Improving domestic savings, technology education and building good infrastructure, the way forward : Lanka must improve savings rate: ABDI chief | Sunday Observer

Improving domestic savings, technology education and building good infrastructure, the way forward : Lanka must improve savings rate: ABDI chief

Dr. Naoyuki Yoshino
Dr. Naoyuki Yoshino

Sri Lanka should strive to improve its savings rate to generate the domestic capital required for continuous investments in high quality infrastructure development which is needed for success in commercial ventures and overall economic growth, according to Dr. Naoyuki Yoshino, Dean and Chief Executive Officer of ADBI, the think tank of the Asian Development Bank (ADB).

With an aging population and a host of other economic challenges including a big debt-burden, the island badly needs to building quality infrastructure, he said in an interview with the Business Observer, sharing his views on developing the economy with win-win model strategies.

“Well-designed infrastructure is a boon for development,” Yoshino who is based in Tokyo, Japan said. “It can boost education, regional economies, create opportunities and businesses.”

Straightforward

Some solutions the policymakers can suggest and the government can implement may seem simple and straightforward. These ideas include improving domestic savings, technology education and building good infrastructure that is useful for people of all walks of life.

ADB last week signed a US$145 million n agreement with four Sri Lankan universities under the ADB funded Science and Technology Human Resources Development project to foster science and technology in Sri Lanka’s higher education.

Dr. Yoshino believes Sri Lanka needs to steer a fair number of high quality infrastructure development projects to successful completion to move its economy forward. However, in order to create good infrastructure, the country needs large amounts of funds. Multilateral financial institutions such as the Asian Development Bank (ADB) can provide basic finance to build such infrastructure for instance, in Sri Lanka.

Savings

But at the same time, there is a huge responsibility for Sri Lanka herself to start saving and building funds - securing domestic capital - to disburse for future infrastructure investment, says Dr. Yoshino.

The creation of large domestic savings is important for many developing countries including Sri Lanka. To encourage such savings, the rates should to be increased and proper path should be made for people to put their money in savings accounts. In this scenario, banks and savings institutions should play a major role to keep the clientele with them. “It is important for a country to have a trustworthy banking and financial industry.”

Many people in Sri Lanka and South Asia have traditionally shown their interest on investing money in gold purchases, rather than investing their money in bank deposits. They are doing this for various reasons, including lack of trust in banking institutions and poor return on investment offered by the financial institutions.

Therefore, it is important for the government and the banking industry to build trust. Guarantees undertaken by the government could be a solution as well.

“The danger is, if people invest all their money in gold, the money circulation within the county would drastically come down,” says Dr. Yoshino. “There won’t be any money to be circulated within the country. Therefore, building savings in fixed deposits, insurance and pension funds is very important – this will allow the government to allocate sufficient funds for SMEs and infrastructure investment.”

Economic value

On the other hand, how much infrastructure such as roads and railways can we develop? In order to make infrastructure projects a success, all local government, central government and infrastructure operating companies should get together to build, develop and operate infrastructure and related facilities.

They have to develop regions/rural communities along with railways, roads and highways. Such comprehensive infrastructure projects have the ability to support communities, build business opportunities and improve agriculture farming. Farmers will be able to transport their harvest conveniently and create markets outside their regions easily by these infrastructure facilities. World market accessibility and trade networks can be expanded if proper infrastructure is built in the country.

Food production cost

This will bring the food production costs down and also bring the buyer and producer closer, eradicating the ‘middle man’ phenomenon. This allows room for farmers and other villagers to start small and medium enterprises, making them entrepreneurs.

Regional development created by infrastructure investment will bring business opportunities. “New businesses will start their production; hotels and restaurants can be opened near the railway stations, for example. As a result of this development drive, property tax revenue, corporate tax revenue, income tax revenue and sales tax revenue would start to rise. In the past, all increased tax revenues went to the government and they were not returned to infrastructure investors and infrastructure developers. Infrastructure investors only relied on user charges.”

Dr. Yoshino says, “If the economic development progresses, regional development will lead to higher tax revenue earning.

If half of these increased tax revenues were returned to the investors in infrastructure, their rate of return will keep on increasing for many years as long as the region develops. Banks, insurance and pension funds will be willing to invest into infrastructure which yields high rates of return. Injection of private funds will increase transparency and governance structure of infrastructure investments. This is the way forward for a country like Sri Lanka.”

Japan’s hometown funds

At this juncture, the authorities should also think beyond building infrastructure. Even if there’s infrastructure available, most SMEs find it difficult to get financial support for their start-ups. Banks and financial institutions are often reluctant to lend money to start-ups, because it is very risky. This is where the ‘hometown investment trust funds’ can come in. Some 20 years ago, Japan was able to create such funds and that is how Japan created a generation of new entrepreneurs. These funds had two objectives; one is to provide money for start-ups –especially for women who wanted to start their own businesses such as restaurants and shops. The second was to start internet based selling portals where the villagers could sell their products to markets outside their villages.

Through internet marketing they could capture a large clientele around the country and thanks to well-built infrastructure goods and produce could be dispatched without much delay. Hence home funds can help SMEs to start their businesses around highways, and railways which will help move their products conveniently.

Changing face of technology

Talking about Japan’s success in technology and its use in the modern education system, Dr. Yoshino said, technological progress and innovations are very important in the education system, especially in engineering education.

Traditionally, to get the best education, youngsters have to attend good schools (It is very competitive to enter such schools in a country like Sri Lanka). With the expansion and advancement of technology, it is rather convenient for youngsters and even for others to listen to the best lectures and learn from best teachers through internet and smart phones from any where you live. It is important for governments to provide technology facilities and encourage students and school leavers to make use of these facilities for personal growth.

“I suggest that Sri Lanka start internet education for all levels, from secondary to university, including engineering education. For example, a lecturer can give internet lectures and it can be broadcast all over the country later. This will benefit the students and the people in regions and villages. People can also improve basic technical skills, language skills and gain knowledge in many industries and vocations.”

City infrastructure

When developing infrastructure in many countries, policymakers, builders and contractors tend to forget about city planning aspects. “City planning is extremely important where infrastructure is constructed,” says Dr. Yoshino.

“That can increase spill over effects of infrastructure investment. Traditionally people in infrastructure were only interested in constructing infrastructure alone. But much more important for infrastructure is how much it can help develop the region, cascading the benefits to many communities. Such projects should allocate areas or zones for markets, shops, residencies and manufacturing industries. That kind of zoning will help create a good city,” he said.

Acquisition

Acquisition of lands for development projects has been a major barrier in many South Asian countries. Landowners are reluctant to give their lands for development projects. Dr. Yoshino suggests setting up a Land Trust as a solution for this. The Land Trust was created in Japan many years ago and accordingly, the owners can keep ownership of the land and can lease the land (for 99 years for example) on to the building company. By doing this the owner can earn a reasonable income over the years. This is one of the best ways to make people give usage right to infrastructure companies and city planning. 

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