Opinion: Sri Lanka’s Efficiency Enhancers Lagging


By Arosha Jayasundera

It is revealing to see how Sri Lanka fares in the global business sector. According to the World Competitiveness Index, Sri Lanka ranks halfway — 73rd overall out of 144 countries, and we have moved down in ranking since 2011. There are 12 pillars which contribute to this ranking, and the ‘efficiency enhancers” which contribute 35–50% of the ranking comprise 6 pillars. They are: Higher education covering quantity and quality and on the job training, goods market efficiency, focusing on local competition, labour market efficiency, financial market development, technology readiness and market size.

If we look at these pillars closely, taking education first, Sri Lanka may boast that its population Is highly literate but it ends there.

According to Dr. N.R. Dewasiri, President/FUTA, education spending in Sri Lanka as a percentage of government expenditure on education was 8.1% in 2010. For the same measure the average among South Asian countries is about 15%, and the average among Sub-Saharan African developing countries was 19%. The average among low and middle-income countries is about 18%. Similarly, out of around 300,000 students who sit for the Advanced Level examinations, 149,000 were eligible for admission to Sri Lanka’s public universities. Only 25,000 were admitted to universities last year.

This means, that whatever way we look at it, Sri Lanka spends less than other countries on education. The low spend on education by the Government in the past means that today, Sri Lanka loses out on higher education and vocational education and its younger generation and workforce are slower or unable to grasp and build new ideas and concepts.

Unfortunately, with regards to goods market efficiency, we also score very low, as high trade barriers ensure that local inefficiently produced agricultural and other local products maintain their local markets. Continued government subsidies and local monopoly conditions deeply affect the day to day basket of goods cost for the average consumer and impacts the overall cost base of consumers and businesses alike which in turns increases our cost of production.

The third pillar – labour market efficiency hardly needs to be mentioned. In this we come out as the 135th out of 144 countries. When it comes to the vast state sector, efficiency is woefully absent. Strong unions in the plantation, agricultural, state utilities and even in banking, ensure that fundamental goods and services are produced with little relationship to lowest cost or efficiency. For instance, the prices of onions, flour, eggs weighing scales, labour per day, cars and bikes and trishaws, all are significantly higher in Sri Lanka and maybe 20 – 500% more than in Bangladesh or India. Compare Israel, which is seen as a pioneer in agriculture. Over the last 20 years, they have leveraged on their agricultural sector to increase their GDP significantly, so given the right approach, Sri Lanka can also adopt and provide significant amounts of world class agricultural produce.Trade barriers and tariffs to protect our industries and workforce protect our inefficient systems – and more importantly, create a sleepy mindset.

As long as we veer away from allowing natural market forces to operate and thereby create an optimal redistribution of assets and human resources, and we do not use the economies of scale that exist in South Asia, we cannot expect to see much progress in our rank in the Global Competitiveness Index. Tariffs and barriers effectively “crowd out” the opportunities we have to engage at the higher end of the value chain. We do not and cannot leverage on the strengths of South Asia to release our capacity to focus on increased value goods and services and this affects our market size as well.

Financial market readiness is also one of the key factors for increased efficiency and availability of funds for the SME sector is paramount. Loans based on project proposals and not on collateral, needs to be significantly increased, which is the true essence of banking, but the government frequently crowds out the private sector due to heavy domestic borrowing.

With regards to technological readiness, the Sri Lankan Government spends around 0.2% of its GDP on research, and that carried out by the private sector is negligible. However, research in developed countries comes to as much as approximately 3% of the GDP with much being done by the private sector. For science and technology to make an effective contribution to development, a critical minimum of investment in R&D must be devoted by governments in South Asia. Thus a meaningful commitment by developing countries should at least require a doubling of the existing resources to bring them close to the level of 1% of the GNP, as recommended by UNESCO and the World Bank. Also, according to World Bank, South Asia needs to reach a level of at least one thousand scientists per million population in every country in the next decade to provide enough innovative ideas and practices in its economy.

There is a lot we must do to improve our efficiency. As a growing body of empirical literature shows, differences in productivity are the main determinants of cross-country prosperity levels. Increasing productivity through higher investment in education, market deregulation, labour improvements, a smaller public sector and investment in research needs to be at the core of Sri Lanka’s policy agenda.

( — Arosha Jayasundera is a specialist in service excellence and is the founder of the Asian Institute of Excellence www.asianiexcellence.com –)