A trade policy that is outward in nature and provides access to markets while consistently promoting an environment of policy predictability will facilitate economic acceleration to build a US $ 135 billion economy by 2025, former Chairman of the Ceylon Chamber of Commerce (CCC) and member of the Economic Policy Steering Committee of the CCC , Suresh Shah said.
It is necessary to set up special industrial zones which reduce bureaucratic red tape and provide a plug and play model for investment, he said in an interview with Business Observer.
“Measures should be taken to review existing bilateral investment agreements and renegotiate them to provide better investment protection and enter into new treaties with strategically important investment partners by coupling with free trade agreements where necessary, he said.
Q. Will the US-China trade war have an impact on Sri Lanka’s economy?
A. In the event the trade war escalates to a level that it negatively impacts global economic growth, we could see the US currency coming under pressure. Oil prices may also come under pressure. Thus our import bill may reduce. We also have an opportunity to attract investors relocating from China. But if global growth were to decline our exports will also come under pressure.
Q. Do you consider it necessary to take a re-look at the FTAs entered into at this point?
A. Sri Lanka needs to transform its economy from one that is inward looking and protectionist to one that’s outward looking and export centric. We also need to attract investment into our economy to create the jobs necessary to support the unemployed and underemployed. Having strong formal economic arrangements with selected non competing countries will help in these endeavours.
We need more FTAs and other trade arrangements. For instance, I believe we should fast track the CEPA with India and the proposed FTA with China. So in principle, I am very supportive of trade and investment agreements with non competing countries. Having said that we need to be careful of the fine print; agreements must be fair and strive to be win-win for both parties.
Q. What is your view on the need to set up an institute to assess the external challenges and take precautionary action to avoid or minimise them?
A. I believe the Lakshman Kadirgamar Institute (LKI) is such an organisation. I believe they have the right skills and capacities within the LKI but I am not sure if policy makers consult them often enough.
It is equally important to implement the recommendations to mitigate the negative impact and in going forward have a working relationship with LKI for the benefit of the country.
Q. What action is necessary for loss making SOEs (State Owned Enterprises). Is privatising an option to turn them around?
A. There are two types of SOEs; those that may be classified as strategic and those that are not. Those that are not strategic must be privatised. Those that are strategic need a whole host of reforms to make them sustainable. One key reform is to take the cost of subsidies out of the SOEs and into the national budget.
Another key reform is to convert all SOEs into limited liability companies and bring them all under a holding company. Through appropriate legislation the holding company should act as a ‘Chinese’ wall between politicians and SOE’s. Listing rules of the CSE should be mandated on the SOE’s. These are some of the needed reforms. There are a number of others as well. It is important to develop a communication strategy that outlines the necessity for reforms of the SOEs.
Q. What are your recommendations to boost the economy in general? What are your suggestions to improve the business environment?
A. First, we need political stability. Co-existence between parties with serious philosophical differences is unlikely to succeed in the immature political culture of Sri Lanka. So let’s hope that a single party controls both the Presidency and Parliament after the upcoming elections. Second, we need policy consistency.
It will be good if a future government were to guarantee that policies announced will have a lifespan of at least five years. Third, we need to address challenges around the ease of doing business. Getting into the top 40 is not too much of a stretch and there is no reason why we can’t get there quickly. Fourth, interest rates need to come down to the mid single digits and stay there. The last one would be the most challenging in our environment since it requires addressing our chronic fiscal deficit.
Q. What is the outline of ‘Sri Lanka Economic Acceleration Framework 2020-25’?
A. The framework outlines a number of recommendations for the overall economy and for 18 different sectors. These are practical recommendations and Sri Lanka must implement them if we are to move out of the middle income trap and move on to a path of sustainable economic growth. The most important ingredient needed is political will.
Q. What are your suggestions to improve export targets and GDP by 2025?
A. The most important export target is to get it to over 100% of our imports. First, we need to address the constraints and challenges faced by exporters within Sri Lanka. These range from customs procedures to government policies to a lack of facilitation on the part of the bureaucracy.
Second, the private sector needs to be more ambitious, competitive and productive. Third, market access needs to be facilitated through FTA’s and other economic arrangements. Fourth, all export profits need to be either tax exempted or must attract the concessionary tax rate. Fifth, we need to attract export oriented FDI to gain access into global supply chains.
We can use mechanisms such as export promotion zones to fast track export sector growth. Our geographical location - situated a few nautical miles from the east west shipping route - and our proximity to the world’s fastest growing region - Asia - make us a natural trading nation and we must leverage these competitive advantages by deploying appropriate policies.
Q. What proactive role should the trade chambers play in supporting the Government achievr the ambitious economic targets?
A. Honestly, the targets are not overly ambitious. They are very achievable. The trade chambers need to work in partnership with the government to craft the necessary policies and assist in the implementation plan to get to the targets. The Chambers must also encourage its members to be positive, to invest in the country and to seek export markets for local products and brands.
Q. How well is the country prepared to face the challenges of climate change?
A. My perception is that most Sri Lankans are not very conscious about the environment. Under the circumstances, it’s difficult to believe that we are ready for the challenges that climate change will bring. However, I think the younger generation is more conscious about environmental issues. Climate change is also an opportunity in that we need to find solutions to sustain human habitation on earth. One never knows, a young Sri Lankan of today might be at the forefront of finding such solutions in the years ahead.
Q. What should be the economic policy of the government in the next five years? What key areas of focus are important?
A. The focus needs to be on driving exports to at least 100% of imports, deliver a positive primary balance of at least 3% of GDP, improve FDI inflows to at least 5% of GDP, make it easy to do business in Sri Lanka and reform the SOE sector; all of these within a framework of policy consistency.
Q. What are educational reforms that are urgently needed to meet the changing job opportunities?
A. It is appropriate to have focused attention on providing STEM education to meet the future challenges in terms of job opportunities and be future ready. Education reforms are necessary to meet the changing demands of skills and expertise to build capacity and competency in moving forward.
Q. What immediate measures are needed to uplift the living standard of the people?
A. We need to address both unemployment and underemployment. People need decent sustainable incomes rather than daily wage jobs. So we need to accelerate investment both local and FDI.
The people also need decent infrastructure facilities such as good public transport, electricity connections that don’t breakdown, an education system that supports both learning and employability in the modern economy and a healthcare system that keep people healthy. These will facilitate quality living and progressive nation.