The Sunday Times Economic Analysis                 By the Economist  

Peace a must: Yet not by peace alone
Are we seeing a glimmer of peace at the end of a two-decade dark tunnel? That peace is a must for robust economic growth is undisputable. Yet peace alone will not ensure it. Peace is a necessary condition, not a sufficient one.

Various calculations have shown that the country has sacrificed significant amounts of economic growth owing to the war. There are the direct losses in agriculture, fishing, tourism and other activities in the North and the East. There have been serious impacts on foreign and domestic investment.

Then there are the losses in growth owing to the strain on the public finances of the country and the ability of the government to play its role in investing in infrastructure. And the less tangible impact on monetary and fiscal policy that has not provided the proper climate for private investment.

One can go on and on with the list of direct and indirect economic impacts of the war on the economy. The human costs and social disruptions are not only incalculable human tragedies for which no monetary values could be denominated, they have also had economic impacts of serious indeterminate proportions. The adverse economic impacts of the war are rather well known though perhaps underestimated.

There is however a false notion that once a durable peace is achieved, the economy would boom again. An economic boom there surely will be with the dawn of a durable peace. Economic activities in the North and East would be revived. The vast tourist potential of the East could be harnessed, fishing would bounce back, agricultural activity would return to normal and new economic enterprises could be established.

All these would be part of the expected and likely peace dividend. An economic boom would no doubt result in the aftermath of the peace. The reconstruction of the North and East would set in motion a series of multiplier impacts on several sectors in the economy.

These impacts would not be confined to the areas of reconstruction, but encompass economic activities elsewhere. The committed foreign assistance would relieve the balance of payments, though the net impact would be weakened by additional imports. Yet economic growth can only be sustained with a host of policies put in place and changes in values and approaches that are needed to attain economic growth in a harsh competitive global environment.

Reforms in many areas of economic, educational, legal, administrative and other areas are needed to ensure a sustainable growth. To sustain the economic growth momentum there has to be a series of changes that would ensure adequate investment and productivity gains. In industry the country could make headway only if we improve our competitiveness in international markets.

Already our competitive edge appears to be diminishing in several exports. The overall macro-economic disadvantages could be eased by improvements in fundamental economic conditions, especially with respect to the public finances.

There are however a number of other factors that have to be looked into, such as the development of infrastructure, especially the provision of energy at lower cost and improvement in road and transport conditions. The lesser expenditure on the war and the possibility of re -deployment of men and materials from the war effort must be looked into.

We have stressed the need for higher investments to support agriculture. These investments, both direct and indirect, must aim at raising yields in our crops that are currently far below their potential.

The more difficult issues that need to be resolved to ensure sustained and higher economic growth relate to rather controversial areas such as the reform of labour regulations, educational changes that would ensure better skill development on a larger scale, administrative reforms that would ensure an efficient public service, and the development of a legal system that ensures property rights and speedy justice. The restoration of law and order is of course of the utmost urgency. It is the difficulty of undertaking necessary reforms, developing a work culture conducive to higher productivity and establishing law and order that would constrain the attainment of sustained higher economic growth.

Let us hope for peace that is so essential for economic growth, but also prepare ourselves to ensure the other conditions that would are essential if we are to benefit fully on the long run.

A final word, let us hope that the peace negotiators would have in their minds the enormous economic gains that are awaiting a durable peace.

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