The Government appears to have realised the importance of implementing policies consistently owing to the increased lobbying by businesses and individuals, said Federation of Chambers of Commerce and Industry of Sri Lanka (FCCISL) President Keerthi Gunawardane in an interview with The Sunday Morning Business, pointing out that this development followed the economic crisis that began several years ago.
“There is tremendous potential in Sri Lanka, but support mechanisms must be in place. If these are available, there will be ample opportunity for Sri Lankan youth to start businesses and succeed,” he said.
Following are excerpts of the interview:
The recent reduction of electricity tariff rates has brought some relief, but Sri Lanka has the highest electricity tariff rate in South Asia. How does this disparity impact local businesses and our export competitiveness?
Although the overall tariff reduction is 21.9%, Sri Lanka still has a higher electricity rate in this part of the world. This is an unfavourable aspect in terms of manufacturing, given that we have one of the highest power and energy costs in this region.
For instance, consider certain industries that rely heavily on power, such as the tile industry and especially the ceramic sector. The latter comprises many smaller manufacturers targeting export-oriented markets with various innovative ceramic products. When the cost becomes too high, it becomes very difficult for them to sell their products.
Some countries are reducing their power costs by utilising various alternative sources, which we have to compete with. We have to consider other aspects like glove manufacturing and various other components. For instance, in rubber manufacturing, the washing process is essential and the water used in this process must be purified and disposed of properly.
Recently, a manufacturer told me that although the production cost for their product was low, purifying the water and disposing of it cost more. This is an international process requirement; if not done correctly, the product might be deemed unacceptable globally and authorities could halt their production for sending out contaminated water. Compliance with these regulations is crucial. These are the current challenges exporters are facing.
In light of current challenges, how are Sri Lanka’s exports performing? Have we experienced market losses due to the high cost of production locally?
We have two segments. One is the upper market, which focuses on high quality and is not seriously affected. However, the remaining markets, which are competitively sourced in the global marketplace, are being affected. Given the present situation, not only in Sri Lanka but also in this region and all over the world, many countries, especially in the Western world, are going through a difficult time. They are also in the process of cutting costs, so they prefer to source from places where prices are low.
My suggestion is that, if we are environmentally friendly and have many practices of that nature, we can focus on environmental protection and similar initiatives, which could provide an additional advantage for export promotion. However, there is also a significant cost involved in this process. Therefore, most of our manufacturers find it rather difficult to invest a lot of money in such initiatives.
The brain drain phenomenon continues to affect local businesses as skilled individuals seek better opportunities abroad. How do you propose the Government addresses this talent retention issue?
There are two sides to the issue of brain drain. Some people, regardless of the Government’s provision of free education, look for jobs overseas after receiving said education, since they are not prepared to do so in Sri Lanka. I have always been against this process where a lot of money is spent on educating people. For an engineer or a doctor to complete their education by finishing university studies, it costs the Sri Lankan Government about Rs. 6.5-7 million at present, which is a huge cost.
We have reached a point where we produce people and send them to other countries, whereas in other countries most skilled people work for their country and contribute significantly to improving the Gross Domestic Product (GDP). On the contrary, in Sri Lanka we produce people, bear the cost, and they ultimately serve other places.
I both agree and disagree with the fact that those migrating have better opportunities abroad. Some people go for good opportunities, while others go for positions below their level of expertise compared to what they have been doing in Sri Lanka. They simply feel that it is difficult to save money here given the high cost of living. However, if this trend continues, it will have negative consequences for the country.
Brain drain is generally seen as a very negative phenomenon for a country. Many other countries, like Singapore, handle this differently. They don’t have a problem sending anyone abroad. Singapore offers scholarships and a four-year working permit to see whether foreign individuals possess the desired skills and if they do, they are allowed to become Singaporean citizens.
We should have adopted this approach as well. Having someone with low skills working abroad and earning money is beneficial to the country. However, highly skilled people leaving the country is a significant issue because we have to either bring down people of that calibre or reproduce such people domestically. We have become a country that merely produces talent without utilising it properly.
What advice do you have for aspiring entrepreneurs looking to launch startups or businesses in Sri Lanka, despite ongoing economic struggles and brain drain?
There is significant frustration among people in Sri Lanka. They believe that there is no future for them or their children given the negative political situation and rampant corruption. This scenario has to change; all of us need to come together and change this situation, since we are a blessed country – I don’t see any country that is better than Sri Lanka.
Last week, I took two Japanese visitors to Dambulla, Anuradhapura, and Kandy and I met with a couple of Government officers. I also met some entrepreneurs and spice growers in Kandy and Matale. The knowledge and business acumen displayed by some of these individuals was truly remarkable. They have developed their businesses to such a high level through their own know-how and the good practices they have been following over the years.
However, the issue is whether anyone who wants to start a business has the right opportunities in Sri Lanka. Since we lack development banks, even if someone has a good business idea, they still have no place from which to obtain a loan or grant without collateral. If someone has a fantastic idea that is marketable, where will they go? When they approach a bank, they are often asked to provide collateral. If these opportunities are available, local startups will undoubtedly flourish.
India serves as a good example; if you look at the top 25 startups in India, almost all of them are just three years old, while their net worth has reached billions of US Dollars. Most of these startups are IT-related, with new products and innovations driving their success.
There is tremendous potential in Sri Lanka, but support mechanisms must be in place. This includes development banks, Government support, and incubator systems. If these are available, there will be ample opportunity for Sri Lankan youth to start businesses and succeed.
At present, some products that can be launched globally are available via the internet, which reduces the need for costly advertisements such as paper or TV ads. Additionally, most innovative enterprises are now focused on IT-related products and solutions.
How is the appreciation of the rupee against foreign currencies affecting exporters? Do you foresee exporters opting to keep their earnings in offshore accounts rather than bringing them back to Sri Lanka?
Some people keep some money outside, which has been happening throughout. There is a gap between Sri Lanka’s total earnings and remittances, which indicates that some are keeping money outside. That is evident.
There is also a positive aspect to rupee appreciation, where it reduces the import cost of materials, which is favourable for local manufacturers when they import raw materials.
However, there is a negative aspect when considering the total income against their remittances, since they will receive less money. However, they will be paying less for the purchase of raw materials.
Given the recent economic policies and challenges faced by businesses, how do you assess the overall business sentiment in Sri Lanka?
This is our biggest issue: although we claim to be an open economy, we are not truly open. While we have opened certain sectors, some remain closed. Moreover, there have been very inconsistent policies throughout. The Government has now realised this and many businesses, individuals, and the State, especially after the financial crisis, are discussing this. Consistent long-term policies are essential for a country to progress.
Thailand provides a good example: despite corruption, their policies have remained consistent regardless of changes in government. Therefore, investors who have invested in such countries feel comfortable. They appreciate the absence of new regulations, enjoy the concessions given, and have the freedom to bring in and take out money. This creates a very business-friendly environment.
Sri Lanka was positioned at 99th place from among 190 countries in the World Bank’s Ease of Doing Business Index in 2020. This indicates that almost 98 countries are performing better than us in this aspect. Given all this, we need to make our country more business-friendly.
Entrepreneurs face difficulties in obtaining approvals. Even when foreign companies come to Sri Lanka seeking investment opportunities, the process takes a long time, which is highly inefficient. In other countries, this process adheres to a predictable timeframe, with set deadlines for each step.
How can the Government better support Small and Medium Enterprises (SMEs) to weather economic uncertainties and foster growth? What does the FCCISL lobby for?
The Government has many mechanisms in place and many Government organisations are involved in the process of SME development. However, the question now is whether we are doing the right thing. Sometimes, when organisations support an entrepreneur, assistance is only given halfway through, which is of no use. These components require thorough study, implementation, and proper support.
Additionally, Sri Lanka has an excellent potential for tourism, but it has not been developed properly. Therefore, the opportunities we can derive from tourism are much less than what we could be getting.
Through the FCCISL and Australian Aid, with the support of the Skills for Inclusive Growth programme, we conducted a project to develop coaches to support small hotels and homestays. We found that many people involved in such businesses lacked the necessary skills, so we trained coaches and deployed them to such places, which turned out to be a very successful initiative.
Later, we ventured into different areas such as digital content development, which many small hotel and homestay owners were not utilising. However, travellers rely heavily on social networks to find good places to stay. These are the potential avenues the Government should seriously consider and prioritise. Should it do so, I am confident that Sri Lanka can generate a lot of revenue from tourism, given its immense potential.
Are there specific sectors or industries with potential for significant growth and development in Sri Lanka? What measures are needed to capitalise on these opportunities?
One sector with immense potential is tourism. Tourism in Sri Lanka could flourish if promoted more effectively, with improvements in hotel standards and enhancements to small hotels and homestays.
Having been involved in this process, I have observed significant opportunities. Many of the small hotels that participated in our initiatives experienced a notable increase in income. Therefore, tourism presents a highly feasible area for development.
Additionally, Sri Lanka’s favourable weather patterns make it an accessible travel destination year-round. By focusing on professional development, we can capitalise on our tourism potential. We must emphasise on the value of Sri Lanka and create value for others.
Furthermore, Sri Lanka produces the best spices due to its climatic conditions and geographical location. With proper marketing, packaging, and development, significant profits can be generated by exporting these spices to other countries.
However, many individuals involved in this process may lack the resources to pursue such endeavours due to the high investments required. Nevertheless, the Government doesn’t necessarily need to provide financial assistance. Instead, it should empower this community by enhancing their skills.
For instance, if someone is producing cardamom, efforts can be made to teach them value-added techniques and ways to enhance the product, which can be achieved by bringing in experts to impart knowledge. This approach facilitates sector-by-sector improvement.