Potential for economic prosperity, reforms and poverty
The rapid growth and poverty reduction in the
western province over the past 20 years shows that Sri Lanka has
the potential to sharply reduce if not eliminate poverty.
|Agriculture poverty is around 40 percent,
but that could all change if practices put in motion in the
western province, where economic growth has been the country's
highest, are exported to the rest of the island.
The reasons for this region’s rapid growth,
namely the trade and industrial reforms undertaken in the 80’s
and 90’s indicate that Sri Lanka is a country where reform
These reasons also suggest how to get the rest
of the country growing by reforming agriculture so that the same
market forces that propelled the industrial Sri Lanka can propel
the rural sector. However, the politics of reform are such that
it is very difficult to build a winning coalition that will support
Nevertheless, the recent experience with education
sector reforms show that it is possible to make progress with seemingly
One can only hope that the forces behind trade,
industrial and now education reforms will rally behind the remaining
reforms, thereby enabling Sri Lanka to achieve its true potential.
These comments were made by Shantayanan Devarajan, the Sri Lankan-born
Chief Economist of the South Asia Region of the World Bank and co-author
of the recent report on “Economic Growth in South Asia”
when he addressed the Central Bank’s monthly lecture recently.
He said following substantial market oriented
reforms the Sri Lankan economy has grown at over 5 per cent a year
for over two decades, Since 1990 per capita GDP grew at 3 per-cent,
yet during this same period the share of people living in poverty
fell by only 3 per cent age points. This was due to the over concentration
of economic activity in the resource rich western province.
From 1997 to 2003, the western province has grown by 6.2 per cent
annually while the rest of the country grew by 2.3 per cent.
According to research Sri Lankan reforms in trade
liberalisation, deregulation and promoting investment was instrumental
in the success of the western province. Meanwhile the rest of the
country has seen very little reform.
In agriculture the common pursuit of the rural
farmers, reforms in land markets and paddy cultivation as well as
policies to improve the marketability of the agricultural products
have been elusive resulting in stagnation of rural incomes. Dr Devaranjan
cites the Sri Lankan case as a good textbook example how market
oriented policies can unleash economic growth and prosperity and
the absence of such policies can lead to stagnation and persistent
Need for agricultural reforms
The provincial stagnation has or may give an indication
that reforms have made rich richer while poor incomes have stagnated,
however Dr Devarajan does not believe so, on the contrary he attributes
rural poverty to contentious politics in Sri Lanka and state intervention
of the economy.
In agriculture dominant rural areas reforms have
not taken place in particularly paddy cultivation, reforms in land
markets and policies to improve the marketability of the agricultural
products have been elusive.
Agriculture poverty is around 40 percent. Sri
Lanka has also inherited and maintained policies in land provisioning,
fertilizer subsidies, protective import tariffs perhaps at attaining
self-sufficiency in rice.
Dr Devarajan believes self-sufficiency is being
achieved at a high cost and mostly the victims have been the poor
adding to the increase on poverty.
Forcing farmers to continue paddy farming at subsidised
costs through the regulation of paddy lands provisioning and undiversified
leaves them at the mercy of the weather. It is also argued that
laws restrict the farmers from using productive irrigated land to
cultivate alternate crops with higher economic returns.
Land Development Ordinance (LDO) restricts the
land used by the farmers to be used as collateral neither for credit
nor for lease or purchase. Dr Devarajan argues reforms to these
constraints would benefit the farmers.
Education reforms progressive
Sri Lanka’s education system has been celebrated
around the world as one that has achieved universal primary education
and high levels of literacy at very low per-capita incomes.
Towards the end of 1990’s however it was
becoming clear that Sri Lanka’s education system was facing
serious “Second generation challenges”. The abandonment
of English and introduction of Sinhala and Tamil as the medium of
instruction in the late fifties decade contributed to the universal
access to primary and secondary education in the country but this
same policy has meant gradual erosion of English language skills
among students to the point where only 10 per cent of 4th grade
students have a mastery of the language.
To compete in the global market place Sri Lankans are finding that
English Language skills are essential and there is a need to teach
the subject from Grade 1 including re-introduction of English as
a medium of instruction. Dr Devarajan noted that Sri Lanka has of
late embarked on a programme, the Education Sector Development Framework
and program (ESDFP) which involves many bold and far reaching initiatives
devolving managerial authority to schools, forge links with communities,
strengthening teaching of English from Grade 1 and introducing English
as a medium of instruction etc.
What is noteworthy is these reforms were initiated
by the UNP-led coalition and continued by SLFP led coalition (with
JVP as a partner) in 2004.
Dr Devarajan’s presentation was clear and
the message is loud. Reform is nothing new, man has matured in civilization
by reacting to changes around him and adapting to changes, a stagnant
thought process or a society couldn’t progress. Change is
inevitable. As reiterated by the World Bank economist the western
province model has demonstrated that Sri Lanka has immense potential
to grow and improve the living standards of people and eradicate
poverty. Poverty is the mother of all conflicts.
Conflict leads to mistrust, civil war and loss
of property and lives.
Today Sri Lanka is playing a heavy price for inconsistency
in policies and stalled reforms, CEB’s daily loss of Rs 50
million a day is said to be equivalent to one rural hospital.
The railway once a model government entity is
in economic ruins and is unable to serve the public efficiently.
Universities have become too radical and are unable to produce graduates
who could meet the global challenges. The provincial council system
has become a miserable failure giving poor returns and adding to
fiscal constraints. How long should the poor in this country suffer
to satisfy the politicians and few trade unionists and continue
to stall reforms?
Thoughts for the week
The magnificent five-nil whitewash over the English
in their home soil inflicted by our cricketers amply demonstrated
Sri Lankan’s potential for success.
On the other hand in Germany, England also made
an unceremonial exit from the prestigious FIFA world cup, no doubt
these two events may have shocked the old empire; the only silver
lining was the prompt resignation of celebrated England skipper
David Beckham, perhaps a lesson for Sri Lankan leaders.
(The writer could be reached at email@example.com)
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Investment opportunities for the future:
Coconut Products for the 21st Century - Part I
Usually when you think of the coconut industry,
it does not conjure up exciting images as an area of business opportunity.
After all, it has been there for ages and it’s the forte of
large or long established companies. Isn’t it? And the pictures
that come to mind show huge coconut estates, rows and rows of puny
coconut palms, dessicated coconut and oil mills, mountains of coconut
fibre (kohu-buth) and mounds of coconut husks dotting the land.
No, not an exciting area at all!
But that is set to change. In fact, the change
has already begun -- and happily on several fronts.
All these concerted efforts open up vast opportunities
for those who are thinking of investing for the long term. Just
like the tea industry changed significantly when a few entrepreneurial
companies like Mlesna and Dilmah started offering value added products
to local and international consumers, the Sri Lankan coconut industry
is also showing signs of re-emerging a dynamic force in the international
But this path is paved with challenges. The status
quo is explained in the following paragraphs:
Sri Lanka consumes around 70% of the nuts produced.
Only the balance is left for export purposes.
And it becomes a sadder fact when you consider that next to the
Philippines and Malaysia, Sri Lanka exports the largest amount of
coconut products to the world. Just to quote the dessicated coconut
as an example, our market share dropped from 20% to the current
10%. Winners were the Philippines and Malaysia.
In terms of coconut produced (nuts) Sri Lanka
is in the fourth place with India in third, but India consumes most
of the coconuts and is not as yet a significant player in the international
markets except in fibre and other products. That is not to say that,
that might not change.
In terms of local consumption, coconut contributes
approximately 20% of the energy requirements of the typical Sri
Lankan. And that means, through coconut oil, coconut milk and scraped
coconut in dishes like mallum and sambol. As you know, most of us
eat more curries than oil or the raw coconut. However, the way we
extract coconut milk, we throw away most of the nutrients and value.
Meaning, we are wasting export potential, and of course, our own
Our coconut oil industry is in a pathetic state
because the imported palm oil is available cheaper than the local
coconut oil. The story gets worse, and as the Minister of Coconut
Development Salinda Dissanayake said in a recent interview, most
of the so called coconut oil you get locally is not coconut oil
at all, but 90% substandard palm oil mixed with coconut oil to get
the smell and taste.
There is more bad news. Sri Lanka is losing valuable
coconut land to infrastructure and housing development projects
daily. You would notice that most of the housing schemes that crop
up along roads you travel are coconut lands, despite regulations
to restrict this practice.
While the global demand is certainly not a big
problem, the cost of producing a coconut is soaring higher and higher
and in case of small coconut land owners, coming dangerously close
to the market selling prices.
To add to that, according to Dr. Jayantha Gunathilake,
Chairman of the Coconut Cultivation Board, most of the coconut lands
are in lots smaller than 10 acres. The viable economic coconut land
should be at least 20 acres. Only 20% or so coconut lands in Sri
Lanka fall into this category.
And Sri Lanka’s coconut lands are growing
older and older. Most coconut land owners fall to the temptation
of carrying on another year, rather than investing more on new plants.
You can hardly blame them, because coconut planting
certainly is not a short term investment. You need to wait a decade
to reap the full benefits of the sapling you plant today. And the
people today are aligning themselves, consciously or unconsciously,
with the consumer society, seeking immediate gains rather than wait
for the bountiful harvests in the future. (To be continued
Please share with us your ideas on this topic.
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