Sri Lankan economy after the War

Address by Rohitha Bogollagama, Minister of Foreign Affairs at the 10th Annual General Meeting of the Tea Exporters Association – 14 August 2009

By Rohitha Bogollagama

(August 15, Colombo, Sri Lanka Guardian) It is a great honour and a pleasure to be the Chief Guest at this the 10th Annual General Meeting of the Tea Exporters Association, the premier organization representing tea export companies, a group that makes an invaluable contribution to this country’s economy.

The end of the war has been a catalyst for optimism, hope and change in our Motherland:

* The Colombo All-Share Index has gained 33 percent in the past three months, the second-best performance worldwide following the defeat of the LTTE in May.

* Tourist arrivals in Sri Lanka grew 8 percent in June and the forecast is that our hotels will be fully booked for the winter season from December to April.

* The IMF Standby Agreement facility - the biggest IMF assistance Sri Lanka has received in the last 50 years, gives a strong positive message to the world that Sri Lanka is coming out of the crisis due to terrorism.

* The Central Bank’s 2009 growth forecast is 4.5 percent.

You can see, the economic indicators are clear – Sri Lanka is on the verge of an economic renaissance at the decisive conclusion of a three decade long conflict. The Business Community of Sri Lanka is free, free at last from the jackboot of terrorism to resurge and achieve its full potential.

In fact, one could go even further and declare that Sri Lanka is at a pivotal moment in its long history. Being now in a post conflict phase, it is an opportune moment for Sri Lanka’s entrepreneurial spirit to take the fore and take this country’s economy forward from strength to greater strength.

As most of those here would be no doubt aware, the Government of President Mahinda Rajapaksa is making huge investments in infrastructure and developing productive assets so that Sri Lanka’s strengths will be optimized now that the war is over. In fact, the Ministry of Finance will focus next year’s budget on rebuilding areas liberated from the LTTE.

A new era has dawned in the whole country and in the North and the East particularly, with the rapid development process, speedy resettlement of displaced persons and restoration of democracy.

The arrest of the so-called successor to Prabhakaran, Shanmugam Kumaran Tharmalingam alias Kumaran Pathmanathan is another victory for Sri Lanka's fearless leadership in the worldwide battle against terrorism. I would just like to bring to your attention that tireless lobbying by the Foreign Ministry of Sri Lanka at the highest diplomatic level played no small part in this important development.

The devastated road network, highways, buildings and homes in the Northern Province will be redeveloped under the "Uthuru Wasanthaya" accelerated 180-day development project, and all Government Ministries, including the Ministry of Foreign Affairs are coordinating to achieve the Government’s lofty goals in this regard.

It is also intended to increase the national gross production in the North while finding a solution to the unemployment problem as a result of the economic stagnation that resulted from the era of LTTE terror.

The economic opportunities being unleashed by the Government’s visionary policies for the Northern Province will naturally result in rich dividends for business leaders both international and local who are excited about the huge potential inherent in investing in the reconstruction of the Northern and Eastern Provinces. My personal interactions with Statesmen and women and business leaders from countries around the world have made it more than clear that Blue Chip Companies have tremendous interest in investing in the reconstruction of the North and East of Sri Lanka. This is in addition to several Board of Investment projects for which agreements have already been signed. Several high-rise apartment complexes have been planned by the private sector in addition to projects in the Leisure, Financial Services (Banking and Insurance), Property Development, Retail and Dairy sectors and major infrastructure projects. We will not merely build back – we will build back better.

People in Jaffna and Vavuniya exercised their democratic rights at last week’s Local Government elections which would now be followed by the Provincial Council elections.

The Government's 180-day resettlement program is in progress with another batch of 1,500 civilians from the Manik Farm relief village being re-settled in Omanthai, Nochchimotai, Piramanalamkulam and Pirappumadu last week. In order to ensure a trouble-free living for the displaced persons, reconstruction of roads, supply of electricity and water were already completed in these areas, which have been completely cleared of landmines.

Lifting of fishing restrictions in Mannar, Trincomalee and Jaffna has made the industry a thriving business. The fishermen are making good money with a bountiful harvest. The Government has also provided the civilians with agricultural equipment, seeds and other essential requirements in Musali to boost the agro industry in the Mannar District.

A joint railway-bus service from Vavuniya to Jaffna will commence shortly for the benefit of Jaffna bound civilians and vice versa. The rail-bus service will be a big boost for the people in the area and will meet the long-felt need of the Jaffna civilians.

The Government has so far opened 17 new police stations in the newly liberated areas to maintain law and order. Civil administration too is operative.

Apart from the displaced persons, the Government has shown its sincere commitment to rehabilitate ex-terrorist cadres.

Despite all these positive developments, we still find a few countries, INGOs and individuals who are trying to project a distorted picture. All I can say – and I continue to state this at the highest diplomatic levels - is that no country, organisation or individual could have a greater feeling for the displaced persons in Sri Lanka than President Mahinda Rajapaksa and the Government of Sri Lanka. For those displaced persons are our own countrymen and women. They are our brothers and sisters.

You would therefore no doubt agree with me that there is cause for irrepressible optimism on the national front in the light of the reunification of our proudly multicultural nation under one flag and the phenomenal economic potential emerging from the national reconstruction drive.

On the international scene too, there is increasing cause for cautious optimism: Data released last Friday in the US showed unemployment had fallen 0.1 percentage point to 9.4 percent in July as President Barack Obama's multi-billion-dollar stimulus plan kicks in. On Monday reports showed Japan's current account surplus growing for the first time in 16 months, in June. Auto and electronic makers were boosted by the weaker yen, which is good for exporters. These figures sent the Dow Jones Industrial Average up 1.23 percent to its highest for more than nine months. Lifted by better than expected jobs figures out of the United States and stronger Japanese data, Asian markets jumped on Monday, boosting hopes the recession-hit economies were on the mend.

Globalization has resulted in the world witnessing a rapidly increasing international integration of markets for consumer goods, technology, and factors of production and the globalization process has offered unlimited opportunities as well as challenges for tea producing countries, in particular.

Global trade has vastly outpaced global production since 1960. Cross-border flows of financial capital have exploded. Labor is also becoming more mobile. The implication of all this is that the competitive pressure on businesses today is probably stronger than ever before. The rise of China as a global power in export markets is only the most recent addition to a long line of outward-oriented economies, in particular from Asia. But international integration does not only mean increased competition. It also means that businesses have unprecedented opportunities for expansion by taking advantage of international demand for their products. And businesses can tap international markets for new technology, knowledge, and finance.

In this context, it is significant that global tea production is now dominated by four countries, India (1002 Mn kgs), China (990 Mn kgs) Sri Lanka (318.7 Mn kgs) and Kenya (286.0 Mn kgs) with Indonesia closely following with a production of 139.8 Mn kgs. These countries account for about 75 - 80% of the world’s tea production and Sri Lanka was ranked as the 3rd leading global producer marginally ahead of Kenya in 2008.

In fact, Sri Lanka’s production which remained in the region of 233 Mn kg since the early 90s has been rising almost annually to reach the highest level of 318.7 million kg in 2008. Tea crop productivity in Sri Lanka is a different story altogether. Due to various reasons, productivity is among the lowest in the global scenario. The profitability of the Sri Lankan tea industry, like any other plantation industry, rests heavily on the movement of the global market and production costs. With costs of production in Sri Lanka very much higher than its competitors’, and international tea prices increasingly competitive with the emergence of low-cost global producers like Kenya, India and Vietnam, domestic producers and the corporate sector in particular may find it difficult to make ends meet.

It is timely that Sri Lanka’s Tea industry re-evaluates its strategic vision, re-visiting in particular the tremendous potential for value addition of a product that is linked so markedly to our national image, in this context.

I would also like to take this opportunity to stress an important dynamic occurring in the international sphere to you: Asia is returning to the centre stage it occupied for eighteen centuries before the rise of the West. For the vast majority of recorded history, Asia, with the greatest share of the world’s population has had the greatest share of the world’s economy. In the first century AD Asia accounted for 76.3% of global GDP. Western Europe at this time accounted for only 10.8% of global GDP. This balance began to shift with the industrial Revolution. By 1820 Western Europe’s share of global GDP had grown to 23.6%, while Asia’s had shrunk to 59.2%.

A Goldman Sachs study predicted that by 2050, three of the four largest economies in the world will be in Asia, and in this order: China, the USA, India and Japan.

Having analyzed emerging trends at the dawn of this the 21st Century, Sri Lanka’s foreign policy is being recalibrated to fully explore the potential inherent in our geo-political location.

In the recent past, Sri Lanka has stepped into several international organizations and fora: This we have done in order to enable our country to have the widest possible engagement with global decision-makers. I am pleased to bring to your attention that Sri Lanka has moved well beyond our traditional relationships in the Non-Aligned Movement (NAM), G77, the Commonwealth and the UN system to membership in all the key organizations where the new architecture for the international system is being built: fora such as the ASEAN Regional Forum (ARF); the Shangri-La Dialogue; ACD; the Shanghai Cooperation Organization; Asia Middle East Dialogue (AMED); the G15 and the G11. Sri Lanka is also currently the Chair of SAARC, as you would be aware.

Speaking personally as the Foreign Minister of Sri Lanka this wide engagement Sri Lanka now has, means that at any given time I am in a position to pick up my telephone and call at least 50 of my counterparts in all the key capital cities of the world. In terms of what this means for Sri Lanka, to give you just one example, all the key LTTE operatives have now been extradited to Sri Lanka, with assistance of top international allies, rather than operating against our national interest in capitals around the world. I would like to stress to you that this wide access Sri Lanka now enjoys is unique in our history and I personally take great pride in this achievement, which is a direct result of a strategic vision and pragmatic diplomacy at the very highest levels.

Sri Lanka is now preparing with a keen degree of enthusiasm to host the Asian Cooperation Dialogue (ACD) Ministerial Meeting in Colombo from 15-16 October and thereafter to take up the challenging but much anticipated responsibility of serving as Chair. The theme of this Year’s ACD Ministerial Meeting will be of particular interest to you in the business community: “Spirit of Asia: global economic recovery and development prospects”. The ACD is an extremely important mechanism by which to promote global economic well-being. ACD is a continent-wide forum, the first of its kind in Asia which aims to build an Asian Community, consolidate Asian strengths and fortify Asia's competitiveness by maximizing the diversity and rich resources evident in Asia.

Currently, the ACD comprises 31 countries: Sri Lanka ,Bangladesh, Bhutan, India and Pakistan from South Asia; China, Japan and the Republic of Korea from East Asia; Brunei Darussalam, Cambodia, Indonesia, Lao PDR, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam from South East Asia; Bahrain, Iran, Kuwait, Saudi Arabia, ,United Arab Emirates, Oman and Qatar from the Middle East; Kazakhstan, the Kyrgyz Republic, Mongolia, Tajikistan and Uzbekistan from Central Asia and Russia. Therefore, you can see how important the ACD is in terms of political engagement and economic pursuits.

This is an important opportunity that has been achieved for the people of Sri Lanka and the business community in particular through the untiring efforts of the Ministry of Foreign Affairs, and I hope that the business leadership of Sri Lanka will extend the very fullest cooperation to my Ministry to make Sri Lanka’s Chairmanship of the ACD a resounding success.

In summary, informed opinion both internationally and here in Sri Lanka unequivocally agrees that Sri Lanka is on the verge of a new spurt of economic achievement never before seen before. With the Government of Sri Lanka’s decisive victory of LTTE terrorism, we in Sri Lanka have no excuse now not to achieve to the full our tremendous potential as one of the leading states in Asia and indeed the world, in what is already being termed “the Asian Century”.

Further, the world economic prospects are showing signs of improvement, which gives us all reason for hope. As the first country in our region to embrace Free Trade, Sri Lanka’s Business leadership is integrally connected to the global economy.

Moreover, Sri Lanka, with its strategic location, commanding key international trade routes and at the nexus between East and West is also at the centre of Asia – both geographically and geo-politically

Based on my very long interaction with the business leadership of Sri Lanka I have no doubt that Sri Lanka’s private sector will contribute significantly to making Sri Lanka a model of post-conflict development.

-Sri Lanka Guardian