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
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
By J.A.A.S. Ranasinghe Human Resources & Administration Manager Colombo
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
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.
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.
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.
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
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
(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:
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
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
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
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
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
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
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
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.
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.