Monday, July 09, 2007

Obstacles to growth: Can Amunugama walk the talk?

The Rajapakse government certainly has more than its share of morons, who are more than willing to open their mouths and forget about their heads. Keheliya Rambukwella of course has the official designation closely imitated by other aspirants such as Jeyaraj Fernandopulle and that 5th minister of Nation Building, I forget his name.

So it’s not often when you hear something sane from a Sri Lankan Minister, something like the speech Sarath Amunugama delivered highliting the obstacles to growth in Sri Lanka.

Amunugama has always spoken candidly about the need for reform, when he was the Minister of Finance from 2004-2005, he very clearly emphasized the need for reforms in energy, and railway sectors. His speech makes for a wonderful read and a clear example of politicians, at least the educated ones knowing what to do, but somehow not being able to implement it.

Here are some excerpts from the speech: (original speech is well worth a look)

We are meeting at a time when there is unprecedented growth in the world as well as within our region. The world economy is growing at a rate of 5% a year, which is a historic growth rate. This unprecedented growth is driven by the economies of China, India, Pakistan and what are called the Eastern tigers. They are Singapore, Malaysia, Thailand, Philippines, Indonesia, Borneo and the rest. All these countries are reaching double-digit figures in growth. A 10% growth every year has become a reality in our region. Just a few decades ago, economists had contempt for the pace of development in our region, calling it the ‘Hindu rate of growth.’ We may also call it the “Buddhist rate of Growth”. That the 1% to 2% growth of GDP which we achieved under so called “Socialism” and a controlled economy.

We were thinking of the next world and not of this world. We were thinking of Nirvana and not of how to give a good life to our people. That is a state that we have now rejected. It is a tragedy that while there is a rapid growth in our region –including countries like India, Pakistan which were far behind us- that Sri Lanka is not today the leader of that growth trajectory. [..]

we are being left behind by our neighbors –even Maldives- due to wrong policies. Now the question is how do we reach double-digit growth which has become standard for our region?

That is the challenge before us. One of the main obstacles to reaching those double-digit figures is the disparity in the growth between the Western Province and rest of the country. If we take the GDP of Western Province we have reached about 12% growth. This is the equivalent of the growth figures for India and China. So nobody can say that Sri Lanka is incapable of rapid growth. [..]

We have free trade agreements with India and Pakistan. We are now negotiating Trade Agreements for the whole SAARC region. Sri Lanka is the only country in Asia that has GSP+ status with the EU countries where almost 7000 items can be sent from our country to Europe, duty free. As a result, there is a large-scale growth in Western Province. [ ..]

Why is it not working in the other areas? For example, why is there such a big gap in the growth figures of Western Province and Central Province, Uva and Sabaragamuwa? Unfortunately, we have to leave North and East out because of the war situation. Those two districts which are very well known for people who believe in hard work and industry will definitely give us the balance growth figures if we have peace.
We have mega problems regarding the provision of basic infrastructure. That is to say transport, power, energy and Ports. We have a power generation plan which calls for an annual increase of 10% of growth in electricity. Only then can we match a 10% annual expansion in the economy. [..] And now, we have a backlog.

We have failed miserably to provide electricity as needed. [..] We have several vital power projects which unfortunately are getting slowed down. One of the important things we must do for economic growth is to reform the power sector. Unless we have abundant power we cannot progress.

We have a crisis in Sri Lanka because unions are fighting. Engineers are fighting and politicians are fighting. Nobody takes decisions. And as a result Sri Lanka is slipping in power production when it is a vital ingredient of economic growth. […]

There are diesel lobbies in this country. They obstruct the private sector in power supply, which to my mind, is the one way in which we can have fast growth in power. The CEB must learn to share power in the power sector. The government must certainly do its job but equally important it must help the private sector. If we rely entirely on the public sector for power supply, Sri Lanka is dead.

Very many of our policies are outdated. If you have outdated policies then the result is obviously going to be failure. Now I am not saying something very controversial. Look at what happened to Communist countries. Look at what is happening in China today. All these countries had controlled economies. Controlled economy is outdated like a dinosaur. But in Sri Lanka some people are still talking about a controlled economy, when the whole world has given it up as a terrible failure. We can never survive with that type of outdated attitude.

We must have policies which take note of reality. The first reality is the globalization process. The Western Province is the only province in Sri Lanka which has not pulled the plug. It is linked to globalisation. Some people are talking about “[sinhala world printed incorrectly]”. If so, you can become the poorest country in the world. You can be like Cuba which is struggling today. As a small country we must plug in to the global economy, and only Western Province has done so up to now. Western Province has the airports ; it has the harbour. Every investor wants to put up his factory close to the harbour or the airport. Those are the realities. What happened to those investors who went out of Western Province? They are finding it very difficult to maintain their competitive edge.

They prefer to go to India than go out of the Western Province. That is the reality. Some of our businessmen are going to Africa and not to our own hinterland. Why is that? That is because we do not give enough incentives for balanced growth.

Of Provincial Council budgets as most of you know more than 75% is spent on paying salaries -Teachers’ salaries, which was done earlier by one department in Colombo. They are doing hardly anything else. There is now a committee of Chief Ministers which is the biggest joke of the 21st century. Really there is nothing to cooperate. They must compete with each other. The only way a province can draw investment is by giving more concessions than its rivals. They should compete: not cooperate.

If one Chief Minister has the courage to say we are not taxing you, we are giving you free electricity, we give you free water; investors will rush to that Province. Why there is unemployment in the Provinces is largely due to the wrong policies of Chief Ministers and other politicians in Provincial Councils.

I find today they are talking of new taxes like cross border taxes. Then nobody will come to that Province. If you are going to have so many taxes in the provinces, who will come there? Why should investors come there? Already an investor is at a disadvantage by not having access to the airport and the port. So why should they come to Provinces? Provincial Councils must compete. If I am the Chief Minster of a Province I know how to make it the richest province in Sri Lanka.


The third obstacle I want to mention is Bureaucracy. That is you and myself in the past. We are the worst bureaucracy in the world. When it comes to protocol , when it comes to speechmaking, when it comes to pandering to politicians, we have one of the best bureaucracies But when it comes to coordination and development, we are the worst. [..]

Today to get a project off the ground we have to get about 20 approvals. All sorts of crazy fellows have to give their approval before you can start a project. [..]

Please look into all these things in a way that is pro developmental, not pro prestige or pro bureaucratic. We have to shake up Public Administration so that people who want to crate wealth in this county are allowed to do so. Now a lot of people think that this is Capitalism. That is so. Sri Lanka is a Capitalist country. Commercial agriculture is 100% privatized. Except for the inefficiently run JEDB and SPC which at the end of the month come to the Ministry of Finance to collect public funds to pay their staff, the private sector runs commercial agriculture successfully.

Government enterprises are running at a loss. When I was the Minister of Finance I told them I am not giving you poor people’s money. You sell your buildings and settle your debts. Why should a taxpayer pay all those inefficient managers in the SPC and JEDB? We should not pay a cent.

Today telecommunications is the fastest growing sector in Sri Lanka. Banking, posts and telecommunications, tourism and finance constitute the service sector which is growing at 60%. The fastest growing sector in Sri Lanka is the services sector and not the manufacturing sector or the agricultural sector.

The fastest growing areas in Sri Lanka are manned by the private sector. Look at telecommunications. All of you who were in the public service 10 years ago, would have had to wait at least 5 years to get a telephone. And even after 5 years, and you have written to a big shot in the telecommunication department to install that phone, you get an antiquated instrument. I can remember that when I was a Government Agent I asked for a telephone and got someone else’s discarded instrument.

Today if you want a phone before I finish this speech you can get one. [..]

The most inefficient sectors in our country are sectors where the private sector has been left out. That is Railway, Petroleum and Electricity Board. These three areas where there is no participation of the private sector, are a tremendous drain on our economy. They are inefficient and not cost-effective.
[..] everyday the Petroleum Corporation or Electricity Board loses money enough to build a general hospital? Similarly, we can have over 100 universities a year in Sri Lanka. So what are we talking about the state sector? In India and China they are dismantling the grip of the state sector on the economy. That is why they are successful.
So the money which we should be spending on infrastructure development, on growth, is given to the inefficient Petroleum Corporation, Electricity Board, State Plantations corporation and the Railway Department. All these institutions are just guzzling money and preventing that money from going into the areas where investment is needed, particularly in the provinces
Today there is no USSR. The communist state which depended on State institutions has collapsed. [..] It is useless writing to Sinhalese papers about Samajawadaya (Socialism) and Castro when the whole world has moved away to a new capitalist society.

If you read the Sinhalese papers you will think that we are in the 19th century. They are teaching such nonsense in our schools. Socialism has contributed much to social justice but as an economic methodology, it is a disaster.

So it is high time that we grew up; high time we looked at what is happening in the world. Sri Lanka need not be a poor country. Sri Lanka is a poor country because all of us have made it poor. We are keeping it poor. Sri Lanka can be one of the richest countries in the world. We have the potential, we have skilled people, ours is a small population and we have wonderful natural resources.

But all of us have conspired to keep it as a poor country.

So we must all get together and face reality and give our people the future that they deserve.

Read the full speech

No one could have said it any better.

It’s a pity that even the supposedly pro-market UNP seems to be embarrassed by their own position, an indication of how success Marxist (and jathika-economics) propaganda having demonized even the word ‘privatization’.

As much as I have much admire Amunugama for having the ‘balls’ to say what should be done, nothing can be done unless and until more people start speaking up. The ‘war’ isn’t the only problem in this country, as Amungama points out there are serious problems in education, transport and energy and power sectors and the massive size of this beuracracy which desperately needs reforms and liberalization.

The sad part is most in the government ranks – from Moragoda, to Bandula Gunawardene to Ajith Nivard Cabral - knows this, and yet they go ahead and let the government abolish the PERC. One of the few government institutions that they should have kept!

Whatever happened to sanity in this country, I will never know. But at least Amunugama has shown the way, now if only others could follow..


JJ said...

Amunugama certainly is one of our more intellectually astute politicians and his speech makes a great deal of sense. However, if you take a look at his past, it would seem that he too ‘plays the game’ to his own personal advantage with the what is best for the country taking a back seat. If he is really sincere and has any integrity left, don’t you think he should tell Mahinda and Company (and all of us) where he stands on the current state of governance and not be part of this shameful scam that is being perpetrated on us all – which he is very much part of? Or does he see which way the wind is blowing and making his moves accordingly?

Deane AKA ~CC~ said...

i think he's one of those likely to jump ship if the rajapakse regime stumbles.. well, its ok if they play the game so long as they push for the bloody reforms.

talking about it is a start.

Surath said...

Mahinda is a rogue...How can he run a country??? It's time we throw the private company out of power and install an able capable leader like ranil!!!

T. Hewage said...

Minister wishes to thank you for your comments and wishes to inform you that it is also the responsibility of citizens like you to take the lead and make reforms an issue once again in Sri Lanka.

Best of Luck,
Thosapala Hewagae
Ministry of Enterprise Development and Investment Promotion

Deane AKA ~CC~ said...

er.. thanks thosey..