SL needs to build dynamic private sector linked to global and regional value chains | Sunday Observer

SL needs to build dynamic private sector linked to global and regional value chains

The newly constructed  breakwater of the  Colombo Harbour
The newly constructed breakwater of the Colombo Harbour

Wencai Zhang, the Vice-President (Operations 1) of the Asian Development Bank (ADB) will be in Sri Lanka from November 22 to 25 as part of an official tour. During his stay in Sri Lanka he will join Finance Minister Mangala Samaraweera to launch a publication titled, Sri Lanka-ADB Partnership: 1966–2016, which highlights selected ADB-funded projects in the country over the past five decades and ADB’s enduring development partnership.

Zhang will also have discussions with President Maithripala Sirisena and Minister of Finance and Mass Media, Mangala Samaraweera and other key government officials. Discussions are likely to focus on ADB’s latest Country Partnership Strategy for 2018–2022, which was endorsed by the ADB Board in August this year, and how best ADB can support the government to achieve its plans as set out in Vision 2025. Zhang who joined ADB in December 2013 is responsible for operations in the South Asia Department and the Central and West Asia Department. Prior to joining ADB, Zhang was the Director General of the Department of External Economic Cooperation at the Ministry of Finance (MOF) of the People’s Republic of China (PRC).

In this interview with the Sunday Observer, Wencai Zhang discusses a range of subjects aimed at improving the economic status in Sri Lanka.


Q: ADB has completed 50 years of service to people and nations. What is your mission for the next 50 years?

A: George Elliot famously said “Among all forms of mistake, prophecy is the most gratuitous”. So, what ADB will do in the next 50 years is difficult to speculate. However, ADB is preparing its new corporate strategy, “Strategy 2030.”Under this, ADB is looking at how it will expand its mission beyond eradicating poverty to help its developing member countries (DMCs) achieve greater prosperity, inclusiveness, and resilience.

Among the challenges it addresses is how to continue to prioritize the poor and vulnerable countries of the region, including those in fragile and conflict affected situations, while engaging with middle-income countries. To increase the value for money that clients derive from its support, ADB also aims at embedding modern technology and new knowledge approaches in its project support.

On infrastructure, recent research by ADB estimates the investment requirements of Developing Asia at over $1.7 trillion per year from 2016 to2030, to maintain growth momentum, eradicate poverty, and respond to climate change, effectively. This is slightly less than double of what the region currently invests in infrastructure, $881 billion a year, leaving a large financing gap that needs to be met. We know that existing Multilateral Development Banks (MDBs), including ADB, cannot fully meet all the financing needs of emerging economies. So the emergence of new development finance institutions, including AIIB and New Development Bank (BRICS Bank), offers expanded opportunities for collaboration. And to crowd in more private sector investment for infrastructure financing will be essential.

Q :Since ADB’s first loan to Sri Lanka in 1968, the country has benefited immensely over the past 50 years through ADB’s assistance. What areas do you think Sri Lanka has missed out, down the line?

A: Since ADB’s first loan to Sri Lanka in 1968 to help modernize tea factories, ADB has progressed to fund projects in a variety of sectors according to the needs of the country and in keeping with the development policies of the respective governments of the day. Since the initial years, ADB has provided cumulative assistance $ 8.9 billion (as of end October 2017) to Sri Lanka. During its 50-year partnership with Sri Lanka, ADB has contributed immensely towards the country’s development, through upgrading infrastructure, improving education and skills-based training, and reconstruction in conflict and tsunami affected areas. The Bank has also supported the growth of small and medium-sized enterprises, development of agriculture and natural resources, and management of the public sector. Some of the flagship projects in the country include the first ever expressway in Sri Lanka – the Southern Expressway, the upgraded Udatenna–Mahiyangana road and the expansion of the Colombo port which has enabled larger vessels to be accommodated, making it a transshipment site. The country has maintained a good growth momentum under difficult conditions and reached lower middle income country status. The country has addressed poverty effectively, bringing down poverty levels from about 29% in 1996 to 4.1% in 2016. This is a remarkable achievement. Sri Lanka has historically been ahead of her peers in human development and maintains a highly literate and healthy population.

Sri Lanka has struggled with fiscal consolidation due to a low revenue ratio and accumulated debt. On the macro front, this is an area that the country needs to focus on and I am happy to see that progress is being made, supported by the International Monetary Fund’s extended funds facility.

Improving the efficiency of state owned enterprises, through reforms with the buy-in from all stakeholders, would lessen the fiscal burden and improve service delivery. Sri Lanka’s industrial base and export base remain narrow and lack diversification. Creating an environment suitable for private sector to innovate and invest in new industries is of great importance at this point. The country needs to develop the required skills base to support such structural transformation of the economy. Sri Lanka also needs to focus on persistent inequality to ensure that the benefits of growth are shared among all people.

Q: How has ADB’s assistance to Sri Lanka changed over the years? In the initial years did it focus on particular sectors and thereafter did it focus on a different set of sectors?

A: ADB’s assistance to Sri Lanka has followed the development trajectory of the economy over the last 50 years. As Sri Lanka moved from a closed economy to liberalization, and developed new industries and expanded services to replace agriculture as the main contributor to GDP, ADB supported the country’s needs at each stage.

Over the first two decades our assistance was largely focused on agriculture and irrigation, with few projects in other sectors such as power, roads, finance, and technical education. Loan size was small, ranging from about $2 million to $35 million. Since the 1990s the kind of projects became more diversified and loan size increased. Towards the end of the 1990s larger infrastructure projects came into focus while lending to other sectors continued. It was during this time that ADB started assisting the Government in its efforts to reconstruct and rehabilitate conflict-affected areas, and provided several multi sector loans to support reconstructing infrastructure and affected communities to rebuild livelihoods, develop community infrastructure, and access services. Transport, Energy, Urban Development and Water Supply have dominated our assistance in recent years. More recently, our assistance has again become more diversified, with assistance to education picking up and sectors such as, finance and agriculture coming back into focus after a gap of several years.

Q: ADB has been adjusting its support strategy to Sri Lanka, especially, over the last couple of years. The Bank has promised to double its support towards the country next year?

A: ADB proposes to double its sovereign assistance to $ 800 million-$1 billion per year during 2018-2022.

In the transport sector, ADB will improve connectivity by providing support for roads, ports, and railways. Regional cooperation will get a boost by improving international port facilities and providing better connectivity through roads and railways.

In urban areas, ADB will continue to support Greater Colombo and Jaffna water supply and sewerage systems and secondary towns with growth potential. In the energy sector, work will focus on expanding non traditional renewable energy using wind and solar, and introducing innovation and advanced technology.

ADB’s support will also build human capital through secondary education, technical training, and higher education, building linkages with emerging jobs. The Bank will strengthen financial services to small and medium sized enterprises, providing credit access to under served parts of society, such as, women entrepreneurs, those with no credit history, and enterprises located outside Colombo.

To promote greater inclusiveness, ADB will complement the government’s plan of modernizing agriculture by developing agriculture mega zones, and providing infrastructure such as, rural roads, storage facilities, collecting centers, and marketing places.

To help create a better environment for private sector development, ADB will work on strengthening the legal system, developing capital markets, establishing a credit guarantee institution for SMEs, and facilitating public-private partnerships. The Bank would also undertake a study to develop a comprehensive plan for the Colombo-Trincomalee Economic Corridor, to connect urban areas with industrial zones, institutional areas and residential areas.

Q: Sri Lanka’s current economy is burdened by debts? What is the way out for Sri Lanka and how could it build a prosperous economy?

A: Sri Lanka has made progress with fiscal consolidation and needs to continue efforts to increase the revenue ratio. THE recent enactment of the Inland Revenue Act is a step in the right direction. State-owned enterprises (SOEs) reforms and improvement in their overall performance would reduce the fiscal burden and the government’s contingent liabilities. Alongside, there is a need to harness private sector investments for development activities using modalities such as, public private partnerships. This would lessen the Government’s fiscal burden, and allow public funds to be allocated more effectively to other productive sectors. For Sri Lanka to build a prosperous economy, the country has to build a dynamic private sector linked to global and regional value chains and attract more FDI and benefit from resulting technology transfer.

Q: What is ADB’s current role in building economic corridors in Sri Lanka? Can you give some project details?

A: The Government of Sri Lanka envisions developing several economic corridors as highlighted in the recently launched Vision 2025. ADB’s Sri Lanka Country Partnership Strategy for 2018-2022 includes support for economic corridor development as one of the priority areas. One of the corridors proposed under Vision 2025 is the Colombo-Trincomalee Economic Corridor (CTEC).

At the request of the Government, ADB is undertaking a study to formulate a comprehensive development plan for the Colombo-Trincomalee Economic Corridor. Economic corridors facilitate growth by easing infrastructure bottlenecks, improving access to markets, stimulating trade and investment, and boosting production efficiencies which, in the long term, contribute to economic diversification and job creation.

The report for the CTEC study is now under preparation and the draft will be shared with the government for feedback and further discussions. The report will identify interventions across sectors and identify various policy measures needed for operationalizing CTEC.

Q: Although Sri Lanka is strategically located in the Indian Ocean and we have been talking about a regional shipping hub, we still lag behind in becoming one. How could we achieve that ‘maritime hub’ status before it is too late?

A: Sri Lanka’s strategic location gives the country a natural advantage to become a maritime hub. Successive Governments have developed and expanded Sri Lanka’s ports and ADB has supported these initiatives. The government should draw on the private sector to fast track and develop the country’s ports and logistic networks using public-private partnerships.

I am happy to note that in the recently presented Budget for 2018, the Government has included plans to amend legislature and remove restrictions on foreign ownership of shipping and freight forwarding agencies to allow international shipping lines and logistic operators to set up operations in Sri Lanka.

With such reforms and the necessary infrastructure in place, Sri Lanka could capture the growing transshipment trade across East- West trade routes. Implementation of a Single Window for international trade and strengthening the regulatory framework will make this sector more efficient, and make Sri Lanka an attractive shipping hub.

Q: When you take the global and the regional scenario, many countries are increasingly affected by natural disasters. It is quite so in Sri Lanka now. How do you propose to build up disaster mitigation levels in the island?

A: Sri Lanka is exposed to multiple natural hazards, notably floods, droughts, storms and landslides. The recently observed co-existence of floods in the south and drought in the north of the island is increasingly linked to climate change that is likely to increase the frequency, intensity and unpredictability of disasters.

Although the seismic risk in Sri Lanka is low, the catastrophic Indian Ocean Tsunami in December 2004 demonstrated the urgency of considering geo-physical hazards.

ADB’s interventions in the field of disaster risk management in Sri Lanka include post-emergency grants (total amounting to $4 million) to government agencies after the 2016 flood and landslide disaster and the 2017 floods and drought disaster.

This is also included in ADB’s new Country Partnership Strategy 2018–2022 as a thematic priority along with environment and climate change. In addition to response and recovery, prevention and preparedness are equally important.

Q: From your point of view what is the ideal economic development plan for a country like Sri Lanka given the present challenges? What changes should we make in the education system?

A: Sri Lanka faces many challenges, as already mentioned. I think these challenges are well identified and the Government’s Vision 2025 document and earlier policy statements indicate that the Government will focus on addressing these issues over the medium term.

Focusing particularly on the education sector, it is important to modernize the curriculum and expand access to STEM (science, technology, engineering and mathematics) education to address the emerging needs of the economy. Access to higher education must be improved as limited opportunities result in many students discontinuing their education after secondary level, even though they are qualified and wish to receive university education.

Alternate routes should be developed and expanded to provide other students, who do not wish to follow university education, to obtain job oriented skills and training. I understand that already these reforms are taking place in the country and ADB is also supporting these initiatives. While ADB has supported secondary education and TVET in the past, under the new CPS 2018-2022, we are expanding our assistance to tertiary education as well.

Q: As you know Sri Lanka is a country where women contribute a larger stake to the economy. Women are also the most educated. But, in the decision-making process the woman’s voice is barely heard. How could we improve this situation?

A: Despite gaining gender parity in education and health related indicators, women’s economic and political participation in Sri Lanka are among the lowest in the region and, for decades, continue to lag without progress. Girls outnumber boys in all levels of education, outperform boys in the O/L and A/L, and comprise over 62% of university enrollees. Nevertheless, women’s labour force participation in Sri Lanka is less than half of men’s, and unemployment rate among young women is thrice that of young men. The number of seats occupied by women parliamentarians is below 5%, this is despite the country having the first female Prime Minister in the world as early as 1960.

Gender biases remain as issues in education, income, and employment. Changes in social practices, and corporate and political approach are necessary to draw women into decision making positions in the economy and the political system.

ADB is committed to support the government to advance gender equality and women’s empowerment in Sri Lanka. ADB financed projects in the education; urban and financed sectors have gender considerations as an essential element while promoting women’s empowerment is tied to infrastructure projects as well.

ADB continues to mobilize grant funding to bolster the gender mainstreaming efforts of our partners. We are also working with other multilaterals and bilaterals, national and international organizations, private sector, think tanks and civil societies, and taking collaborative efforts in creating a more just and equitable society for men and women.