How
Sri Lanka can avoid the Middle Income Trap; foster innovation and
entrepreneurship.
Post-war
Sri Lanka had a significant level of optimism in terms of economic growth, but
as many of you will agree that optimism was short lived. Sri Lanka was hoping for
FDI to boost our economy and that never really came. To make these matters more
difficult we have now got in to a Middle Income Trap where our labor is becoming
too expensive to compete with developing countries (tea, garments, etc.) and
where we are too poor to invest in value-added products for export (smartphone,
cars, computers, etc.). The ratio of Sri Lankan exports to GDP has halved over
the last few years. In such an environment, to not get left behind, Sri Lanka
must take immediate action boost our economy.
What
must be done?
1.) Reality Check – most export products we have depended
on historically are agricultural and they are becoming too expensive to compete
in the global market. So we need to adapt fast as a country to tackle this
issue. I would encourage changes in policy in regards to re-allocating
resources (land in this case) for more profitable ventures. Policy needs to
allow for companies to utilize their land holding in a manner that maximizes
returns and if this means, for example, that tea plantations should be used to
grow coffee, it should be allowed. Furthermore, R&D budgets should increase
in order to develop more efficient farming methods or we should learn from
countries such as Isreal that has excelled in this space.
2.) Labor Policy – in the 21st century
significant amount of wealth will be created through technology start-ups.
Startups generally grow fast, and at times needs to hire and fire people just
as fast to keep up with a changing environment. This is nearly impossible in
Sri Lanka. Labor policies must reflect the needs of the modern economy.
3.) Investment Policy – regulations around investment in
to Sri Lanka needs to be streamlined and loosened. Ideally all bureaucracy
would be handled by one department. Policies should be clear & carried over
from one regime to the next.
4.) Education System – we need to update the education
system to get students to be more entrepreneurial. The current system is ill
equipped to do so. This would only require a change of thinking in terms of
curriculum and value system.
5.) Data usage- Internet is the great emancipator in the
21st century. We should reduce the tax burden on data that is
consumed by Sri Lankan’s so they will have the ability to have access to
knowledge no matter where they are in the country.
6.) Human Resources- The value of Sri Lanka is primarily
in its human capital. What this means is that we should be open to having
ANYONE who wants to work here being allowed to work here. We should be an
immigrant friendly country. For too long Sri Lankans have left in search of
better pastures, we should allow anyone who is willing to work and contribute
to the growth in SL to make this their home.
All the above recommendations
given will not cost the government or the Lankan taxpayer a lot of money. If
action is taken we can expect great benefits to come into the island to move
Sri Lanka from a lower middle-income nation to much greater heights.
The author of this article
is the co-founder/CEO of takas.lk. These are his personal opinions and do not
reflect the views of his organization.
