Session 01 – “International Trade, Tourism and Economic Engagement”

Session 01 – Speaker 01 – Mr. Anushka Wijesinha

In his presentation “Road to an Export-Oriented Economy”. Mr. Anushka Wijesinha noted that the roots of Sri Lanka’s crisis go beyond debt and weak public finances. He ascribed it to a deteriorating post-war growth model, where, even as foreign debt grew, conditions for export-led growth did not. Furthermore, non-debt creating inflows (i.e., FDI) were unimpressive while reforms to foster a competitive and innovative business climate were slow. There was an over reliance on tourism and worker remittances for foreign earnings and strategic approach to trade was lacking. Tax incentives overwhelmingly favoured domestic non-tradable investments.

He attributed the poor FDI performance to post-war increases were mainly in domestic non-tradable sectors, FDI to mixed property development and housing soared, but investment in manufacturing remained flat. In addition, the incentives regime was unpredictable and non-strategic. Trade facilitation has not been prioritized and there were significant gaps in our global commercial representation. He stated that a major issue was the poor commitment to implement a National Single Window for trade.

Mr. Wijesinha underscored the need to prioritize the focus on trade, exports, diversification, and export-oriented FDI. Since, the root cause of economic crisis was not only tax and debt, fiscal and monetary policy reform alone is insufficient and industrial policies are needed. Improving trade competitiveness, boosting FDI, and diversifying exports with innovation were vital and would require a strategic approach. He stressed the need for accountability for trade and export agenda, noting that economic diversification requires deliberate policy actions.

Other crucial factors for success are fostering an innovation ecosystem, FDI promotion, export diversification, and SME upgrading. Also needed were public investment in STEM education and R&D, with a PPP approach for Skills Development Center to ensure talent pool remained sufficient.

He noted that shifts in global supply chains due to geopolitical/security considerations have resulted in cost no longer being the only factor looked at. Therefore, Sri Lanka must stay alert to new opportunities emerging such as near-shoring, friendshoring, etc. He also urged the authorities to pay attention to shifting global dynamics, including trade wars and geopolitics as well as domestic politics, national security, regional integration and trade protectionism.

He stated that Sri Lanka must embrace the growing focus of environment and nature in trade. With green financing and technical assistance becoming available, Sri Lankan SMEs have opportunities in responsible, ethical, sustainable trade.  Mr. Wijesinha observed that buyers in our key markets are becoming more conscious about climate impacts, traceability and sustainability credentials.

He asserted that these reforms must be prioritised as they impact our enterprises, our sectors’ competitiveness, our economic diversification, our resilience, and our people’s incomes. He concluded by noting that there are many bright spots that signal what is possible in Sri Lanka.

Session 01 – Speaker 02 –  Mr. Murtaza Jafferjee

 In his thought-provoking presentation on “In search of Capital”, Mr. Jafferjee queried if what we were witnessing was development or gambling. He recalled that he had already said that the country was run for the benefit of 1000 people. He also noted that even Singapore had made a number of mistakes during the course of its development, but was able to pivot when needed. He referred to the current debt restructuring as the great value transfer. The debt restructuring had been very light and that the government was carrying a lot of debt.

He observed that real interest rates had been significantly suppressed in 2020-201 as a result of ultra-loose monetary policy, adding that real interest rates will remain high going forward. One can’t finance debt by importing capital. Real interest rates will be high. He stated that pro-competitive policies were vital and Sri Lanka also needed more export-focused investment.

Mr. Jafferjee noted that higher labour productivity and increase in employment were essential for economic growth. However, the Sri Lankan economy was constrained by an ageing population and low female labour participation. He asserted that it was not the business of government to be in business. They should set the rules and let private hands manage enterprises. He also observed that tax incentives were not the way to get capital. The government was a terrible allocator of capital.

He highlighted the importance of the responsible allocation, management, and oversight of capital to create long-term value leading to sustainable benefits for the economy, the environment and society.​ However, there were capital allocation issues​ as a cash starved government will prioritize dividend over reinvesting denying a growing business from future expansion. ​In addition, capital should be optimally utilized using three key management practices – lean management, talent management and performance management – as well as proper oversight of capital to prevent corruption.

He observed that the government has a 30% economic interest in every business in Sri Lanka through the income tax system. ​A divested SOE that is well run and more profitable will yield greater economic inflows through the tax system than what was enjoyed through dividends and taxes from lower profits under state ownership. The divesture proceeds could be reinvested in high social return investments such as quality secondary and vocational training creating a highly productive workforce. He stressed the need for more export-oriented investment.

Mr. Jaffeejee stated that low growth and lack of investment in export-oriented sectors were a result of inter-industry coordination failures, barriers to export markets and needed inputs, lack of industrial land in Western Province, and poor transportation links beyond the Western Province.  In addition, he blamed an export base with low know-how related to new sectors, lack of government coordination, ad-hoc policymaking and disordered deals, He emphasized that investors care about other factors besides tax incentives. Moreover, there were no easy diversification opportunities available in Sri Lanka as a result of which there were few investors knocking on the door.

Session 01 – Speaker 03 – Mr. Dinesh Weerakkody

 Speaking on “Enhancing Skills to make Sri Lanka a more attractive destination for Investment”  Mr. Dinesh Weerakkody observed that Sri Lanka is facing a dire shortage of labour and skills. He attributed this to persistent emigration as well as due to shortcomings in education, especially difficulties faced by students in mastering basic skills in general education. He noted that training and better utilization of workers can ease labour shortages, but only to a limited extent​. He also observed that the rest of the world was benefiting from the fruits of Sri Lanka’s education system. While there had been substantial migration in the 2000-2008 period where people sought to improved their lives, the mass immigration on 2022-2023 was a result of those trying to protect their livelihoods. There were persistent fuel queues and people had to undergo numerous hardships, though the situation has since improved dramatically.

Mr. Weerakody noted that Sri Lanka had only succeeded in attracting a mere $24 billion in foreign direct investment in the last 45 years, which is what Vietnam received as FDI in a single year. FDI from BOI enterprises had contributed $19.3 billion in the 2005-2023 period with 1506 companies in commercial operation, generating 465,000 jobs. In addition, there were 463 projects in the pipeline. He observed that Sri Lanka offered many advantages to prospective investors, including a strategic location, talented and educated workforce and easy access to the European and South Asian markets through the GSP plus scheme and free trade agreements.

He noted that labour force growth was declining, a trend that is expected to continue into the future. The lack of trained/well-trained workers was attributed in part to shortcomings in primary and secondary education, especially difficulties faced by students in mastering basic skills in general education. The need to enhance STEM education and vocational training was highlighted. ​ Mr. Weerakkody underscored the importance of tertiary education, which is instrumental in fostering long-term growth and boosting shared prosperity. In addition, workers with tertiary education are more employable, earn higher wages and cope better with economic shocks​. He observed that defense spending had increased steadily over the years and amounted to Rs. 539 billion a year while only Rs. 232 billion was spent on education.

He stated that current TVET and Higher Education programs lack quality and labor market relevance. As a result, most graduates enter the labor market with skills that are not well matched with demand in the labor market. While growth is driving up the demand for new skills, employers do not find enough skilled labor to meet their needs. The most serious constraints are faced by firms in modern higher value-added industries and firms hiring higher-skilled workers.

Sri Lankan job seekers have high expectations in terms of salary and careers, with the best talent continuing to migrate. Persistent skills gaps had been identified in fields such as risk management, business development, supply management, waste management, HR and advanced technology. He highlighted the importance of having a workforce with good English proficiency in order to attract more international investments.

Mr. Weerakkody pointed out that, while bringing in foreign workers may be necessary, policies must be carefully drafted so as not to destabilize the local labour market​. He also proposed a program to attract talent back to the country whilst building capacity and greater collaboration with industry.