Dear friends and colleagues,
I would like to thank Mr. Kosala Wickramanayake, President of the Federation of Chambers of Commerce and Industry, for inviting me to speak to such a distinguished audience. I feel privileged and honoured to have been asked to speak to the Business for Peace Forum.
The theme I haven been asked to reflect on touches the core of Norway’s bilateral cooperation with Sri Lanka. Support to economic development and assistance to peace building efforts have been our main priorities in recent years.
I will actually start by giving you a comprised outline of how I see the relationship between economic growth and peace:
1 Peace belongs mainly to the political sphere. Peace demands political solutions.
2 Economic growth is mainly a consequence of good economic policy and an effective public sector.
3 At the same time there are several interlinkages between peace and economic growth, the most important being:
Firstly, peace provides for a conducive environment for business and investment, and it is likely that the state operates and invest its resources more effectively in a state of peace.
Secondly, sound economic management makes it easier to implement political solutions to the national problem, since a healthy economy provides necessary resources to address grievances that gave rise to the conflict.
This presentation will reflect upon these issues. I will highlight some of the obstacles for increased economic growth. I will then move on to look at sectors where I think Sri Lanka can develop and thereby increase it’s potential for further growth and link this to peace building. Finally, I will say some words on how Norway tries to engage and assist Sri Lanka’s efforts to develop its economy.
But before I embark on this let me first simply state how I consider Norway’s present role with respect to Sri Lanka’s efforts to achieve peace:
It is Norway’s view that no outsider or external power can solve Sri Lanka's problems – only the Sri Lankan people can find a political solution to the violent internal conflict.
We believe that to bring about a sustainable political solution it must be supported by all the ethnic and religious communities.
Norway has stated that we are ready to continue to assist Sri Lanka in its efforts to solve the conflict if that is the wish of the involved parties and stakeholders. At the same time, Norway will not stand in the way for other initiatives that have the support of the concerned stakeholders.
The challenge ahead for the Sri Lankan people is to find the path which ends with a broad political understanding which addresses the major grievances of all the communities.
Let me now talk a about obstacles for growth and knowledge economy.
All countries wish to achieve high economic and social development over time. Only the private sector in a market economy combined with good governance can make this happen. The formula is simple, but it is often complicated to implement it in practice.
To rely on the private sector as the main engine of growth does not make the public sector less important. But the public sector must move out of sectors and areas which are better handled by the private sector.
At the same time the public sector needs to be stronger in the essential areas where they can play a role. Like that of developing infrastructure, introducing policies and develop a climate necessary for growth, investing in education and other essential services.
Sri Lanka has experienced considerable economic growth since the 1960s. A process further triggered by the open market reforms introduced in the 80s that facilitated globalisation, improved macroeconomic management and unleashed the private sector as the engine for economic growth.
The private sector in Sri Lanka has been very resilient given the circumstances. The private sector does not, however, take care of public goods like roads, electric infrastructure, sewage and waste handling systems, schools and health care. The private sector must be supported by a strong and effective public sector that delivers the public goods and services that people and society need.
Many observers, including the World Bank, have pointed at some major challenges for Sri Lanka in this regard: One is the high cost of doing business due to insufficient and expensive energy supply. Another challenge often referred to is the need for strengthening government institutions and to reduce the level of corruption.
The role of the state in the economy has been curtailed to some extent due to reforms from the 80ies and onwards, but the state has not developed a sufficient capacity to deliver the high quality services which are necessary to increase the growth rate much beyond present level.
According to a recent study by the World Bank, the time is now right for Sri Lanka to begin transitioning towards a knowledge-based economy.
By the end of 2004 the service sector was the highest contributor to GDP with 56%, the industrial sector contributed with 26%, and the agricultural sector with 18%.
According to this same study Sri Lanka has, however, made an insufficient improvement in its transition towards a knowledge economy, and therefore lags behind most comparable countries in economic growth and development.
The concept of knowledge economy is nothing new. Application of knowledge has always been pivotal for development. Studies have shown that simply adopting available technologies widely available in the developed world can dramatically boost economic growth and productivity.
I would like to talk about this emerging concept in the context of Sri Lanka. I will indicate some actions Sri Lanka might consider to be able to take advantage of the opportunities that the world now offers. Later in my presentation I will link this to the concept of peace.
First of all, in my view a country should focus on creating a good business environment. A good business environment creates incentives for business to be creative and innovative. Sri Lanka’s business environment remains mixed. While it is fairly easy to open and close a business and to hire workers, it is difficult to license new business and to register property just to mention some examples.
Secondly, information and communication technology plays a central role in economic growth and productivity. A small increase in the number of mobile phone and internet users can boost GDP growth substantially. Interconnectivity is the essence of a modern economy. What many countries in Asia and elsewhere have done is to develop a liberal regulatory structure that allows for private sector participation and competition.
Sri Lanka has made progress in this field but there are still many restrictions, including high prices, low penetration rates and limited competition. Reforms in this area will spur international investment in the sector and give impetus to further growth of the Business Process Outsourcing industry.
The third important factor is to adopt a culture which stimulates innovation. The first step towards adopting an innovation culture is to import existing technologies from abroad and adapt them to the local situation. As labour is getting increasingly expensive in East Asia, Sri Lanka has the potential to absorb existing technologies and productions systems especially in the services industry. From such a base one can develop further into more innovative industries.
Foundation for such a culture lays in science, technology and research. The World Bank has observed that Sri Lanka has fallen behind in science and technology. Other important measures would be to create stronger linkages between academia and the private sector, reduce the level of red tape in the university sector and introduce tax incentives for innovation.
Finally, for Sri Lanka to be able to capture the benefits of the knowledge economy, it will need to improve the quality of education and expand access to higher education and vocational training. The educational system must be sufficiently demand-driven and focus on lifelong learning. Educational institutions will benefit from being given more autonomy along with greater accountability. The present amount of spending on education is only around 2.5% of the GDP, which is very low in an Asian as well as an international context.
Expanding participation of the private sector in the educational system could contribute to quality, relevance and access to higher education. This will contribute to convincing bright young Sri Lankan to study in their home country instead of going abroad.
I think Sri Lanka can learn a lot from countries like Korea, Singapore and China; three countries at different stages in their development of a more knowledge based economy.
These three countries have one fundamental common theme: their investment in education. In Singapore education is the second biggest expenditure item. In Korea over 50% of the population attends university level institutions. China’s present investment in education - and particularly in science and technology - is just mind boggling!
All three countries followed an outward oriented export development strategy. All started by adopting existing technologies rather than trying to move directly into innovative or new industries. All have gradually improved their business environment and thereby been able to attract more and more foreign investments. And finally, all three models relied on the private sector combined with a high degree of government coordination and cooperation between the private and the public sector.
Having pointed out what I think are necessary elements in a private sector driven growth strategy, some of you will rightly interject that Sri Lanka’s overriding problem is not of an economic nature but of a political: Namely finding a political solution to the violent internal conflict, which have ravaged the country for almost 30 years.
My point is simply the following: The most important issue for the Sri Lankan people now, is to find a political solution to its national problem. But that does not mean that one should not implement sensible policies in other areas. On the contrary, I believe that an active policy to achieve rapid economic development can contribute to peace. Economic development is certainly not the only peace building brick, but probably one of the most important ones.
Let me use Singapore as an example. In the early 1960ies Singapore was struggling with internal social and political problems. The newly established state was confronted with communist insurgencies. Singapore’s main way of addressing the underlying grievances was to put into effect growth oriented economic policies with the view to create opportunities for all. Instead of using all their political energy to quarrel on how to share the existing pie, Singapore launched a set of policies to make the pie bigger so that everybody could have a bigger share.
I think that this is the essential logic of almost all the successful countries that have been able to achieve rapid economic growth. Collective efforts are needed to make the pie as big as possible, and to develop a system that ensures that the benefits are distributed fair and just. Singapore did not only develop policies that made the share of the pie bigger for everyone – these policies, did also to some extent also address the grievances that existed among the ethnic and religious communities in Singapore.
The objective of the state is to ensure security and prosperity for its entire population. It is the government’s role to pass laws, and establish rules and code of conducts to ensure that growth and development becomes beneficial to all its citizens. The government should - through its regulatory frameworks and establishment of various government institutions - try to re-channel its citizens' actions in a direction that ensures that the collective output is beneficial for all.
In this sense one can also say that policies beneficial for the economy also contribute to peace. This does not, however, mean that growth oriented economic policies reduces the need to solve the political problem. But wise policies probably provide a more conducive environment to implement political solutions to the national problem. Furthermore, a healthy economy will provide the state with resources needed to provide a solution beneficial for all.
Xxxxxxxxxxxxxxxxxxxxxxxx
As I mentioned in the beginning of my presentation support to economic development has always been one of Norway’s main priorities in our cooperation with Sri Lanka, and therefore constitutes 70% of our long term development assistance. We support Sri Lanka in a number of areas, amongst others chamber development, vocational training and eased access to credit.
One intervention, that may be interesting for this crowd tonight is the so called Matchmaking Program.
This program facilitates matching of potential partnerships and joint ventures between Norwegian and Sri Lankan companies. It is coordinated by the Ceylon Chamber of Commerce and has supported a number of collaborations since it started in 1994, of which 50 are running today. In the last year the programme resulted in the establishment of 6 joint ventures (electronic manufacturing, fibre glass, steel, financial services), 7 MOUs for future collaborations were signed, and 11 trade agreements were entered into (tourism, textiles, jewellery, machinery).
Even in the situation of an ongoing violent conflict we have been able to achieve these results. It indicates the potential for growth and economic development in a peaceful Sri Lanka. That is, in my view, what the Sri Lankan people should strive for.