Critical analysis of Sri Lanka s economic challenges Rohan Samarajiva OneText, 14 October 2016
Problems... Not enough exports.... Young people wanting jobs that the economy is not producing... Getting old before getting rich.... Profligate government without resources to address our problems... 2
Problems... Not enough exports.... Young people wanting jobs that the economy is not producing... Getting old before getting rich.... Profligate government without resources to address our problems... 3
A solution: Global Value Chains 4
From the UNP 2015 General Election Manifesto 5
What does it take to participate in Global Value Chains? Greater certainty ( trade agreements) Low-cost labor, which we do not have; If not based on low-cost labor, skilled and productive workers ( education reforms) A big enough pool of workers ( education reforms; agricultural reforms; increasing labor participation by women; SOE reforms... ) Right kind of infrastructure ( SOE reforms) 6
What does it take to participate in Global Value Chains? Greater certainty ( trade agreements) Low-cost labor, which we do not have; If not based on low-cost labor, skilled and productive workers ( education reforms) A big enough pool of workers ( education reforms; agricultural reforms; increasing labor participation by women; SOE reforms... ) Right kind of infrastructure ( SOE reforms) 7
Greater certainty through trade agreements A world incapable of multilateral trade liberalization under the WTO is moving toward plurilateral and bilateral trade regimes that cover goods, services, investment and trade-related matters ASEAN is looking at RCEP and TPP India has entered into a large number of bilateral agreements; in RCEP; considering TPP All Sri Lanka has are opportunities for bilaterals, despite having been member of GATT since 1947 and GATS since 1995 Many disadvantages to negotiating multiple bilateral agreements, but better than being excluded from benefits of agreements 8
Vietnam has many firms that compete with Sri Lanka firms Overall apparel import growth used to come from China and Bangladesh, but today Vietnam is the main driver. I don t think you will see that trend abate in the short term. Nate Herman, Vice President of International Trade, American Apparel & Footwear Association In 2016 AT Kearney Global Services Index (higher is more attractive for BPO sourcing) Vietnam is 11 th (score of 5.66) Sri Lanka is 14 th (score of 5.54) 9
Vietnam in RCEP & TPP; India & China in RCEP 10
Vietnam joined WTO in 2006. Additional Trade agreements since then TPP (signed, not yet in effect) Russia, Kazakhstan, Belarus (signed, not yet in effect) ASEAN Free Trade Area ASEAN-Australia+NZ FTA ASEAN-India CECA ASEAN-Japan CEP ASEAN-China CECA ASEAN-Rep of Korea CECA Chile-Vietnam FTA Japan-Vietnam ECA Rep of Korea-Vietnam FTA 11
Results: Exports increased x 9.5 (v x 2.1 for Sri Lanka) in 2000-2014 FDI (USD millions) Exports (USD billions) Vietnam (2000) Vietnam (2014) Multiple Sri Lanka (2000) Sri Lanka (2014) Multiple 1,298 9,200 7.1 173 1,616 9.3 17 161 9.5 5.5 11.3 2.1 Source: Sri Lanka BOI 12
What does it take to participate in Global Value Chains? Greater certainty ( trade agreements) Low-cost labor, which we do not have; If not based on low-cost labor, skilled and productive workers ( education reforms) A big enough pool of workers ( education reforms; agricultural reforms; increasing labor participation by women; SOE reforms... ) Right kind of infrastructure ( SOE reforms) 13
Sri Lanka s missing labor Labor Force Participation rate 2009 2010 2011 2012 2013 2014 Ghana 68.7 68.9 69.0 69.2 69.3 69.5 Indonesia 67.9 67.8 67.8 67.8 67.7 67.7 Nepal 83.6 83.5 83.4 83.4 83.3 83.2 Sri Lanka 55.9 55 55.0 55 55 54.9 Thailand 72.8 72.4 72.4 72.4 72.3 72.1 Vietnam 76.6 76.7 76.9 77.2 77.5 77.7 Labor force participation rate, total (% of total population ages 15+) (modeled ILO estimate) http://databank.worldbank.org/data/reports.aspx?source=2&series=sl.tlf.cact.zs&country= 14
Considered too old? Population ages 65 and above (% of total) 2009 2010 2011 2012 2013 2014 2015 Ghana 3.5 3.5 3.5 3.5 3.5 3.4 3.4 Indonesia 4.9 4.9 5.0 5.0 5.1 5.1 5.2 Nepal 4.8 5.0 5.0 5.2 5.3 5.4 5.5 Sri Lanka 7.2 7.3 7.7 8.1 8.5 8.9 9.3 Thailand 8.6 9.0 9.2 9.4 9.7 10.1 10.5 Vietnam 6.6 6.5 6.5 6.5 6.6 6.6 6.7 World Bank staff estimates based on age distributions of United Nations Population Division's World Population Prospects. http://data.worldbank.org/indicator/sp.pop.65up.to.zs 15
Those who go for foreign employment (flow, not stock) Professional Middle Level Clerical & Related Skilled Semi-Skilled Unskilled Housemaid Total Colombo 1,817 2,626 4,147 9,052 893 8,757 8,301 35,593 Kandy 483 1,806 2,600 6,823 443 7,221 9,474 28,850 Gampaha 845 1,887 2,774 8,482 633 7,378 6,549 28,548 Kurunegala 239 1,074 2,023 6,934 288 6,200 11,209 27,967 Batticaloa 146 2,761 3,888 4,181 134 7,962 4,531 23,603 Puttalama 133 1,599 2,168 4,496 150 5,471 7,850 21,867 Ampara 315 1,887 2,452 6,069 139 6,850 2,677 20,389 Kalutara 297 893 1,181 4,449 279 4,412 4,335 15,846 Galle 177 564 806 3,696 237 3,699 3,754 12,933 Trincomalee 59 1,011 1,290 2,211 60 2,673 5,175 12,479 Kegalla 138 527 744 2,558 130 2,446 3,093 9,636 Anuradhapura 58 168 299 1,942 56 1,500 4,291 8,314 Jaffna 124 1,538 1,688 1,855 71 2,642 366 8,284 Matale 107 369 574 1,843 109 1,918 2,922 7,842 Polonnaruwa 22 354 433 1,481 39 1,322 3,412 7,063 Ratnapura 78 255 316 1,382 53 1,882 2,654 6,620 Badulla 94 307 402 1,330 61 1,379 2,969 6,542 Matara 90 260 303 1,573 82 2,070 1,295 5,673 Hambantota 46 156 248 1,074 43 1,597 1,231 4,395 Vavuniya 14 340 341 405 16 581 894 2,591 Monaragala 21 79 150 568 21 606 807 2,252 Mannar 9 125 145 235 8 341 338 1,201 Nuwara Eliya 25 41 89 296 26 319 348 1,144 Kilinochchi 2 115 150 49-137 79 532 Not Identified - 7 26 48 1 49 107 238 Mullativu - - - 8-3 - 16 11 Total 5,339 20,749 29,237 73,040 3,972 79,415 88,661 300,413
Problems... Not enough exports.... Young people wanting jobs that the economy is not producing... Getting old before getting rich.... Profligate government without resources to address our problems... 17
Growing old before getting rich... Increasing number of elderly persons (including many who are disabled) will have to be supported by a decreasing working population A publicly funded safety net is essential To take care of the elderly and the sick, but also To enable those in the productive age groups to innovate and take risks A risk-averse nation cannot prosper in today s fast-changing global economy as shown by Nokia, Yahoo, Kodak, Borders Books... Source: Dr W. Indralal de Silva 18
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Living longer, but not well... Source: World Bank (2010). Prevention and control of selected non-communicable diseases in Sri Lanka 20
Problems... Not enough exports.... Young people wanting jobs that the economy is not producing... Getting old before getting rich.... Profligate government without resources to address our problems... 21
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