JULY TO DECEMBER 2015

DIGEST

Years On...

Facilitating Trade
between
Sri Lanka
and India

Removing Barriers
to Trade to Promote
Womens
Participation

Sri Lankas
Election Pledges:
Do We Really Need
that Many New Jobs

Insights into
Sri Lankas
Rebased GDP
Estimates

page 08

page 12

page 16

page 18

04

09

13

16

04

Trans-Pacific Partnership (TPP): Implications for Sri Lanka

06

Entering and Conquering China: Beyond the Free Trade

Agreement

08

Facilitating Trade between Sri Lanka and India

10

Renewal of US GSP: What It Offers Sri Lankan Exporters

12

Removing Barriers to Trade to Promote Womens

Participation in Spice and Coir Value Chains in Sri Lanka

14

Eliminating Pension Anomalies Reaching Beyond Public

Servants

16

Sri Lankas Election Pledges: Do We Really Need that Many

New Jobs?

18

Insights into Sri Lankas Re-based GDP Estimates

20

Sri Lanka State of the Economy 2015 Launch

22

The IPS Journey 25 Years On

26

Doing Business in Sri Lanka: Investment Climate and

Challenges Ahead

28

Millions of Tourists, Millions of Opportunities

30

Should the Sri Lankan Government be in the Business of

Running an Airline?

32

Harnessing Benefits of the Blue Economy: Key Factors for

IORA Countries

34
18

23

27

31

The Road to Becoming an Energy Independent Country:

Can We Deliver?

Editorial
25 years on and going...

Executive Director
Saman Kelegama, DPhil (Oxon)
Deputy Director
Dushni Weerakoon, PhD (Manchester)

Welcome to the 11th edition of the Talking Economics Digest!

2015 marks 25 years since the establishment of the Institute of Policy Studies of Sri Lanka. The
Institute, which was set up to provide independent economic research for policy makers has not
only established itself as the foremost think-tank in the country but has garnered recognition in
the region for its high quality research. The Institute has now set itself the vision to increase its
visibility and influence globally in the future.
The Institute has expanded as an organization in terms of number and quality of staff, research
and activities over time, whilst becoming financially independent. Today, the Institute is housed
in its own world class building in Colombo 7, manned by well experienced and competent
researchers who are supported by able support staff in finance and administration, library,
information systems and communications & publications, facilitating the research process from
drawing up of research proposals to disseminating findings to key stakeholders. Read the candid
interview with Dr. Saman Kelegama, the Executive Director of the Institute, to find more about the
Institutes journey from its inception to present and its plans for the future.
The Digest contains a compilation of articles published online and offline over the last six
months of 2015. These reflect the broad six thematic areas of economic research which the
Institute has built up over time and now focuses as part of its research programme. This Digest
features articles by IPS researchers on: Policy Efficiency and Competitiveness, Migration and
Development, Human Resources for Sustained Development, Private Sector Development,
Poverty and Vulnerability, and Environment, Natural Resources and Agriculture. The purpose of
these articles has been to examine various development challenges confronting the country and
to create greater awareness and public debate about them.
You can also find out more about our recently released flagship publication, Sri Lanka: State of
the Economy 2015, under the theme Economic Reforms: Political Economy and Institutional
Challenges. This years report focuses on policy reforms on trade and investment, labour market,
foreign employment, education, health, social protection, agriculture, and environment sectors.
IPS first published the State of the Economy in 1992, and the annual publication has a wide
reached among policy makers, economists, universities, development partners as well as the
private sector in the country.

36

Food Security: Does it Matter for Sri Lanka?

38

Feeding the Nation, Facing the Risks: Occupational Safety

& Health of Paddy Farmers in Sri Lanka

40

Child Poverty: Who are the Poorest Children in Sri Lanka?

42

Upfront Incentives: Carrot for Migrants & Cash for Others

Like in previous issues, this Digest also contains the Diary of Events of the Institute, information
on IPS Latest Publications, Fun Facts, and a Crossword Puzzle. This time we are giving away
3 prizes for lucky readers who complete the puzzle and send in the right answers to the clues
based on the articles in the Digest.

44

Sri Lanka Needs Equal Access to Science Education

Hope you enjoy this Digest and we look forward to hearing from you!

46

Fostering an Innovative Entrepreneurial Sri Lanka

48

Ensuring the Rights of Our Children

Janaka Wijayasiri

50

About the Authors

Research Fellow
janaka@ips.lk

52

IPS News

54

TE Puzzle

55

Fast Facts

Talking Economics Team

Janaka Wijayasiri
Dishnika Perera
Bilesha Weeraratne
Raveen Ekanayake
Charmaine Wijesinghe
Kithmina Hewage
Contributing Authors
Athula Senaratne
Bilesha Weeraratne
Chatura Rodrigo
Dharshani Premaratne
Dushni Weerakoon
Janaka Wijayasiri
Kanchana Wickremasinghe
Kithmina Hewage
Nipuni Perera
Nisha Arunatillake
Manoj Tibbotuwawa
Priyanka Jayawardena
Sunimalee Madurawala
Suwendrani Jayaratne
Wimal Nanayakkara
IPS Photo Credit
Roshan Kaluarachchi
Nalaka Liyanapathirana
Institute of Policy Studies of Sri Lanka
100/20, Independence Avenue
Colombo 07, Sri Lanka
Tel: +94 11 2143100, +94 11 2665068
URL: www.ips.lk
Blog: Talking Economics
Web: www.ips.lk/talkingeconomics
Twitter: www.twitter.com/TalkEconomicsSL
DESIGN/LAYOUT
Shiran Sabar
Copyright and Disclaimer

March 2016

All material published in the Talking Economics Digest

are copyright of the Institute of Policy Studies of
Sri Lanka (IPS), unless otherwise specified. It cannot be
quoted without due acknowledgement to the IPS
and the author. It cannot be reproduced in whole or
in part, without the written permission of the IPS.
The content, comments and posts of the Talking
Economic Digest and the IPS blog represent the views
of individual authors and do not necessarily represent
the views of the IPS.

The Institute of Policy Studies of Sri Lanka (IPS) is an autonomous institution that aims to promote policy-oriented economic research and to strengthen the capacity for medium-term policy
analysis in sri lanka. Its mission is to contribute to the socio-economic development of the country through informed, independent and high quality research that seeks to influence the
policy process. With over two decades of substantial research expertise, IPS has emerged as a regional centre of excellence and the most influential think tank in Sri Lanka.

interest groups ranging from Mexican auto

workers to Canadian dairy farmers, and faces
domestic resistances in all of the TPP countries.

Trans-Pacific Partnership (TPP):

Implications for Sri Lanka
by Nipuni Perera and Janaka Wijayasiri

Twelve Pacific Rim countries including USA, Canada,

Australia, New Zealand, Brunei Darussalam, Chile,
Japan, Malaysia, Mexico, Singapore, Peru, and
Vietnam finally saw light at the end of a long tunnel,
last month. After five years of intense negotiations, the
Trans-Pacific Partnership (TPP) was completed on 4th
October in Atlanta, USA. TPP is the first of the megaregional agreements to be concluded, and is the
most ambitious free trade agreement signed to date.
It intends to unlock opportunities, set high-standard
trade rules, and addresses vital 21st century issues
within the global economy.

A Cloud on the Horizon?

Supporters of TPP expect to reap significant benefits,
and boost economic growth through tariff cuts and
a common set of standards. The trade gains for
participating countries seem sizable considering the
concentration of trade among TPP members especially
with the USA (Figure 1).

In addition to the economic benefits, the conclusion of

the negotiations was seen as triumph for the US foreign
policy, and Obamas pivot to Asia which is an attempt
to keep China in its place. However, the implications of
TPP covers 40% of the world trade and the 12
TPP have been widely debated across the 12 countries.
countries have a collective population of about 800
It is viewed as a cloud on the horizon given that not all
million. The Agreement includes a wide range of areas
industries and sectors will benefit. In fact Donald Trump,
such as trade in goods, services, investment, labour,
who is seeking the nomination of the Republican Party
environment, E-commerce, intellectual property rights.
to run for US presidential election 2016, called TPP a
However, the lawmakers in each of the countries
terrible deal.
are yet to ratify the agreement. It faces difficulties
getting through a hostile US Congress and it has
The Agreement has been criticized for lack of
become a controversial issue in primary presidential
transparency, as the five year talks were shrouded in
campaigns.
secrecy, and allegedly favoured large corporations. It was
viewed to be trading away public health by granting of
Figure 1: Concentration of Trade among TPP Members
longer protection to pharmaceutical corporations for their
drugs via patents. This will have serious implications on
public welfare and affect the price of medicine, making
them more expensive.

Members

Members

Those against the TPP also are sceptical about its

economic benefits. They worry that governments could
be sued by investors under controversial investor-state
dispute settlement provisions. There is also the fear
that the Agreement could result in job losses. Some in
the US are worried that jobs will go to countries with
lower wages and less strict labour laws. As such, the
Agreement is perceived as a threat to an array of other

Implications for Sri Lanka

So, what does the TPP mean for developing
countries like Sri Lanka, excluded from the
Arrangement?

competitive vis--vis Vietnam, which will enjoy

a duty advantage equivalent to the MFN rate.
There is also likely to be trade diversion to
Vietnam and to a
lesser extent to other
TPP partners in other
products (Figure 3).
However, the extent
to which Vietnam
can make use of the
duty reductions under
the Agreement will
depend on fulfilling
certain rules and the
tariff liberalization
programme.
TPP also plans to
liberalize trade in
services and investment flows. For services, the
impact on countries outside the TPP will depend
on whether such liberalization is preferential
or erga omnes. As in the case of services, the

Sri Lankas Options

In the Economic Policy Statement, which was
released on 5th November 2015, the need
to address TPP was mentioned but short of
suggesting how the government intends to do
this. There have been calls by some academics
for Sri Lanka to join the TPP, which would also
trigger much needed but difficult reforms in the
country. Others have suggested Sri Lanka to
review its prevailing trade negotiations strategy
and engage in bilateral deals with the US, and
the EU to mitigate the negative effects of TPP.
However, it is important to note that the TPP
was designed primarily by developed countries
with their own concerns in mind. While poorer
countries may feel pressured to join to avoid
being excluded from an agreement involving
their competitors, we may not be ready to
adopt many of the provisions in the Agreement.
One may recall Sri Lankas own experience
with negotiating a Comprehensive Economic
Partnership Agreement (CEPA) with India

The trade effects on excluded countries will

depend on three factors. First, the geographical
distribution of the countrys exports to TPP
countries. Second, the similarity of export
structures between the excluded and those
included in the Agreement. Third, the tariff and
non-tariff barriers currently applied amongst the
TPP countries.
In 2014, TPP accounted for almost one-third of
Sri Lankas exports (Figure 2). USA is Sri Lankas
largest trading partner among these countries
and the world; with a quarter of its total exports
going to the USA (Figure 2). The country will be
significantly affected by the participation of its
largest export market in the TPP. This problem
is compounded by Sri Lanka competing with
some TPP countries in the US market for similar
products. For example, apparels (HS 61 & HS
62) are Sri Lankas major export to the world
and the US; accounting for 44 and 73 per cent
of Sri Lankas total exports to the world and the
US, respectively. Sri Lanka competes with TPP
partners like Vietnam, Mexico, Peru in these
products in the US market. However, Mexico
and Peru already enjoy duty free access to the
US market under existing trade agreements.
Thus, the main impact of the Agreement on Sri
Lanka will come from increased competition
from Vietnam, as tariffs are phased out under
the Agreement. Currently US applies a tariff rate
of 10.8 and 14.4 per cent on HS 61 and 62,
respectively from Sri Lanka and Vietnam. With
the phase-out of tariffs under TPP, Sri Lankan
apparel exports to the US might be forced out
of the market or reduce the prices to remain

potential for investment diverting away from

countries excluded from the Agreement depends
on how the way will be implemented. Still,
there might be some investment diversions to
take advantage of a larger market under the
Agreement. Vietnam is considered amongst
the biggest winners of the Agreement, closely
followed by Malaysia. For example, analysts
predict the deal would boost Vietnams growth
and exports by 11 per cent and 28 per cent,
respectively, in the next 10 years.

sometime back, which only covered trade in

goods, services and investment. In the event the
TPP becomes a reality, Sri Lanka must carefully
assess the costs and benefits of joining the
Agreement with due stakeholder consultations.
Meanwhile, it is best that Sri Lanka urgently
improves its export competitiveness by
addressing constraints on multiple fronts,
including supply side capacities and weaknesses
in the business environment.

To avoid exclusion from an agreement involving

their competitors,
Figure 3: Sri Lankas Exports to TPP Members, Share of Total, 2014
some developing
countries have
indicated that they
want to join the
TPP. Countries
such as Colombia,
Costa Rica, the
Philippines, Laos
and Indonesia
are among the
countries that have
already expressed
an interest.

Experience of Global Giants:

Competition Turning the Oceans
Red
With a growing urban population and surging middle class seeking sophisticated
higher value products, the Chinese consumer market provides a gleaming
opportunity for Sri Lankan exporters. The proposed Free Trade Agreement (FTA)
between Sri Lanka and China, which is under negotiation, will offer Sri Lanka
preferential access to the worlds second largest and fastest growing market.
However, the complexity of entering and operating in the country should be borne
in mind when considering doing business in China.

Entering and
Conquering China:

Beyond the Free Trade Agreement

by Nipuni Perera

Global giants that have succeeded elsewhere

have struggled to capture the lucrative Chinese
market. Wal-Mart, a leading global retailer with
nearly 11,000 stores under 71 banners in 27
countries is still fighting to capture the Chinese
market even after 18 years of operation in China
with its Every Day Low Prices (EDLP) strategy.
This is largely owing to stiff competition from
local retail chains like Sun-Art which imitates
Wal-Marts business model but has a better
understanding of local consumer behaviour.
The local appeal of Sun-Art and inclination of
Chinese consumers towards tailor-made local
products and a shopping environment that
reflects local preferences have helped to draw
in Chinese consumers to its stores, making it
difficult for Wal-Mart to gain significant presence
in China.
eBay, better known as the worlds online
marketplace and one of the largest global online
stores, also failed to make inroads to China
due to competition from Alibaba, Chinas local
e-commerce company. Alibaba, which launched
a competing consumer-to-consumer (C2C)
auction site named Taobao (meaning digging
for treasure) for individuals buying and selling
virtually any consumer goods, has left eBay
overwhelmed and defeated. Taobao gained its
competitive edge owing to its understanding of
the Chinese market and localized marketing
campaigns/business strategy.

Treading the Waters: Stumbling

Blocks to Overcome
Given that even large global giants have faltered
in the highly competitive Chinese market, it is
important for Sri Lanka, which is on the brink
of entering the Chinese market through a
negotiated FTA with relatively less competitive
brands and products in hand, to identify potential
challenges in doing business in China.

Red Tape Administrative

Procedures
Administrative procedures when entering China
have been found to be time-consuming and
entails reams of paperwork, which needs to be
submitted manually. For instance, many foreign
companies that have hired 1-2 full-time staff to
lead their marketing and sales efforts find that
their employees spend more than half of the
time completing administrative tasks.
Furthermore, Chinas trading environment as
depicted by the World Bank Trading Across

Borders Database, appears to be more complex

compared to Sri Lanka and most of its key
export markets, ranking at 98 (out of189
number of countries) in 2014. For example,
imports into China require more documents
and days to import though the cost to import is
relatively lower (Table 1).
The trading environment in China is also known
to be difficult due to corruption. The relatively
low rankings of China in the Corruption
Perception Index of Transparency International
(ranked 100 out of 175 countries) compared
to other major export markets suggest that
operating in China maybe more complex
compared to that of Sri Lankas existing major
export markets.

Nationalistic Sentiments
of Chinese Consumers and
Inclination Towards Local
Products

Difficulties in Adapting to the

Chinese Business/Trade Culture
Guanxi, which literally means relationship, is
said to be embedded deeply in the Chinese
business culture, often taking more effort
and time in China to build relationships with
counterparts and complete business deals.
The Chinese business culture being somewhat
different to foreign companies is said to
require a certain level of familiarization before
concrete business relationships are fostered.
This can often be a challenge for foreign firms
which enter the Chinese markets without prior
contacts or adequate knowledge of the cultural
background.

Prevalence of Non-Tariff Measures

(NTMs)
NTMs, defined as policy measures other than
ordinary customs tariffs that can potentially
have an economic effect on international trade
in goods, have been found to be more trade
restrictive than tariffs.

striking a FTA will not be the panacea for

boosting Sri Lankas trade with China though it
is an important channel to capitalize on Chinas
lucrative consumer market.
Since entering and surviving in the Chinese
market remains difficult owing to the challenges
highlighted in the above discussion, the ongoing
FTA negotiations should look beyond mere tariff
liberalization and aim at dealing with NTMs and
other difficulties through binding commitments
and special and differential treatment.
Alongside FTA negotiation process, it is
important for relevant government and private
sector organizations in Sri Lanka to start
investing and fostering the necessary skills and
knowledge required to enter and operate in
China such as language skills, marketing skills,
relationship management skills, local market
expertise, etc. Such preparations would better
equip local firms to successfully access China
once the FTA is implemented.

Another major challenge that exporters face

The Institute of Policy Studies of Sri Lanka
when entering the Chinese market would be
is currently undertaking a study to explore
the difficulty in capturing Chinese consumers
Exporters Perspective on Accessing Chinese
whose nationalistic sentiments have largely
The prevalence of NTMs has been a major
Market under China-Sri Lanka FTA, to
affected their purchasing decisions - making
concern of Chinas trading partners. The WTO
understand some key challenges faced by Sri
them inclined to purchase local products and
in its fourth Trade Policy Review (TPR) called
Lankan exporters when exporting to China.
brands. The shift of Chinas growth model from
on China to address the high prevalence
The findings of the study aim to stimulate
a more export and investment driven model
of NTMs in the country. According to TPR,
discussions and influence policy outcomes of
towards domestic consumption in an attempt to exports to China are most constrained by the
the China-Sri Lanka FTA negotiations.
rebalance growth could intensify this situation
imposition of anti-dumping duties, technical
making it more difficult for foreign companies
trade barriers, high sanitary and phytosanitary
to capture the Chinese consumer. Market
issues, operations of state-owned enterprises,
analysts suggest that the key to capturing the
cumbersome customs process, export
Chinese market relies heavily on the extent to
restrictions, and the protection of intellectual
which marketing strategies of foreign firms are
property rights.
localized to suit Chinese
Table 1: Chinas Trading Environment vis--vis Other Major Export markets of Sri Lanka
consumers.

Communications
Barriers

Country

TAB Rank

Documents
to Export
(number)

Time to
Export
(days)

Cost to
Export
(US$ per
container)

Language barriers have

been cited as a common
United
challenge faced by
Kingdom
15
4
8
1,005.00
foreign firms entering
United
the Chinese market. The
States
16
3
6
1,224.00
complexity of this issue
owes predominantly to the
Germany
18
4
9
1,015.00
vast regional variations
Sri Lanka
69
7
16
560
in spoken Chinese as
China
98
8
21
823
there are hundreds of
India
126
7
17.1
1,332.00
local dialects based in
Source: The World Bank. Trading Across Borders.
a region. Most Chinese
are said to be bilingual speaking Mandarin and their local language,
Keeping the Boat Afloat
while English is used to a lesser extent. Hence,
exporters will require local language skills as
Given the difficulties that have been
labeling and other operations would have to be
experienced by other companies and countries
done in Mandarin.
when entering and operating in the country,

Documents
to Import
(number)

Time to
Import
(days)

Cost to
Import
(US$ per
container)

1,050.00

5.4

1,289.00

1,050.00

13

690

24

800

10

21.1

1,462.00

Facilitating Trade
between Sri Lanka
and India
by Suwendrani Jayaratne

Irrespective of whether the Indo-Lanka FTA (ILFTA) is going to be

extended to a Comprehensive Economic Partnership Agreement (CEPA)
or not, one cannot ignore the importance of the Indian market for Sri
Lankan exporters. It is indeed a large market with 1.3 billion people
and a rising middle-class those who earn between INR 20,000-INR
100,000 a month has gone up from 25 million in 1996 to over 160
million in 2013. India is expected to outperform China in 2015 and 2016,
with growth boosted by policy reforms, rising investments and lower oil
prices. Furthermore, a half of Indias population is under the age of 25
years, and with 12 million entering the labour force each year, India is
well positioned to reap the benefits of a demographic dividend.

Excessive testing by Indian authorities was also deemed

unnecessary. For instance, samples of garment products are taken for
testing by the customs. According to some exporters, if a consignment
is a branded product with 100 pieces of garments, 5-7 pieces are taken
for sample testing. It was felt that this was unnecessary and could be
minimized.
Complexity and difficulties in obtaining information on new
regulations. Sometimes, the complexity of the information relating to
new regulations (i.e., the recent food safety standard regulations) makes
it difficult for traders, especially the small and medium enterprises, to
comprehend and meet the requirements.
Stringent labeling requirements. Some of the labeling requirements by
India are very stringent and there is an information gap with regards to
the requirements at that end.

Fixing the Problems

Challenges faced by Sri Lankas exporters to India have not changed
drastically over the years and remain more or less the same. Fixing these
is far from simple, but the steps that should be undertaken to facilitate
trade between the two countries are widely known among stakeholders.
It is up to policy makers in both countries to address them in a diligent
manner.
Facilitating testing and certification process: When exporting
goods, products should conform to standards and regulations set by the
importing country or the buyer. However, this becomes a barrier if the
process is not facilitated and the testing requirements are not practical,
leading to high costs and delays. Mutual Recognition Agreements (MRAs)
between India and Sri Lanka can assist in reducing the necessity to carry
additional checks at the point of import. Setting up an accredited testing
facility from India in Sri Lanka may be an option.

Rejection of products entitled for ILFTA concessions due to

unawareness of officials was identified to be one of the main issues
confronting some exporters. Some officials are not fully aware of certain
goods and what category/HS code they should fall under, resulting
in exporters having to pay additional duties. There can be a lot of
paperwork and red tape in the clearance process which inevitably leads
to delays and corruption.

Educating traders: Some of the delays and complexities arise due to

the laxity and ignorance of traders. For example, textiles shipments are
sometimes sent with dangerous cargo. In such cases, containers with
dangerous cargo are transferred to a separate warehouse, resulting
in longer time to clear the textiles. This is more a responsibility of the
loading party as importers have less control over such situations.

Highlighting businesses that have successfully penetrated the

Indian/Sri Lankan markets: While it is possible to identify both Indian
and Sri Lankan companies that have successfully penetrated the
Sri Lankan and Indian markets, it is important to highlight, draw and
share their experiences with the wider trading community in a bid to
illustrate successful cases of the ILFTA. Often the most vocal are those
that were not successful in making inroads to the Indian market. It is
important to bring out how the barriers could be overcome to improve
trade with India in order to reap greater benefit from the Agreement.

Trade Facilitation Related Issues Facing Sri Lankan

Exporters under the ILFTA

Excessive time taken for product testing was identified to be a critical

issue facing exporters of perishable goods. With the introduction of new
food safety and sanitary regulations by the Food Safety and Security
Authority of India (FSSAI), exporters such as that of strawberries have
stopped exporting to India. The new regulations imposed by India in 2012
require sampling and testing of food shipments to India. This can take up
to 3-4 days and highly perishable food which have a shelf life of below 7
days become inconsumable by the time the shipments are released.

Streamlining procedures and sharing information: The need to

streamline procedures and improve efficiency of the Indian customs
was emphasized by many traders to facilitate trade between the
two countries. The demand for different documentation and different
interpretations of the Agreement at different ports in India has made
exporting difficult and confusing. It was mentioned that some traders are
not motivated to trade with India because of these hurdles.

Improving private sector consultation and engagement, prior to

and during any further negotiations with India to identify practical
issues in doing business: Traders highlight that in addition to
technically competent government officials, inputs from the private sector
are key to negotiations because the trading process is far more complex
than that on paper. Stakeholder consultation of those involved in the
trading process including logistics companies, ports authority, customs,
banks, shippers, traders, chambers and border protection agencies will
ensure that every step of the trading process is looked into facilitate the
flow of goods between the two countries.

Currently, Sri Lankan exporters have duty free access to the Indian
market except for 429 items and products, which receive specific
concessions (i.e., textiles, garments, tea, pepper, desiccated coconut,
bakery shortening). So stipulates the ILFTA. But do we really have
easy and free access to the Indian market for our products? Exporters
at various forums have highlighted the practical difficulties of trading
with India since the ILFTA came into operation in 2000. A recent study
by the Institute of Policy Studies of Sri Lanka (IPS) highlights some of
these issues and suggests measures that can be undertaken to facilitate
bilateral trade.

Non-acceptance of Sri Lankan standard certification at the Indian

end has led to delays and increased costs. The Sri Lanka Standards
Institution (SLSI) has signed a MoU with the Export Inspection Council
of India in 2003 whereby, Sri Lanka recognizes Indian quality standard/
product certification for over 80 identified items. However, there has
been no reciprocal agreement signed to state that India would accept
quality standards/products certification issued by Sri Lanka.

national, foreign and international standards, etc. However, these facilities

are not fully utilized by traders.

Establishing a Help/Information Desk: There is a lack of knowledge

of the ILFTA at various stages of the trading process. Establishing an
enquiry point will not only address information gaps, but also provide
traders additional confidence of knowing that there is a local authority
with the necessary contacts to facilitate trade with India. However,
those manning such a unit should be trained professionals if they are to
effectively assist the trading community. However, till such an enquiry
point is set up, it is crucial that exporters bring to notice any complaints
they have, in writing, to the Department of Commerce, Sri Lanka.
Lack of efficient border controls and coordination among relevant
authorities in India, have led to considerable delays. Border control
systems are not online, leading to limited information sharing and
delays and complications (i.e., different ports demand different sets of
documentation). The need to get clearance from multiple controllers at
sea as well as land borders was also identified by some exporters to be
one of the main hindrances to freer movement of goods.
The absence of a formal body or a help desk to address problems
arising when trading under the Agreement is an impediment in
using the ILFTA. When problems arise regarding a shipment (i.e.,
documentation), there is no formal body of authority that can take up
complaints and address them quickly.

Also, the delays that occur as a result of testing products in locations

far from the port can be avoided, if the requisite checks can be carried
out at the port of entry and within a specified period of time. This is an
essential requirement for perishable items. If the goods could be checked
by the authorized designated labs/bodies prior to the shipment would be
even more beneficial. The India-Singapore Comprehensive Economic
Cooperation Agreement (CECA), for example, provides a framework for
MRAs which prevent duplication of product testing and certification.

Incorporating trade facilitation into the ILFTA: Trade facilitation

is covered in many of Indias Comprehensive Economic Cooperation
Agreements (CECAs) and Comprehensive Economic Partnership
Agreements (CEPAs). Although it has been suggested that trade
facilitation issues would be addressed in a possible CEPA between India
and Sri Lanka, dealing with some of the pressing issues would be an
important step, especially in building confidence among traders. It would
also help change the negative perceptions attached to trading with India
and assist in promoting trade between the two countries.

Furthermore, traders need to be better informed of services available

to them regarding standards and other regulatory requirements. For
example, the SLSI offers all stakeholders access to standards and
regulatory information of any other country, technical enquiries on

Renewal of
US GSP:
What It Offers
Sri Lankan
Exporters
by Suwendrani Jayaratne and
Dharshani Premaratne
President Obama at the signing ceremony for the
Trade Promotion Authority and Trade Preferences
Extension legislation (Photo taken from: Renew GSP
Today)
President Obama signed the Trade Preferences
Extension Act of 2015 on 29 June 2015 authorizing
the renewal of the US GSP scheme, almost 2 years
after it expired. The scheme, instituted in 1974 and
renewed periodically is designed to promote trade
in developing countries. It provides exporters of
122 countries duty free access to the US market for
selected products. There have been many renewals
(6 so far since year 2000) and as highlighted in
a recent article, the last was the eighth time in a
period of 30 years that the scheme expired without
being renewed. The latest round of concessions is
expected to come into effect on July 29th this year.
Sri Lanka as one of the beneficiary countries would
no doubt benefit from the renewal of the GSP scheme
but to what extent? And to what extent were the
concessions utilized before? Whats the stability of
the scheme? This article takes a brief look at whats
on offer.
Figure 1: Sri Lankas Exports to US, 2001-2014

Source: Central Bank Annual Report, Various Issues

10

US is the single largest export destination for Sri Lankan products accounting for nearly
25% of Sri Lankas total exports. Although the total exports to US has increased over the
past decade, albeit with few fluctuations, share of exports to US as a percentage of Sri Lankas
total exports has gradually declined (Figure 1). While the share of exports to US accounted to
over 40% in 2001, it has nearly halved by 2014 recording a figure of 24%. At the same time
export basket is concentrated around a few product categories (Figure 2). Bulk of the exports
consists of apparel and articles of apparel, with a share of over 70% of Sri Lankas total
exports US.
The US GSP scheme provides duty-free access to only about 3500 products (8-digit
tariff lines) for beneficiary developing countries like Sri Lanka. 43 countries listed as
least developed beneficiary countries (LDBCs) receive additional benefits. LDBCs receive
the following benefits: (i) GSP treatment for a higher number of products in addition to the
3500 products that all other beneficiaries receive preferential access, 1500 products from
LDBCs get duty-free access to the US market - and (ii) they are not subject to competitive
need limitations. In other words, if a beneficiary country exports over 50% of US total
imports of that product or exceeds a designated dollar-value limit (US$ 170 million in 2015);
a country will lose its GSP concession for that product. Sri Lanka however, being a middleincome country does not receive LDBC benefits. All SAARC countries except Bangladesh are
beneficiaries of the US GSP programme and among them Afghanistan, Bhutan and Nepal are
identified as LDBCs. A benefit of other countries in the SAARC region receiving GSP preferential
access is that Sri Lanka can utilize the provisions extended by US GSP to treat these SAARC
countries as one country under GSP under cumulative rules of origin requirements.
Products such as textiles and
footwear are prohibited from
receiving GSP treatment. In
addition, watches, work gloves and
other leather apparel are not eligible
for GSP concessions. However,
products which were deemed
import sensitive items such as
certain handbags, luggage, and flat
goods and were previously excluded
from receiving GSP concessions
are now allowed to be considered
for duty-free treatment under 2015
GSP programme.
Due to the limited coverage of
the products exported by Sri
Lanka under the GSP scheme, its
benefits have been limited for Sri
Lankan exporters. In 2012, only

7% of Sri Lankas total exports

Figure 2: Composition of Sri Lankas Exports to US, 2014
to US received GSP concessions
(United States International Trade
Commission, 2015). Of the apparel
products only 0.11% of the total
apparel exports to US were eligible
for GSP in 2012, and the potential
coverage of apparel after the
revival of the GSP will be about
0.16% based on 2014 trade data.
About 17% of the rubber exports to
US were exported under the GSP
scheme and the potential coverage
under the new programme will
be about 25%. Table 1 presents
some of apparel and rubber exports
Source: Trademap
which are currently being exported
are refunded to the importers with the reauthorization of GSP, US businesses have
to USA and are eligible for 2015-GSP concessions.
been reported to be negatively affected by the expiry of the GSP.
Nevertheless, an IPS study shows that the utilization of
All-in-all, the renewal of US GSP concessions is expected to be only
US GSP concessions has been high. The study highlights
marginally beneficial to Sri Lanka. Although nearly three quarters of Sri Lankas
that high utilization rates combined with a low coverage
exports to US are concentrated on apparel & articles, only about 0.2% of the
indicates that Sri Lanka has been making use of the few
current apparel exports are eligible to receive GSP concessions. Exporters of
preferences it receives under the US GSP scheme. A reason
rubber, the second largest export product to US, will have only about a quarter
maybe that US GSP is simpler than some other GSP schemes.
Unlike some of the GSP schemes
Table 1: Top Exports by Sri Lanka to USA that Receive GSP (in US$ thousands)
offered by other countries, US
provides duty free access to all
products eligible for preferential
treatment instead of varying levels
of preferential treatment. At the
same time, the documentation
requirements are relatively simpler.
Renewal of the US GSP scheme
in June is for all beneficiary
countries. US GSP concessions
have not been withdrawn from
Sri Lanka in recent times under
any reason. Rather, the renewals
are for the GSP programme as
a whole. The requirement for
renewal/reauthorization arise due
to the new budget rules adopted
by the US in 1990 which entail a
pay-as-you-go approach that
Note: Products below export value of US$ 100,000 to USA is excluded from this list.
require changes in government
Product descriptions are shortened for presentation purposes.
revenue/expenditure to include
Source: Trademap and USTR, GSP Eligible Products
offsetting measures. In other
of their exports covered under GSP concessions. However, on a positive note the
words, for every year the GSP scheme is extended it needs
utilization of US GSP concessions by Sri Lanka has been high historically, despite
to be complemented by spending cuts or tax increases in the
low product coverage. Therefore, while providing some benefits to Sri Lankan
budget. This has resulted in political complications.
exporters, the renewal of US GSP concessions cannot be expected to make a
significant enhancement to Sri Lankas exports to the US, especially given the
GSP expiration has hurt US businesses as well. According
countrys concentrated export basket.
to the US government, US businesses have had to pay over
US$ 1 billion as tariffs for products which entered duty-free
For more information on the US GSP check the U.S. Generalized System of
prior to the expiration of the programme. Coalition for GSP
Preferences Guidebook published by the United States Trade Representative Office
claims that US businesses had to pay close to US$ 2 million
is available at http://1.usa.gov/1UT235v.
daily as additional import taxes due to the expiration of
the GSP programme in 2013. They say GSP expiration has
resulted in lost sales, delayed capital expenditure, layoffs, etc.
Although the duties collected during the period of expiration

11

Removing Barriers to Trade to Promote

Womens Participation in Spice and Coir
Value Chains in Sri Lanka
by Dharshani Premaratne
Over the years, spice and coir industries in Sri Lanka have built an
international reputation in supplying of premium high quality products
to the world market. While cinnamon, cloves and pepper are top spice
exports, coir fibre pith, coir-based brooms and brushes, and molded coir
products are the countrys main coir-based exports. However, both lack
the supply capacity to meet the world market demand. Insufficient raw
material and labour shortages are some of the reasons. At the same time
a number of other barriers hinder the flow of exports. While some of the
barriers are domestic, others are imposed by the importing countries.
Spices and coir are also amongst the few industries in the country
with a high female participation rate. In these industries, women are
predominantly involved in labour-intensive activities and they are
highly concentrated in the upstream ends of the chains. In the case of
cinnamon, for example, women are engaged in harvesting to bundling
of cinnamon quills, as shown in the Figure. Given that the female
labour force participation is as low as 30% in Sri Lanka, it is important
to develop these industries and thereby increase the participation of
women. A recent research carried out by IPS attempted to identify
difficulties faced by spice and coir exporters in accessing potential
regional markets in South Asia. Reducing or removing barriers to exports
could not only help increase spice and coir exports but also further
womens participation in these industries.

Lack of testing capacity

At times spice and coir exporters have reported that they face undue
delays in obtaining certificates because of inadequate testing capacity
of local standards institutes. Exporters claim that it can take up to 2-3
weeks to obtain certain certificates. At the same time, some of the
local labs are not equipped to carry out tests and issue international
certificates required by buyers abroad for specific products (i.e.
geotextiles, cinnamon oil). As a result, exporters have to obtain such
testing reports/certification from countries like USA and Germany.
Testing capacity of laboratories in the country needs to be upgraded.
Also, they need to improve the efficiency in the delivery of their services.
Further, testing capacities, which are currently unavailable in the country,
need to be established to cater to the growing demand of markets
abroad. Strengthening the domestic testing infrastructure will result in
reducing the costs borne by exporters; for instance, demurrage and other
costs entailed in clearing products at the port as a result of delays in
submission of test certificates can be reduced.

Difficulty of SMEs to qualify for tax-free raw

material imports
Unlike large players in the industry, small-medium scale exporters find
it difficult to meet the requirements to qualify for tax-free imports for
export manufacturing. The minimum investment threshold to qualify for

12

tax incentives for small and medium scale enterprises ranges from Rs.
25 to 50 million and above. More flexible criteria for SMEs to qualify for
tax-free imports of raw material can provide an incentive to encourage
investments into export-oriented industries.
In addition, SMEs often find it difficult to compete in the international
markets due to the high cost of production and lack of effective
marketing. For these reasons, relevant public and private institutions can
provide the necessary assistance in terms of tax incentives and support
services to improve their competitiveness as well as their visibility of
SMEs involved in exports.

Inefficiencies at government agencies

Inefficiencies in certain government authorities can cause long delays
in the export process and as a result exporters can incur significant
costs, as elaborated by one of Sri Lankas largest exporter of coir-based
products: I can remember CDA (Coconut Development Authority) took 20
days to issue a certificate that could have been issued within 10 days.
And the container had already arrived in Australia and the customer could
not clear the container because of the certification.
Much of the inefficiencies within institutions are reportedly caused
by attitudes of officers-in-charge. In this respect, the attitudes of
government officials, who are responsible in providing services to traders,
need to improve and become business-friendly.

Ad hoc changes to domestic regulations

Ad hoc regulatory changes have also caused operational difficulties. For
example, owners of some coir yarn mills, which have been in operation
for over 100 years, are now faced with new environment laws due to
their locations becoming residential areas. They find it unfair by them
as they have been there before the houses were built, and hold the
municipality and housing development authority responsible for allowing
houses to be built in the vicinity of the business. Exporters feel that
regulations need to be flexible and provide them with a grace period to
adhere to the changes, especially for industries or companies with good
business records.

Lack of investment in value addition

Moving up the coir and spice value chains and adding value to the
product is important not only in terms of competing internationally
but also to command a better price. Currently, bulk of spice exports is
sent abroad in raw form with little or no value addition in the country.
Exporters find it difficult to upgrade their products and processes mainly
due to the lack of capital. Respective exporters and trade associations
stated that government assistance is required in this regard.

Mutual Recognition Agreements (MRAs)

Some export markets require testing and health certification to be carried
out in their countries rather than in Sri Lanka. For instance, countries
like India only accept the fumigation certificates issued by their own
authorities. This results in additional costs and delays which can be
minimized if the two countries or the region can harmonize standards
and recognize each others tests and certification. Such standards-related
issues can only be rectified through a carefully negotiated MRA that is fair
by both trading partners.

Export subsidies
Prevailing export subsidies in
partner countries have hurt the
competitiveness of Sri Lankan
exports. For instance, under
the Export Market Assistance
Scheme (EMAS) Indian
government offers a variety
of subsidies to its exporters,
enabling them to reduce their
prices and better compete in the
world market. Such practices
have negatively affected market
share of other export countries
including Sri Lanka.

Political instability in
trading countries

anywhere else for trade promotions. You cannot really focus and have
a business strategy for that market due to this situation. In addition,
red tape involved in clearing goods at the destinations is another barrier
hindering Sri Lankan exports.

Required policy interventions

Given the importance of participation of women in the economy, the role
of government is critical in developing and promoting industries where
female entrepreneurship is concerned. Successive governments in Sri
Lanka have undertaken a number of initiatives to uplift Micro, Small
and Medium Enterprises (MSMEs) and exports. However, much more
needs to be done to remove barriers to exports by way of: enhancing

Sri Lankan Cinnamon

Value Chain

Production,
formation,
bundling of
quills

Collection &
transport

Exporters face difficulties

in accessing markets due
to political instabilities and
security concerns in certain South Asian countries. For instance, multiple
checks are carried out on consignments in Pakistan making trade difficult,
as explained by a coir exporter: Our trade manager went to Pakistan
for a trade show. They were escorted from airport to hotel, from hotel to
the exhibition venue and similarly on the way back. They could not visit

Processing &
packaging

Local
distribution &
sale / export

domestic testing capacity in the country; providing assistance in terms of

tax incentives, marketing etc. to improve competitiveness; changing the
mindset and culture at key related agencies, etc. to promote womenowned and led MSMEs in spice and coir chains in Sri Lanka.

13

workers were eligible for pensions under various

employment based pension schemes. Of those,
only 2.3 million workers were enrolled in a pension
scheme. Even then all enrolled were not effectively
covered. Only PSPS covers the total eligible
population. The estimated coverage for other
pension schemes fluctuates between 18 per cent
for the SPPS to 64 per cent for the FMPS. However,
the effective coverage is estimated to be much
less (11 per cent for the SPPS and 38 per cent
for the FMPS) due to non-payment of dues in the
contributory programs. Only estimated 1.7 million
were effectively covered by a pension scheme (see
Figure 1).

Eliminating
Pension
Anomalies
Reaching Beyond
Public Servants
by Nisha Arunatilake

This article was written to mark

the National Pensions Day - 8th
October 2015
The Sri Lankan governments efforts to alleviate discrepancies in
the pensions received by public servants, in July this year, are highly
commendable. However, pension anomalies in the country are present
not only amongst different types of public servants. As highlighted below,
the access to pensions is highly uneven in the country. Sri Lankas
population is ageing at a rapid pace. The 60 and above population is
estimated to increase from its 2001 level of 9.5 per cent to 19.7 per cent
by 2030. As such, an adequate pension is essential to ensure income
security for elderly, without being dependent. This article argues for the
need to eliminate pension anomalies for all elderly in the country.
A good pension system has three main conditions. One, it should provide
at least one affordable pension scheme per individual. The scheme may
have different pension options for different people, but each person
should have access to at least one affordable pension scheme. Two, it
should be sustainable. That is the chosen pension should be available
uninterrupted till the death of the beneficiary. Three, the pension amount
received should be adequate. The adequacy of a pension amount will
depend on the lifestyle of a person. But, in the very least the pension
amount should keep a person out of poverty. In summary, all elderly
should have access to at least one reliable, affordable and adequate
pension.

14

Sri Lanka has several old age income support schemes. These include,
the Public Service Pension Scheme (PSPS), which is available for public
servants. The Employee Provident Fund (EPF), which is used mainly by
those in the private sector. There are also several contributory pension
schemes for the informal sector workers. These include the Farmers
Pension and Social Security Benefit Scheme (FMPS); Fishermens Pension
and Social Security Benefit Scheme (FSHPS); and the Self-employed
Persons Pension Scheme (SPPS). Other than for these there is a Public
Assistance Monthly Allowance (PAMA), which provides an allowance to
households whose monthly income falls below a minimum amount. In
addition to the above the Ministry of Social Services gives a monthly
cash transfer of Rs. 2,000 to eligible elders aged 70 and above under
the Elderly Assistance Programme (EAP), since the end of 2014. Some
elders benefit from both the PAMA allowance and the Elderly Assistance
programme. In addition poor and disadvantaged 60 and above elders also
receive a cash transfer under the Samurdhi Programme.

Is everybody covered by the different old age income

support schemes?
In 2012, 13.2 million of the population were 15 to 59 years old. Of
these, 7.6 million were economically active. However, only 5 million

Are the pension amounts adequate to

keep elderly out of poverty?
The pension benefit amounts are inadequate for
all pension schemes except for the PSPS. Only the
PSPS provides benefits greater than the poverty
line. The average monthly pension for beneficiaries
of PSPS raged from 307 per cent of the poverty
line to 441 per cent of the poverty line. The benefit
amounts for beneficiaries of FMPS, PSHPS and Selfemployed were 40 per cent, 34 per cent and 26 per
cent of the poverty line. Further, all informal sector
pension programmes define benefits in nominal
terms. The real value of these benefit amounts will
be much less when the pensions are received. For
example, the pension scheme for Self-Employed
promises a Rs. 1000 pension benefit at retirement.
The real value of this benefit for a person aged 40
today will be Rs. 471, assuming 5 per cent inflation.

Of the 60 and above population who is

receiving a pension?
At present only 30 per cent of the 60 plus
population in the country is receiving any pension.
These include those receiving the public servants
pension, as well as well as widowers, widows
and orphans receiving benefiting from the public
servants pension. A further 18 per cent receive
an old age allowance through the PAMA. Only the
20 per cent of the 60 plus persons who receive
the Public servants pension receive an adequate
pension to keep them out of poverty. The benefit
amounts received by others are not adequate
enough to keep them out of poverty, if they are
solely dependent on the pension.
The above analysis shows that only 20 per cent
of the population has access to an adequate
pension in the population. This July the government
undertook to reform pensions to alleviate long
overdue pension anomalies in the public sector. It is
now time to think of alleviating pension anomalies
in the greater population.

Figure 1: Old Age Pensions Coverage for 15-59 Population in Sri Lanka (2012)

Not in the LF 42%

Not eligible for a

pension scheme 19%

Eligible but not enrolled 21%

Enrolled , but not effectiveley
5%

Source: IPS calculations based on Labour Force Survey data, Department of Pensions, Sri Lanka, Agriculture and Agrarian
Insurance Board, Sri Lanka Social Security Board.
Note: When data for 2012 was not available, the data for the closest available year was used.

Figure 2: Pension Coverage of 60 and Above Population in Sri Lanka (2012)

Public
servants'
pension
20%

Informal
pensions 5%

Source: IPS calculations based on data from the Department of Pensions, Sri Lanka, Agriculture and Agrarian Insurance
Board, Sri Lanka Social Security Board, (Tilakaratna, Galappattige, & Jayaweera, 2013), and (Institute of Policy Studies of
Sri Lanka, 2014).
Note: Public servants pension includes pensions received by widows, widowers and orphans. Those receiving EPF is
included under No pension category as it is not a pension. PAMA numbers include some non-elderly, and EPA and PAMA
numbers may overlap. In addition to these some elderly who are Samurdhi beneficiaries also receive cash transfers.

IPS together with United Nations ESCAP conducted a National Consultation on Pensions in
Sri Lanka with the aim of promoting a dialogue among key stakeholders on the need for
ensuring an uninterrupted and adequate pension for all old aged persons in the country. At the
event, Nisha Arunatilake presented findings of a study on Adequacy and Coverage of Old Age
Income Security in Sri Lanka carried out by IPS and funded by UNESCAP. IPS Researchers
Neluka Gunesekra, and Sunimalee Madurawala were rapporteurs at the event. Stakeholders
representing Government Institutes, Trade Unions, Private Institutes, Banks, Insurance
Companies, NGOs, and Research Institutes and Media were among the participants.

15

experience. It is perhaps better articulated as a misunderstanding of the demands of the

world of work. Hence once qualified they raise the bar of their aspirational goals, soon to be
disappointed and disillusioned. As seen in the left most panel in Table 1, unemployment is
highest among the more educated. Hence, the mere availability of more jobs will have limited
impact on solving youth unemployment issue in Sri Lanka.

Low Female Labour Force Participation

Along with youth unemployment, low female Labour Force Participation Rate (LFPR) is another
specific issue in the countrys labour market. LFPR is the percentage of people who are
working/ looking for work (defined economically active), to the total working age population.

Sri Lankas Election Pledges:

Do We Really Need that
Many New Jobs?

16

Current Status

The countrys unemployment rate was 4.3%

in 2014, while during the first quarter of 2015
it reached 4.7%. This level of unemployment,
however, does not indicate that Sri Lankas
labour market is in a terrible state. In fact, it is
worth reminding that full employment is not 0%
unemployment, and that full employment is an
acceptable figure above 0% that is consistent
with stable inflation. Figure 1 below depicts Sri
Lankas unemployment rate in 2014 compared
to several selected countries. For instance, in the
UK and USA unemployment rates in 2014 were
6.2 %, while in Japan it was 3.6%. In China and
India it was 4.1% and 3.6% respectively.
Sri Lanka does not have a dire need for the
creation of that many new jobs. On the contrary
there is a growing shortage of skilled and
unskilled labour in many sectors i.e. apparel,
plantations and construction. Hence, this
existing level of unemployment in Sri Lanka
is more nuanced than the inadequacy of jobs.
Hidden within the 4.7% unemployment rate
are the specific issues such as huge disparities
in unemployment rates across age groups,
the noticeable gender gap in Labour Force
Participation Rate (LFPR), and underemployment.

Figure 1: Unemployment Rate in 2014 for Selected Countries

Amidst somewhat complacent 4.7% overall

unemployment, those in the age group of 15-24
years have a high unemployment rate of 21.7%
- nearly five times the national average (see
Table1). Similarly, those aged 25-29 years have
an unemployment rate of 8.7% nearly twice
the national average. The high-level of youth
unemployment in Sri Lanka is mainly due to new
entrants to the labour market. New entrants
(also called first time job seekers) often endure
a longer stint of unemployment looking for the
ideal job that meets their aspirations. As noted
by the International Labour Organisation (ILO),
jobs available in Sri Lanka are either unattractive
to young persons due to; the precarious nature
of employment, perceptions of youth about the
occupation, stigma attached to the particular
occupation, or the sector, or because labour
market opportunities simply do not meet their
aspirations.

As such, despite sounding

attractive in the run up to
an election, these pledges
Table 1: Unemployment Rate by Age Group, Level of Education and Gender - First Quarter 2015
to create millions of new
employment opportunities
will have a limited impact on
addressing specific issues
of youth unemployment and
low LFPR. Moreover, such job
creation has the potential to
contribute to the growing issue
of underemployment - working
fewer hours than one desires
to work or being employed in
a job that does not fully utilize
the skills/training. Unfortunately,
Sri Lanka only measures the
first form of underemployment
in terms of hours employed,
and latest available estimates
(2013) indicates that such
underemployment was 3.5%.
Nonetheless, though not
estimated, the other form of
underemployment is rampant
in the public sector, i.e., the
recent graduates employment
scheme to the position of
District Service Officers and
most previous graduate employment schemes fail to utilize these graduates full potential.

A media article points out that youth

unemployment is more marked amongst
educated young persons who have often
secured a qualification without relevant work

In conclusion, Sri Lanka does not need that many new jobs. Instead, the focus should be
on generating adequate good jobs with greater added value, better wages and working
conditions, that are targeted to address youth unemployment and low female labour force
participation.

by Bilesha Weeraratne

At the 2015 general elections,

all contesting parties pledged
new job opportunities; the
United National Partys (UNP)
election manifesto pledged 1
million new jobs in 5 years,
the United Peoples Freedom
Alliance (UPFA ) topped it off
with 1.5 million jobs by 2020,
while the Janatha Vimukthi
Peramuna (JVP) promised
60,000 jobs per year through
Board of Investment (BOI)
projects. But does Sri Lanka
need that many jobs?

Despite female LFPR being

a driver of growth and
development, in Sri Lanka there
is a large gender gap in LFPR.
In the first quarter of 2015, the
female LFPR rate was 36.4%,
which is half the male rate of
73.9%. This low level of LFPR
among women is an indication
of the relatively low availability
of employment opportunities in
Sri Lanka that are suitable for
women.

Youth Unemployment
and New Entrants

17

provide a clearer picture of an economys size and structure

and allow a better planning of longer term growth and
development options.

The DCS statistical exercise has produced revised nominal

and real GDP estimates for Sri Lanka for the period 201014. At the aggregate level, the re-basing exercise suggests
that share of agriculture in GDP is smaller and that of
industry is larger than previously estimated, and that the
Sri Lankan economy continues to
Figure 2: Quarterly GDP Growth
be a services sector dominated
one. This is not surprising in
view of expanded activities
involving sectors such as telecom,
information technology, etc., that
is better captured with fresh
sources of data.

Insights

into Sri Lankas

Re-based GDP Estimates
by Dushni Weerakoon

Figure 1: Old and New GDP Estimates

Notes: GDPmp - GDP at market prices; GDPgr - GDP growth rate

Source: Department of Census and Statistics.

Sri Lankas re-based GDP estimates suggest that the economy has
grown by 5.5 per cent in the first half of 2015. The figures rely on the
re-basing of the countrys national accounts compilation undertaken
by the Department of Census and Statistics (DCS). The most current
approximations were based on 2002 production and consumption
patterns. Over time, this one-year snapshot of the economy becomes
less accurate and can lead to overestimation
of traditionally dominant sectors such as
agriculture and underestimation of newer
sectors, especially those in the industry and
services sectors.
The IMF statistical division recommends a
change of base year every fifth year. Sri Lanka
has not done so since 2002 suggesting that
the previous GDP framework underestimated
economic activity. The re-basing uses 2010
as the new base year, and includes expanded
coverage of economic activities through
information collected by various censuses.
This, together with other changes such as a
shift towards the 2008 System of National
Accounts, re-classification of economic
activities as per the International Standard
of Industry Classification (ISIC), etc., will also
mean changes in the sectoral composition
of GDP. In total, the old and new national
accounts will not be comparable.
While data challenges remain in any attempt to compile national
accounts, additional complexities exist to accurately estimate the
size of Sri Lankas significant informal economy. Notwithstanding
such weaknesses, a regular re-basing exercise is extremely useful to

18

GDP base (Table 1). GDP growth sees a sharp fall during
2013-14, shrinking to a rate of 4 per cent per annum. Thus,
Sri Lankas real GDP growth after re-basing measured
by reference to the prices and structure of the economy in
2010 appears to have grown at varying rates, recording
high growth initially and tapering off sharply in subsequent
years. The sharp volatility in growth of the re-based GDP
series is even more evident from quarterly estimates (Figure
2).

The re-basing also shows that the

absolute size of the Sri Lankan
economy in 2010 was larger
by over 14 per cent at nominal
prices than previously estimated,
but that this difference has
shrunk gradually to 5.6 per cent
by 2014 (Figure 1). If differences
are significant, GDP re-basing can
lead to changes in key indicators,
albeit as cosmetic alterations; for
example, Sri Lankas per capita
Source: Department of Census and Statistics.
GDP has risen to US$ 3,795
in 2014 from the previously
The DCS has devised a GDP implicit price deflator with
estimated US$ 3,625 as a result of the re-basing. At the
a revised base year of 2010 with weights assigned to
same time, the increase has not been sufficiently large
capture price changes and derive constant value added.
to significantly impact the countrys fiscal deficit-to-GDP
The new GDP deflator shows significant volatility against
or public debt-to-GDP ratios, and as such, holds limited
not only the old GDP deflator, but also against the Colombo
broader economic consequences.
Consumers Price Index (CCPI) - (Table 1). The data and
Rebasing, however, matters if GDP growth
rates are an important consideration for
governments. Slower real growth after a
re-basing exercise is a fairly common and
accepted occurrence, as witnessed in many
of the African countries that have done similar
exercises. This is because with economic
growth, changes in relative prices are to be
expected; in effect, re-basing of real GDP
means adopting a new set of reference prices
to value output in each year. If there has been
fairly strong economic growth and relative
Source: Department of Census and Statistics.
prices have changed, then almost certainly
the first year will have a higher measured real
methodology employed in re-basing Sri Lankas constant
GDP when national accounts are re-based. With a higher
initial level of GDP, the growth rate can turn out to be smaller price GDP estimates thus need further study and clarification
to understand underlying price movements. For now, on
in subsequent years.
the assumption that the broad trends of a higher revised
economic base is correct, the preliminary data does suggest
What is puzzling in Sri Lankas re-based real GDP growth
that Sri Lanka is most likely to experience a slower rate of
is that even as output moves to a higher base in 2010,
economic growth than seen in the recent past.
significantly high growth rates are recorded in the
immediate years thereafter (Figure 1). In 2011-12, GDP
growth appears to have averaged 8.8 per cent per annum,
well in excess of the 7.3 per cent growth under the old

19

Sri Lanka: State of the

Economy 2015 - Economic
Reforms: Political Economy and
Institutional Challenges
IPS launched its flagship publication Sri Lanka: State of the Economy (SOE) 2015 under the
theme Economic Reforms: Political Economy and Institutional Challenges at the IPS Auditorium,
in October 2015. The IPS flagship publication was launched under the purview of the Deputy
Minister of State Enterprise Development, Hon. Eran Wickramaratne as the Chief Guest, and the
Secretary to the Ministry of National Planning and Economic Affairs, M I M Rafeek as a Special
Guest. Former Central Bank Deputy Governor, W A Wijewardena provided a review of the report
while IPS Executive Director, Dr. Saman Kelegama provided an overview and IPS Deputy Director,
Dr. Dushni Weerakoon presented the key messages highlighted in the report.
The report points out the importance of initiating reforms with attempts to strengthen interactions
between institutions, policy processes and policy outcomes and examines in detail the many
interrelated reforms that touch on important policy areas. It points out that the environment in
which many of these sorts of transitions take place is strongly influenced by broader factors such
as the quality of institutions and governance in a country. This years Report focuses on policy
reforms on trade and investment, labour market, foreign employment, education, health, social
protection, agriculture, and environment sectors.

Photo Credit: Daily FT

IPS first published the State of the Economy in 1992, and the annual publication is widely
distributed among policy makers, economists, universities, development partners as well as the
private sector. Sri Lanka: State of the Economy 2015: Economic Reforms: Political Economy and
Institutional Challenges is available at the IPS premises and bookstores island wide.

Latest Publications
Health and Socio-economic
Determinants of Malnutrition in the
Plantation Sector of Sri Lanka: A
Review
By Manuj C Weerasinghe and
Samanthi Bandara
Working Paper Series No. 21
August 2015
The study explores some aspects
related to estate community health
and their nutrition status. It focuses on the research and survey
findings during the period 1990 to 2013. The report presents historical
and socio-cultural evolution of the estate sector, health services
development, nutritional status data for the estate population,
living conditions and lifestyle, dietary habits and food consumption,
household income and expenditure, and information on nutrition
programme assessments conducted in the estate sector.

Transforming Health Care Delivery in

Sri Lanka
By G D Dayaratne
Health Economic Series No. 2
October 2015

The study highlights situations, which

creates a window of opportunity to
policy makers and Ministry of Health
to revisit the existing health policy to
accommodate a selective Public Private Partnership (PPP) to clear the
gaps in health care delivery to the people. Given the opportunity, private
sector organizations too could spread out their facilities to enable
access of to a wider section of the patient population at a reasonable
and affordable cost.

For Details on IPS Publications Contact:

Amesh Thennakoon, Publication Officer, amesh@ips.lk or publications@ips.lk | 011 214 3107 or 011 214 3100

THE IPS AUDITORIUM

SUMMARY OF CHAPTERS
1. Policy Perspectives

SRI LANKA
STATE OF THE
ECONOMY 2014
5
Economic Reforms:
Political Economy and
Institutional Challenges

2. Economic Performance
3. International Environment
4. Economic Reforms in Sri Lanka: Political Economy
and Institutional Challenges
5. Reforming Sri Lankas Trade and Investment
Policies for Export Growth
6. Labour Market Reforms for Growth
7. Migration Labour Reforms: Tackling the Family
Background Report

Conveniently Located at Independence Avenue, Colombo 7

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High-tech Audio/Video Equipment
Simultaneous Translation Facilities
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8. Educational Sector Reforms to Bridge Skill Gaps

9. Health Sector Reforms
10. Reforming Sri Lankas Social Protection System
11. Policy Reforms for a Productive Agriculture Sector

INSTITUTE OF POLICY STUDIES OF SRI LANKA

20

12. Environmental Reforms for Sustainable Growth

Contact Tuan for more details: Tel. 2143305, 2143226 or 2143100 | E-mail. tuan@ips.lk | Web. www.ips.lk
21

The Journey of IPS

house research capacity and all this together constitutes our

core research programme. The flagship publication, IPS State of
the Economy Report is prepared using the material of our core
research activities. In 2005 we created the post of a Research
Director and named that position as Deputy Director. Dr. Dushni
Weerakoon who occupies this position is in charge of the core
research programme of the Institute.

As IPS marks 25 years, Dr. Saman Kelegama, who has

been the IPS Executive Director for 20 years speaks of the
Institutes journey, challenges and future plans.

Our research outreach was initially supported by donor/private

sector funding but now the IPS is able to mobilize its own funds
for research finding outreach. We use social media to bring out the
key findings of some of our research. Our blog is very active, so is
the Facebook and the website.

The other major challenge is to maintain the competitive edge

in the market where new think tanks are emerging. We need to
preserve our track record and build on it and that is a challenge.
Moreover, using that track record we need to mobilize more funds
for our Endowment Fund which is an equally large challenge.

We have a well-established Finance and Administration Unit that

has developed career prospects, loans and health insurance,
retirement packages, etc., for the staff. Recreation and social
events have also increased over the years. The IPS has a culture
where staff are involved in developing most of its programmes and
this has contributed to its overall success.

4
1

Has IPS achieved what was envisaged 25 years ago?

How has the IPS Activities including its Research Agenda evolved over the
years?

What was envisaged 25 years ago was an autonomous institution with its own funding and with its own premises
with a strong permanent staff and become a regional centre of excellence. We have achieved all these targets and
in fact gone beyond them. We are now aiming at establishing regional centres in Sri Lanka, mobilizing more funds
for our Endowment Fund; and attempting to become a global centre for excellence.

Research agenda evolved on the basis of the demand in the market. Needless to say, the priority areas of the
government are crucial in this context. Initially, we created 8 Research Units and then identified 6 thematic areas
based on the key themes and cross-cutting issues. Other research activities evolved on the basis of our in-

22

The top five achievements are : (1) obtaining 0.5 acres of land
in the prime area of Colombo on a freehold basis from the
government of Sri Lanka to establish the IPS Head Office; (2)
mobilization of funds from donors to construct the IPS Head
Office and fully furnish and equip it with modern equipment; (3)
Mobilizing donor funds and activating the IPS Endowment Fund
as a Trust to ensure a stable source of income to the Institute;
(4) Building Research Units within the Research Programme and
having 8 PhD qualified researchers on a full time basis in the
Institute; and (5) Winning the IDRC Think Tank Initiative grant twice
and being recognized as a regional centre of excellence.

Can you tell us how and why the IPS was established?
IPS was established to advise the government on policy options available to reach a desired economic target
and give it some direction on economic policy. When the market economy came into operation in 1977, national
planning was given less importance and the public Investment programme was made a rolling programme. While
moving forward under this set-up, the Ministry of Finance realized that there is a need for some sectoral direction
and study on alternative policy options available to push some of the economic reforms. The Ministry did not have
the capacity to undertake such research and the research oriented people in the Ministry were busy with their
day-to-day work. Thus a think tank to the Ministry of Finance was mooted in the mid-1980s and the IPS was
established as a special project under the National Planning Department of the Ministry. Financial support for it
was provided under the Netherlands-Sri Lanka Technical Cooperation and technical support by the ISS (Institute
of Social Studies), in the Hague, Netherlands. The IPS project functioned under the Ministry from 1985 to 1988.
Once the IPS Act of Parliament was passed in late 1988, it was decided that IPS should operate from a premises
outside the Ministry and function as an autonomous economic policy think tank. Two individuals played a key role
in establishing the Institute: former Finance Minister, Ronnie De Mel; and the former Director General of the National
Planning Department, Dr. Lloyd Fernando. The key coordinators from the Dutch side were Dr. Howard Nicholas and
Dr. David Dunham both Faculty members of the ISS, The Hague.

What would you say the top 5 achievements

of the Institute in the 25 years?

Where do you see potential for further

growth for the Institute?
IPS needs to find new sources of income to generate growth.
In this context, we are looking at three areas: (1) building a
Consultancy Unit where we could accommodate short-term
consultancies for the private sector; (2) Training Unit where we
have already engaged in an ad hoc basis but to make it a fully
functioning arm of the IPS; and (3) Renting out the IPS Auditorium
more frequently than at present.
The TTI grant from 2010 to present has given us space to develop
our research capacity by strengthening both the top and middle
level research carder. The IPS research teams are now better able
to prepare fundable research proposals and bring in more income
to the Institute.
The government of Sri Lanka has made arrangements to fund
the newly created the Indian Ocean Centre for Ocean Studies and
Environment in the IPS. I see this Centre also as a possible income
generating source given the global interest on the Blue Economy
and Ocean Environment.

What are the biggest challenges IPS has

faced over the years?
The biggest challenge is insulating the IPS from political capture
and ensuring that its autonomous status is not compromised.
Being a semi-government institution, the IPS gets gazetted under
various Ministries from time to time. The Minister in charge can be
tempted to interfere with the IPS work if he/she so desires and that
has happened from time to time. Both my predecessor and myself
have been able to resist them up to this date.
IPS was brought under the Auditor General in 1999 and was
brought under the COPE thereafter. For an autonomous institution
that was functioning under its own code of conduct as stipulated
by its Manual of Operation, this was a major challenge because
both the Auditor General and the COPE judged all institutions
under the framework of the Establishment Code of the Government
that defines the Administration and Financial Regulations.
Consequently, IPS had to convince its operational format to the
Ministry of Finance and obtain permission for the recognition of the
Manual of Operation as the rules and regulations of the Institute.
Despite this, we find the Auditor General still posing questions
on whether government approvals were obtained and whether
government guidelines were followed, etc., which has become a
challenge to the Institute.

How can IPS play a greater role in Sri

Lankas policy making process?
Greater role in policy making can be acquired by being part of
the policy making process. Over the years, IPS researchers have
been invited to serve in various government bodies that play a role
in policy making. For example, National Economic Council (2006
to 2014), Regaining Sri Lanka (2002-2004); BOI, Industrialization
Commission, SME Committees, Social Protection and MDG
Committees, Plantation Restructuring Committees, etc. Secondly,
IPS has played a key role in preparing important reports like the
Human Development Report, MDG reports, for the government.
These reports have had an impact on policy. For example, the SME
White Paper that the IPS coordinated resulted in the establishment
of the National Enterprise Development Authority. Third, reports
prepared under the IPS core research programme has also been
influencing policy. Two example would suffice: (1) the publication
on the Economic Cost of the War was used by many donors
for preparing their support programmes for the government and
preparing the Poverty Reduction Strategy Paper of 2002; and (2)
pension reforms and care for the ageing population began after the
pioneering work of the IPS work in the mid-1990s. There are many
such cases that can be documented.

23

2015 IPS marks

25 years in
operation
2010 IPS shifts to the new Head Office
at Colombo 7
Winner of the Think Tank Initiative (TTI)
grant: Phase I (four year core funding
under IDRC)

2006 Becomes self -financing with the

end of Dutch Funding in June 2006
IPS signs an agreement with The
Netherlands Minister for Development
Cooperation for the Dutch contribution for
the construction of a New IPS Office
Building

2011 Opening of the

fully-fledged state of
the art IPS Auditorium

2013 Host of the 6th

South Asia Economic
Summit

2007 Chairman and Executive

Director invited to serve in the
National Economic Council
under H.E. the President

2000 Launch of the South

Asia Economic Journal, an
international journal jointly
with RIS India

1999 Donation of land by

the Government of Sri
Lanka for construction of
the IPS Head Office

2009 Launch of IPS Blog

Talking Economics Appointed as
the academic focal point for the
Asian Cooperation Dialogue

2008 Initiating the

first South Asia
Economic Summit

2004 IPS appointed to

the Chair for the Indian
Ocean Rim Academic
Group

2001 Implementation of a
core Research Programme
under Research Units
IPS public website launched.

1997 Appointed as the

focal point of the
IOR-ARC academic group
in Sri Lanka

1994 Appointment of new

Executive Director, Dr. Saman
Kelegama, in December and
relocation of office premises to
St. Michaels Road, Colombo 3

OUR RESEARCH

2014 Winner of the

TTI grant: Phase II

1998 Appointed as the

focal point of the SAARC
Research Network

Policy Efficiency and

Competitiveness

Migration and
Development

Human Resources for

Sustained Development

Private Sector
Development

Poverty and
Vulnerability

Environment, Natural Resources

and Agriculture

1995 First contribution to

the Endowment Fund of C$
1 million from the
Government of Canada
1993 Initiation of
the IPS Endowment
Fund

1990 IPS comes into formal

operation under the Ministry
of Finance and Planning by
Gazette Notification

The substantive focus of IPS's research programme is to provide an integrated analysis of medium
to long term development challenges facing Sri Lanka, in order to meet the fundamental policy
objectives of sustainable growth, equity and poverty alleviation.
1992 Initiation of the IPS
State of the Economy
Report

IPS Research is organized around 8 research areas, focusing on 6 thematic issues.

Macroeconomic Policy
International Economic Policy
Labour, Employment, and Human Resources
Development Policy
Industry, Competitiveness and Regulatory Policy
Poverty and Social Welfare Policy
Agricultural Economic Policy
Environmental Economic Policy

IPS was established under Act of Parliament No. 53 of 1988, and has come a long

THEMATIC AREAS
Policy Efficiency & Competitiveness
Migration & Development
Human Resources for Sustained Development
Private Sector Development
Poverty & Vulnerability
Environment, Natural Resources & Agriculture

Health Economic Policy

way since then. In 2015, IPS marked 25 years since operation. Here are some key
milestones the Institute has achieved over the years.
24

25

Sri Lanka takes approximately three times

longer (1318 days) than countries such as
Vietnam, Cambodia, and Laos, to enforce
a contract. Similar trends can be identified
throughout the Report where rankings fail to
illustrate the countrys poor performance in light
of rapid improvements elsewhere. Therefore,
in order to mitigate the potential of being left
behind in domestic and foreign investments
by competitors, it is imperative that institutional
reforms are immediately initiated in the country.

Figure 1: Cost of Registering Property (% of property value)

Getting Credit

Doing Business in Sri Lanka:

Investment Climate and
Challenges Ahead by Kithmina Hewage

The negative effects of bureaucratic bottlenecks

are exacerbated by constraints in gaining
access to finance. The lack of options for
SMEs to finance business ventures deters
entrepreneurship and also hampers SMEs from
expanding. Beyond the rankings drop (caused
mainly due to methodological changes in
measurement), a comparison of the indicators
demonstrates the institutional weaknesses
that pervade access to credit as well. Weak
legal rights mainly influence the countrys poor
performance in this sector. The strength of

Sri Lankas investment climate is deemed to be favourable with the

ease of investment improving from 57.5 per cent in 2015 to 58.96
per cent for 2016. This is indicated in the World Banks recently
released annual Doing Business Report, which gives significant
coverage to the countrys relatively stronger position compared to
its South Asian counterparts. With only Bhutan and Nepal ranked
Table 1: Ease of Doing Business Rankings - Sri Lanka and Vietnam
better than Sri Lanka, several news sources have heralded the
performance of the country relative to the South Asian region.
However, while comparisons to the region are important, the
growth of mega-regional trade agreements such as the TransPacific Partnership (TPP) requires consideration of countries
beyond the immediate regional focus. Due to the availability of
tax-free export opportunities to large markets such as the US
in garments and other related sectors, investment is likely to
divert away from Sri Lanka towards TPP members (e.g. Vietnam).
Therefore, this article briefly analyses disaggregated data of
selected indicators for Sri Lanka to obtain a view beyond South
Asia.

Bureaucratic Bottlenecks
Notably, Sri Lanka has made most progress in areas related to
physical infrastructure (Dealing with construction permits and
Getting Electricity). This could possibly be attributed to knockon effects from the emphasis on infrastructure investments over
the past decade. As important policy reforms, the World Bank
also specifically notes streamlining the internal review process
for building permit applications and eliminating a requirement to
notify the Registrar of Companies about the stamp duty payment
for the initial issuance of shares. However, Sri Lanka appears
to perform worst in areas that require institutional coordination.
These inefficiencies in turn appear to create bottlenecks in the
creation of new businesses while restricting their growth. For
example, Sri Lanka is ranked at 153 in registering property. Even
though the country is ranked better than most other South Asian
countries, indicators demonstrate stagnation while other regional
partners show steady improvements. For example, Sri Lankas cost
of registering property (as a percentage of property value) remains
stagnant while Bangladesh, Laos, and Vietnam have significantly
reduced their costs (Figure 1).

26

Source: World Bank - IFC Doing Business Index, October 2015

collateral and bankruptcy laws to protect the

rights of borrowers and lenders is considerably
lower than other developing countries. As
shown below (Table 2), Sri Lanka has secured
a meagre three out of twelve important policy
prescriptions based on the strength of legal
rights that facilitates lending. In contrast, Vietnam
and Cambodia have scores of seven and eleven,
respectively. The Report suggests that ideally,

Source: World Bank - IFC Doing Business Index, October 2015

a country should implement at least six of

the prescribed policies to enable business
creation and growth. Similar to previously
noted indices, Sri Lankas performance
remains stagnant while other developing
countries have gradually improved their
regulatory mechanisms.

Trading Across Borders

The Report measures three sets of procedures
associated with time and costs (excluding
tariffs) within the process of exporting and
importing a shipment of goods documentary
compliance, border compliance, and domestic
transport. As a relatively small economy, it
is vital that local businesses have access to
international markets. The recently introduced
Economic Reforms for Sri Lanka highlights
the need to integrate the countrys businesses
into global value chains. However, the Report
sheds light to some of the key institutional
and structural factors thwarting successful
participation in global value chains.

chains such as Singapore require 35 hours

for border compliance and just one hour for
documentary compliance when importing.
To make the best use of value chains and
become a preferred source of value addition,
the process of importing, adding value,
and exporting should be carried out in a
prompt manner. It should be noted that the
Report highlights only one among a plethora
of factors that facilitates the successful
integration of developing economies into
global value chains. Yet, it acts as an important
indicator of the challenges the economy faces.
Interestingly, amidst heavy investments in
developing the road networks of the country,
the domestic transport speed and cost per
distance (USD/km) remain high. Whereas
Sri Lankas cost per distance is 22 USD/
km, Vietnams (3.4) and even Bangladeshs
(0.9) cost per distance remains significantly
lower. The high cost per distance in the
country compared to its regional partners
has several implications to the nations
development agenda. Investments will
concentrate around Colombo due to high
transportation costs. Consequently, the

growth agenda is in the national interest, the

government should be cognisant of improving
connectivity across the nation and improve
efficiencies related to transportation. This
means that infrastructure and other related
investments should be based on economic
interests, rather than political interests,
to create benefits to those beyond a few
selected regions in the country. In doing so,
the private sector could also contribute better
towards inclusive growth by engaging SMEs
via mechanisms such as subcontracting, and
promoting clustered production together with
buy-back schemes.

Entrepreneurship Vital Piece

of a Jigsaw
Approximately 80 per cent of businesses in Sri
Lanka are SMEs and contributes over 50 per
cent of the nations Gross Domestic Product
(GDP). Therefore, the Report is particularly
relevant to the countrys growth prospects.
While it is vital to establish an enabling
environment, Sri Lankas performance in
the Doing Business Report is a reflection
of significant structural limitations and the
consequent dearth of entrepreneurship.
Sri Lanka has remained stagnant in many
aspects, whilst its competitors have made
significant gains towards improving the
efficiency of doing business. Policy makers
should be mindful that regulatory frameworks
to influence the ease of doing business
addresses only a limited scope of factors that
relate to the growth of foreign and domestic
investment. Thus, economic reforms are
urgently necessary to improve the efficiency
of institutional cooperation and policymaking
along with other policies to spur economic
growth.

Successful participation in global value

chains depends heavily on expediting
the trading processes (e.g.,
customs clearance times), and Table 2: Getting Credit Rating for 2016
addressing non-tariff barriers,
which act as a hindrance to
movement of goods. The Report
notes reasonable gains over
the years to reduce clearance
times and document compliance
costs. However, continuous
advances are necessary to fully
accommodate SMEs around
the country to participate
in international trade. For
instance, the Report notes that
Source: World Bank - IFC Doing Business Index, October 2015
72 hours and 58 hours are
needed for border compliance
economy is likely to experience significant
and documentary compliance in imports,
disparities in investment and economic growth
respectively. In contrast, countries which
across regions. Given that an inclusive
have successfully integrated into global value

27

Kalpitiya tourism area. However, there are

significant threats for mangroves due to
ongoing tourism developments, he points
out. Assurance of environmental and social
sustainability should be an integral part
of tourism developments, from the initial
stages, for a healthy growth of the industry.

of Tourists,

Sri Lanka possesses a strong positive

outlook if the tourism developments are
undertaken in a careful manner. There is
much to be done in harnessing Sri Lankas
full range of opportunities in tourism, and
the country should not miss or postpone
making use of these opportunities.

Photo Credit: Mount Lavania Hotel

of Opportunities

by Kanchana Wickramasinghe

This years World Tourism Day highlights

the global potential of tourism for
socioeconomic development. With more
than one billion international tourists
now traveling the world each year,
tourism has become a powerful and
transformative force that is making a
genuine difference in the lives of millions
of people says UN Secretary General
Ban Ki-moon.
With the tourism sector booming, tourist
arrivals to Sri Lanka are expected to
increase by another 1.6 folds by 2016
to reach 2.5 million arrivals. While the
South Asian region recorded a 7 per cent
growth in 2014, Sri Lanka recorded a
growth of 20 per cent in tourist arrivals.
The growth rates for India and Maldives,
two important destinations in the region,
were 11 and 7 per cent respectively,
according to the UNWTO 2015 Tourism
Highlights. The tourist arrival growth
rates in Sri Lanka are prospective among
the regional competitors and indicates
that millions of tourist arrivals can create
millions of economic opportunities for
the country.

Opportunities
Tourism can bring in a number of economic
opportunities, which can primarily or secondarily
contribute towards the development of a country.
The real impacts of tourism on national output
are hard to measure, given the complexity.
Direct economic opportunities come in the
form of tourist spending. An array of indirect
opportunities is generated through purchase
of goods and services from other sectors of
the economy. In addition, wage income in
the industry generates induced impacts on
the overall economy. In order to increase the
economic contribution of tourism, it is important
to pay attention on indirect and induced impacts
in addition to direct economic benefits.
In Sri Lanka, the revenue generated through
tourism has been increasing noticeably following
the revival of the tourism industry after the end of
the war in 2009. However, the countrys earnings
from tourism are comparatively low when
compared to regional competitors.
According to the Sri Lanka Tourism Development
Authority (SLTDA), the receipt per day per tourist
was USD 160.8 in 2014. Attention should be
paid on increasing per head earnings, rather
than solely focusing on the numerical targets
for arrivals. In this regard, a long-term strategy
should be in place in relation to the market
strategy and product formulation.
In addition to foreign exchange earnings, tourism
generated direct and indirect employment of
129,790 and 170,100, respectively in 2014
according SLTDA statistics. The employment
in the industry accounts for 3.4 per cent of
countrys labour force in 2013. Around 80.4 per
cent of the direct employment is in hotels and

28

Meetings, Incentives, Conferences and Exhibition

(MICE) tourism in Sri Lanka.

restaurants. Other primary direct employment

channels include: travel agents and tour
operators (6.2 per cent), airlines (5.2 per cent),
and guides (3.8 per cent). Of the total direct
employment by occupation, managerial and
scientific professionals account for 13.8 per
cent, while technical, clerical and supervisory
employment form 51.2 per cent. The rest involve
employment that is of a manual and operative
nature.
As highlighted in a recent ILO report and pointed
out by tourism experts, Sri Lankas tourism
industry is characterized by significant skill
gaps. A majority of those who join the sector
either possess relatively low quality of technical
& vocational education or are trainees. It is
estimated that only 10 per cent of the total
employed in the industry have undergone
both formal or informal technical & vocational
education and trainings. Significant soft skill
improvements are required in terms of English
language, leadership, commitment, positive work
habits, creative & critical thinking etc.
Changes in the profiles of tourists at global
and regional level can also bring in numerous
opportunities. China has now become one of
the the top ten source tourist markets of Sri
Lanka, according to the 2013 arrival statistics of
SLTDA. China contributes to 4.3 per cent of total
tourist arrivals to Sri Lanka. Rising disposable
income, currency appreciation and improved air
connectivity have led to a significant increase in
Chinese outbound travel. Accordingly, spending
by Chinese travellers has increased by 27 per
cent in 2013 when compared to 2012 and many
destinations in Asia and Pacific are benefiting
from this development. In order to reap the
benefits from the growing outbound tourists from
China source, Sri Lanka should strengthen its
strategies to attract Chinese tourists.

The macro level statistics do not often reveal the

true picture of tourisms role in promoting propoor development. It is acknowledged that mass
tourism does not generate major gains to local
communities and is characterized with high rates
of outflows termed as leakages. In contrast,
small scale community-based forms of tourism,
where community participation is considered an
integral element, can be more beneficial for local
communities.

The sustainability of the tourism industry is

strongly linked with environmental and sociocultural aspects of a destination. Tourism can be
used as a tool to raise awareness and contribute
towards preserving the natural and cultural
assets. For instance, ecotourism can be used as a
sustainable tool in natural forest management, as
highlighted in an IPS study.

Sri Lanka, a destination rich with natural and

cultural endowments, possesses significant
potential for development of ecotourism,
agrotourism, community tourism, etc. Such forms
of tourism use local resources, whereby the level
of leakages is comparatively low. While a spectrum
of tourism products are required from small scale
to mass scale, Sri Lanka should pay more attention
to developing the small scale tourism which
can perhaps be niche markets - providing ample
opportunities for local communities. In addition,
a number of opportunities can be created through
effective promotion of business tourism and

Delivering the keynote address at a seminar to

mark World Tourism Day 2015 - on the topic
One Billion Tourists: One Billion Opportunities
- Contextualizing Sri Lanka, Dr. Kelegama
stressed the importance of taking the 2015
theme beyond an individual tourist to the country
as a whole. The event was held at the Sri Lanka
Institute of Tourism & Hospitality Management
(SLITHM) premises under the patronage of
Hon. John Amaratunga, Minister of Tourism &
Christian Religious Affairs and senior officials of
the Ministry.

The tourism developments that are taking place

in the identified regions also call for careful
consideration. Infrastructure developments
in regard to tourism should not only consider
the direct economic gains. Rather, special
attention should be paid to socio-economic and
environmental implications of the respective areas.
Given the opportunities stemming from tourism,
there have been transformations from existing
livelihoods to tourism related livelihoods. People
here find tourism a more lucrative business
than engaging in fisheries says a villager
from Kandakuliya, Kudawa a village under
transformation from fisheries to tourism in the

Figure 1: Tourist Arrivals and Receipts in a Few Selected Countries

19700

24780

25000
20000

2261

15000

2431

10000

7703

5000

38437
1205

1527

Arrivals
India

Maldives

Sri Lanka

Arrivals (000)

Thailand

10000
India

Maldives

20000

30000

Sri Lanka

40000

Thailand

Receipts ($ mn.)
29

Should the Sri Lankan

Government Be in the Business
of Running An Airline?
by Janaka Wijayasiri

Amazing Capacity to
Lose Money

Endless Cycle of
Restructurings

Airlines have the tendency to lose money due to

the following reasons:

Given abysmal record of state-owned airlines,

it is now widely accepted that governments
have no business being in this business.
Despite the drain on public funds, many
countries including Sri Lanka still think they
need a national airline.

A substantial share of airline costs including

fuel, staff, capital are fixed, which are largely
beyond managements control.
Restrictive bilateral air services agreements
between governments prevent competition.
Airlines have large debts due to the exorbitant
cost of purchasing aircraft and years of
unprofitable service.

Changing Times

The famous President of American Airlines, C.

R. Smith once said These days no one can
make money on the goddamn airline business.
The economics represent sheer hell. While he
made these remarks on the financial condition
of airlines, the most legendary joke of all
was probably by Herb Kelleher, the founder
of Southwest Airlines, the most financially
successful airline in the world: If the Wright
Brothers were alive today, Wilbur would
have to fire Orville to reduce costs. Jokes
aside, running an airline is a risky business.
Individuals, companies and governments have
collectively lost billions of money over the
years. Nowadays, few airlines make any money
at all, with the exception of low-cost carriers.
Given the spotty track record of airlines worldwide and Sri Lankas own experience, should
the governments run airlines and continue
to support struggling carriers like SriLankan
Airlines?

30

How Bad Is It?

The airline business is among the worst performing of any industry. During
the last decade, in the U.S. for example, the airline industry has cumulatively
lost over $50 billion and numerous carriers have disappeared, either through
bankruptcies or mergers. This had reduced 10 major U.S. airlines down to four
mega-carriers, which now dominate the market. Similarly, the picture is gloomy
at the international level. However, many countries around the globe continue to
protect and support failing flag carriers (even after privatization), which absorb
substantial amounts of public funds, which can be put to good use in other sectors
of the economy.
According to news reports, state funds have been injected to keep afloat national
airlines such as Malaysian Airlines (MAS), Alitalia and Polish Airlines LOT to name
a few. The decline of MAS performance started long before the tragic events
of 2014, which were the final straw for an airline that had already been poorly
managed for years.
In the case of Sri Lanka, the story is no different. SriLankan Airlines and its
predecessor, Air Lanka have been losing money since its launch in 1979, except
when it was under the management of Dubai-based Emirates (1998-2008). Since
the government took back control in 2008, SriLankan has accumulated losses
of over LKR 100bn. In its most recent financial year ending in 2014, the flagship
carrier incurred a net loss of about LKR 32,408mn. The government owned
low-cost carrier, Mihin Air has not fared any better; it has been financially troubled
since its set up in 2007 and lost over LKR 15 bn. The new government, which
came into power earlier in the year, has announced plans of strategic changes for
both carriers, and aims to merge the two airlines towards improving their financial
positions.

Airlines used to be regarded the preserve of

the government, like roads or bridges. Until the
mid-1980s, governments owned most of the
airlines, set fares and routes, and protected
flag-carriers by restricting competition. But
privatization made air travel more competitive
and liberalisation brought competition from lowcost carriers. Most airlines in state control have
failed to adapt to changes in the environment.
However, there are a few exceptions. Singapore,
Etihad, Emirates and Qatar Airways, have
benefited from government money but have
been allowed to operate as commercial
businesses with minimal interference.
Elsewhere, government-owned airlines have
become over-staffed by political appointees,
including the management with little or no
experience. State employees frequently travel
free or get free upgrades. Many flag carriers
fly loss-making routes/destinations to please
politicians and to maintain the notion that
airline must serve the country. In addition to
overstaffing and strong unions, operating fleets
of old and uneconomical aircraft have left
airlines struggling in a fast changing business
environment.

Partly because there are a few options state

airlines have undergone endless cycle of
failed restructuring. While privatization plans
are plentiful and there have been successful
cases like Kenya Airways, other attempts were
failures. Nevertheless, all were extremely
difficult because of heavy losses, debts and
legacy costs, which tend to scare investors
away. In fact, some have stated that it might

a national long-haul carrier, but has taken a

fairly liberal approach to foreign carriers. In
a number of Caribbean countries, financial
incentives for foreign carriers have been
offered to lure them to service the markets.
Nevertheless, to date, only a handful of flag
carriers have been allowed to fail; a majority of
these has been from small market, developing
countries.

Letting Go
In the case of Sri Lanka, given that privatization
is not on the cards, the government will need
to continue and support SriLankan Airlines and
Mihin Lanka during the restructuring process
to be profitable entities. The planned merger
of SrILankan and Mihin Lanka, membership in
the OneWorld Alliance (an alliance of worlds
leading airlines), fleet renewal are expected

Net Operating Profit/Loss of SLA (LKR. Mn.)

5000
0
-5000
-10000
-15000
-20000
-25000
-30000
-35000

05

06

07

08

Reasons for Flying

be cheaper to start an airline from scratch

the way Switzerland did. In fact, Switzerland
provides important lessons for the rest of the
world of letting go of a national carrier because
of the huge losses Swissair generated. Rather
than bailing out Swissair, the company was
liquidated. A small regional carrier took over
its staff, aircraft and routes, and created a new
airline, Swiss International Air Lines, with initial
funding from the government. Three years later
it was sold to Lufthansa.

Airlines exist for various reasons, and always

not for making a profit. Some carriers exist
purely to fly the national flag, promote
the country and place it on the world map
(Emirates, Etihad, Qatar), while some encourage
trade & tourism (British Airways, Air France,
Lufthansa), and some to ensure connectivity
with the world (Air New Zealand, Qantas), or
simply for egotistical reasons.

However, given the political cost of losing

thousands of airline employees makes
liquidation an unpalatable option. So, does the
fear of losing vital connections to the world. In
the case of small markets, the need to maintain
a national carrier is a cause of concern.
However, some countries have managed to
do without their own airline. Then, there are
countries such as the Seychelles, which has

09

10

11

12

13 14

help to reduce costs, improve efficiency and

raise the product standard. It is also good to
note that the government has promised not
to interfere in the operation of the two stated
owned carriers, which have suffered at the
hands of government mismanagement over
the years. Nevertheless, such a life-line should
be time-bound (say allow for a three year
turnaround) given the burden on the countrys
budget and balance of payments, and in turn
on all Sri Lankans. At some point in time, the
government needs to consider other policy
options like finding a strategic partner/investor
or even giving the airlines wings to fly away
rather than mollycoddling them.

31

The Indian Ocean region is rich with diversified

marine ecosystems, fisheries and aquaculture
resources. It is also a source of renewable ocean
energy, ports, shipping, manufacturing and other
services and seabed exploration and minerals.
The availability of such resources as well as other
services in oceans has made Blue Economy
a much discussed, vital topic. While, the ocean
resources are of innumerable use for the countries
in the Indian Ocean Rim Association (IORA), these
benefits are now under threat. The reasons for this
include over-exploitation / extraction, limitations
in technology transfers, violation of international
maritime laws, lack of research and development
and climate change.
A regional dialogue and collective action is vital to
identify policy actions to ensure the sustainability
of ocean resources and services in the IORA region.
To be successful, it is essential that such a dialogue
concentrates on the aspects of an accounting
framework for the blue economy, fisheries and
aquaculture, renewable ocean energy, ports,
shipping, manufacturing and other sectors, including
seabed explorations and minerals.
The blue economy in the IORA region lacks a
comprehensive accounting framework. The
countries in the region do not have a well-defined
measure of the blue economy. Without a proper
account of blue economy activities in national
accounts, it is difficult to formulate and implement
strategies in national development policies that
focus on the sustainable development of the blue
economy.
It is important to cover all sectors of the blue
economy and activities and take an account
in accordance with existing international
macroeconomic statistical systems. This will help
set operational targets for indicators and their
systematic monitoring. The task is not simple as it
appears to be, especially in view of the diversity of
fish and plant species, conflicts over ownership in
Exclusive Economic Zones and beyond, valuation of
non-market blue resources, level of dependence of
coastal communities, etc. The existing classifications
do not provide a clear distinction between the
ocean economy and the blue economy. As a result,
activities recorded based on International Standards
International Classifications (ISIC) for production
would be misleading and grossly underestimate the
potential of the blue economy in a country.
Sustainability of fisheries and aquaculture
resources are in question. All IORA member
countries are well-endowed with fisheries and
aquatic plants, which could be harnessed for the
growth of the blue economy. Besides wild catch,
there has been phenomenal growth in fish farming
worldwide. Capture fisheries face the problem of
overfishing and low fertility in most fishing areas of

32

Instead of limiting to existing sea ports for trade

purposes, it is also important that the region
looks at establishing advanced high capacity
ports. Sri Lanka has already built a seaport in the
countrys southern region with a higher potential
for trade facilitation. In addition, seabed exploration
for minerals is a constrained activity for most of
the developing nations in the region, and a majority
of these resources are not yet properly mapped.
Therefore, it is vital to conduct research to identify
seabed minerals; and the involvement of the public
sector is necessary for funds and technology
transfer to execute exploration activities in the IORA
region.

Harnessing
Benefits of the
Blue Economy:
Key Factors for
IORA Countries
by Chatura Rodrigo

the world. Both raw and processed sectors in aquaculture would require greater application of
modern technology. Fish prices and fish products are a contentious aspect of fisheries in the
context of the blue economy. In the absence of a comparable global database on fish prices, it
is hard to estimate the contribution of fisheries to the national output and the nature of pricing.
Furthermore, there are issues of unsustainable fishing, mainly using illegal methods, which
threatens the growing stock of fish and increases fishing efforts, resulting in the tragedy of
commons.
There is substantial potential in renewable ocean energy, which is highly underutilized.
As the future demand for energy remains high among growing economies, focusing on
alternative non-conventional renewable energy sources appears more feasible. Diverse
marine based renewable ocean energy generated from wind, solar energy, wave, tidal cycles,
salt concentration and thermal power, best suits the blue economy model as it emphasizes
sustainability through renewability of energy sources. IORA countries have already taken
measures to harness renewable energy resources to meet the regions growing energy
demand.
Ports and their related services are a valuable component of the sea-borne trade;
however IORA region faces many limitations. Sea-borne trade provides a valuable
opportunity for IORA region countries to maximize their returns through industries such as
manufacturing but these opportunities are threatened. Ports should be treated as shared
infrastructure, which would lower transaction costs and facilitate a smoother flow of goods in
the region. However, necessary action should be taken to minimize environmental problems
such as the management of waste water from ships. While regional cooperation can support
activities of ship making and ship breaking, there are many environmental impacts that arise
from such activities that need to be carefully mitigated.
Seabed of the IORA region is an unexplored area of metals and minerals. Exploration of
metals and minerals on the seabed is viewed as an emerging sector of blue economy in the
Indian Ocean region. Many believe that the current advancement in exploration technology for
offshore and deep-sea minerals could soon make it a reality. Among the seabed resources, the
most precious metals are comprised of cobalt, nickel, manganese, iron, etc; copper, lead, zinc,
gold, silver, titanium, thorium and other rare earth metals. In particular, the Central and South
Western parts of the Indian Ocean are rich in copper, lead, zinc and other minerals.
In the blue economy paradigm, more attention should be given to harness the unexploited
rich endowment of precious seabed resources. The experience on deep-sea mining and its

economic viability is scant (or not available) so the IORA countries may have to undertake
selective experimentations. At the same time, the environmental impact of such activities
on the seabed is not clearly known. Since the technical know-how for deep-sea exploration
is likely to be asymmetric across the Rim, this particular sector of the blue economy needs
specific attention to avoid unintended consequences on sustainability and the ecological
balance.

The Way Forward

Given the difficulty in tracing, there needs to be a suitable coding and tracking system
for coastal and marine activities. The proposed accounting framework should be viewed
from the perspective of its coverage, utility and transparency in objective identification of
production, and trade and services in different segments of the blue economy. In addition
to output, this framework should cover other important macroeconomic data such as value
addition, employment, capital formation, foreign investment flows, etc.
Blue economy may warrant a significant transformation of conventional fishing
practices and regulations in IORA countries. This may need changes in legal and
institutional structures to ensure that blue economy goals are smoothly achieved. Data
availability on fish prices and quantities will help determine and stabilize market prices, not just
in the region, but also other parts of the world. In addition, a cross-country database on prices
will be useful to determine fair and remunerative prices for fish products.
Since both raw and processed sectors in aquaculture requires greater application of
modern technology, it is necessary to establish suitable mechanisms for technology
transfer in fisheries among the countries. The countries should open up their fisheries
sectors and institute necessary reforms that can unlock market opportunities in the region.
In that light, the fishing nations in IORA should negotiate for higher access to each others
markets and take measures aimed at developing region-wide standards for processing,
certification, labelling and marketing of fish products within the region and the world.

Chatura Rodrigo made a presentation on Blue Economy:

Key Factors for Indian Ocean Rim Association (IORA)
Countries in Harnessing Benefits from Fisheries and
Aquaculture, at a conference on the Prospects of
Blue Economy in the Indian Ocean Rim held in India, in
August 2015. The event was organized by the Research
and Information System for Developing Countries
(RIS), New Delhi together with the Observer Research
Foundation (ORF), New Delhi.

In October 2015, Janaka Wijayasiri participated in

the 21st Meeting of the Indian Ocean Rim Academic
Group (IORAG) meeting, which was held in Padang,
Indonesia. IPS is the focal point in Sri Lanka for the
IORAG. The meeting discussed current and new project
proposals under the 6 priority areas: Maritime Safety
and Security, Trade and Investment Facilitation; Fisheries
Management; Disaster Risk Management; Academic,
Scientific and Technology Cooperation; Tourism and
Cultural Exchanges

Macroeconomic instruments such as Generation-based Incentives (GBI), tax holidays,

and 100 per cent FDI are essential to promote renewable ocean energy generation.
Countries such as Singapore already explore ways to generate renewable energy from ocean
waves, and most such technologies are developed and patented by Indian researchers. As
such, it is a matter of regional sharing of these necessary technologies and expertise that exist
in the IORA region.

33

The Road to
Becoming an
Energy
Independent
Country:
Can We Deliver?

Sri Lanka to commit to such developments.

If the dependence on imported oil is to be
reduced, the current vehicle fleet needs to be
replaced by electric or hybrid cars. For that,
a compensation mechanism is needed for
owners to trade their vehicles and tax benefits
for importing new ones. At the moment, neither
is happening at a satisfactory level. Therefore,
macroeconomic policy environment should be

years, the prices of tradable Carbon has gone

down questioning the viability of CDMs.
Keeping Bio-mass at 43% level of
contribution may be problematic,
especially with declining use of fuel wood
as an energy source. A considerable number
of households, especially in the rural and estate
sector still use firewood as their primary energy

by Chatura Rodrigo

tailored to encourage private vehicle owners

to use more and more electric and hybrid cars.
Furthermore, the government must secure
finances to replace the transportation fleet
with low emission vehicles. While bio-diesel is
an option for Sri Lanka the use of coconut oil
as a bio-mass energy source might challenge
the demand for coconut and coconut oil as
an essential cooking item in the Sri Lanka
households.

Sri Lanka annually imports 2 MMT of crude oil, 4 MMT of refined

petroleum products and 2.25 MMT of coal. This costs approximately
5 billion USD and covers 44% of the energy requirements. It also
accounts to 25% of the import expenditure and almost 50% of the total
export income. As a result, Sri Lankas energy demand puts immense
pressure on the national budget and on exchange rates. In addition, oil
burning emanates various gases, intensifying air pollution. Therefore,
it is essential that the countrys energy policy puts more emphasis on
renewable energy production to ensure the country does not depend
on imported oil and oil products or contribute to air pollution. However,
whether there is sufficient motivation to do this and whether it is a
possibility are interesting questions to be debated.
The Ministry of Power and Energy has developed an energy sector
development plan that looks into increasing the use of renewables in
energy production while reducing the dependence on imported oil and
oil products. Analysis of the current composition of energy production
and the aims of the new plan would provide a better idea on what areas
Sri Lanka can expand on with respect to renewable energy and how
soon that can be done. This is illustrated in Figure 1; which indicates
that the new energy sector development plan aims to reduce the
petroleum contribution from 37% to 1%. The dependence on coal is to

34

be reduced from 4% to 1%. Contributions from bio-mass and hydro are

to remain more or less the same. In correspondence with the reduction
on the dependence on imported oil, the new plan aims to increase
the contribution from 3% to 34% with more emphasis on wind and
solar power generation. Additionally, Sri Lanka hopes to provide a 6%
contribution from the recently discovered gas resources. While this is
an ideal vision for Sri Lanka to answer its issues on establishing energy
independence, there are several key concerns over the proposed future
development.

Overcoming Issues on the Proposed Energy Mix

Reduction on oil dependence is not easy since the transport
sector especially the public transport sector is 100% dependent
on imported oil. Public and private buses as well as locomotives in
Sri Lanka are purely dependent on imported oil. In order to eliminate
this dependence Sri Lanka must introduce electric operated or hybrid
vehicles. Electric cars are the better option since hybrid cars can still emit
air pollutants. The government has already made technical assessments
and plans to electrify the railway network of Sri Lanka and to establish
tram services under the urbanization and climate change mitigation plan.
However, these initiatives are quite costly and will take a long time for

With concerns over climate change, the

hydro contribution may reduce in the
future. Climate change is changing rainfall
patterns; intensities and distribution, with more
prolonged drought periods. Therefore, there
is a probability that the power stations based
on hydro will receive less water in the future
threatening the generation capacities and
continuous power supply. Hence, it maynot be
a wise to expect a 14% continuous contribution
from hydro power. While there isnt much
that can be done to overcome the impacts of
climate change, several adaptation measures
can be taken to increase the efficiency in
hydro power generation. For example, the
reservoir storage capacities can be increased
to store rainwater to ensure continuous power
generation. Furthermore, localized water
resources provide the opportunity to establish
mini and micro-hydro projects that can cater
the local energy demand. These projects
might also provide attractive investments
opportunities under the Clean Development
Mechanism (CDM). However, in the recent

source for cooking and lightening. However,

the use of firewood is highly discouraged as
it a major cause of indoor air pollution. While
this is a sound solution for both the issues of
environment pollution and energy, Sri Lanka
does not generate sufficient solid waste
to operate a power generation facility with
economies of scale. While Dendro is a viable
situation for a small scale localized power
demand, it is still not a sufficient solution to
see a significant contribution to the national
demand. Therefore, even though Dendro still
needs to be further proven as an economical
and sustainable bio-energy source, its
applicability is much more attractive compared
to solid waste and other options such as
coconut oil.
Extraction gas is still at an experimental
stage. It is not clear when its contribution
can be materialized and its sustainability
in the long run. Research so far has shown
that Sri Lanka has a substantial amount of gas
resources. However, the extraction is costly
and Sri Lanka does not have the technical
capacity to carry out such industrial operations,
therefore; the government has decided to invite
international entities to explore on its behalf.
In such situations, especially with information
not being available publicly, it is not clear how
much Sri Lank can gain out of this activity. At
the same time, it might be too optimistic to
expect a 6% contribution from gas resources
when Sri Lanka has not even finalized the
contracts to explore. Yet, it is a must that Sri

Lanka puts immense efforts and attention to

extract gas resources as soon as possible as
it is a key component of the road to energy
independence.
Solar and wind energy potentials are
largely at question. Research argues that
with a heavy cloud cover, Sri Lankas potential
for large scale solar energy production is not
possible. Currently, almost all the material and
equipment have to be imported to set up solar
panels in Sri Lanka. In addition, the technical
complexities are too advanced for Sri Lanka to
manufacture necessary material at a profitable
scale. The situation is similar with wind
power generation with uneven wind currents.
However, Sri Lanka receives enough solar and
wind to generate a significant amount of energy
despite the technological constrains faced in
production.
Concerns have emerged over the price of a unit
of solar energy since the generation process
is in the control of a private energy producer.
There are quite a few number of such solar
establishments among Sri Lanka households,
especially in the urban sector. However, the
expansion of this initiative is problematic with
the installation and maintenance costs. The
minimum installation cost is not affordable
for an average Sri Lankan. Furthermore, the
household solar system will only produce value
for money when the electricity usage is above
a certain limit, which again is higher than an
average Sri Lankan household. Installation
cost of solar must come down to a level that is
affordable to an average Sri Lanka household.
Providing tax incentives for importers of
installation equipment is a possible solution.
Otherwise, local companies can be encouraged
to produce solar panels locally, with the
government support and necessary technology
transfers.
Therefore, to answer the initial questions of
this article, the rising energy demand and
dependence on imported oil provides an
opportunity for Sri Lanka to achieve energy
independence focusing on renewable energy.
However, this can only be done with sector
specific initiatives, eliminating the discussed
drawbacks. For example, Sri Lanka may need
to focus on exploring new opportunities such as
energy production from ocean current in order
to pave its way to energy independence.

35

Food Security:
Does it Matter for
Sri Lanka?

by Manoj Thibbotuwawa

Over eight hundred million people in the world do

not have enough to eat. In fact, hunger kills more
people every year than malaria, AIDS, and tuberculosis
combined. The fight against hunger has been one of the
key objectives of global development agendas over the
years. Sri Lanka is no exception to this. The focusing
on food security in development agendas in Sri Lanka
could be seen in all the recent major election manifestos.
There is ample evidence that the food security situation
in Sri Lanka has improved significantly over the years.
International Food Policy Research Institute (IFPRI) report
on Global Hunger Index (GHI) 2014 ranks Sri Lanka at
the 39th position among 76 countries, ranking above all
the other South Asian countries. Comparing the 1990 GHI
and the 2014 GHI, shows a noteworthy absolute progress
in Sri Lankas GHI with 42% decrease in its index score.
Most importantly, Sri Lanka has been recovering from a
three decade long conflict, which ended in 2009. While no
longer in the alarming category, according to the GHI,
Sri Lankas hunger status is still classified as serious.

What is Food Security?

Concepts of food security have evolved in the last 3-4
decades to reflect changes in global policy thinking in

36

different time periods. Based on the widely accepted

definition of the World Food Summit (1996), food security
is achieved when all people, at all times, have physical
and economic access to sufficient, safe and nutritious
food to meet their dietary needs and food preferences
for an active and healthy life. This definition highlights
the multi-dimensional nature of food security and
includes food access, availability, food use, and stability.
Availability is determined by food supply, primarily at
the national level. However, the perception on what food
security means is vague in Sri Lanka as often, national
level food security is generally confused with food selfsufficiency. A country need not achieve self-sufficiency
in food to achieve food security, because, national food
security is attained when a country produces adequate
food for its people or has the capacity to import its food
requirements by its export earnings or a combination of
both. Accessibility depends on the individuals capability
to purchase food (income) at the household level, and
utilization depends on intra-household distribution of
food and the nutritious use of food by the individual.
The fourth dimension of food security, i.e., food stability,
ensures the access to food at all times and covers the
physiological, economic, social or political vulnerabilities
of the population to food security.

Status of Food Security in

Sri Lanka
An analysis of the food situation in the last few
years, demonstrates that the country is food
secure at the national level. Domestic agriculture
still provides approximately 75% of Sri Lankas
food requirement in value terms while only one
fourth was imported (in 2013). Even at individual
commodity level, local production of all major
food items -- except for wheat flour, sugar, pulses,
and milk which are imported in bulk quantities
-- exceeds 75% of the total availability. Although
food imports have been increasing in absolute
terms, their share in total imports and total exports
have been slightly declining or constant in recent
years. As a whole, national level food availability
has been on the rise due to increased domestic
food production and importation without putting
much pressure on the balance of payments. While
the share of agricultural exports in total exports
was 25%, the food imports as a percentage of total
exports remained at 14.7% in 2014, which means
the total value of food imports is sufficiently covered
by the value of agricultural exports.
The availability of adequate food at national level
doesnt necessarily ensure food security at the
household level. Hence, it is important to look at, if
the national food availability has sufficiently ensured
access to food at the household level. The level of
income and income distribution mainly determine
the access to food at the household level. Per capita
incomes have registered substantial increases over
the last fifteen years or so, increasing from Rs.
65,838 in 2000 to Rs. 473,261 in 2014 at current
prices. However, Income distribution, as represented
by the Gini ratio, has worsened slightly from 0.47 in
2002 to 0.48 in 2012. Sectorally, the estate sector
reports the lowest incomes and the least inequality
and vice versa in the urban sector, which arouses
serious doubts on the levels of household food
security.
There is ample evidence that household food
insecurity is a significant problem in the country.
About 5.2 million people -- equivalent to a quarter
of the population -- are estimated to have been
undernourished in 2014. The depth of hunger
for Sri Lanka in 2014 was 216 kcal/capita/day,
indicating a medium level of food deficiency among
the undernourished people. However, this is not an
improved level considering the level of 230-240
kcal/capita/day that existed in early 1990s. Greater
the deficiency, greater the susceptibility for health
risks related to undernourishment. According to FAO,
26.3% of children below age 5 did not have the
recommended weight for the age and 21.4% and
14.7% were suffering from stunting and wasting,
respectively in 2012. Further, there is a severe
problem of child malnutrition that has persisted
despite economic growth, increases in per capita

income, and food availability at national level. This

indicates that there are serious concerns with
respect to household food security especially in
terms of access to food and utilization.

Issues for Concern & Way

Forward
At present, food insecurity seems to be associated
with the problem of access to food rather than
with the availability of food at the national level.
However, the challenge is not just to ensure food
security to an estimated 4.7 million people currently
undernourished, but also to feed the additional 2.4
million people expected to inhabit the island by
2050. The food requirement is continuously growing
due to the growth of population and increase in
income. The extents cultivated for major food crops
have been constant since 2000 due to the lack of
new arable land to be brought under agriculture. The
yield levels of domestically grown food crops, except
for rice, have stagnated for more than a decade at
unimpressive levels. Therefore, domestic production
will not be able to meet national requirements even
under present levels of per capita food consumption.
National level food security has to be handled with
a combination of domestic food production and
trade as the self-sufficiency model currently
does not have an economic appeal and above all,
costly to the nation. First, yield potential requires a
further increase -- with varieties having higher input
use efficiencies and resistance to biotic (pest and
diseases) and abiotic (drought, nutrient deficiency)
stresses -- particularly in field crops other than rice.
Second, there should be measures such as further
diversification of the export base to cushion any
impact of serious deterioration in the terms of trade
and volatility in export prices.
Considering the disparities in income distribution,
household level food security may require
interventions, particularly in the short and medium
term, to ensure that the poorest segments of
the population receive adequate food. Those
interventions should move away from the present
calorie bias towards the provision of protein and
other nutrients. Also, such intervention programmes
should focus on diversifying the dietary patterns
of households in order to ensure household food
security.

In July 2015, IPS together with the

International Food Policy Research
Institute (IFPRI) conducted a national
consultation workshop at the IPS
Auditorium, on Key Challenges and
Opportunities for Food Security Policies
in Sri Lanka. The aim of the two day
event was to facilitate a dialogue between
key stakeholders in order to identify key
challenges and opportunities for food
security in Sri Lanka and provide the basis
for the formation of a successful food
security policy framework for the country.
This national workshop brought together
different teams composed of professionals
from agriculture, trade, health, finance,
and nutrition sections from various
Ministries, universities, private sector,
NGOs and civil society.

In August, Manoj Thibbotuwawa made

a presentation on SAARC Seed Bank:
Opportunities and Challenges in
the session on Responding to Food
Insecurity: Role of Global, Regional
and National Gene Banks, at a
regional consultation workshop on the
Conservation, Use and Exchange of Crop
Genetic Resources: Promoting Regional
Cooperation for a Food-Secure, ClimateResilient South Asia, held in Kathmandu,
Nepal. The workshop was jointly organized
by the South Asia Watch on Trade,
Economics and Environment (SAWTEE),
Nepal and Fridtjof Nansens Institute (FNI),
Norway.

More stability to food security could be brought

through the provision of national buffer stocks and
regional initiatives such as the SAARC Food Bank
and SAARC Seed Bank, particularly in national and
international crises situations.

37

Feeding the Nation,

Facing the Risks
Occupational Safety & Health of Paddy Farmers in Sri Lanka
by Sunimalee Madurawala

Occupational Health Risks Faced by Paddy

Farmers
The major occupational health hazards paddy farmers are exposed to
include body aches and pains, exposure to hazardous chemicals and
chemical poisoning, kidney disease, leptospirosis (commonly known
as rat fever), accidents encountered when using machines, elephant
attacks, snakebites, exposure to high temperature, and mental stress.
Chemical poisoning is often cited as a major occupational health risk;
with problems in eye-sight, skin and breathing seen as health issues
relating to unsafe chemical use.
Another major health concern paddy farmers face is the Chronic Kidney
Disease (CKD), which is mostly reported from the countrys North
Central Province. The World Health Organization (WHO) has estimated
that more than 15% of the population aged 15 - 70 years in the North
Central and Uva Provinces are affected with CKD. Since CKD was first
identified in 1991, there have been reports of over 22,000 deaths in the
Anuradhapura district. Although the exact root cause for the disease is
still unknown, farmers are highly vulnerable to CKD given their lifestyle
and occupation conditions (continuous and excessive exposure to
hazardous chemicals, dry zone climate and long work hours).

Establishing a well-organized and structured data collection system is

one of the initial steps of addressing the issues of OSH of the country.
Covering the informal sector would be more difficult than the formal
sector. Yet mechanisms should be designed in such a way that OSH of
paddy farmers/ informal sector workers are ensured. Strengthening
the existing health awareness programmes with a special focus on
occupational safety and health is another important step that can be
taken. New ways to overcome the problem of uneasiness of using
precautionary measures when applying chemicals should be explored.
Harsh chemicals should either be limited and/or banned from the market,
as major occupational health risks faced by paddy farmers are linked
with the usage of hazardous chemicals. The problems that Wimalasena
and Sirawardena face are common among many farmers across the
country. Safeguarding the health of the millions of paddy farmers in the
country is crucial given their contribution to the economy and their role in
our social structure.

Leptospirosis is another occupational hazard faced by farmers and it is

reported that it has severe after effects such as joint pain and exhaustion.
I was diagnosed with rat fever 6 years ago. I was at the Kekirawe
hospital for two weeks and then transferred to the Peradeniya Hospital. I
didnt receive any financial support during my stay at the hospital. I was
not aware of rat fever at the time. After I recovered, I found it difficult
to work long hours, and I easily feel exhausted. Now I take a preventive
medicine for rat fever before I go to the paddy field, claims Siriwardene,
a 48 year old tenant paddy farmer from Kekirawe.

This article was written to mark Sri Lankas

National Occupational Safety & Health Week, October.
My eyesight seems to be deteriorating. When my father was alive, he
could see very well until the day he died. But I have a problem with my
sight and it could be because of the strength of the chemicals I use. I
do not use face masks and gloves every time I handle chemicals says
Wimalasena, a 57 year old paddy farmer from Kekirawe.
In Sri Lanka, of the total informal employment, the highest (87%) is in the
agriculture sector. A majority of agricultural workers are paddy farmers;
with around 1.8 million farm families engaged in paddy cultivation
island-wide, producing 2.7 million tons of rice annually.
While ensuring the health of workers is important in enhancing
productivity, economic development and social welfare, Sri Lankas
informal sector is not covered by the Occupational Safety and Health
(OSH) legislation. Statistical and other information related to OSH is
limited and underreported as there is no formal reporting system to
capture such data. Only 1% of work-related accidents are reported in
Sri Lanka in contrast to countries such as Australia (89%), New Zealand
(88%) and Malaysia (79%).

38

Paddy farmers are also very vulnerable to mental health risks mainly due
to worries from lost harvests, fluctuating market prices, and seasonality
of their income. They constantly worry about their cultivation, and
continuously struggle to protect their fields from wild animals. They try
their best to face adverse environmental conditions such as floods and
droughts. All these worries related to their occupation and have an effect
on their mental health.

Safeguarding the Paddy Farmers from

Occupational Health Hazards
Poor working and living conditions, high exposure for occupational
accidents, fatalities and disease, lack of occupational health services
to cater, non-availability of comprehensive legislation on OSH for the
agriculture sector, and the lack of related knowledge among farmers
are major OSH issues faced by the agriculture sector of the country.
Prevalence and operation of risk preventive mechanisms, emergency
response plans, and precautionary measures for major occupational
health risks are minimal among paddy farmers.
In general, farmers know about their work related health risks. But sadly,
they do not always follow risk preventive measures. For example, farmers
know the health risks of handling hazardous chemicals, but they do not
always adhere to protective measures mainly because of the discomfort
(wearing masks/gloves make it difficult to handle spraying machines and
wearing boots make it difficult to walk through muddy paddy fields) and
sometimes due to carelessness.

39

Further analysis shows that even some of the non-poor children ( who
are neither IP nor MDP), are also facing deprivations in some of the basic
needs, such as safe drinking water and/or safe sanitation, although
they do not get classified as poor, though they may be in the near poor
category. Out of the 1.5 million non-poor children under 5 years (who are
neither IP nor MDP), 10.5% do not have access to safe drinking water and

Figure 1: Income Poor and/ or Multi-dimensionally Poor Children (under 5 years & under 18 years - 2012/13
Children

8.7% IP

Under 5 years

7.1% IP only

Children

8.6% IP
6.7% IP only

Under 18 years

3.5% in MDP
1.6% both IP & MDP
1.9% MDP only
4.3% in MDP
1.9% both IP & MDP

2.4% MDP only

Source: Estimates based on Household Income and Expenditure Survey - 2012/13, Department of Census and Statistics.
As the definition points out, measuring child poverty can no longer be
lumped together with general poverty assessments, which often focus
solely on income levels. It is also necessary to take into consideration,
the access to basic social services, such as education, health care
facilities, safe drinking water and sanitation, proper housing, etc.
To get a broader picture of child poverty, this article provides a brief
analysis that looks at not only the children (under 5 years and under
18 years) living in Income Poor (IP) households, but also those living in
multi-dimensionally poor (MDP) households. Multi-dimensional Poverty
Index (MPI) is an index of acute multi-dimensional poverty that has
three dimensions: health, education and living standards. These are
measured by 10 indicators, which cover most of the aspects included in
the above definition of child poverty, except the last two on participation

40

15.8% do not have access to safe sanitation. Out of the 5.5 million nonpoor children under 18 years, 9.8% do not have access to safe drinking
water and 13.9% do not have access to safe sanitation.
The share of children in poorer households is very much higher than
the share in richer households, confirming that poorer families have
more children than the richer families. The share of children (under 5
years, as well as under 18 years) in first Per capita Expenditure Decile
(or the poorest 10% of the households) is 15%, while the corresponding
share in the richest decile (or richest 10%) is only around 6.0% (Figure
2). Multi-dimensional Poverty Headcount is highest for both children
under 5 years (13.3%), as well as those under 18 years (16.4%), in the
first per capita expenditure decile. Headcounts or percentage of children
in poverty, decline down to less than 6% in the second per capita

% of Multidimentionally Poor Children under 18 years

16.4
13.3

14.0

% of Multidimentionally Poor Children under 5 years

15.0

Share (%) of Children (under 5 years) in each decile

Share (%) of Children (under 18 years) in each decile

12.0
8.0

0.5
0.5

0.0
0.2

0.1
0.2

0.3
0.5

0.0

0.9
1.2

2.0

1.1
1.1

4.0

1.9
2.6

5.6
5.8

6.1

6.0

10

Among the estimated 106,900 poor children in this age group,

around 34,700(or 32.5%) are not attending school. Out of them,
more than 88.0% are from the above five SEGs, indicating that the
poor children (15-17 years) who are not attending school are mainly from
those groups. As observed, it is not only the poor children who are not
attending school, in these SEGs. As such, special attention will be needed
regarding the children from these socio-economic groups.

Per capita Household Expenditure Decile

Source: Based on Household Income and Expenditure Survey - 2012/13, Department of Census and Statistics.

expenditure decile and continue to decline further, thereafter, showing

that only the children in the poorest three to four per capita expenditure
deciles are affected by MDP in Sri Lanka (Figure 2).

30.0

25.0

13.3

15.7
9.1

6.8

6.5

5.0

12.3

9.6

19.1

10.0

26.1

12.7

15.0

0.0

16.4

16.0

20.0

12.4

It is important to identify, children belonging to what types of SocioEconomic Groups (SEGs) are most vulnerable and poorest. For this
purpose, the households were classified into 12 Socio-Economic
Groups, based on the occupation or the activity of the head of the
household (as given in Figure 3). The children in households affected
by IP, MDP or both IP and MDP, were considered together (in-order
to make the analysis simpler), to identify the SEGs to which the
poorest and most vulnerable children (under 18 years) belong.

Figure 3: Percentage of Children who are Income Poor (IP) and/ or Multi-dimentionally Poor (MDP) and Overall Share* of
Poor Children (Under 18 years) by Socio-Economic Group - 2012/13

6.3

Who are the Poorest Children in Sri Lanka?

3.6

The UN General Assembly has adopted the following definition of

child poverty, on 10th January, 2007 Children living in poverty
are deprived of nutrition, water and sanitation, access to basic
healthcare services, shelter, education, participation and
protection, and that while a severe lack of goods and services
hurts every human being, it is most threatening and harmful to
children, leaving them unable to enjoy their rights to reach their
full potential and to participate as full members of the society.

Out of 6.2 million children under 18 years, 8.6% were IP and 4.3% were
MDP. In this age group, 1.9% were both IP and MDP, and as such, 11.0%
were either IP, MDP or both IP and MDP.

16.0

Bar - Poverty Headount (IP and/ or MDP) - %

Line - Share of Poor Children under 18 yrs among SEGs (%)

by Wimal Nanayakkara

Out of 1.7 million children under 5 years and out of 6.2 million
children under 18 years, 10.6% and 11.0% respectively, were either
Income Poor and/or Multi-dimensionally Poor in 2012/13. Out of
a total of 1.7 million children under 5 years, 8.7% were IP, 3.5% were
MDP and 1.6% were both IP and MDP. As such, altogether 10.6% of the
children under 5 were either IP, MDP or both IP and MDP (Figure 1).

18.0

2.6
3.7

Child
Poverty:
Who are
the Poorest
Children
in Sri Lanka?

In this analysis only the former is considered due to the limitations in

the length of the article. However, in addition to the children living in
IP and MDP households, the analysis also looks at non-poor children
(those not living in IP or MDP households), but who still face some of the
deprivations, such as, not having access to safe drinking water/ sanitation
facilities, not attending school, etc., to draw the attention of the relevant
authorities to the fact that there are children in the non-poor groups also,
who are deprived of certain basic needs. This article will only look at the
total picture of incidence of child poverty at national level. However, as
there are considerable regional variations, which need the attention of
planners and policy makers, an analysis showing the regional picture will
be published later.

they do not attend any other educational institute, as well. Overall,

152,000 (or 16.0%) of the 984,000 children (15-17 years) are not
attending school or any other educational institute. The percentages
(within each SEG) of children (15-17 years) not attending school
are high in five of the SEGs: Children in households headed by (i)
Agricultural, Forestry & Fishery Labourers (26.0%); (ii) Skilled
Agricultural, Forestry & Fishery Workers (19.7%); (iii) Those
engaged in Household work (19.6%); (iv) Non-agricultural
Labourers & Similar Workers (18.2%) and (v) Those who are
unable to or too old to work (17.5%). Out of all the children not
attending school in this age group, 71.3% are from these five SEGs.
In addition to this, another 16.8% are from households headed by
Craft & related trade workers, Plant and machine operators.

Figure 2: Share (lines) of Children (Less than 5 years and less than 18 years) and Multi-dimensional
Poverty Headcount (bars) by per capita Expenditure Deciles - HIES 2012/13

Multidimensional Poverty Headcount (% in bars)

& Share (%) of Children under each decile (lines)

and protection. Measuring MDP is too complex to be explained in a brief

article of this nature (HDR Technical Notes, provide details on the latest
methodology, recommended by the UN to measure MDP). According to
the UN recommendations, only the people / children living in households
facing a weighted sum of more than 33.3% of a combination of the
deprivations are considered to be MDP. Households facing 20% to 33.3%
deprivations, out of the 10 deprivations, are considered to be Near poor.

The poorest children in Sri Lanka are from households headed

s
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by (i) Agricultural Labourers, (ii) Non-agricultural Labourers, (iii)
La
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persons who are unable to or too old to work, and (iv) skilled
y&
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agricultural and related workers: There are four SEGs that stand
ed
ri.
en
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ca
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out above others. The poverty headcount (IP and MDP combined)
S
o
% of Poor Children under 18 years (IP and / or MDP) within
w
Cl
rs
de
each SEG (or Headcount)
be
tra
em
is highest for children (Under 18 years) in households headed by
ed
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% Distribution of Poor Children under 18 years (or
t&
share) among SEGs
Agricultural, Forestry and Fishery Labourers (26.1%), followed by
af
Cr
children in households headed by Non-agricultural Labourers and Socio-Economic Group based of the occupation of the Head of Household
Source: Based on Household Income and Expenditure Survey - 2012/13, Department of Census and Statistics
similar workers (19.1%). The other two SEGs with high poverty
headcounts for children, are households headed by Persons unable
to or too old to work (15.7%) and by Skilled Agricultural, Forestry and
Summary
Fishery Workers (12.4%).
Out of 6.2 million children under 18 years, 682,000 (or 11.0%) are either
Income Poor and / or Multi-dimensionally Poor.

Out of 682,000 poor children under 18 years, the highest shares of

poor children, are in households headed by Agricultural, Forestry and
Fishery Labourers (23.3%), followed by children in households headed
by Non-agricultural Labourers and Similar Workers (16.4%), Skilled
Agricultural, Forestry and Fishery Workers (16.0%) and Those unable
to or old to work (13.3%). Altogether, almost 70% of the poor children
(under 18 years) are in these four SEGs. In addition to this, 12.7% of the
poor children are from the households headed by Craft & related trade
workers, Plant and Machinery workers.
Children not attending school: Sri Lanka has almost achieved Universal
Primary Education, net enrolment rate reaching 99.7% and almost
100% of pupils who enter Grade 1 reaching Grade 5. In addition, more
than 98% of the children aged 11-14 years are also attending school,
confirming the effectiveness of making education compulsory for children
up to the age of 14 years. However, it is observed that after the age of
14 years, some children are dropping out of school education and that

1. Poorer families have more children than the richer families: Share of the
children under 18 years in the poorest 10% of the households is 15%,
while the share in the richest 10% is only 6%. As such, child poverty
rates are higher than the rates for the entire population.
2. The poorest children in the country are from households headed by
Agricultural Labourers, Non-agricultural Labourers, persons who are
unable to or too old to work, skilled agricultural and related workers
and Craft & related trade workers, Plant and Machinery workers.
82.7% out of the 682,000 poor children are from these five SEGs.
3. Out of the 5.5 million non-poor children under 18 years, 9.8% do not
have access to safe drinking water and 13.9%, do not have access to
safe sanitation.
4. Out of 984,000 children (15-17 years), 152,000 (or 16.0%) are not
attending school and more than 88% of them are from SEGs under 2
above and from households headed by those engaged in household work.
5. Any interventions to minimize child poverty or to provide access to safe
drinking water and safe sanitation, reduce school dropouts, etc., will
need to be focused mainly on the above indicated SEGs.

41

Incentive Payment
Latha is a recent migrant from Diddeniya,
Kurunegala who found a job as a housemaid
in SA through a licensed foreign employment
agency in the Kurunegala town. Since Latha
did not know about migration or the agency
in Kurunegala, it was Gunapala a sub-agent
who also lives in Diddeniya that introduced
Latha to the agency. Gunapala is an informal
representative of the agency in Kurunegala,
who mediates between the agency and
migrants like Latha. As such, the total incentive
amount of LKR 500,000 -600,000 is shared
by Lathas family, Gunapala and the agent in
Kurunegala.
The incentive payment to Lathas family totalled
to about LKR 250,000, while it was disbursed in
a rather intriguing manner. Initially Latha was
given an advance payment LKR 25,000 to cover
her miscellaneous costs involved in the run-up
to migration, while the balance (about LKR
225,000) was handed over to her husbandGamini, only after Latha boarded the plane to
SA. The timing of this large incentive payment
is aimed to curtail the possibility of potential
migrants changing their mind after obtaining
the incentive payment. However, this bizarre
timing of the incentive payment leads to many
adverse implications.

UPFRONT INCENTIVES:

Issues of upfront payment

of incentives

CARROT FOR MIGRANTS & CASH FOR OTHERS

by Bilesha Weeraratne

This article was written to mark International Migrants Day 18th

December 2015
Incentive payments to attract low skilled migrants are rare. But
in the case of Sri Lankan female domestic workers, employers of
several Middle Eastern (ME) countries such as Saudi Arabia, Qatar
and Bahrain are willing to bear an exorbitant incentive payment.
With regard to Saudi Arabia, it is estimated that the employer
makes a payment of around LKR 875,000 (or SAR 23,000), to source
a housemaid from Sri Lanka. Out of this amount, LKR 275,000 375,000 is retained by the foreign employment agent in SA to cover
costs and commissions, while the balance is sent to Sri Lanka.
Apart from about LKR 100,000 of the amount sent, the remaining
LKR 500,000 - 600,000 is shared by migration stakeholders as
incentives.
This article discusses the adverse implications of such upfront
incentive payments to migrants by focusing on the case of female
domestic workers from Sri Lanka (SL) to Saudi Arabia (SA).

42

One of the main issues is the upfront payment

being handed over to the husband while the
migrant-wife is en route to ME. This gives
her little control over how it is utilized. The
increase in disposable income to the household
even before the migrant takes up her duties
leads to the possible decrease in labour force
participation of the husband left behind, and
promotes an increase in unnecessary expenses
such as alcohol consumption and gambling. All
the while, the female migrant is accountable
to serve for the agreed two years since the
upfront payment was received by her party.
This increases her vulnerability at destination.
Meanwhile, it is common for husbands to
convince the otherwise unconvinced wives
to migrate for employment just to obtain the
incentive payment. In such cases the lack of
motivation by the woman to pursue a job in
the ME often leads to problems at destination
that necessitates her premature return,
inconveniencing the employer, agents in both
countries and the Sri Lanka Bureau of Foreign
Employment (SLBFE).

Yet another group of husbands and wives work

in unison to exploit the incentive payments by
going through the process and migrating only
with the intention of collecting the incentive
payment. Once at destination, these female
domestic workers would create some issue
and return to repeat the entire process with
another agent and collect yet another incentive
payment.
Given that the recruitment fee is paid upfront
by the employer, in both the above cases, the
agent in SL is responsible to replace a maid for
the employer or refund recruitment cost paid
(including the incentives). In such situations,
agents in SL work to recover the incentive
payment, failing which, the migrant would be
black listed.
Finally, since the agents and sub agents also
keep a share of the incentive payment, they
pressurize the workers to remain with the
employer for at least 3 months to avoid having
to return the incentive payment or to provide
a replacement worker. Such pressure also
contributes to female domestic workers being
compelled to endure abuse or bad working
conditions at destination.

Solution
The best solution to address the adverse
implications of this upfront incentive payment
is to include the same into their monthly salary.
Currently, Sri Lankan domestic workers are
paid about SAR 900, whereas Filipino female
domestic worker earns about SAR 1,500. As
such, including the incentive payment into
wages would benefit workers in many ways
such as greater control for female domestic
workers over their earnings, and greater
flexibility and fewer obligations towards the
employer and the agent as the incentives would
now be related to duration of service.
In the absence of efforts to address these large
upfront incentive payments, Sri Lankan workers
would become less competitive in the SA
market in price terms. For instance, in 2013 the
wage for a Filipino female domestic worker was
SAR 1,500 and the wait time for the maid to
arrive in SA was 20-90 days, while for a maid
from Morocco the wait period was four months
with a recruitment cost of SAR 12,000. At the
same time, the recruitment cost for a maid
from SL was around SAR 17,000 - SAR 25,000
with a monthly salary of SAR 900 and a wait
period of four to eight months. This indicates
how Sri Lanka is becoming less competitive
in terms of wages, recruitment costs and wait
times. At present, the cost to hire a maid from

SL has soared to SAR 23,000 surpassing SAR

19,000 charged by the Philippines.
In this connection, the latest budget proposal
to increase minimum wages for Sri Lankan
domestic workers to USD 300 (SAR 1,125) is a
step in the right direction. The proposal would
be better if it focused on the total remuneration
package which includes incentive payments
instead of wages only, so that Sri Lankan
workers would still remain competitive in Saudi
Arabia despite a higher minimum wage rate.
Note: SAR 1 = LKR 37 38 (estimated); The
names of the interviewed migrants have been
changed for anonymity.

IPS conducted a stakeholder consultation on Lowskilled Labour Migration - Value Chain Analysis of
Migration Cost at the IPS Conference Room, as
part of an on-going study by the IPS on Low-skilled
Labour Migration - Value Chain Analysis of Migration
Cost, supported by World Banks KNOMAD. The
purpose of the study is to map the value chains and
associated costs of low-skilled labour migration in
3 selected countries Saudi Arabia, Malaysia and
South Korea. IPS Researchers Bilesha Weeraratne,
Janaka Wijayasiri, Suwendrani Jayaratne and Project
Officer, Manavee Abeywickrema participated at the
discussion.

Bilesha Weeraratne also participated at the KNOMAD

Workshop on Measuring Migration Costs for the
Low-skilled held at the World Bank, Washington DC,
in November 2015.

43

is 66.4%, Science 71%, Agriculture 69.7%, Medicine 91.4% and

Engineering 94.7%. Furthermore, a majority of the unemployed (57%) and
underemployed graduates (50%) were from the Arts discipline. Further, it
reveals that among unemployed Arts graduates, 65% are willing to change
the field. Thus, it shows that providing better opportunities to learn market
oriented subjects - ICT subjects under the Arts stream will reduce the skill
mismatch between the demands of the market, and the skills of graduates.

Limited Opportunities for Science Education in

Schools
Limited enrolment for science related fields at higher levels of education
is mainly due to the limited access to A-Level science streams at school
level. As of 2013, out of 10,012 schools only 868 (less than 10%) had the
facilities to teach A-Level in the science stream, while there were 1,900
schools that offered subjects in A-Level arts and commerce streams. Due
to the lack of other options, many students are compelled to follow arts

facilities are concentrated in the urban and suburban centres, leaving out
rural areas. As such, parents who are the best judges of the situation
struggle to enrol their children in urban schools, and the economically
disadvantaged parents are forced to send their children, unwillingly, to
village schools.

Addressing a Critical Concern

It is a necessity to provide access to equal opportunities for education
to all students across the country. What needs to be done, therefore, is
to change the education system to remove voluntary and involuntary
discrimination that exists between rural children and urban children.
Opportunities for education in science should be extended to at least
3 schools with A-Levels per District Secretariat Divisions, especially in
rural areas. Schools should be given the required facilities to enhance
learning as well as teaching; such as activity rooms, IT facilities, science

Figure 2: Opportunities & Enrolment for Science Education at A-Levels

Schools with Classes upto

Grade 5
Schools with Classes upto
O-Level

by Priyanka Jayawardena
A knowledge economy widely uses knowledge for the countrys
growth and development process. Knowledge economy is
closely linked with science and technology, innovation, research
and development. Most countries recognize the importance of
scientific and technological progress for economic growth and
greater social well-being. For example, patent data shows a
wave of innovation in all member countries of the Organization
for Economic Co-operation and Development (OECD), across
many technology fields, particularly in ICT and bio-technology.
Recognizing the importance of science literacy, the OECDs
Programme for International Student Assessment (PISA) has
selected scientific literacy, which refers to both knowledge of
science and science-based technology, as the major domain for
the 2015 PISA assessment.

Rise in the Demand for Science and IT

In Sri Lanka too theres a high demand for science and
technology skills due to the structural changes that are taking
place in the economy. These include the transformation from
agricultural into manufacturing and services, a shift from labour
intensive to more knowledge intensive industries, expansion
of the Information and Communications Technologies (ICT)
sector, etc. As Sri Lanka transforms into an efficiency driven
middle income economy the demand for skills will continuously
rise. For example, ILO estimates that the employment demand
between 2010 and 2020 in Transport and Communication
will increase by 73.6%, and the Financial Services sector will
increaseby 81.6%. Therefore, an educated workforce with
market-oriented skills is a must where, for example, ICT skills
have become a fundamental requirement for service and
industry sectors of the economy. However, there is a shortage
of workers in science and IT related fields. The demand and
supply projections of the National ICT Workforce Survey of
2013 reveal a shortage in supply of graduate workforce for
2014. There is a shortage of 2000-3000 nurses in the country

44

at present, whereas three passes in A-level Biological Science is the required

minimum qualification for nursing.

Excess of Arts Graduates in the Country

Despite the rising demand for science and technological fields, theres a higher
supply for graduates in the Arts discipline, which has a lower demand. As of 2013
university admissions nearly 1/3 are Arts graduates (see Figure1). This is mainly
due to the fact that only a small proportion of students pursue A-Level in science
and mathematics subjects at school level. For example, as of 2013 A-level student
enrolment (471,000), almost half of them were studying Arts streams while 24%
and 27% were studying Science and Commerce streams, respectively. However,
Arts graduates employability is very low. According to Graduate Employment
Census 2012, the employability of Arts graduates is 32.1%, while Management
Figure 1: Distribution of University Admissions by Subject (2012/13)

Schools with A-Level

Arts/Commerce Streams
Schools with A-Level
Science Streams

Source: Ministry of Education (2013), Sri Lanka Education Information 2013

or commerce streams for A-Levels (Figure 2). Recognizing the need to

expand science and mathematics education, in 2003, National Education
Commission (NEC) recommended provisions for teaching mathematics and
science in all schools with GCE A-Level grades. However, during 20032013, only 262 schools included Science subjects for A-Levels. In addition,
schools that offer science subjects at A-Levels are not rationally located,
with a majority of such schools located in urban areas and almost one-fifth
of them located in the Western Province. Lack of geographical access to
science education has also limited access to more technical education at
higher levels. At present, student percentage in A-level Science stream
varies from 13.9% (Vavuniya) to 29.9% (Colombo).

labs, etc. Special attention should be given to improve teacher shortage

problems in rural areas. It is essential to reform the school and university
curricula by introducing more market oriented subjects such as ICT/
Technological subjects as core subject in each A-Level subject stream, in
order to bridge the countrys gap between demand and supply for these
vital skills.
Figure 3: Percentage of Secondary Schools having Science Labs and IT Teacher

Disparities in Access to Quality Education

Furthermore, there are disparities in the quality of education provided
across districts due to limited facilities in schools. In particular, there
are physical as well as human resource disparities for more demanding
subjects such as Science and IT (see Figure 3). Many of the schools have
very basic facilities and lack required resources to suit modern learning
needs such as science labs, activity rooms, IT facilities, etc. Although 2007
curriculum reforms have recognized IT as a tool for learning teaching
process, only 20% of primary schools and schools up to O-level grades
have computer facilities.

Source: UGC, University Admission (2013)

These figures, despite being negative, do not provide an overall picture

of educational problems, which in reality is even more disturbing. These
aggregates do not show internal disparities within a district where

Source: Constructed using Ministry of Education, School Census 2011 Data

45

How Innovative is Sri Lanka?

The distinction in defining entrepreneurship
causes some issues in measuring the
innovativeness of a country in a meaningful
manner. Most studies that attempt to quantify
entrepreneurship in a country usually measure
replicative entrepreneurship the number
of small businesses or the number of selfemployed people. While these numbers tell an
important story about the economy in their own
right, using them to determine innovativeness
paints a much distorted picture. A large number
of self-employed people are engaged in
grunt work such as cooking, cleaning, driving
etc., while most small businesses are small
convenience stores that may never grow into
anything more. Innovators on the other hand,
find a void in the market that has not been filled
and step in to do so.

Fostering
an Innovative
Entrepreneurial
Sri Lanka

Measuring entrepreneurship in Sri Lanka

is therefore still largely uncharted territory.
The GEI ranking is not a wholly accurate
representation for the country due to significant
methodological issues; for example, Sri Lanka is
not surveyed to calculate some key data values.
As such, it becomes difficult to state exactly
how innovative Sri Lanka is, although in a more
general sense it is clear that there is still a lot of
work to be done.

Barriers to Entrepreneurial
Growth in Sri Lanka

by Pamokya Marambe

Sri Lanka was featured in the recently released

annual Global Entrepreneurship Index (GEI) by the
Global Entrepreneurship and Development Institute
(GEDI). The country appeared in the Index for the
second consecutive year, however, dropped 16
places from its debut rank of 71st to place 97th in
the world.
Entrepreneurship also took a significant spot on
the local stage as the 2016 Budget proposed an
allocation of 500 million rupees to support Small
and Medium scale Entrepreneurs (SMEs), and
the creation of a central agency for SMEs. While
the country seems to be taking many initiatives
to promote entrepreneurs, there are still many
challenges. This article explores the problems that
Sri Lanka faces in terms of entrepreneurship and
innovation, and suggests possible solutions to
overcome them.

Who is an Entrepreneur?
In the global perspective, entrepreneurs are
regarded as an essential component in a

46

countrys economic growth. The interest and

studies on entrepreneurship have flourished in
the last decade, with many theories presented
on the classification and role of entrepreneurship
in the economy. Ignoring the more nuanced
classifications, Entrepreneurship can be broadly
defined as the capacity and willingness to
develop, organize and manage a business venture
along with any of its risks, in order to make a
profit. It is basically the process whereby an
individual makes use of the opportunities in the
current market place and create a new business
venture.
This definition is considered too broad by some
scholars, and they distinguish between replicative
entrepreneurs (those who set up businesses
copying already existing ventures), and innovative
entrepreneurs (who upset the existing way with
new and growth driven ventures). While replicative
entrepreneurship plays a part in lifting families out
of poverty, it is innovative entrepreneurship that
provides a sizeable boost to long term economic
growth of a country.

Innovative entrepreneurship largely depends

on a prospective entrepreneurs ability to
perceive opportunities in the market and
respond to them by starting a new business
venture. This entrepreneurial intent is affected
by both economic and socio-cultural factors.
The differences in socio-cultural and economic
factors are major external influences that
lead to certain parts of the world being more
conducive for entrepreneurial activity than
others. As such, a startup venture in Sri Lanka
cannot really be comparable to a similar venture
in Silicon Valley, California which has been
the breeding ground for thousands of startup
companies and is internationally synonymous
with innovative entrepreneurship. The latter
has a much more conducive environment
for fostering innovation, with a far superior
institutional structure to support it, which is a
stark contrast to the environment in Sri Lanka.
This makes it very important for Sri Lanka to
identify its own environment and the barriers
that entrepreneurs face, in order to achieve
innovative progress.
From a socio-cultural aspect, there are many
problems that can be identified as being

directly harmful to an innovative environment.

Studies have consistently found that Sri
Lankans, in general, are not favourable
towards entrepreneurism as an occupation.
This is partly a social standing issue as
entrepreneurship is considered an inferior
alternative to a salary/wage career path. Part
of this problem is due to the generalization of
all startups as reflective entrepreneurships,
which is associated with self-employment and
small businesses rather than the concepts of
innovation and value creation. The countrys
education system also plays a role in this issue
as there is little done to promote and encourage
entrepreneurism and innovative thinking.
Even when this barrier is breached, budding
entrepreneurs find themselves facing a range
of technical and economic problems in getting
their venture off the ground. Starting a business
in Sri Lanka is not always a walk in the park.
Barriers in areas such as enforcing contracts,
registering property and taxes are among
major reasons that startups do not look to
grow into large organizations that can provide
a significant boost to the economy, but prefer
to stay at a small manageable scale. Financing
is another major hurdle for startups as the
banking system in Sri Lanka is not a friendly
place for young entrepreneurs that have no
collateral to secure the necessary capital. A lack
of Angel Investor networks, which pool funds
and invest in small business startups, and other
methods to fund potential startups prevent a lot
of would-be entrepreneurs from ever getting
started.

Creating an Innovative
Environment

Introducing concepts of entrepreneurship

and innovation into the education system is
an important requirement to fulfill the first
approach. Entrepreneurship education can
contain two different elements. The broader
concept of education for entrepreneurial skills
and attitudes, which involves developing
the characteristics and qualities in a person
required for innovation. The other is a more
specific approach of training on how to
create a new business. In addition, promoting
Universities to get involved with fostering
entrepreneurial ventures would help connect
students from various fields required to get a
business venture off the ground. Introducing
these aspects into the education system would
go quite a way towards reducing the social
complexities associated with entrepreneurial
ventures.
Having a system in place to provide new
startups with access to credit without
unreasonable risk and simplifying the regulatory
procedures related to running a new business
venture are also two essential points that need
to be addressed. Angel investor networks and
venture capitals should be promoted to allow
the growth of high potential entrepreneurial
ventures.
Overcoming all these problems cannot be done
without a concentrated long-term effort by
both the government and the private sector. We
certainly cannot reach an innovative paradise
overnight, but if the need for innovation and
the barriers against it are acknowledged, Sri
Lanka would be on the path towards becoming
an entrepreneurial and economically stronger
nation.

Facilitating a more innovative and

entrepreneurial society to promote growth is
vital for the Sri Lankan economy. One important
aspect in this regard for policymakers is to
provide access to relevant data related to
innovation in Sri Lanka. Having an index that
works at subnational level and caters to the
countrys unique socio, cultural and economic
conditions would help obtain a better idea
of the strengths and weaknesses of policies
on fostering entrepreneurship. A dependable
measurement of entrepreneurship would
be a foundation for a targeted innovative
development program.
Facilitating entrepreneurship can be approached
from two angles. One is to encourage innovative
thinking and promote new ventures that create
value in the market. The other is to lower the
risks and barriers associated with startups,
allowing more people with commercial ideas to
start and expand business ventures.

47

for science education, in schools in remote rural areas and in the estate
sector, are a major concern. The children in these areas are deprived of a
quality education especially in the field of science and technology, even if
they have necessary aptitude and capabilities, because the facilities are
not available closer to where they live. Out of a total of 10,012 government
schools in the country, 28 per cent have classes up to Grade 13, out of
which only one third have a science stream.

Ensuring
the Rights of
Our Children:
What More
Can We Do?

Protection
It is the responsibility of all adults to protect the children from any form
of violence or maltreatment. Child maltreatment includes: physical
abuse, sexual abuse, emotional abuse and neglect. Parents need to
take special care to ensure that their children are protected from any
form of violence or abuse. Media reports shows that in Sri Lanka, the
number of reported cases of sexual abuse of children is increasing,
which needs the attention of everyone, especially that of the parents,
to take necessary preventive measures to protect their children. It is
always better to take suitable measures in advance to prevent any form
of abuse, rather than taking action after the abuse.

by Wimal Nanayakkara

On 14th December 1954, the United Nations General

Assembly recommended that all countries institute a
Universal Childrens Day, to be observed as a day of
worldwide fraternity and understanding between children.
The date 20th November marks the day on which the
Assembly adopted the Declaration of the Rights of the Child
in 1959 while the Convention on the Rights of the Child was
adopted in 1989. In Sri Lanka, the World Childrens Day was
celebrated on the 01st October, 2015.
The Convention, which is the most widely ratified
international human rights treaty, sets out a number of
childrens rights including the right to life, health, education,
play, as well as the right to family life, protection from
violence, discrimination and to be heard. As such, it is
the responsibility of all adults, especially of the parents to
ensure that childrens rights are protected and to build up a
conducive and friendly environment for all children.

Sri Lanka has almost achieved Universal Primary Education,

with the net enrolment rate reaching 99.7 per cent, indicating
that almost all children in the age range of 5 to 10 years
are in school. In addition to this, more than 98 per cent of
children aged 10 to 14 years are also attending school, which
confirms the effectiveness of making education compulsory
for all children up to the age of 14 years. However, after the

48

The National Child Protection Authority (NCPA) was established in 1998

for the prevention of child abuse and the protection and treatment
of children who are victims of such abuse. It is also mandatory for
the NCPA to co-ordinate and monitor all actions taken by the law
enforcement authorities, regarding all forms of child abuse. Any parent
could contact the authority if they feel that any of their children are
being abused or has been abused by anyone. Children themselves could
also contact the authority, if they need to talk to any official, regarding
any form of abuse they may be experiencing.

Photo Credit: Roshan Kaluarachchi

age of 14 years, some of the children, especially from poorer families,

start dropping out of schools. It is estimated that 16 per cent of children
in the age group 15 to 17 years are dropping out of school and are
Can Sri Lanka be satisfied that the above childrens rights
not attending any other educational institute either. These children are
are protected and every child in the country has the right to
mainly from poorer households headed by Agricultural, Forestry and
education, health, play, and to live in a friendly environment? Fishery Labourers, Skilled Agricultural, Forestry and Fishery Workers,
The answer to this question is yes, to a great extent
those engaged in Household Work, Non-agricultural Labourers and
compared to most developing countries. But there is a lot
Similar Workers and those who are Unable to or too Old to Work. As
more that needs to be done, especially regarding the children such, special attention of the authorities is essential to ensure that every
of poor families.
child in the country will have an education at least up to GCE (O/L), which
means the compulsory age for schooling need to be increased.

Right to Education

Under 5 Mortality Rate (U5MR) has declined from 21 in 1990 to 10 per

1000 livebirths in 2012 and Infant Mortality Rate has declined from
18 in 1990 to 8 per 1000 livebirths in 2012. Almost 99 per cent of
the children have received all the basic vaccinations, which includes
BCG, measles, three doses each of DPT and polio vaccine, before
reaching the age of two years. More than 98 per cent of the births are
attended by a skilled health worker, of which more than 74 per cent
are doctors. These achievements are mainly due free education and
health services provided by the state for more than 5 to 6 decades.
However, undernutrition of children under 5 years is still a major
concern. According to the latest estimates of the Family Health Bureau
(FHB), 17 per cent of children under 5 years are still underweight.
Statistics show that undernutrition starts to increase after the period of
exclusive breast feeding, especially after the age of around 7 months,
with the commencement of complementary feeding. The problem of
undernutrition needs continuous attention of the health authorities, as it
is a major health concern for children.

Quality of Education
There are a few other factors which may need the attention of
authorities, as well as parents. Although Sri Lanka can be proud of
achieving significant progress in the basic indicators on education,
the quality of education needs priority attention. There are regional
variations in the quality of education, as well as in the available facilities.
Inadequacy of qualified teachers and necessary facilities, especially

Right to Play
As specified in the UN declaration, childrens right to play is as important
as the right to education. However, some children in Sri Lanka are deprived
of this right, as many parents are too keen on sending their young ones
to tuition classes after school. Because of this practice, some children are
totally deprived of time to play, with their entire childhood devoted only for
education.. For a child playing is equally important as education. Playing
helps children in developing social skills, especially to work as a team, in
learning to be patient, in improving their creativity, etc. It is not only the
education which makes the child ready to take up the challenges they may
have to face later in life, when they go out to the society and work with
others. As such, it should be the responsibility of the parents to ensure that
children have sufficient time to play with other children, as well as on their
own, which helps them to improve their imagination and creativity.

What can we do?

Despite the satisfactory level of most indicators compared to many
developing countries, Sri Lanka still has a lot more to do to ensure that
no child is left behind. Despite the existence of childrens rights, some
children suffer from poverty, abuse, neglect, unequal access to quality
education, etc. As the convention on the Rights of the Child is addressed
to governments, it is the responsibility of all governments to ensure that
their rights are protected. However, the task of protecting the childrens
rights can only become a reality when they are respected by everyone
parents and other member of the family, teachers and others working in
schools, those working in other public and private institutions providing
services to children, law enforcement authorities and all levels of
government administration. As such, it is the responsibility of everyone
to ensure that the rights of every child are protected, as the children are
our future.

Health Achievements
In child health also Sri Lanka has done well, except nutrition which is
puzzling, as most of the other health indicators show steady progress.

49

Authors & TE Team

50

Dushni Weerakoon

Bilesha Weeraratne

Dushni is the Deputy Director of IPS

and the Head of Macroeconomic
Policy Research. She holds a PhD
in Economics from the University of
Manchester, UK. Her Research Interest
include; International Economics and
Trade, Macroeconomic Policy and
Planning, Regional Integration and WTO
Issues.

Bilesha is a Research Fellow, attached

to the IPS Labour, Employment and
Human Resources Development. She
holds a MPhil and PhD in Economics
from the City University of New York,
USA. Her Research Interests include
Immigration and Migration, Economics
of Education, Urbanization, Labour
Economics, Econometrics and Economic
Modeling.She is also a Member of the
Talking Economics Team.

Nisha Arunatilake

Manoj Thibbotuwawa

Nisha is a Research Fellow and the

Head of Labour, Employment and
Human Resources Policy. She holds
a PhD in Economics from Duke
University, USA. Her Research Interests
include Economics of Education,
Health Economics and Policy, Labour
Economics.

Manoj is a Research Economist with

research interests in agricultural
economics, agricultural trade, food
security and environmental and natural
resource economics. He holds a MSc
(Agricultural Economics) from the Post
Graduate Institute of Agriculture, Sri
Lanka. He is also a PhD candidate at the
University of Western Australia.

Athula Senaratne

Kanchana Wickramasinghe

Athula is a Research Fellow and the

Head of Environmental Economic
Policy. He holds a PhD from the Deakin
University, Australia. His Research
Interests include Environmental
Economics, and Agricultural Economics.

Kanchana is a Research Economist with

research interests in Environmental
Economics, Agricultural Economics, and
Poverty and Development Policy. She
holds a Masters in Economics with a
Distinction Pass from the University of
Colombo.

Janaka Wijayasiri

Priyanka Jayawardena

Janaka is a Research Fellow and the

Head of International Economic Policy
Research at IPS. He holds a PhD from
the Monash University, Australia. His
Research Interests include International
Economics and Trade, Regional
Integration and WTO Issues. He is also
the Editor of Talking Economics.

Priyanka is a Research Economist

with research interests in education
and skills development, labour market
analysis, inequality analysis, health
economics and child nutrition. She holds
a MA in Economics from the University
of Colombo.

Sunimalee Madurawala

Dharshani Premaratne

Sunimalee is a Research Officer attached

to Health Economic Policy. Her research
interests include health economics, gender
and population studies. She holds a
Masters in Economics from the University
of Colombo,

Dharshani is a Research Officer with

research interests in macroeconomic
policy and planning, International
economics and trade, Regional
Integration and WTO issues, and Trade
and Development. She holds a MA in
International and Development Economics
from the Australian National University,
Canberra.

Chatura Rodrigo
Chatura is an Economist with research
interests in Environmental Economics,
Agriculture Economics, Econometrics
and Economic Modeling. He holds an
MSc in Environment Economics from the
University of Peradeniya, MSc in Financial
Economics from the University of Colombo,
and an MSc in Food Agriculture and
Resource Economics from the University
of Guelph, Canada. He is also a PhD
candidate (Joint PhD) from the Universities
of Colombo and Guelph, Canada.

Wimal Nanayakkara
Wimal is a Senior Visiting Fellow of IPS
with research interests in Poverty and
Development Policy , and is a specialist in
Sampling. He was previously engaged at
the Department of Census and Statistics,
where he functioned as the Director
General for 12 years.

Kithmina Hewage
Kithmina is a Research Assistant with
research interests in International Political
Economy including WTO issues, Trade and
Development, Export competitiveness,
and Foreign Direct Investment. He holds
an MSc in International Public Policy from
University College London. Kithmina is also
a member of the Talking Economics Team.

Pamokya Marambe
Pamokya is an Intern at IPS, and hes
currently following an undergraduate
degree in economics and finance.

Dishnika Perera
Dishnika is Manager Communications
& Strategic Outreach at IPS and is
a member of the Talking Economics
Editorial Team. She holds a BA (Hons)
from Coventry University, UK.

Suwendrani Jayaratne
Suwendrani is a Research Officer attached
to International Economic Policy. Her
Research Interests include international
economics and trade, trade facilitation,
regional integration and macroeconomic
policy. She holds a MA in International
and Development Economics from the
Australian National University, Australia.

Nipuni Perera
Nipuni is a Reserch Assistant with
with research interests in international
economics, trade and industrial policy, and
macroeconomic policy. She holds a BA
(Hons) in Economics from the University of
Colombo.

Raveen Ekanayake
Raveen is a Research Officer with
research interests in trade, foreign
direct investment, and private sector
development; and is a member of the
Talking Economics Team. He holds
a Masters degree in Public Policy,
specialising in Economic Policy from the
Australian National University.

Charmaine Wijesinghe
Charmaine is Manager Publications
& Events at IPS and is a member of the
Talking Economics Team

51

International Seminar on Trade

and Employment Challenges:
Insights for South Asia

Dr. Saman Kelegama made a presentation

on Changing Patterns of Trade, Regional
Trade Agreements, and Employment in Asia
at the International Seminar on Trade and
Employment Challenges: Insights for South
Asia in Delhi, India during 16-17 December.
The Session was Chaired by Prof. Deepak
Nayyar, Emeritus Professor of the Jawaharlal
Nehru University. The seminar was organized
by the Institute of Human Development and
the ILO (Delhi Office) and was graced by
many international and regional experts.

IPS
NEWS

July December 2015

36th National Conference of the

Institute of Chartered Accountants
of Sri Lanka

Dr. Saman Kelegama and Dr. Dushni Weerakoon,

were panelists at the 36th National Conference
of the Institute of Chartered Accountants of Sri
Lanka (CA Sri Lanka), held under the theme
Catalyst 15: Collaborate to Compete. The
event was held from 4th 6th November 2015,
at the BMICH Colombo, where Dr. Kelegama
and Dr. Weerakoon shared their insights and
expertise in Technical Sessions addressing
issues of Economic Collaboration and Private
and Public Sector Collaboration, respectively.
There were over 1500 participants at the
event, which was held with the aim of inspiring
Sri Lankan businesses on the importance
of collaboration to help foster closer and
sustainable partnerships with their service
providers, employees and even competitors in
order to achieve holistic business excellence.

Stakeholder Consultation on
Exporters Perspective on Accessing
Chinese Market and Non-Tariff
Measures

Regional Workshop on Enhancing

Capacities for Trade in Services
Policymaking and Negotiations

IPS Researchers, Dharshani Premaratne and

Kithmina Hewage participated at a regional
training workshop on Enhancing Capacities
for Trade in Services Policymaking and
Negotiations which was held in Colombo
in November 2015. The workshop aimed
to create awareness among stakeholders
understanding on the collection and use
of services trade statistics; institutional
mechanisms for services-related decisionmaking; and improving competitiveness in
the services sector. The participants included
services negotiators, policy-makers and
other non-state actors from the private sector
and civil society within the SAARC region
representing India, Bangladesh, Nepal and
Sri Lanka. The four-day workshop was
supported by the UK-funded Trade Advocacy
Fund (TAF) and jointly delivered as an
initiative of the International Lawyers and
Economists Against Poverty (ILEAP), CUTS
International Geneva and the Centre for the
Analysis of Regional Integration at Sussex
(CARIS), alongside IPS.

Strengthening Capacity of Women

Entrepreneurs

The 8th South Asia

Economic Summit

South Asian Regional Meeting of the

Think Tank Initiative

Second BIMSTEC Network of

Policy Think Tanks

BCIM Regional Interconnection

Conference

IPSs Dr. Saman Kelegama, Dr. Dushni Weerakoon,

Dr. Nisha Arunatilake and Dr. Athula Senaratne
were panelists at the Think Tank Initiatives 5th
South Asian Regional Meeting held in India. They
covered sessions on Economics of Cooperation
in South Asia, Emerging Challenges and
Opportunities for South Asia and the Role of
think Tanks: Country Context, Data Points and
Visual Maps: Case Demonstration, and Climate
and Environment, respectively. The event
was organized by CPR Delhi during 18th -20th
November 2015.

Janaka Wijayasiri participated at the 2nd

BIMSTEC Network of Policy Think Tanks
(BNPTT) Meeting in October 2015, cohosted by the Ministry of Foreign Affairs of
Thailand and the Indian Studies Centre of
Chulalongkorn University, Bangkok, Thailand.
The meeting emphasized the need to foster
people-to-people contacts at all levels and
highlighted priority areas of cooperation for
the BIMSTEC. IPS is the focal point in Sri
Lanka for BNPTT.

IPS Researchers Janaka Wijayasiri, and Nipuni

Perera participated in the One Belt, One
Road (OBOR) and Bangladesh, China, India,
Myanmar (BCIM) Regional Interconnection
Conference organized by the Institute of World
Economics and Politics/Chinese Academy of
Social Sciences (CASS), in Beijing, China in
August 2015. The objective of the conference
was to discuss trade, investment, economic
cooperation amongst countries in the
region under the OBOR and BCIM initiatives.
Participants from think-tanks/institutes in
Bangladesh, China, India, Myanmar, Pakistan
and Sri Lanka attended the conference.

SARNET Young Scholars

Symposium

Seminar on Inequality, Inclusive

Growth and Fiscal Policy in Asia

Presentation by Deng Lan,

Associate Professor at the
Institute of South Asia Studies,
Yunnan Academy of Social
Sciences
Samanthi Bandara was awarded a research grant
by the SARNETs Competitive Call for Paper by
Young Scholars from South Asia on her research
proposal titled What Factors Matter for Choice of
Livelihood by the Older Workers. She presented
her research paper at the SARNET Young Scholars
Symposium on Education, Skills, and Social
Protection in Emerging Labour Markets: Issues
and Perspectives for Inclusive Growth in South
Asia, held in October 2015, at the Institute for
Human Development (IHD), New Delhi.

Principal Economist of the Asian Development

Bank (ADB), Dr. Donghyun Park conducted
a seminar held at the IPS Conference room
on Inequality, Inclusive Growth and Fiscal
Policy in Asia at the IPS, where he shared an
overview of a publication on the title which he
had co-authored.

International Association for

Feminist Economics

Social Protection Forum Asia

The 8th South Asia Economic Summit (8th

SAES) was held in Pakistan, under the
theme Regional Cooperation for Sustainable
Development in South Asia. IPS Executive
Director, Dr. Saman Kelegama, Deputy
Director, Dr. Dushni Weerakoon, Research
Fellow, Dr. Athula Senaratne, and Research
Officer Dharshani Premaratne were resource
persons at the summit. The Summit organized
by SDPI (Pakistan) in partnership with CPD
(Bangladesh), SAWTEE (Nepal), RIS (India),
and IPS (Sri Lanka); was held in Islamabad,
Pakistan, during 7th and 8th of December
2015.

52

IPS conducted a Stakeholder Consultation

Meeting to discuss and validate findings of a
study on Exporters Perspective on Accessing
Chinese Market and Non-Tariff Measures
(NTMs) in December 2015. The main findings
of the study were presented by Dharshani
Premaratne and Nipuni Perera, Researchers
working in the IPS International Economic Policy
Unit, while the Head of the Unit Janaka Wijayasiri
shared findings of a previous study carried out
by IPS to identify the potential exports from Sri
Lanka to China under the proposed free trade
agreement. Among those present at the meeting
were representatives from Department of
Commerce, Export Development Board, and the
private sector.

IPS conducted a Brainstorming Session

on Strengthening Capacity of Women
Entrepreneurs in Small and Medium
Enterprises (SMEs) in Asia for Capturing
Benefits of Globalization with a Special
Emphasis on Sri Lanka. The aim of the
discussion was to gather expert insights
for a proposal of the same topic; the IPS
is developing together with the Bridging
the Gap Foundation Asia (BGFA). Research
Officer, Sunimalee Madurawala, presented
background information of the proposal.
Dr. Saman Kelegama of IPS and Dr. Ravi
Ratnayake, the Secretary General of BGFA
were also present.

Ganga Tilakaratna made a presentation on Social

Protection for Informal Sector Workers in Sri
Lanka at the 2nd Social Protection Forum Asia on
Social Protection in the Informal Sector-Incentive
or Hindrance to Formalisation?. The two day
event organized by the Friedrich-Ebert-Stiftung
(FES) in October 2015 in Bangkok, Thailand,
brought together about 25 experts / researchers
working in the area of social protection from
around the world.

Sunimalee Madurawala, participated at the

24th International Association for Feminist
Economics (IAFFE) Annual Conference held
from 16th 18th July at the Berlin School
of Economics. She was a discussant at
the Roundtable Discussion on Promoting
Regional Economic Integration? Women
Entrepreneurs Challenges and Opportunities:
Evidence from South Asia and presented
the findings of the IPS research study on
Products with Regional Trade Potential and
Associated Non-tariff Barriers, with special
focus on Women own and/led Micro Small and
Medium Enterprises: A Case of Sri Lanka.

Institute of South Asia Studies, Yunnan

Academy of Social Sciences met Dr. Saman
Kelegama and the IPS Research Staff and
shared her thoughts on promoting economic
and trade cooperation between Sri Lanka and
Yunnan Province of China, which is keen to
foster closer relations with South Asia.

IPS
NEWS

July December 2015

53

Talking Economics
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3
5

6
7

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12

13

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16

Prizes for 3 lucky readers

Complete the puzzle and send in the correct answers

based on the articles to talkingeconomics@ips.lk under the
subject : Talking Economics Puzzle

ACROSS
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investments by competitors, it is imperative that

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The first all correct entry opened wins the first prize of Rs 1500;
the second Rs 1000 and the third Rs 500.
State your name, address, telephone in your submission.

exporters to India

10

Employers of several Middle Eastern countries bear

an exorbitant incentive payment to source a type of

11

worker from Sri Lanka.

Ocean region is rich with diversified marine ecosystems, fisheries and aquaculture resources

12

This industry in Sri Lanka is characterized by

significant skill gap

13

Sri Lanka has built an international reputation in

supplying of premium high quality products to the
world market

15

With concerns over climate change, the contribution

of this source of energy may reduce in the future.

16

Government owned low-cost carrier

In a startling revelation, the top eight

private sector licensed commercial banks
have given out a staggering Rs. 48.6 billion
worth of leases during the first nine months
of 2015, accounting for close to 20% of the
total growth in their loan books during the
period.

Rs. 48.6 billion

2 The poorest children in Sri Lanka are from house-

According to a global and regional

estimate released by the International
Labour Organisation, at least 52.6
million women and men above the age
of 15 were listed as being domestic
workers, with women constituting 83
per cent of the total figure. In other
words, one in every 13 women
participating in the labour force will be a
domestic worker.

4 Nearly 1/3 of university admissions are in this

52.6 mil

such reforms are immediately initiated in Sri Lanka.

One of the main issues confronting Sri Lankan

A Survey carried out by the Census and

Statistics Department has revealed that there
were more than five million housing units
owned by Individuals in the country. While
Gampaha District reported the highest number
of units at 607,662, Mannar reported the
lowest number of units at 23,539.

5mil

17

FAST
FACTS

10

Growth of income per person in Sri Lanka has averaged a little

more than 7% a year over the past five years, following average
growth of just over 5% a year in the preceding nine years.
Amongst the six largest South Asian countries, Sri Lanka has the
highest level of economic output per person. Whereas 15 years
ago 80% of its output was generated by manufacturing and
services, today that figure stands at more than 90%.

DOWN

1 Capacity and willingness to develop, organize and

manage a business venture along with any of its
risks, in order to make a profit
holds headed by Labourers in this sector
discipline.

5 01st October is celebrated in Sri Lanka as a day for?

6 Worlds second largest and fastest growing market
8 A major occupational health hazard paddy farmers
are exposed to.

9 Kills more people every year than malaria, AIDS, and

tuberculosis combined

14 A scheme, instituted in 1974 and renewed periodi-

The supply of luxury

apartments in the commercial
capital Colombo could reach
6000 units by 2018-19,
according to a recent report
by the Research Intelligence
Unit, up from 783 in 2009 and
2657 in 2105.

Sri Lanka growth lags behind

South Asia described as
fastest-growing region in the
world with 7.4%. The countrys
economic is tipped to grow at
5.6% in 2016 up from 5.3% in
2015.

68th

Puzzle

7.4%
unemployment

Sri Lankas unemployment rate in

the third quarter of 2015 rose to
5% from 4.2% in December
2014 and 4.5 percent in the
second quarter of 2015.
According to the latest Sri Lanka
Labour Force Survey estimates of
the Census and Statistics
Department, the number of
unemployed persons estimated
during 3Q15 was of 453,956.

GROWTH

7%

Sri Lanka has moved up five positions

to rank 68th in a global index of
world's most competitive economies
for the year 2015-16. Switzerland
topped the table for the seventh
consecutive year. The Global
Competitiveness Report 2015-2016
assesses the competitiveness of 140
world economies. According to the
Global Competitiveness Report of
2014/ 5 Sri Lanka secured 73rd
position out of 144 countries.

132,483
Sri Lanka has 132,483 SMEs,
contributing towards a third of
GDP and 880,066 micro
enterprises.

35.5% 64.5%

100 billion
Sri Lanka printed over 100 billion LKR in
mid-2015 to meet deficit spending, resist a
market interest rates rise and contractions
in the monetary base amid capital flight,
official data show.

$ 330 million

Sri Lankas estimated economically active population

is about 9 million in the third quarter 2015 according
to latest Sri Lanka Labour Force Survey conducted by
Department of Census and Statistics. Out of this 64.5%
are males and 35.5% are females.

One of Indias biggest real estate development

groups, Shreepati Edifice Ltd. has signed an
agreement with the Board of Investment of Sri
Lanka to invest $ 330 million to construct a mixed
development hybrid project, the 1996 Iconic Tower.
This magnificent high-rise iconic tower will be the
landmark and the tallest building in the country.

Sri Lanka has fallen in the global Open

Budget Index to the lowest levels and
is just ranked above Nepal from
the South Asian region, a survey
done by Verit Research said. In the
Open Budget Survey published in
September 2015, gave Sri Lanka a low
score of 39 a significant decline from
the 46 that Sri Lanka scored in 2012
and well below the present global
average of 45. The survey evaluated
the budget that was implemented for
2014.

cally is designed to promote trade in developing

54

countries.

55

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A PUBLICATION BY THE INSTITUTE OF POLICY STUDIES OF SRI LANKA