Putting entrepreneurship at the heart of economic
revival in North & East and beyond
Continued from yesterday
Domestic air transport
With the 24-hour opening of the A9 highway since the first week of January 2010, the market for air travel to and fro Jaffna has dropped dramatically. This has paved the way for the Sri Lanka Air Force (SLAF) to monopolise domestic air services through its commercial wing, viz. Helitours; thereby driving the private sector out of the domestic air travel and freight markets. These developments are not conducive for curtailing public expenditure or promoting private enterprises.
I doubt that domestic air transport to and fro North and East is commercially viable given the current policy framework. If this is so, why should the SLAF made to incur losses? Instead, I would suggest that larger private budget airlines should be facilitated to operate the domestic air passenger market. With the upgrading of the Pallaly airport in Jaffna, not only the domestic air travel, but air passenger services to India could also be promoted.
The proposed three-star hotel construction in Nallur (a suburb of Jaffna town) by a state-owned financial institution (Mercantile Bank of Sri Lanka; a subsidiary of state-owned Bank of Ceylon) is another blow to spurring private enterprises in the formerly war-torn areas. It is doubtful that MBSL is competent to manage a commercial venture in the hospitality market.
Instead of undertaking to build the hotel itself, MBSL should have called for expressions of interest from private entrepreneurs in the country and the diaspora to build and operate the hotel. State-owned enterprises are not only a burden to the economy and the tax payers, but are stifling private entrepreneurship by diverting public financial resources to uncalled for purposes.
There are many more such examples of unwarranted government involvement in commercial and economic activities within the formerly war-torn areas and elsewhere that could be profitably avoided.
3. Governmental impediments
Not only is the government forestalling private entrepreneurship in the North, East, and elsewhere by monopolising certain commercial activities, it is also impeding economic revival in the formerly war-torn areas by the continuation of the following restrictions in spite of the lifting of many other restrictions in the past several months:
Firstly, vehicles carrying commercial cargo to and fro Jaffna and the Vanni (beyond Omanthai) need to obtain a pass from the Ministry of Defence (MoD). Although officially there is no payment required to obtain this pass, payment is made informally to obtain the same. This increases the transaction cost of businesses and restricts market access on both directions to the producers.
Secondly, foreign nationals need MoD permission to travel by air or road to Jaffna even one year after the end of the civil war. For instance, Indian nationals travelling to participate in the Jaffna International Trade Fair during the third week of April had to obtain prior permission from the MoD. The Sri Lankan diaspora visiting their kith and kin in the North are required to obtain MoD clearance. This puts-off people visiting, let alone investing in those areas.
Thirdly, maintenance of the High Security Zone (HSZ) in the commercial hub of the Jaffna city continues to hamper business development due to the dearth of commercial property and office space. I do not think there is any security imperative to hold on to this HSZ in the commercial hub of the city.
The foregoing restrictions and impediments are hardly conducive to promote foreign investment and private entrepreneurship and thereby spur growth in the formerly war-torn areas. Not only is the government getting involved in commercial activities and thereby forestalling individual entrepreneurship and private enterprises, it continues to stifle growth incubation by unnecessary and irrational impediments. The government should restrict its activities to those there is absolutely no other viable alternative (like restoring economic and social infrastructure) and leave the rest to individual entrepreneurs and private enterprises.
4. Negative Effects of Dependence
Like other war-time and post-war countries, Sri Lanka has been substantially dependent on foreign aid, non-governmental assistance, and private foreign remittances for the sustenance of livelihoods of its people, especially in the North and East. However, there is a threshold beyond which these concessionary and philanthropic benefits could be counterproductive and even disruptive for economic revival.
International experiences reveal that foreign aid may not necessarily buy quality economic development or promote enduring economic growth during the time of war or in the aftermath of war. War-time experiences of Iraq and Afghanistan and the post-war experiences in the Balkans have ample evidence to prove this. In Bosnia, for example, in spite of nearly US$10 billion of foreign aid disbursed since the end of the war in the mid-1990s and current per capita income of circa US$.3,500 per year, both the rate of unemployment and poverty is about 25% today. Similarly, current unemployment rate among the age group of 15-29 years in Iraq is about 28% in spite of a higher per capita income than that of Sri Lanka4. Hence, the real economic development should be measured in terms of rate of net increase in new private businesses, real increase in disposable income of the population, and creation of new employment, in lieu of economic growth, per capita income, etc.
Anecdotal evidences suggest that ‘food-for-work’ and ‘cash-for-work’ programmes of the foreign multilateral donors, various relief and welfare programmes of the non-governmental organisations, and private remittances from abroad are perpetuating the culture of dependence and stifling the culture of entrepreneurship, in spite of their good intentions. Yet, there is a call for a ‘Marshal Plan’ for the North and East by one of our experts5.
Similarly, Improving the Relevance and Quality of Undergraduate Education (IRQUE) project funded by the World Bank and the Secondary School Education Modernisation Project funded by the Asian Development Bank at the national level appear to be hitting the wrong targets. On and off, I read newspaper advertisements by these projects calling for tenders for the supply of furniture and equipments (computers, etc) to the universities and schools, and construction of new buildings. Although the objective of these projects are to improve the "quality" of secondary and tertiary education in the country, significant proportion of the funds is expended on buildings, furniture, and electronic equipments. How could these material goods improve the quality of education?
Although private foreign remittance is the second largest foreign exchange earner and thereby indispensable to the balance-of-payments of the country, it has negative consequences for economic revival in the formerly war-torn areas. Free flow of foreign remittances has dis-incentivised productive work and had made the youths laid-back. Ironically, amidst complains from many in the North and East about the high unemployment and underemployment rates, there are labour shortages during agricultural harvest season. Thus, the threshold for incentive to work is high.
Money or wealth cannot buy quality economic development or economic dynamism; oil-rich Arab countries are prime examples of this fact. What Sri Lanka requires is not a ‘Marshal Plan’ of any sort; instead what we require is entrepreneurial capitalism. Modest scale enterprises, as opposed to donor and/or government-funded grandiose projects, could contribute to substantive and enduring growth. Wipro (vegetable oil trading turned technology company), Infosys (one of the largest IT companies), and the likes are the ones spearheading and transforming the Indian economy, and the role models for budding young entrepreneurs.
Suppose the government gave one million rupees per household to about 50,000 households in the East and North based on their innovative ideas and viable business plans (total cost of Rs50 billion or less than Rs500 million; just 25% of what the government would have spent in those areas in the four-year period 2007-2010), and if only 5,000 or 10% of them succeeded in establishing growth invigorating dynamic enterprises, the economic and social landscape of the former war-torn areas could have been vastly different.
Last year (2009) and this year (2010) have been watersheds in our political history. I hope and wish this year would also become a watershed in our economic history by way of overhauling our traditional economic thinking or paradigm, and embracing transformative entrepreneurial capitalism.