Hayleys stands out in the Sri Lankan business landscape. It is why we were adjudged the ‘Best Corporate Citizen’ in the only three times we bid for this award from its inception in 2004.

This is because we are measured by what we are, what we have been – and yes, what we have failed to be. Hayleys is a company that many people know of and trust. Our troubles are also public, because we’re transparent and out in the open.

There is something unique in the respect people have for this company. This is not in analyses which you would ordinarily get in a survey similar to those your magazine often runs. It is something that goes deeper.

Hayleys has won accolades for its good governance starting from nearly 40 years ago when Dr D S Jayasundera applied and won the best Annual Report award by the ICASL and we have won it many times since, until better Reports of other companies got their due recognition. Hayleys has always been a benchmark in many ways. This perhaps is its greatest contribution to Sri Lanka and society – that here is a company which puts itself out to be measured, judged by standards of performance and behaviour, and in so doing, encourages others to follow.

The observations I make are drawn from the canvass of this company’s experience in the over 3 decades that I have been associated with it. In this time, it changed from a trading company with revenues of USD 10 million to the USD 300 million conglomerate it is today.

Perspectives of Change

What is the perspective I can bring from being engaged in Sri Lanka’s economy and social development for over 35 years?

There was a recent personality on these pages who rightly asked aren’t the same old people (and this could very well fit me!) running the show, making policy and setting the pace and suggesting this is the main problem for Sri Lanka. He could well be right.

However we need to remind ourselves there are other dimensions to this problem- the world of our species is more than 70,000 years old and civilization of the type we know it with formal societal structures probably 10,000 years old and you have to place some perspective on this. Sri Lankan history runs more than 2,500 years. People are already feeling they are getting to places and experiences faster than they want to. So change, too, has to be managed.

They look at global climate change and ask whether this is a choice we have made. Or is it something that we have been led to – and they may well be right in this conclusion.

There is on the other hand an understandable impatience relating to the protracted ethnic conflict. This is viewed as a problem with the LTTE with little understanding of the origins of the problem which goes beyond Independence and has its origins in the country’s history.

I have stayed here in Sri Lanka and done my work in the hope and belief that engagement however difficult the circumstances is of benefit. Have we done anything worthwhile (and this is to answer the question of the generations to come)? The answer is- probably not enough.

However we have been through very turbulent periods and the Sri Lanka which they now inherit is the best we could pass on to them.

We have seen the transition of an economy which was wholly monopolized by the State to one in which it is active only in a few (even if still important) areas. How many people remember how their daily lives were affected by queues and ‘ration cards’ –with shortages of nearly everything including rice, bread and infant milk which were the monopoly of the local Co-op shop, that it was impossible to get a phone from the Telecom Dept, the enormous power of the Cement and Building Materials Corps if you wanted to build a home, the state healthcare system and its awful channel practice; and who at that time could have dreamt of owning a motor cycle let alone a car. It is not easy perhaps to fully appreciate how much change there has been in the last 30 years.

The changes when they did come were not easy. Hayleys has been proud that we have been at the forefront of Sri Lanka’s change into a modern economy.

Hayleys in the vanguard

In the first phase of change, heralded in 1977, we were quick off the blocks in responding to the challenge of private sector export-led growth which was the vision of the Government. We were the pre-eminent company for nearly 15 years with our foray into areas of national production – most of it in manufacturing, adding value to materials which were available in Sri Lanka. Our entry into pioneering ventures such as Activated Carbon, Hand Protection and a range of finished products in Coir Fibre were unique at the time and several of these have become world class players in their markets.

This manufacturing and processing capability eventually gave us the experience and skills to enter into other globally competitive manufacturing businesses. We entered the Textile industry in the 1992 to provide a backward linkage to the maturing apparel industry.

We had started quickly with our industries but we were also soon to engage in agriculture which was another priority area identified by the Government. The opportunity to play a major role in agriculture in Sri Lanka with its relatively high proportion of arable land and the available human resources, was one we could not miss. With the privatization of the Plantations in the early 1990’s we were at the forefront of this major change and have been involved in setting the benchmark for plantations with Kelani Valley Plantations and Talawakelle Tea Estates.

With the rising importance of serving the fast increasing cargo traffic from our ports and airports we developed our Transportation business, being representatives of some of the world’s prominent shipping lines. This is a business we continue to develop depth in by offering an array of value added services in logistics and distribution.

We also extended our commitment to service agriculture and industry with quality inputs from a clutch of international brands and took consumer products to households in every corner of the country as the income levels of Sri Lankans continued to grow.

Progress and some shifts in emphasis

The activities of Hayleys were consonant with growth in the wider economy. The export led strategies led to rapid diversification of the economy and especially the industrial base of the country actively encouraged by the EDB and BOI. The share of industrial exports grew to nearly 70% with a fall in the reliance on commodity exports (tea and rubber) on which the country had depended since Independence.

Sri Lanka with its size and population will always be fairly heavily dependent on both imports and exports. It is, on the one hand, the revenues from exports that we rely on to pay for our imported necessities which are goods and services we are unable to produce locally – for instance wheat and oil. So exports are vital. On the other hand, any product which we make competitively will always be made on a scale which must depend on export markets as the capacity of the domestic market is small. Therefore it is essential that we retain our export competitiveness. This is the inescapable logic of the export led growth strategy that we started off with in the first place.

Looking through

However the policy emphasis or direction from the mid 1990s has been less clear. Though statements are made about the importance of industry and agriculture the policy initiatives to support these sectors are at best a mixed bag.

Why the sharp edge of this strategy has been blurred is not easy to understand. I believe the lack of policy advocacy at the very top of Government could be a factor. The diminution of influence of institutions such as the EDB and dismantling of the Export Council of Ministers and the Exporters’ Forum which played a key role in the early stages could be other factors. Whatever be the cause the message being received is that the priorities of the State are in other areas.

I believe this is what happened – a fairly marked shift to a consumption based economy before we were able to fully exploit the domestic capacity building which was the objective of the previous economic planners.

What has been the outcome?

The balance of economic incentives have increasingly favoured consumption at the expense of domestic production and competitiveness.

This is why we are seeing a greater consumption with a high import content. This is why much of the economic activity is now being focused in the Western Province where trade and other sectors of the economy appear to be doing better. This is evident from the focus on construction especially in more affluent areas, more vehicles on the road and the cost of running them (with petrol and diesel), more investment in a typically consumerist society.

We see the lack of job opportunities and wealth creation in the interior leading to large scale migration of labour. How can this be justified when we lose our people who go and add value in other countries and help their growth? We have paid for their upbringing and education. What country has prospered by sending its people out- especially small countries such as Sri Lanka? The experience of countries such as Ireland, Philippines and even Italy and Greece, which have exported people in the past does not serve as a good example to follow. We seem to have gone wrong somewhere.

Not for a minute do I say we should keep people at home when they can do better elsewhere but we need to have provided them the opportunities at home. Most people do not want to leave their native lands and homes and do so only when the opportunities and prospects are grim. And we have seen a very spectacular transition of the average Sri Lankan in my lifetime, from a truly good ambassador for this country to a global perception of a domestic servant, with the familiar sight of huddled people sleeping on floors in airports in the Middle East. I am not sure we can be proud of this.

Of course there are reasons for this including the ethnic conflict but is this under the circumstances the best choice we are providing our people?

The outcome is obvious. The unsustainable trade deficits we are running and the increasing need to fund these with short term borrowings and yes, the need to send even more people out of the country as we depend on their remittances.

What could be the reason for the policy shift?

The rewards from the export led strategy may not have come soon enough. A reason for this is that some of the vital reforms were not put in place early.

Our lack of commitment to improve labour productivity as we continue with outdated labour laws which entrench low productivity in our work places even when we face a labour shortage. These protect workers already employed at the cost of those seeking to come into the workforce. This has been articulated by Hayleys for over twenty years as probably the biggest impediment to improving competitiveness.

The problem of improving labour productivity on our plantations and raising living standards to retain our workers and discourage them from leaving, has not been addressed widely enough.

I am not sure you are hearing it but there is a giant sucking noise as more ‘tuned on’ economies draw youth from countries such as Sri Lanka as a response to ageing populations globally.

Development of low cost energy sources - we are continuing to nurture high cost energy sources and not developing other cheaper forms –such as coal has been slow, as has the provision of adequate incentives for developing alternate energy sources which would relieve our dependence on high cost fossil fuels

We have always argued that with a slightly greater emphasis and a bias in our macroeconomic and microeconomic policy framework we could have had more incentivized sectors in both Agriculture and Industry.

For a start we have always been poor in managing inflation and not ensuring that domestic production in whatever form, whether agricultural produce or manufactured goods and/or services are competitive. Today we are using the exchange rate as a tool to manage inflation and this is clearly wrong policy which our neighbours in the fast growing economies in Asia have avoided to their benefit- look at Korea, Singapore, Taiwan, Thailand and now China, and more recently India. These countries appropriately developed their own capacity to produce goods and services in demand from other countries before, or in tandem with, developing the sectors which provide for domestic consumption. This is not happening in SL.

What are the options now?

SL has little option but to re-state its commitment to boost its exports of goods and services. We need to identify weaknesses and constraints and eliminate them systematically. There needs to be a high level forum to address issues of the business sector.

Getting an exchange rate which adjusts to inflation is an absolute pre-requisite. This should ideally be by getting inflation under control and until then retaining competitiveness by ensuring the Real Effective Exchange Rate (adjusted for inflation differentials) is stable.

It is heartening that the Government is pursuing investments in infrastructure. However, these projects should be managed properly with proper returns on investment. It is nevertheless encouraging that an effort is being made to find the resources especially to improve the road system. This is vital, for instance, to secure stability in the Eastern Province.

We need to recognize that the overall image of Sri Lanka has deteriorated as a result of the ongoing conflict and bad press. Exporters and the Tourism Sector who need to market their products are confronted with these difficulties. They need to be understood and assisted by more responsive Government interaction with international organizations and the media.

As for the war itself, even if there is some understanding of the military imperatives we cannot ever afford to neglect the extreme distress of people caught up in the conflict and the Government needs to be seen to be doing all it could to offer Sri Lankans of whatever race maximum protection. A political settlement acceptable to the minorities must be established as a basis for any long lasting peace.

The political governance structure and processes need obvious improvement as a widening chasm is now emerging between the political leadership and the people, which does not augur well for the future. I think at the heart of this is a solution to the electoral system which seems to perpetuate minority governments following a violent and corrupt election process. The money needed now to participate in these elections must be recovered and this seems to be attracting politicians who may not be the best for our society. This is probably at the heart of corruption in the country and is frustrating all attempts at reform. A first step would be to implement the 17th Amendment to the Constitution.

A departure from the hugely centralized power concentrated on the Executive Presidency means that the benefits of the dispersal of power and collective responsibility of a manageable cabinet in guiding the affairs of the country is accepted by nearly everybody. This would also facilitate a more cohesive formulation and implementation of economic policy. Ironically the incumbent Executive President may have the greatest chance of ushering in a peaceful Sri Lanka for all its citizens.

But these are what are needed to achieve the huge potential of Sri Lanka – but it is not to take away the very substantial progress we have made despite facing variety of challenges of a very daunting kind. We have progressed despite our failures to get ahead of nearly all countries in our region- though lately they have been catching up. Our much maligned politicians need to get credit for that. It has not been easy for we have also had the misfortune to have spawned some of the most brutal organizations such as the LTTE the world has seen. Our bureaucracy needs to be credited with the significant developments in terms of Human Development goals and Sri Lanka has quite easily surpassed many of the MDGs. And that our environment is not degraded beyond repair. Though this may not seem to be evident at first sight we are achieving political and social maturity not seen in many parts of the low income world. And I think the corporate world has not badly in the scheme of things. So there is much to rejoice in being Sri Lankan. But it could be so much better with the abundant gifts of our people and our country.