A senior economist said that good governance was a prerequisite if inflation was to be curtailed leading to a conducive environment to optimize the competitiveness of its firms and drive sustainable economic growth.

"Economists should demand that the 13th and 17th Amendments be activated," Lloyd F. Yapa a consultant on strategic development said.

Making the executive answerable to the judiciary, recruitments to the public sector based on merit, streamlining rules and procedures and enforcing accountability are some of the attributes to good governance.

Sri Lanka does not have an accountability system and well trained media and there is no transparency, little delegation and devolution and there is no place for criticism and consultations; corruption is rampant.

Poor governance has prevented Sri Lanka from realizing its full potential and what gains have been made are not shared equitably.

The majority of people have not realized the strong link between poor governance and inequitable growth.

Yapa said that economists should dedicate themselves into making the people aware of the nexus between governance and prosperity.

The rupee has been appreciating and profit margins of exporters have been squeezed.

Inflation (the highest when compared to competitor countries), fuel price hikes and high energy costs have further reduced earnings.

"This environment is not conducive to increasing the competitiveness of our exports.

"This situation can be addressed by reducing the budget deficit or by adequately compensating exporters," Yapa said.

Domestic demand in Sri Lanka is too small with only 20 percent of its population enjoy purchasing power, a senior economist said last week.

"Incomes in rural areas where most of the people, most of them poor, will have to be increased in order to boost demand so that firms can expand resulting in employment generation and economic growth," Yapa a consultant on strategic development said.

He said that Sri Lanka should look to exploit foreign markets as it had no other alternative given the country’s low demand.

"The Indian market next door, comprise about 300 million middles class people with a per capita income between US$ 5,000 and US$ 10,000 provides a perfect opportunity," Yapa said.

This was the overview made by Yapa at the Sri Lanka Economic Association Annual Sessions 2008 when he delivered a discourse on how inflation affected competitiveness which in turn had a bearing on growth.

While competitiveness is essential to boost exports through innovations which can command high prices and bring returns which can cascade down to the entire economy, Sri Lanka is still struggling to put its resources to optimal use.

Yapa highlighted some of the issues effecting Sri Lanka’s factors.

Land

In this age of democracy farmers are compelled by the government to grow paddy and proved to be a tragic failure.

"About 80 percent of the country’s lands are owned by the government. Small parcels of land are leased out to framers under various irrigation schemes and they are compelled to grow paddy," Yapa said.

"The objective of this policy is to make the country self sufficient in rice and the lively hoods of the farmers, 32 percent of the labour force, only comes second.

"This policy is a tragic failure as most farms are too small to be viable as paddy cultivation must be undertaken in a large scale to be profitable.

"Most farmers continue to be poor," Yapa said.

Infrastructure

Yapa quoted a recent Sri Lanka Economic Association survey to say that wherever infrastructure investments were made in almost all instances bribery and corruption was prevalent when contracts were granted.

"Almost 2 percent of GDP is lost because of this," he said.

"The result of this is that infrastructure development in the country, particularly in rural areas are in highly crumbling state."

This has led to constraints in productivity.

Education

The backwardness of the education system in not being able to produce skilled labour to match demand is because the public sector dominates the sector.

"Public opinion is against the setting up of private universities and this is absurd considering than 85 percent of those who pass their A/Ls are denied entrance to universities," Yapa said.

While Sri Lanka’s education system has resulted in a high literacy rate it does not produce the skills required to enable innovations in exports which are able to command higher prices.

"Added to this 50,000 skilled workers leave the country each year while another 60,000 leave for higher studies, some of whom never return," Yapa said.

"The absence of higher skills compel exporters to compete on low prices but brings no real advantage because labour in China and India are much cheaper than in Sri Lanka."

Supporting industries

Yapa said that Sri Lanka had not developed value chains in support industries to the country’s export sector.