25th November 2001

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Foreign direct investment inflows waning

By Dr. S. Colombage
Private capital flows are becoming increasingly important as a source of foreign finance in developing countries in the face of global integration of financial markets and contraction of official development assistance from developed countries. Free flow of private capital across national borders enhances higher rates of return on capital. Such flows also have other advantages like geographical diversification of investments and improvement of corporate practices in host countries. A country can attract private capital in the form of Foreign Direct Investment (FDI), loans or portfolio investments. Among them, FDI has several advantages over the rest. FDI is less volatile, as it cannot leave so easily at the first sign of trouble, unlike portfolio investments and short-term loans. It is much harder to dispose of a manufacturing plant than to sell off stocks or bonds. FDI provides opportunities for acquisition of new technologies and access to world markets. Although FDI flows to developing countries grew rapidly in recent times, developed countries continue to remain as the main recipients, accounting for more than 75 percent of global inflows. Cross-border mergers and acquisitions are dominant in FDI flows.

Sri Lanka has offered a wide range of facilities and incentives to attract FDI through the Board of Investment (BOI). Undoubtedly, these have helped to induce capital inflows and thereby to boost production and exports over the years. But it is questionable whether such capital inflows and the resulting production and export growth are adequate to justify the squandering costs incurred by the government to run these incentive packages over the last 24 years.

FDI inflows including privatisation proceeds to Sri Lanka during the last decade look erratic. The peak performance in 1993 was followed by low inflows in the subsequent years. Again, the capital inflows reached a peak level in 1997 due to privatisation proceeds received through partial divestiture of certain state enterprises. Since then there has been no significant realisation of such proceeds. Excluding privatisation proceeds, annual FDI inflows remained below dollars 200 million throughout the last decade.

Slow growth of FDI to Sri Lanka can be gauged by the Inward FDI Index presented by the United Nations Conference on Trade and Development (UNCTAD) in its World Investment Report 2001. It captures the ability of countries to attract FDI after taking into account their size and competitiveness. This index is an average of three ratios, showing each country's share in world FDI relative to its shares in GDP, employment and exports. In the country ranking based on this index, Sri Lanka has slipped from 83rd position in 1988-90 to 111th position in 1998-2000. This fall reflects the country's slower growth of FDI relative to her GDP and exports.

FDI inflows in the last two years were mainly earmarked to develop infrastructure projects like the port, telecommunications and energy. Since end-1999 FDI grew only modestly due to market uncertainty created by factors such as frequent elections, war situation and weak macro-economic fundamentals. With the current world recession and the US terrorist attack, any significant improvement in FDI cannot be anticipated in the near future.

Sri Lanka's incentive packages offered to foreign private investors through the BOI are fairly attractive. It is time to reassess the costs and benefits of these packages. Apart from such incentives, investors would like to have political stability and correct macro-economic fundamentals in host countries. Sri Lanka's experience in these spheres is not satisfactory. As a result, the country will continue to get marginalised in competitive financial markets abroad.

Investors are also concerned about infrastructure availability and quality. The capacity and efficiency of our roads, railways, ports, airport and power plants are far below the international standards. Considerable improvements in these facilities are necessary to compete in international capital markets. Foreign investors generally prefer to invest in countries with large domestic markets. As our domestic market is small, they may be induced to invest in industries that could cater to a larger market in the South Asian region. As a regional economic bloc, the SAARC should facilitate to set up joint ventures among member countries in collaboration with developed countries. Hitherto, FDI inflows to Sri Lanka have been heavily concentrated in low-value added garment industries, accounting for two thirds of total export earnings of BOI enterprises. Increased dependence on a single product in this manner causes export volatility and therefore, product diversification should also be a main concern in our future FDI strategies.

Career guidance - need of the hour

Year    Public Sector %    Private Sector %

1990       21.5                     33.7
1991       22.9                    39.5
1992       20.0                    40.0
1993       17.4                    42.8
1994       16.4                    44.3
1995       15.6                    44.3
1996       15.0                    45.8
1997       15.1                    44.3
1998       14.5                    41.2
1999       14.2                    45.1
2000       13.9                    41.9

By J.A.A.S. Ranasinghe Human Resources & Administration Manager Colombo Dockyard Ltd.

Concept of career guidance
In concept, career guidance is extremely vital to unemployed youth where they are given a helping hand from their young days to choose an appropriate occupational career. 

Selecting a matching career by and large is an intractable issue where the skills, attitudes, aptitudes and other related attributes of a person have to be compared with the demands of the job, which we call the job specifications in management parlance.

With the advancement of science and technology, the complexity of the careers available in the job market have diversified to a notable extent in that even a professional finds it difficult to identify the essential ingredients to be possessed and developed by the individual. In this context, both career counselling and guidance is extremely important.

The ultimate objective of this whole exercise should be to produce the manpower potential needed for the country so that the management could be given the opportunity to have direct access when looking out for applicants for the vacancies available.

Social unrest
Formulation and implementation of a career guidance programme at national level are essential to give tangible direction to the socio-economic development of the country, through productively harnessing the fund of human resources, particularly of youth capabilities. 

Educated but unemployed youth will pose perhaps the most formidable challenge to society demanding an adequate response. 

Failure to offer some degree of amelioration and relief will push them to the edge of the precipice of unrest and spiralling violence.

In this context, the establishment of a National Institute of Career Guidance and Training (approved by the cabinet recently), although a belated move, is most welcome. 

No nation could face the realities of the 21st century unless the human resources of the nation are productively engaged for its economic development. Whatever the government that comes into power will have to meet the career aspirations of the educated youth. Failure to meet this formidable task will invariably result in the creation of another T-56 culture for the third time within the next five years.

Third insurrection
At a brainstorming session of a workshop titled, "Sri Lankan youth: Profiles and perspectives" sponsored by the German-based Friedrich Ebert Stiftung in collaboration with the University of Colombo held in Kandy recently, the magnitude of the frustrations of the youth and its possible consequences was discussed, which should demand the attention of the policy makers.
Private sector
According to the Central Bank March 2001 Bulletin, the private sector was identified as the major contributor to employment generation, as the activities of the private sector have seen a faster growth in relation to that of the public sector. 

On the contrary, the share of the public sector in total employment has registered a declining trend in 2000.

An analysis of the job opportunities generated by both sectors within the last decade manifestly testifies that there has been a gradual shrinking of job opportunities in the public sector which is mainly due to the rapid growth of employment openings in the private sector while some of the restructuring programmes implemented in the public sector institutions in effect reduced employment growth.

The limited increase in employment in the public sector was mainly attributed to the appointments given to graduates, who were provided training in 1999, as Samurdhi workers or in the security forces and as schoolteachers. Given the challenges of the social life and the inherent family problems associated with it, it is doubtful that the educated youth in this country are interested in pushing a career under the Samurdhi Movement. It is my view and that of most citizens of this country that appointments given to the youth in the Samurdhi Movement is a sugar- coated pill and in effect its value-added contribution to the national economy is not felt, although it has taken a sizeable bite (Rs. 938 million) from the national budget.

Employment opportunities generated by the public and private sectors since 1990:

(Source: Census and Statistics Department)

A major inference that can be drawn from the above statistics is that the public sector, which dominated the activities in the economy prior to 1997, has gradually lost its share in the scenario of economic development and employment with the opening of the free-market economy. It is now a well-established axiom that the public sector is no longer playing a dominant role in the generation of new employment in the economy. 

The government's capital expenditure as a percentage of GDP has seen a downward trend since 1996 and it is difficult to believe that there will be a drastic change in the investment of employment generation in the near future considering the expenditure pattern of the country.

Government expenditure in millions:

Interest 22.8%
Defence 21.6%
Transfers 19.1%
Capital 18.3%
Civil Administration 18.2%

Unemployment of educated youth
Another notable disclosure in the latest Central Bank Bulletin of March 2001 is that unemployment of educated youth is more severe and critical than that of those with lower qualifications, partly due to the outcome of the conventional education system which failed to cater to the emerging private sector labour market demand for persons qualified in disciplines such as computer science, finance, management and marketing - all requiring a knowledge of English.

This is a very serious national issue that demands the prompt attention of policy makers and those in upper echelons of the education and university systems.

According to Prof. H.P.M. Gunasena, Director, Post-Graduate Institute of Agriculture, unemployment among educated youth is largely attributed to the lack of career guidance and orientation at pre-university and university levels. He further goes on to say that students are poorly informed of their career development and they start looking for employment opportunities only when they have completed their academic degrees. By this time, it is too late as education - oriented towards knowledge and skills development has not been a part and parcel of the academic programme.

The time duration taken by the students to complete their university degrees and the heavy concentration on lectures (35 to 40 hours per week) have also aggravated the unemployment crises of educated youth in Sri Lanka. 

They firmly believe that the present impasse faced by the graduates and other educated youth could be overcome, if they could be given sound career guidance and counselling on a very firm footing, according to Professor Gunasena.

Economic recession and unemployment
The need for the introduction of career guidance to the schools and higher training institutions is badly felt with the weakening of the economy. Although economic growth was significantly higher at 6 percent in 2000 compared with 4.3% in 1999, the GDP growth in the second quarter in 2001 is only 0.4 percent. 

Economists forecast that the GDP growth in the 3rd and 4th quarters of 2001 will register a zero effect from the aftermath of the LTTE attack on the Katunayake airport, which has been further compounded by the irregular power supply and the intervention of the general election.

This is the lowest GDP growth Sri Lanka has ever recorded since independence in 1948. 

Therefore the government has no option but to rely on the private sector by creating an economic and political environment conducive to boosting of the economy, which inter alia suffers from the malady slack employment generation.

Disbelief and myth
There is a strong disbelief and myth in certain quarters that the private sector has a tendency of recruiting young people for supervisory and executive positions from influential families mostly confined to Colombo and the suburbs thus ignoring the graduates and educated youth, as the latter lacks proficiency in the English Language.

Whilst there is little truth in this assumption, it must be stated in fairness to the private sector that there is an amalgam of other qualitative attributes, which the private sector is insisting on in the selection of employees for their establishments. Among them, the attitudes, perceptions and values of applicants supersede educational qualifications, fluency in English, etc.

Hire for attitude
Most of the well-established companies in the corporate sector adopt a strategic selection process related to the basic premise - "Hire for attitude and train for skills concept". The fundamental basis of this approach is that it is much easier for the private sector to enhance the skills and competencies of the youth, provided they possess the right attitudes.

There is a common belief that the majority of products of the 13 universities and other higher education institutions of Sri Lanka are sadly lacking in positive attitudes, aptitudes, perceptions, values, etc., although they have attained excellent academic distinction in their respective disciplines.

The IQ rating, behavioural aptitude, psychomotor ability, job knowledge, flexibility, resilience to respond to different situations, ability to get involved in jobs as a team member, emotional responses of the present day graduates are said to be lacking in their traits for which they cannot be exclusively blamed. It is the education system that has thrown them into this unfortunate situation. Had there been a proper career guidance system from the secondary and higher education stages, this situation could have been easily averted and the educated youth could have been absorbed by the private sector for much coveted positions which carry lucrative salaries and other forms of fringe benefits from the very commencement of the career.

Quite often, students have no option in the choice of a degree course in matching with their skills and competencies at the entry stage. Moreover, students are assigned to different universities based on the aggregate of the marks scored by them at the GCE Advanced Level examination and not according to the course preference.

In the majority of cases, students are not informed of how to select degree courses that will enhance their employment prospects on completion of the university career. 

According to Professor Gunasena, the above method of education does not expose students to the realities of the global situation and the students are either not aware of or not even interested in locating the employment opportunities available. Worst affected are the rural students who are not exposed to career systems at both secondary and tertiary educational levels.

Preparation of bio-data
Career Guidance does not mean that its process exhausts itself by directing an individual to find a profession to suit his competencies, aptitudes and attitudes. 

It also encompasses how youth should be coached to face interviews in the private sector. It is a matter of concern that this aspect has been given very little emphasis in the curriculum. 

The inability of employment seekers to develop an impressive bio-data gets them disqualified at the processing stage.

Poor presentation, grammatical errors, spelling mistakes, insufficient qualitative traits are very often found in applications and they come to be rejected.

In the western world, even the preparation of CVs of university students is an important module in the curriculum.

It is envisaged that the newly established National Institute of Career Guidance and Training will cater to this basic need of the educated youth as a matter of national importance.

Facing interviews
The importance of training given to university students to face interviews with calmness cannot be over-emphasised. If the applicant experiences a psychological setback before and during the interview, the chances of securing employment are very remote. 

Hence, it is very important for applicants to be trained to face interviews by observing certain fundamentals. The significant advantages and benefits derived by graduates by participating in "Career Fairs", in my view, is that the leading companies in the private sector give them an exposure to the realities of the professional careers. Hence, conducting of "Career Fairs" for the final year students of the advanced level classes and universities would immensely benefit them. Career Fairs thus serve as a significant media for job seeking qualified youth on how to prepare themselves to be considered for obtaining gainful and full-time employment careers.

By virtue of its role, the private sector has now been recognised as the engine of growth of the national economy and there is no other option for the educational institutions but to forge a sound partnership and rapport with the private sector. 

Sound cooperation between these two sectors is particularly important at this juncture in every aspect for the economic development of the country.

Conduct of comprehensive research required by the industry is obviously one remarkable step, which the universities should embark on. Similarly, it is important to avail of the services of professionals in the private sector for the conduct of training programmes. 

There are other options available to the universities to bridge the gap between industry and the university system. 

Since the private sector is also dependent on the higher educational institutions as far as their future manpower requirements are concerned, it is incumbent upon the private sector to give a helping hand to adjust the social and economic imbalances of the country by appointing talented and promising youth produced by the universities annually.

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