Choices: Geography or ideology?

October 16, 2006 (LBO) – “While the JVP supports a vibrant free market economy to generate growth, we are completely against an unbridled, uncontrolled open economy, which in the long run would cause immense harm to our economy. We believe in an economic model based on the successful models of India and China.” (Somawansa Amarasinghe’s interview in the Weekend Standard, http://www.jvpsrilanka.com/interview/interview_with_siri_wstanderd.htm)

Leaving aside the difficulties of supporting/opposing “vibrant”/”unbridled”, “free market”/”uncontrolled open,” all inside one sentence, the JVP leader believes that Sri Lanka is similar to India and China. Figure 1 compares Sri Lanka’s basic economic and demographic features with Somawansa’s role models, and also with India’s largest urban agglomeration.

(Source: ITU, The Internet of things, 2006 and http://mcgm.gov.in/contents/subm64ssmno118ver2eng.pdf )

Is Sri Lanka similar to China and India? Or is it more like Metro Mumbai, just with a lower population density?

Should it follow economic policies that are appropriate for continental economies with large consumer markets, or should it develop and implement policies that capitalize on its size and geographical location?

Three stories

Electronic media

Today, the first thing that an Indian mentions when one says one is from Sri Lanka is Sanath. In the heyday of radio, from the 1950s to the 1970s, the equivalent was Radio Ceylon.

This was because the staid old Radio Ceylon (predecessor to SLBC) trotted out its patriarchal and boring cultural content within Sri Lanka, but gave a free hand to the programmers of the international service. Indian listeners, who were subjected to the same patriarchal piffle from All India Radio, eagerly sought out this breath of fresh air.

Commercial sponsors flocked to advertise in the Hindi Service to gain the ear of the millions who tuned in. Radio Ceylon, at one time had the most popular radio show in India, Binaca Geetmala, a weekly countdown of top Hindi film songs. Bombay studios sent their new songs to Colombo to be first broadcast on Radio Ceylon, the release venue of choice.

When I worked at SLBC in the late 1970s, the Hindi Service was a neglected step child in a corner, slowly wasting away. In 1994, Binaca Geetmala’s 42 year run ended.

This was a case of serendipitously discovering the advantages of geography. Sri Lanka was close enough to India to successfully broadcast into that massive market and engage in the necessary commercial relationships with the advertisers and the content producers. Yet, it was not subject to the constraints of Indian law and policy. The programmers of the Hindi Service discovered the gap and went through it.

Today, no one thinks of Sri Lanka as a player in the massive Indian cultural products market, though Bathiya and Santhush are making a valiant attempt. Sri Lankan cultural policy now is protectionist and small minded.

Port

By leading the modernisation of the Colombo Port before the Indians started reforming their notoriously inefficient ports, the late Minister Lalith Athulathmudali seized Sri Lanka’s geographical advantage. Today, the Colombo Port handles around two million TEUs of containers, of which around 70 percent is transshipment cargo from India.

Because Lalith did not finish the job of creating an efficient structure for the Port and because various Ministers since his time have seen the Port more as a source of patronage and power and not as a national resource to be nurtured and developed, today Colombo Port is in danger of losing the advantages it once had.

Last month, Cochin started its campaign to woo transshipment traffic from Colombo, with a 50 percent discount on port charges. With Cochin’s Vallarpadam International Trans-shipment Container Terminal being constructed by Dubai Ports, while the Sri Lankan authorities are engaged in endless cycles of negotiation and inaction, the prospects do not look good for the Colombo Port.

The necessary legislation for a new legal structure has been ready for years. What has been lacking is leadership to take it through the legislature. Most recently, the port decision makers decided to backtrack from placing the legislation before Parliament, afraid either of the JVP or of the idiosyncratic economic jurisprudence emanating from Hulftsdorp these days.

With the new politics of convergence, one hopes that sense will return and that ten years from now we will not have to talk about the golden era of the Colombo Port the same way we now talk nostalgically about Radio Ceylon.

Airport

The radio story has no single visionary responsible for the success; the Port story has one; the airport story has several.

First, we have the reform of airport operations with the creation of Airport Aviation Services Limited (AASL) as a government owned company in 1983, with the intention of allowing it to function efficiently, unshackled from government administrative culture.

That structure was an improvement, and the airport was for several years superior to its Indian peers (though of course not to Singapore, Bangkok, etc.). While the physical infrastructure is much improved, the organisational structure is now showing the ill effects of abuse of power for political and venal purposes and creeping recolonisation by government mindsets.

Then, we have the initiative taken by the Minister Milinda Moragoda in 2002 to allow visa-on-arrival to Indian visitors, despite the stubborn refusal of the Indian Foreign Service bureaucracy to relax visa requirements for Sri Lankan visiting India.

Table 1: Passenger growth in
Colombo, compared with Chennai and Mumbai, 2000-04
Year

July

Chennai Mumbai

Passengers (mn)

YoY growth

Passengers (mn)

YoY growth

Passengers (mn)

YoY growth

2000

2.89 1.7 5.03
2001 2.63 (9%) 1.8 6% 5.17 3%
2002 2.77 5% 1.7 (6%) 4.95 (4%)
2003 3.23 17% 1.9 12% 5.01 1%
2004 4.07 26% 2.01 6% 5.34 7%

(Source: Wickramarachchi, A., “Conditions
for consolidation of Bandaranaike International Airport as a
Regional Aviation Hub” MBA thesis, University of Moratuwa,
2006)

Table 1 shows the results, with Colombo recovering faster from the worldwide decline in air travel caused by 9/11, even though it was hit doubly hard because of the LTTEs airport attack. Unilateral liberalization of the visa regime yielded immediate benefits in terms of tourism, but created the conditions for Colombo to emerge as a regional aviation hub.

Ranil Wickremesinghe sought to implement his vision of capitalizing on Sri Lanka’s proximity to India by fast-tracking the Comprehensive Economic Partnership Agreement with India (ISLCEPA). Liberalization of the aviation market was a high priority in that negotiation.

The Sri Lanka-India routes were liberalized with permission being granted to Jet and Sahara to fly into Colombo on the occasion of prime ministers Vajpayee and Wickremesinghe accepting the study group report on the ISLCEPA. Now, most of the pieces were in place for Colombo to become a regional aviation hub.

The combined results of the visa and market liberalizations can be seen in the accelerated growth of passengers going through Colombo in 2004 (Table 1) as well as in the rapid increase of transit passengers in Colombo, pulling ahead of India’s principal gateway airport, Mumbai (Table 2).

Table 2: Transit passengers as % of
total, Colombo compared with Chennai and Mumbai, 2000-04

Year

Colombo

Chennai

Mumbai

2000 13.50 3.06 11.80
2001 14.34 3.11 11.03
2002 10.42 2.31 11.68
2003 11.52 2.79 11.37
2004 17.60 2.41 10.78

(Source: Wickramarachchi, A., “Conditions
for consolidation of Bandaranaike International Airport as a
Regional Aviation Hub,” MBA thesis, University of Moratuwa,
2006)

Of course, all these gains can be allowed to slip away if the momentum of reform at the airport is not maintained and the currently excessive ground handling charges reduced. The agreement signed with Emirates Airlines in the course of partially privatising SriLankan Airlines created monopolies on certain services, which has naturally resulted in high prices.

(Source: Civil Aviation Authority Annual Report, 2004, pp. 35-36.
http://www.caa.lk/pdf/an_rep3.pdf)

Colombo’s future as viable regional hub airport that capitalizes on proximity to the massive Indian market depends on continuing progress on reforming the airport.

The reforms must keep Colombo one step ahead India, which is now beginning to sprint with the Rajiv Gandhi International Airport in Hyderabad being built from scratch to accommodate seven million passengers a year, and the moving of Indian airports to private-sector management, starting with Mumbai and New Delhi.

How will the future be written?

We are close to India, but not India. We are small and therefore have the potential to be nimble and fast. These are the central truths we must work from, if we are to at least keep up with the Indian economic juggernaut, now that it has been awakened from its long licence-raj slumber.

The three stories show failure to capitalize (electronic media), success followed by inaction that is likely to lead to failure (Colombo port) and rapid success with greater chance of consolidation (Colombo airport).

What is the narrative line of our future: The missed opportunity of Radio Ceylon, the unfinished saga of Lalith, the foundation-laid-but-the-house-not-built story of Ranil and Milinda, or Somawansa’s deluded fantasy?