000 tourist arrivals. In 2007, the year prior to the global recession – because recession is not a good year to compare – Sri Lanka had only 494,000 tourists. So growth of mere 23% from 1982 to 2007. In contrast the tourist arrivals to Thailand during the same period increased from 2.5 million to 14.5 million – an increase of 580%. That is an indication of the kind of opportunity cost in terms of tourism.
Foreign direct investment in Sri Lanka in 1984 was 1.3% of GDP. The average annual foreign direct investment to Sri Lanka from 2001 to 2009 was only 1.24%. During the same period it was 4.5% in Vietnam and 2.95% in China. Then finally another example is that the share of GDP from the northern province to the economy. This was 4.4% in 1990 – we don’t have the data for earlier period – and it reduced to 2.9% in 2009. At least if not for the war the percentage would have been maintained at a similar level.
A research study published by the Institute of Policy Studies which attempted to quantify the cost of the war during the period 1984 to 1999 showed that the conflict would have been…would have cost around the entire annual GDP in the country for 2 years. So in a 15 year period – this study was published in 2000, January 2000. Sir there is an error, typo, in the written submission we made. The years covered in the study – the period covered was 1984 to 1999 not 2004 to 1999. Now on this basis and considering the cost of the subsequent period which were much higher it can be safely assumed that the total cost of the conflict from 1984 to 2009 would have been at least the entire GDP of the nation for 4 years. Now if you do a simple calculation dividing 400, that is 4 years GDP by 25 years you get 16% as the answer and the indication is in the absence of conflict Sri Lanka would have been at least as prosperous as Malaysia where the present GDP per capita is 3-1/2 times that of Sri Lanka, that is 7000 US$ per capita versus 2000 and the incidents of poverty – this is very important – is one fourth of that of Sri Lanka. In Sri Lanka it is 15% and in the case of Malaysia it is 3.8%. So we believe that the cost of the war was enormous and action needs to be taken very quickly to make sure that it won’t…anything of that nature will not happen again.
Now the types of remedial action we would like to see sir are: first to create a conducive environment for business, particularly without political patronage – it has to be open and transparent. We need simplification of procedures in businesses and civil affairs for speedy transactions. It is well known that it takes a long time in Sri Lanka for various transactions, various approvals to be obtained for business purposes. We need public/private partnerships in infra structure. At the moment it is primarily – infra structure is primarily by the public sector. However, with the high budget deficit etc. the gap in infra structure cannot be entirely filled with public investment; so partnerships have to be encouraged.
We need Sri Lanka’s…the major part of business in Sri Lanka is small and medium enterprises – at least in terms of numbers perhaps over 90% of the businesses are small and medium enterprises – it is very difficult for them to obtain access finance – formal sector finance; and the other sector is the youth entrepreneurs; they are also small generally. We need to improve access to them.
We have to remove legal impediments for pledging land as collateral for finance. This is particularly relevant again for small and medium businesses. For various reasons, which I can elaborate if necessary later, it is difficult to use land as collateral in Sri Lanka.
We need improved rail and road connectivity for business and social inter-actions between provinces, districts and the metropolis; and then of course we need reforms in the educational system to ensure availability of appropriate skills.
Moving on to the second area – post conflict reconciliation – here I will be very brief, but the whole idea here is we need to heal the wounds experienced during the period of conflict and mobilize the entire nation towards a common Sri Lankan vision. And we need to ensure that the benefits of the end of the war must be felt equally by all sections of the community. To do so, to ensure that, we need speedy resettlement of persons affected by the conflict in their previous areas of residence with infra structure and livelihood support.
We need reintegration of the ex combatants, including child soldiers, into the main stream society; support is required to the next of kin and dependents of members of the armed services, police and civil defense force personnel killed in action; we need speedy releasing of land from the high security zones to the original occupants as the security situation improves. Early lifting of emergency regulations is also necessary to signal a speedy move towards normalcy. Programs for war widows and their economic independence are also essential because there are large numbers of them. Then finally we need to accelerate civil administration vis-à-vis military administration in the north and the east supported by a transparent political process to establish local government. Now all these need to be achieved with due attention to religious and other cultural sensitivities which prevailed in these areas. And finally moving on to constitutional provisions, we of the Ceylon Chamber of Commerce, have always held that the lack of good governance, inadequate rule of law and insufficient devolution causes not only tension between communities but negatively affects economic development. Therefore we have been consistently urging the authorities the early implementation of the 17th Amendment with necessary amendments. So we believe that the establishment of the Constitutional Council as per the 17th Amendment can be viewed as a positive development to address this issue locally and also it will help the management of perception outside Sri Lanka as well about Sri Lanka, and also about investment and business possibilities without any hindrance in Sri Lanka.
Independence of judiciary and a transparency of the legal system are also essential ingredients. Legal system needs to be efficient and speedier. It should be noted that justice delayed is justice denied. We are also concerned about public interest litigation which may adversely impact the investment climate in Sri Lanka, particularly because a great part of Sri Lanka’s land is owned by the State and any significant investment in Sri Lanka’s economy will require entering into agreements with the Government one way or the other. This is very important.
We also see the need for reactivation of the Bribery Commission. Recent reports have indicated that over 500 cases are pending without a mechanism to investigate and which we don’t think gives the right signal to the business community here and overseas. With regard to devolution, which again we are coming from the point of view of creating a conducive climate for business and economic affairs so that there will be job creation we believe that the beginning made via the 13th Amendment perhaps can be expanded, improved upon and speedily implemented; of course following consultation with all stakeholders. So these are in brief the position of the Ceylon Chamber of Commerce with regard to the measures required for prevention of recurrence of conflict. Thank you, sir.
Q & A:
C.R. de Silva: Dr. Ekanayake, this Commission had the good fortune to visit places like Vavuniya and we observed that there has to be economic development in these areas. There are vast stretches of land which is not developed – probably one of the problems is the availability of water; and then also we felt that industry also must be developed in these areas. Now what are the views of your Chamber regarding economic development in these war affected areas?
Ekanayake: Sir first of all we believe the starting point is speedy resettlement because you can’t obviously engage in business without having people for 2 things; one is to employ in the business activities and two is to for the markets to come up. Now of course there can be certain businesses where the markets are outside, but certainly we need people back in their settlements available to work in the businesses. We feel initially agriculture, dairy and fisheries are or rather agriculture based industries building on the supply of farm produce, dairy products and fisheries products will be perhaps the most feasible at this stage which means that people have to be settled in their areas and they must get into their economic activities. That is number one.
Then speedy reconstruction of infra structure because increased business activities would imply transport of goods back and forth raw materials into the places and then produce beyond. It is also necessary to…yet another area, particularly along the coast line, is tourism. All these require very transparent processes for obtaining land for businesses to establish. It could be hotels on one side; it could be warehouses, offices etc. etc. So that is in addition to infra structure that is something which needs to happen very fast. Then I think already businesses are wherever opportunities are there they are mobilizing there both in the north and the east but that process can be speeded up.
C.R. de Silva: Now you were talking about agro based industries. Now water is an essential component for any type of agro based industry.
C.R. de Silva: Now how do you think that this problem could be overcome?
Ekanayake: Now sir there are…when you went into the area you would have seen, particularly in Wanni, large extents of paddy land have been developed and cultivated even during the time of conflict, except the last year or so; and you would have seen those large numbers of machinery and equipment. So there are many irrigation schemes – now the canals and so on would have been damaged – they can be repaired quickly so that the available irrigation water can be used to the maximum. Then also other crops – crops other than paddy – which require less water can be cultivated with the right kind of technical inputs and also inputs such as chemicals, fertilizers and so on, and then marketing arrangements. Although in Sri Lanka we are near self sufficient in rice – 95% plus or something like that – all other crops we are in short supply. Wheat for example it accounts for about perhaps 60% of our cereal intake and is totally imported. So it can be substituted. So there are a lot of opportunities. Water … heavy water availability is only for paddy cultivation.
C.R. de Silva: You know Doctor, we had the opportunity of going and visiting one tank which was rehabilitated by the Army and one tank which was reconstructed or constructed by the Army in Puliyankulam. Now there I understand that they were bringing in about 600 acres under the plough. There will be probably 30% evaporation; 30% loss of water. Now this village tank system … developing the village tank system, what would you say as an experienced business entrepreneur? What would you say about this? To develop the village tank system because some of those areas you can’t have a huge mega irrigation project but certainly as you say water for certain types of agriculture even for paddy could be made use of or could be stored in tanks with the rains because what happens there is during the rainy season there is a lot of rain and there is no water that is collected.
Ekanayake: Yes, true.
C.R. de Silva: And the rehabilitation of one tank and the reconstruction of another tank or the construction of another tank was an example of how water could be conserved and preserved and that has been done entirely by the Army. Now would you think this type of tank system, the village tank system, either rehabilitating the existing tanks or reconstructing tanks would also help to solve this water problem?
Ekanayake: Yes certainly sir. Now as a first step economically most feasible one would be to rehabilitate the village tanks – the small tanks. Of course if one looks very carefully one sees that the dry zone small tanks are really connected to the big systems – the river valleys systems in the dry zone – so rehabilitation of the larger ones will also benefit the smaller tanks; but as a first step yes the small tanks and other one is to begin to introduce more efficient ways of using water because it has long been felt that rice cultivation can be done with lesser amounts of water. So there are all kinds of technologies which have been developed. So that is another thing which can be brought in.
C.R. de Silva: Then what about industry in these areas like in Killinochchi, in the Wanni, in Vavuniya, those areas; Mullaitivu. What do you think about industries – setting up industries? Will entrepreneurs will they go there and set up industries? Is there a prospect of that happening?
Ekanayake: Industry if they are to be export oriented: one issue is transport cost. Now unless there are certain raw materials locally available, the only local input from these areas would be labour. The rest will have to be imported and also then at the end of it exported. So the transport cost, including the time of travel is a major barrier. And then also power transmission cost – getting power drawn into those locations – and recent studies have shown that one of the biggest problems is haulage within the Greater Colombo area – say from Killinochchi at a very high speed trucks can come to perhaps half way between Colombo-Kurunegala kind of thing and thereafter get slowed down terribly. So improvement of transport infra structure in Colombo and the neighbouring areas – say up to 50 km – you know multi layer highways kind of thing would make a very big difference. It will then encourage people to shift outside. Currently it is the cost one other thing is the time – it takes a lot of time. So that is one of the things but if there are, say, along the north eastern coast the available minerals – if value adding opportunities can be found – and then if Trincomalee can become the export hub things can change. So industry we are aware that some of the large garment manufacturers have already started putting up factories in couple of these places. But again there the local input is only labour.
C.R. de Silva: We are very…Mr. Asirwathan he was giving evidence before us and he said that Dilmah was interested in setting up a mango plantation – a large mango plantation – and where they were going to do the canning everything there. So that type of thing will certainly contribute towards economic activity in these areas. This is very necessary for the purpose of uplifting the living conditions of the people.
Ekanayake: I totally agree sir. They are again what you might call agro based industries but value adding. Even in the case of rice and everything else there is a lot of value adding opportunity. Even in the case of dairy to have properly pasteurized of sterilized milk and then in the right kind of packaging and so on there is a lot of opportunity for that. We feel that in the first couple of years or so most of the industrial potential will come out of, as I said, agriculture, dairy, fisheries. And then of course tourism is a totally different thing along the coast there is room for that.
Palihakkara: Thank you Dr. Ekanayake. You have given us some very useful food for thought from business and economic perspective. I have 2 questions. One – You already outlined some economic and infra structure obstacles in the way of more business activity, especially more manufacturing and value addition activity there. As business people do you see any policy impediments – government policy impediments or bureaucratic and other impediments that militate against people like you, the businesses going there and what should the Government do to remove those and to promote more business activity? Quite frankly although with all the best intentions I think private sector manufacturing and value addition present in the north and east is still very skeletal and apart from Brandix and few other service oriented people and banks not many manufacturing and other things are in place. That is one.
Second question is that you referred to reintegration and rehabilitation including ex combatants. I have had some experience whilst I was working outside. In Colombia for example big companies played a very pivotal role in reintegrating ex combatants into normal life by for example Coca Cola Company was undertaking in Colombia a DDR program where disarmament and reintegration activities. They opened savings accounts for each combatant who gave up their weapon and that kind of thing. Is there any such activity by the Chambers and the business community here to support that kind of activity because as you said normalcy returns and the society starts functioning business also benefits. If you can give us the benefits of your thoughts on those two. Thank you.
Ekanayake: Thank you sir; two important questions. Number one if I say in very simple terms to begin with what we need is an environment where it is easy to do business compared to rest of the world. Now at the moment Sri Lanka is about half way from the easiest places in the world to do business to the worst places in the world. But on certain counts Sri Lanka ranks very low. For example in the case of tax regime Sri Lanka’s position is about 166 or something out of 170 countries because it is highly complex. Many, many different taxes which overlap each other; highly complex to keep records and then satisfy the tax authorities. Enormous amount of conflicts also occur when accounts are to be settled with regard to over payments in particular. So that is where Sri Lanka stands very poor. But also I referred to obtaining land. Sri Lanka’s 80-85% of total land available in the country is owned by the Government of Sri Lanka. Now we need an open transparent system in identifying the land; bidding for that and selecting the people who get that. I must state here that a few weeks ago Government identified a very large extent of land available for investment and published a newspaper notice – one full page advertisement. That we believe is a very good start. Now if that approach can be continued and the bidding process is also open and transparent I think it will encourage people to begin to invest. While I don’t have exact numbers, many entrepreneurs say that even after having obtained an initial – what shall I say – approval, it can take 1-1/2 years sometimes before actual work can begin on a site, and that is far too long. There are many places in the world where money can be invested so people can go elsewhere. It discourages investment. And then of course there are over lapping authorities as well because again because of the again because of the devolution of the Provincial Councils and the Central Government. So very clear transparent procedures have to be established.
Even when it comes to export procedures the documentation requirements are very, very large. Number of touch points where an exporter needs to go and get approval is too high and often the time taken to get the documentation sorted out is much more than the time for loading the goods on a ship and it reaching its destination. Sri Lanka ranks poorly on that score. That is the time taken to get the export documentation prepared and approved is often longer than the time taken to export the product to an overseas destination. Nowadays shipping is extremely efficient and they move things very fast and there are also airplanes. So those are things which needs to be…if those are done, if all the regulatory impediments…this whole issue of having too many touch points…too many different authorities to be satisfied – if that can be streamlined then people will feel even with fairly high taxes and other impediments people will feel that Sri Lanka is a good place to invest. So I hope that satisfies with regard to your first question.
North and east I think is the same but I think there is still a lack of clarity as to whom to go to in the north and east. Is it the civil administration in which areas; military administration in which areas and the central administration in which areas? That’s things to be clearer.
Palihakkara: What about my second question?
Ekanayake: Yes sir. Now it slips my mind. What is the …
Palihakkara: What are the specific…any specific initiatives by the big companies (like Coca Cola playing a pivotal role in reintegrating ex combatants to a normal life in Colombia)… Is there any such activity in Sri Lanka?
Ekanayake: Yes. Yes. There are a number of our members – the big companies – who are engaged in various initiatives in connection with ex combatants. There is one project which I think was set up by the then Minister of Rehabilitation – big project – where a number of our companies are participating. In fact almost all the big Sri Lankan companies are engaged in resettlement, rehabilitation, related activities and early economic activities without too much of fanfare …
Palihakkara: We saw Virtusa has a big facility at Vavuniya. Ex combatants are given computer literacy and …
Ekanayake: Yes lot of IT companies particularly where they can tap an educated work force they don’t need any other raw material and IT companies transmit their products electronically so the other impediments don’t apply to them so long as you have sufficient bandwidth they are okay. But also banks went in there very early. Ceylon Chamber has a project with the support of USAID in the east where several large companies have mobilized in agro based kind of products – large companies in projects.
C.R. de Silva: One complaint that emerged in the course of our deliberations was that there are certain financial institutions which collect monies from those areas but there is no reinvestment in those areas. What have you to say about that? Is there any truth in that or …?
Ekanayake: No. In the first place though reinvestment opportunities are insufficient at the moment because settlement is at a very, very early stage and livelihood development is at even earlier stage. So there are very little opportunities to lend. But even later there will be problems because of collateral kind of issues. How does a bank lend to a project without keeping any security; and how many of the re-settlers will have title to their land will become a big problem. So alternative financing models may have to be thought of. Micro finance is one where beneficiaries group themselves and guarantee each other – that is one form. Then the Chamber also has a project supporting very small scale at the moment supporting youth entrepreneurs where the merit of a project is evaluated and small sums are advanced so that recovery is not too much of a burden. It has begun to operate in Jaffna Peninsula as well as in the east now. Those non traditional models will also have to play a role in those areas to try and get the banks to extend money.
C.R. de Silva: Actually some of the people there in those areas they expressed the view that if they are given some sort of opportunity to cultivate for one season, for one season, that they would be in a position to really start off life, and as you say, that the question of security that they provide may be inadequate but our banking system or the lending institutions they must come out with some pro active method by which you could facilitate some sort of credit being given to them.
Ekanayake: Perhaps there it has to be a…Government may also have to come in and give some – what shall I say – comfort to the banks either in the form of refinance of a certain percentage of loans advanced or something like that because banks are on the whole coming out of a very difficult situation, to be fair post recession, still the NPLs that is non performing loan percentages are high. That is out of the ordinary still. Yes banks do report high profits but that as a lump sum. Incidentally I am not representing a bank as the Ceylon Chamber of Commerce I am saying. So they also have their issues because they have to perform according to the benchmarks given to them by the regulator or the NPL ratios, capital adequacy etc. etc. So I think solutions will have to be found together.
C.R. de Silva: I think it was 2 weeks ago that the Secretary to the Treasury expressed concerns about the high lending interest and the low borrowing interest and there is a great disparity as a result of which he says that these financial institutions are making a lot of money but nothing goes in for real development. That was one complaint that he made.
Ekanayake: It is a valid point but I think the solution cannot come entirely by the banks themselves. I think State can come in because the 2 largest banks are still State Banks and together I am sure a solution can be found – it has to be found. And also this is not only in the north and the east but even in the other areas the bankability of the documents held by farmers with regard to land will have to be improved. Many things have happened in the past but I still see they are inadequate for generating capital.
Chanmugam: Thank you Dr. Ekanayake. Everybody agrees that the country has not grown to its potential during the period of conflict. Now that it is past and behind us there are some small things that can be taken which can improve a better use of existing resources without too much investment and that is what you had mentioned that there are bureaucratic processes requiring time and effort on the part of the people who want to conduct businesses and to narrow the time between getting approval for something and actually implementing it. Now why doesn’t the Chamber of Commerce be more pro active in this and set up a committee or, you know, you all have people in your combine that can bring up these issues and then address the Government and tell the Minister of Finance look it takes us 10 days to get this order through or it takes…why do we have to go through a checkpoint in this place just in front of the warehouse. You know there are so many small-small issues to cut short the time available, and I think if you wait for the Government to do it, its going to be a bit difficult because when liberalization was introduced in 1978 – November 1977 – I think the Chamber of Commerce did set up a committee and they published a very small report I think. I don’t know whether the committee was set up by the Chamber of Commerce or by the Government but it certainly consisted of business people Lal Jayasundera, S.K.Wickremasinghe and crowd, and they had a number of small issues to say permits for this not necessary; why do we have to go to the Customs 5 times; why do we have to enter our name and address on 5 or 6 different places. So if you are shall I say pro active in it you might be able to get something off the ground like opening up the A-9. You open up the A-9 you will definitely get more resources human resources. You will release the energies of people and they will find something to do and I will tell you story when South Korea for example they opened up their economy they liberalized and they did not plan as to what is going to be our number one export and number two export; number three export. They allowed the people themselves to decide what to do and you know what was their number two export earnings in Korea the year after they liberalized was the export of human hair for wigs. Nobody would have anticipated that. So I feel that there is a lot of initiative that can be tapped provided people sit round in a room and then decide look these things don’t need financial resources just improvement of bureaucracy.
Second thing is in my view I think Sri Lanka is a beautiful place and I think the tourism industry now that we have peace and if everything goes reasonably well there will be a tremendous development in the tourist industry. I don’t know whether you have read what Mr. Ravi Thambiah has written a couple of days ago and I think the tourist figures which are now round about 500,000 and anticipated to go up to 2.5 million tourists in 5 to 6 years. Now that will involve an investment according to him of about 1.5 billion U.S.Dollars during this period. Now since you all are the business people how will you get this resources – the financial resources to do this? Have you any thoughts on that?
Ekanayake: Sir on the first one, you made a very valid point and we have been doing exactly that for several years; I recall from the time I began serving in the leadership group of the Chamber. Of course I must also admit that perhaps during the…until the end of the war the focus was not on this area. Very specific recommendation on what needs to be done. A very focused drive was by my predecessor Mr. Jayampathy Bandaranaike who is now the Chairman of the BOI. He started a project together with the Customs, Export Development Board, BOI all of them a couple of years ago to begin to simplify procedures etc. For some reason or other it did not gather steam. Then I started an initiative…sorry…
(Interjection inaudible) Yes we can we can very happily
…and I managed to revive that again in the Presidential National Administrative Reform Commission (NARC). That was in last December and it is moving now with regard to simplification of export procedures. It is a complex thing because some 16 or so different Government Authorities are involved in it and the usual turf issues, and there are certain technical issues as well but which can be easily addressed and I must say the initial work is now moving ahead there. So we are hopeful that in another year or so we will begin to see some improvements. But there are some interim things which can be done where we don’t see quick action. For example a few weeks ago I had the opportunity to be in Uganda and I visited their Board of Investment. They have got a very simple thing where the other authorities outside BOI who has to approve certain things are seated in the BOI office. It is a very simple process. You know it might be a little too simple for Sri Lanka’s volume of trade etc. right now. So there are different ways of doing it. Then we made representations to the Hon. Minister of Economic Development and of course happy to say a committee was appointed headed by Hon. Sarath Amunugama and I understand they are moving ahead with the intention of simplifying processes as early as possible. So we are doing exactly sir what you suggested. Of course obviously we would have liked these things to have happened yesterday. So that’s that.
With regard to volume of investment it is a big question because as you know sir our investment is about 25% of GDP and the incremental capital output ratio is around 4 to 5 which yields an economic growth around 5 – 5-1/2%. If we are to go to 8% investment has to increase to 40% or 45%. Government already has a budget deficit of 10% so Government cannot go beyond the current 6% of GDP they are investing which means private sector investment has to double. Now if private sector investment is to double then this ease of doing business has to be there. There has to be guarantee that investments once made won’t be – what shall I say – nullified or whatever you know. Agreements if they are over turned or cancelled several years after the investment – big investments – then people are going to attach a very high risk margin for investments in Sri Lanka. So some suitable remedy has to be found in order to give comfort – I am not only talking of foreign investors; I am also talking of local businesses – otherwise they have to either factor in very high margins of return or else they would not get in. So that is the second issue.
Sir I think if those two are quickly addressed then we can expect to see a high rate of investment. The other is perceptions. Sri Lanka has to be seen as a country with friendly relationships with all the countries in the world. That will also give comfort for foreign investors with regard to investments in Sri Lanka.
Another area is if we can – because Sri Lanka is at the – what shall I say – at the tip of India and it can be made easily a gateway to India wider economic cooperation business cooperation investment cooperation of India will be an added advantage people will then…otherwise they will come to Sri Lanka for Sri Lankan markets which is very small and the market in the west primarily. But if Sri Lanka is seen as a gateway to South Asia, and particularly India, then again I think investments will increase. So when it comes to tourism the same thing. The macro picture those numbers will apply – a doubling of…rapid doubling of private sector investment. Now some of those procedural remedies, speeding up etc. will increase the incremental capital output ratio. So it will work both ways. So with a lesser amount of capital you will get the GDP increase and also more capital will come in.
Ramanathan: Dr. Ekanayake, I have 2 questions for you. You said after the war we need to heal the wounds. What are the means you suggest one should adopt to heal these wounds? That is my first question. Second one. You said there should be devolution and the 13th Amendment should be expanded. How best could it be expanded? Thank you.
Ekanayake: Madam at the Ceylon Chamber of Commerce we are not experts in law and you know constitutional arrangements etc. so our views should be taken in that light. But we feel that the peace dividend not only in economic terms in social terms in terms of levels of comfort with authorities have to be seen very quickly so that the wounds of war will heal. The combatants and their kith and kin on both sides need to be treated in a similar manner. Their issues need to be highlighted and they need to be supported. Even simple things like language: what is the language in operation when someone goes to get redress on an issue or make a representation is very critical. Even simple things like road signs, signs on public transport, all these things we feel will begin to make that difference. And at least in the area of education and health because education is a thing which is highly prized valued by all the communities in Sri Lanka. So yes, if infra structure redevelopment takes time and all that but if other things somehow they are mobilized fast and made available to the people and then free mobility right through the country for all the people can be given, I think those things will make a difference. Economic dividends will also have to come along but it will have to take its own course. May be it can be speeded up here and there. So that’s what we feel.
With regard to your second question madam, we have not deliberated – we don’t think it is our area of expertise – on the specific provisions required for an effective devolution. But we have, in our law we already have a degree of devolution. So our feeling is that’s a starting point and after all this if the devolution is only to that extent will that help in the healing of the wounds. But how about considering something more than that. Now the form, nature, shape of it will have to be determined by experts but our thinking is on those lines.
Chanmugam: Actually Dr. Ekanayake I should have responded to you earlier. You know in this capital creation where the private sector in Sri Lanka is concerned there are even with the private sector there is insufficient savings to go up to this 30% – 40% of GDP. So obviously we have to tap foreign savings right. To tap foreign savings we have to go to foreign countries or be very friendly with foreign countries or have relationships with them in a manner which will give them the perception that everything is sound and safe for investment in Sri Lanka. That is my thought. Would you agree or what are your thoughts on it?
Ekanayake: We fully agree sir. During the last 12 months we have – Ceylon Chamber of Commerce – has promoted Sri Lanka as an investment destination as never before. We went to for example we attended the Indian Economic Summit. It is a very, very prestigious event – that was at the end of last year – and we were able to have a separate session promoting Sri Lanka for the first time in the history of in any Economic Summit. It is done by the Davos the same group in the fashion of Davos Economic Summit Global Economic Summit. And since then we have been having large numbers of foreign entrepreneurs coming to Sri Lanka in search of investment opportunities. We had two very significant examples. Along with our annual economic summit in July we had 130 business leaders from Asia Pacific Region visiting Sri Lanka. That is the largest number for any Asia Pacific Chambers of Commerce the confederation history. Such a group had never gone to any other country in Asia Pacific Region. That is starting from Japan, Australia all the way to Turkey.
A few days ago – last week – we had a delegation of 225 Chinese from Yunan Province visiting Colombo. This was something we did along with the Prime Minister’s office. So along with the Government we facilitated the event. Those kinds of numbers have never been here before. So clearly there is enormous interest but then now the challenge is to translate that interest into actual investment and that is where this you know simplification, cutting down on time lags have to be done. And when there is interest naturally also if we don’t reciprocate fast that interest will begin to wane; that is the danger. And any investor from any country will come here if he has the comfort that Sri Lanka’s relations with the home country is on a positive note and we believe that is also very important. I must say it is very early because anyway investment decisions, particularly significant large scale ones, take a little bit of time, and we don’t have any data at this point of time how many of those visits and all that will translate into immediate investment. But I think we need to get our act right in many areas.
Hangawatte: Thank you Dr. Ekanayake for coming here and I wish to draw up on your knowledge your expertise and your experience especially in direct involvement. I take all your points very well about the need for simplifying tax laws transparency in the bureaucracy and the need for streamlining the bureaucracy reduction of paper work and so on and so forth. Also about the public/private partnership. On the public/private partnership I have just a couple of questions on that. One based on my interactions with some foreign sectors, some international sectors as well as some business industry people here. It seems that one of the questions that is still being asked over there is, what is the guarantee that the conflict will not return? They ask that. They refer to it as the history but they mean the recent history. So this seems to be very important and give some kind of guarantee psychological. So I know that we expect the Government to its diplomatic missions etc. and foreign policy etc. to create some kind of comfort level but what role can the private sector play in that to counter some of the campaigns which affect the private industry. Definitely direct investments etc. What role can the private sector play; what do you think?
Ekanayake: Sir as I mentioned earlier, what we can and we will continue to do is to promote Sri Lanka as an investment destination. In a couple of weeks – in about 2 weeks time – Secretary General Mr. Malwatte is visiting United Kingdom and he is holding two different business meetings with significant groups of people promoting Sri Lanka. Now this is done totally independently of Government and we should continue to do that. However when people ask us about the question of specifics about the possibility of recurrence in the absence of very clear political and constitutional provisions it will be difficult for us to…we will of course say that we are confident that there won’t be a recurrence but we are talking to very sophisticated individuals backed up by big teams who do what are called due diligence studies and they look at not only of economic numbers but they look at the legal considerations all those things. So I think it will help if the Government speeds up that process. One is the constitutional – what do you call – mechanisms; the other is the normalization – rapid normalization – of the conflict affected areas where people overseas if they want can freely visit etc. without having to obtain prior approvals and all that because otherwise you don’t get a comfort feeling.
Hangawatte: Talking about again the public/private partnership and the rapid normalization as you mentioned, I think there is a huge young labour pool in the north and east who had been denied education, training etc. to engage in economic activity – even the private sector economic activity. So would your Chamber or has your Chamber taken any concrete steps to either train or retrain these individuals for the potential developments that may come whether it is in tourism related industries or agro based industries and what not.
Ekanayake: Sir at this point of time our focus is on linking the local entrepreneurs, the local business community with the business community from the centre. We have been to the east; we have been to the north – that is to Jaffna, Trinco, Batticaloa – and got the key businesses in Colombo to meet up with them. The idea is to build value chains and in the process strengthen the local entrepreneurs as well rather than doing business where they get shifted out. That is the sort of concept on which we work and whole range of businesses have begun to now operate in those areas. It is not satisfactory; much more have to go. But what happens is when a few go and report that it is not too bad; it is not too difficult to do business activities there, others will follow. Then in the case of the east at this point of time we have negotiated a project with USAID which has a very significant training component as well so that the people in the area get properly trained.
Then the other one is there – youth entrepreneurship program – where young entrepreneurs are adopted by mentors from the local business community and according to guidelines given by us they are being trained on the job. So they start a project and they are…mentoring comes not from specialists from outside but businessmen in the area. So these are the kind of activities we are having in the area. The Chambers in Batticaloa, Trincomalee, Vavuniya, Mannar and Jaffna are affiliated to our Chamber; we meet minimum once a quarter together and discuss the challenges they have and try and help them resolve them. Some are issues to be taken to the authorities; some are issues where we interact with the businesses from the centre. So that is the approach we have taken. We believe it is one of our prime responsibilities at this point of time.
Hangawatte: Now you addressed before the problems with finance, banking system financing how it affects the economic development. Now as regards financing I know you mentioned that may be the laws should be reformed or at least the rules should be reformed to allow people to use their land as collateral. That is a very good point. The problem I think in the north and east – at least based on our visit – it seems there are questions about land ownership. Owners may not be occupying their land others may be occupying the land. So whoever who is now occupying they may have deeds but they may not be actual deeds. So obviously the banks would be very wary of that – anybody who is going to give money. So that problem is there and I am just addressing some of these problems of the transitional problems that area face coming from conflict to peace. That is just one example but even otherwise as regards other things. Would it help if the Government creates some kind of a stimulus fund just for this period – transitional period – to guarantee loans, financing, even private sector investment etc. in some way. What are your ideas on that?
Ekanayake: We believe that it will help the process in the interim period. At least if a certain proportion of lending can be supported it will reduce the risk element and it will make people to…and then as people acquire other capital, at least movables, their creditworthiness will improve and the banks can also take into account the – what do you call – the track record of the borrowers which will give them some degree of comfort.
Hangawatte: I know you made indirect reference to a probably a certain case when you said that there should be some kind of guarantee that your business will not be taken over or taken back, so without mentioning any particular case would you say that that also resulted due to inadequacy of bankruptcy laws in this country and also the inadequacy of the criminal laws to deal with corporate wrong doing because if there were criminal laws to deal with corporate wrong doing adequately then alright punish the wrongdoers but it wouldn’t affect you and you will still continue to do the business. And if there are also adequate bankruptcy laws some of the things that have happened here still they are struggling with how to pay back the depositors etc. Many of those could have been avoided probably in a more expeditious manner. So have you played any role or do you play any role in partnership with the Government to reform these types of laws?
Ekanayake: We have with regard to sanctity of agreements entered into by the private sector with the Government we are in communication with the Government. We have made our representations. The problem here sir is that for whatever reason when say 5 years or so after the event many other stakeholders would have come into transactions with that business entity. That is a huge issue. And the other issue from the investors side is the extent of due diligence possible to know whether the procedure followed by the Government is strictly in accordance with the law because the procedures of the Government are not in the public domain they are certainly not available to an investor – definitely not in a formal way. So that poses a huge problem. So we made this submission and we hope that it will be addressed – how we don’t know.
Hangawatte: I have two more points if you don’t mind. I think we are running out of time but …Another point I wanted to ask – this is not limited to just north and east but large area of the north and east as well as other areas – as regards dry zone farming. There is a huge dry zone in this country and dry zone farming I refer to things like sesame and so on and so forth. I mentioned sesame especially because last several years the sesame has been the highest selling grain in the international market and apparently the biggest buyer in the internal market of sesame is China; biggest seller is China as well. So you know where they come from. So I think…could the private sector play some important role again in partnership with the Government such as creation of a – I know one person tried to do that but it did not work out well because of certain problems in the way they started I think – create some kind of a commodity exchange even for those products we are still limited to what the British gave us tea, rubber and coconut commodities exchange. But the private sector can play a huge role there and I think then in turn if you can combine that with – I am not making suggestions I am just asking – if you can combine that with the cooperative system but cooperative system taken away from ministerial control etc. from the Government – true cooperative system which will allow many dry zone farmers to pool their resources together and negotiate a good price rather than the Government setting a price. So let the buyers and the sellers negotiate the price based on the market value because we have to protect them. I think that is the way to probably protect them rather than…and then buyers can organize the same way and something like that have you given any thought to anything like that especially now that the war is over?
Ekanayake: We provided our know-how to such an initiative which was started by the Central Bank. Our expertise comes from the conduct of tea and rubber auctions. They are not exactly commodity exchanges but certain principles are similar. But when it comes to agriculture there are two bigger issues. Now these exchanges will permit the proper price discovery but the bigger issues emerging are: one is the extreme fragmentation of land and the second is the rapid movement of youth away from farming. They are inter-twined. While the youth is moving away from farming the micro farms are not very conducive for capital investment and for mechanization etc.
Secondly, however high the yield is the surplus generated by a small tiny farm is not enough for a young family to live comfortably. That is the challenge we have. Now the average farm size in Sri Lanka is less than 2 acres – one of the smallest…
Hangawatte: That is where the cooperative system comes in.
Ekanayake: …and in that average all the large holdings and the estates, you know, 25 acre farms are also included. So a huge lump of farms are around one acre or less. Now however much you are technically efficient with a micro farm entire sustenance required for a family cannot be generated. So people have to be part time farmers. That is not a very conducive situation and lifestyles very correctly the educated youth today look for cannot be generated from agriculture. So some kind of consolidation will have to happen. Now if you look at it today in the eastern province where the holding sizes are much larger you see and also in Polonnaruwa district and so on where the early colonization schemes were you see usage of equipment farm equipment in big way. But in the other areas it is very difficult. So this problem needs to be addressed quickly for large scale increases in agricultural output, and for the private sector to move in there, they need the comfort of a minimum nucleus area and then the whole problem of getting land arises. Then the other thing is the enforcement of contracts between the small farmers and the large farms because otherwise large farm can extend technology and inputs and the small farmer at the harvest time go and sell it to someone else.
Hangawatte: That is where the combines and cooperatives might play a role. My question is also actually really based on something I have looked at the Ethiopian experience. In Ethiopia when the famine happened everybody thought water, water, but apparently it was not water but the problem was there was not enough farming but the goods don’t move from the farm to the market. Anyway having said that, my last question is about the bureaucracy. You mentioned about the red tape all these problems. It seems to be a mind set among even senior bureaucrats somehow since 1977 at least there seems to be a development where everyone is trying to protect their turf, shift blame to somebody else rather than looking at what will be in the social interest and also people seem to try to protect their turf by applying the rules strictly or using exactly what the rule says without interpreting without using any discretion. I hear this quite a lot that even senior officials don’t seem to use don’t seem to make discretionary decisions in favour of accommodating something. They seem to make decisions to prevent something or to retard something. What is your experience? How can that be addressed? Just training or there is something else that needs to be done?
Ekanayake: One possibility is to reduce the number of institutions combine them as much as possible where the turfs get less. Currently too many turfs perhaps that is why and fragmentation of the institutions as well. So then you have to cross the boundaries of all those. Perhaps that is one solution. Another is bringing private sector people and the public sector the bureaucrats together in as many forums as possible including the Government Boards etc. so that’s a degree of cross fertilization will take place. Perhaps most important of all is a system where targets are set and individuals are rewarded according to their achievement. Perhaps those are – I am speculating here but – perhaps measures.
C.R. de Silva: Dr. Ekanayake, on behalf of the Commission I must thank you for the very clear presentation that you made. We were provided with an opportunity of dipping into your expertise in an area which is very necessary for the purpose of development and certainly whatever you said would be used by us in formulating our recommendations. You made a very valuable contribution to the problems that the business community encounters especially in development in the north and the east and also the problems that you envisage as far as development in these areas are concerned, and we will be taking all this into consideration in formulating our recommendations. Thank you Dr. Ekanayake.
Ekanayake: Thank you, sir.