Skype Doctors

I saw this story about e-medi help and remote diagnosing and it reminded me of one of my first exposures to the power of ICTs in bridging the services gap for people. It was on a World Bank field visit during a summer project back in 2006, we were going around the country visiting project sites of the ‘e-Sri Lanka’ initiative funded by the Bank and implemented by the ICTAgency. We stopped at the Kurunegala teaching hospital to witness how doctors were using Skype to help patients get preliminary diagnoses for complicated illnesses from specialist doctors based in Colombo. This had transformed the time and cost incurred by people living in Kurunegala and beyond – they could avoid the full travel to Colombo and obtain initial diagnosis via Skype from the medi kiosk at the hospital, and also use it for more regular follow ups and checks up with specialists without travelling to Colombo and staying in long queues.

  
This article about how it’s playing out in the US is more about direct patient to doctor contact through Skype from home, especially in emergencies. Yet this has important implications for medical care contexts where demand services are severely tretched beyond the resources available and what can be offered and how quickly. 

http://www.nytimes.com/2015/07/12/health/modern-doctors-house-calls-skype-chat-and-fast-diagnosis.html

“She sat with her laptop on her living room couch, went online and requested a virtual consultation. She typed in her symptoms and credit card number, and within half an hour, a doctor appeared on her screen via Skype. He looked her over, asked some questions and agreed she had sinusitis. In minutes, Ms. DeVisser, a stay-at-home mother, had an antibiotics prescription called in to her pharmacy.

The same forces that have made instant messaging and video calls part of daily life for many Americans are now shaking up basic medical care. Health systems and insurers are rushing to offer video consultations for routine ailments, convinced they will save money and relieve pressure on overextended primary care systems in cities and rural areas alike. And more people like Ms. DeVisser, fluent in Skype and FaceTime and eager for cheaper, more convenient medical care, are trying them out.”

Promoting Entrepreneurship in Sri Lanka: Balancing the Government’s Role and Introducing an Entrepreneurship Climate Index

Smart Future entrepreneurship

This article originally appears in the Daily Mirror Business of Thursday 9th July, under the weekly ‘Smart Future’ column.

Entrepreneurship is very much about ideas and efforts of individual (or a collective) of private actors, who start a business, hire employees, make profits, invest, expand, etc. – all through private initiative and risk-taking. So, to talk about a role for government in all this might seem unnecessary. At the same time, believing that there is no room for government and policy in fostering entrepreneurship is also a fallacy. There are two aspects to the government’s role in promoting entrepreneurship – the first is knowing when and how to get out of the way, and the second is knowing when and how to help create a way.

Where to Get Out and Where to Get In

Government policies can sometimes hurt and sometimes help entrepreneurs. In shaping a conducive climate for entrepreneurship, we need to look at what are the regulations, rules, government procedures, regulatory provisions, policy bottlenecks, etc., that get in the way of entrepreneurship and innovation. For instance, are the rules around starting up and running a business conducive for young entrepreneurs?; are government institutions geared to understand the needs of a new breed of young entrepreneurs?; are the fiscal and financial frameworks in place to support them? Then we must also look at what specific initiatives that must be in place to create a helpful path for entrepreneurs. For instance, can there be government support to encourage the setting up of affordable working spaces for new start-ups?; what can be done to increase the speed and coverage of broadband internet and telecoms infrastructure to help entrepreneurs leverage digital technologies?; are rules around land use and property development – the taxes and ownership rules for example – helping or hurting investment?; is the visa regime in place to attract good talent from abroad and cross-fertilize here in Sri Lanka?; to bring in mentorship and networks among Sri Lankans and others abroad?. These are some critical areas that the government can lend active support, to shape a better climate for entrepreneurship.

Sri Lanka Needs an ‘Entrepreneurship Climate Index’

Many of these questions need to be looked at not only at a national level but also at a sub-national level. This requires a rethinking of how we measure the entrepreneurship climate at the sub-national level, as existing indicators are inadequate. The Doing Business Index, for example, measures costs and delays in government procedures and regulations in the largest commercial city of the country, i.e., Colombo. Previously, the Asia Foundation’s Local Economic Governance Index has attempted to measure sub-national business climates but there was no continuity in the assessment and therefore planning and measuring change over time was not possible. Sri Lanka needs a new comprehensive assessment of entrepreneurship for the whole country – and I suggest an ‘Entrepreneurship Climate Index’. This ‘ECI’ can not only measure elements that traditionally form the basis of an entrepreneurship climate – like start-up regulations, access to infrastructure (like electricity, roads, water, etc.), but also elements like the availability of start-up financing and the entrepreneur-friendliness of local bank branches; the attitudes towards entrepreneurship of young people in different localities (rather than job seeking); the perceptions on constraints faced by young entrepreneurs in different regions; the availability of land, workspaces, and incubation facilities for new start-ups; the spread and quality of services by government agencies that support entrepreneurship (like the National Enterprise Development Authority, the Industrial Development Board, the Industrial Technology Institute, the Inventors Commission, the Registrar of Companies, etc.); the quality of networks between young or new entrepreneurs and the leading businesses, trader associations and chambers of commerce in a locality; and other measures to capture the quality of the entrepreneurship eco-system.

A Good SME Policy Can Help Entrepreneurship

Any policy framework that focuses on the overall small and medium enterprise sector – an SME policy – can help all entrepreneurs. It’s unfortunate that 13 years since Sri Lanka developed an SME White Paper, we are yet to see it become a full-fledged policy document. The latest effort at legislating a SME Policy Framework, which was near completion, has also stalled due to the dissolution of Parliament. Such a policy framework is important because it pushes all government agencies relevant to this area to align their work towards supporting entrepreneurship; to focus their efforts and make them coherent so that businesses truly benefit. It can help streamline the numerous ad hoc, overlapping, wasteful and ineffective entrepreneur development programmes currently being implemented, and focus efforts on where government support is truly needed. It brings a clear focus on what the government should do and should not do. It also helps those outside of government – private sector, chambers of commerce, development agencies, and universities – orient their work towards supporting this agenda. Overall, it gives a national push – from the local schools to the highest government agencies.

Renewed Focus

Once the latest round of elections are done with, we need to focus on gearing regulations and administrative procedures towards fostering entrepreneurship and innovation. We need tight rules for the right reasons, not long rules for the wrong reasons. Let’s look at the policies that are holding entrepreneurship back, and improve them; and let’s look at the policies and programmes that can help entrepreneurship and fine tune them and scale them up. Everyone can and should influence that process. Our goal should be to make Sri Lanka the “best place in Asia for a young entrepreneur to start and grow a business”.

This is the 18th article in the ‘Smart Future’ series that advances ideas on competitiveness, innovation, and economic reforms.

Enhancing Knowledge Capacity for Sri Lanka’s Energy Sector: Takeaways from the Energy Symposium

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This article originally appears in the ‘Smart Future’ column of the Daily Mirror Business on 1st July 2015. At the Energy Symposium, my speech during the Energy, Economics, and Policy session was drawn from a recent ‘Smart Future’ article on the global oil dynamics and implications for Sri Lanka – https://thecurionomist.wordpress.com/2015/06/03/the-evolving-dynamics-of-the-global-oil-market/

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It is now recognised that for developing countries like Sri Lanka, meeting the energy needs of an economy aspiring to achieve rapid growth, while ensuring environmental sustainability, is a key challenge. The Energy Symposium held last week, organized by the Ministry of Power and Energy on the theme ‘Energy Challenges in the Knowledge Economy’ was an important effort in putting the energy agenda front and centre. There was an impressive range of technical presentations made at the symposium, including how to reorient the transport sector to be more energy efficient, leveraging renewables like solar and wind, leveraging biofuels as a new alternative, keeping nuclear energy options open, and institutional reforms to meet evolving energy challenges. Amidst this, a crosscutting theme that resonated throughout, was about building up the knowledge capacity in the energy sector. This article highlights a selected set of key takeaways from the Symposium that relate to this.

Preparing for a Mannar Oil/Gas Era

Although progress in tapping the oil and gas reserves in the Mannar basin has been slow, with exploration running into various obstacles, a takeaway from one of the first sessions was that the state institution charged with leading this task – the Petroleum Resources Development Secretariat (PRDS) – has been doing a lot to build up capacity in, and enhance the country’s readiness for, this emerging industry. The PRDS has begun implementing a very progressive and holistic capacity building programme, including conducting research on what models have worked globally and what can be adapted for Sri Lanka’s own approach, and hiring young graduates and providing opportunities for on-the-job training (including sending them to Cairn India’s off-shore drill ship). Efforts to help local parties gain more and more from domestic oil and gas exploration activities have had early success. The PRDS reported that 23% of the 60 services contracts went to local parties, and 17 local businesses have benefited. But on the technical capacity, there are gaps in what the academia supplies and what the industry demands. This doesn’t seem to be a problem unique to Sri Lanka, however. For instance, a study by global energy giant NEXT (a Schlumberger company) revealed that around the world, only a handful (3-4) types of technical worker categories are produced by academic institutions, compared to over 25 categories that the industry demands. The PRDS needs to be supported to implement the policy reforms needed to expand the capacity in this sector.

Partnering with China for Renewables

Another takeaway was how China can possibly be a key partner in supporting Sri Lanka’s renewable energy thrust. Sri Lanka has an ambitious medium-term goal (under the CEB’s Generation Plan) of a 20% contribution from Non-Conventional Renewable Energy (NCRE) by 2020. If this is to be mainly met by solar and wind power, Sri Lanka must look at closer partnerships with countries that have the capacity to help us get to these targets. One good example is China. With a mix of policy pushes and practical considerations, China has developed a huge renewable energy capacity over the last decade. It is not unusual to see hundreds of kilometres of Chinese roads, highways, and local streets being lit up by solar-powered lights, and the emergence of a number of Chinese renewable energy companies with competencies rivaling those in the West. Specialised companies like the China Power Engineering Consulting Group have developed capabilities to undertake international contracts. Last year, China emerged number one globally in the installed capacity for wind power. There is a prima facie case to be made for Sri Lanka to cooperate with China closely to access the required technical capacity and technology transfer, as well as possible joint ventures and foreign direct investment, in order to meet our NCRE goals. The proposed China-Sri Lanka Free Trade Agreement could include a separate environmental goods section, and the FTA could be leveraged to build technical and technology partnerships beyond just the trade in goods.

Enhancing Technical Capacity and Research

A recurring theme throughout the Symposium – from the speech by the Hon Minister of Power and Energy to the comments by the technical experts – was the need for an aggressive push to enhance Sri Lanka’s local capacity in the energy sector. As the energy mix changes, new domestic energy sources are explored (like oil and gas resources in the Mannar basin), and more complex energy innovations occur globally with relevance for Sri Lanka, the country will need to move away from the over-reliance on foreign expertise and build up the engineering, technical, and planning talent in the energy sector. Encouragingly, the Symposium revealed that there is a lot of interest and latent knowledge among Sri Lankan academics on various aspects of energy. Yet, as acknowledged by many of us who spoke at the sessions, there is room to increase the volume and quality of energy-related research. For instance, a Sri Lankan university can explore setting up a specialised Centre for Energy Security, while another can introduce a postgraduate degree in Energy Economics. An existing engineering faculty can consider introducing a new Petroleum Engineering specialised degree to cater to an era where domestic resources like those in Mannar are tapped. Partnerships can be forged with specialised South Asian think tanks like the Centre for Science, Technology and Policy (C-STEP) in India that is conducting influential policy research on energy efficiency and smart grids. The Ministry of Power and Energy could play a lead role in helping universities and research institutions develop new research programmes to cater to the knowledge needs of the energy sector so that national policies as well as firm-level strategies regarding energy can be better informed by evidence and cutting edge ideas.

This is the 17th article in the ‘Smart Future’ column that advances ideas on competitiveness, innovation, and economic reforms. 

Enhancing Skills to Escape the ‘Squeeze’

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This article originally appears in the Daily Mirror Business of 17th June 2015, under the weekly ‘Smart Future’ column.

As the Sri Lankan economy makes the tricky transition through middle-income, it will increasingly feel a lot like a ‘squeeze from two sides’. From one side, Sri Lanka is being squeezed on wage costs – we are no longer a cheap, poor-skilled labour destination and countries like Bangladesh, Vietnam, and Cambodia have the labour cost advantage over us. On the other side, Sri Lanka is squeezed from high-value producers – we do not have a highly skilled workforce producing exports at the upper ends of the value spectrum. For Sri Lankan businesses, this ‘squeeze’ will be the challenge that defines the next decade.

Skills Constraint

In nearly every conversation with business leaders, the lack of skilled workers for their business comes up as a complaint. According to Enterprise Surveys, a far higher proportion of Sri Lankan firms report the lack of an adequate labor force as ‘a major or severe constraint on their operations’ (16%), compared to several other South Asian countries (Pakistan 8.1%, Nepal 5.9%), and over one-fourth of manufacturing firms experience skills constraints. Roughly less than 5% of all 20-24 year olds in Sri Lanka are in university and less than 5% are in a technical and vocational education or training (TVET) programme. Meanwhile, a 2014 World Bank study warned that, “Current skills development programs are not yet well-integrated with national development priorities”.

Do Universities Hold the Answer?

Over recent years universities have been continuously blamed for not producing employable graduates – graduates with the skills demanded by businesses. One indication of this gap is the high number of unemployed young people among university graduates. This group then pressures the government to recruit them, and due to political compulsions, the government ends up absorbing them in to the workforce. It is widely acknowledged now that Sri Lankan universities need to reorient their curriculum and get better at preparing university students for the world of work. A promising example of where this is working well is the University of Moratuwa. Industry leaders are part of academic advisory councils; private sector firms help to shape and refine the curriculum; and joint research, internships, and competitions help students understand what firms are looking for. This brings the teaching much closer to what the world of work demands. There is also a case for introducing new courses in line with emerging needs – for instance, more postgraduate and professional programmes in tourism management, construction management, technology entrepreneurship, social business, etc. Yet, expecting universities to fix the whole problem is optimistic. While they do have a role in teaching in ways that build critical thinking and analytical skills – skills that are transferable in any job – they also exist to contribute to a better society more broadly. Universities don’t solely exist to batch-manufacture potential employees for firms, and all university graduates cannot be ‘engineered’ to be attractive to firms. Especially considering that state universities are able to grant entry to around 18% of qualified students each year, leaving over 100,000 behind, universities cannot be the panacea to the skills gap problem.

Expanding Support for Other Tertiary Education

State universities should not be the end all and be all of a young Sri Lankan’s education prospects. Non-state university and non-university education provision must be expanded. We often hear politicians touting a system that grants free education up to university. While this may be true for the primary and secondary level, at the tertiary level free education extends to less than 150,000 young people. We must expand this to cover more people, and taking advantage of private provision is a key element in it. Firstly, Sri Lanka must pass the required legislation to recognise and regulate private higher education providers. Secondly, the government can provide vouchers for students who did not get into state universities to go and obtain higher education or vocational training from an institution of their choosing. It can either be a state-run UNIVOTEC or TVET facility, or an approved private sector institution (with a maximum limit for tuition costs). This way, the state is genuinely expanding free tertiary education to more, rather than the current few. Government funding can be directed to state training institutions that seem to be attracting more students (due to quality, relevance, etc.) and may require greater investment to expand capacity.

Strategic PPPs to Build ‘Oases of Talent’

There will always be specific skills needs in specific industries, which may not be met by general training programmes offered by TVET institutions. Put differently, there may be a need to develop ‘oases of talent’ amidst an otherwise dessert of skilled labour. This is where strategic private-public partnerships can come in. For instance, if the government is focussing on aviation services, maritime, or logistics sectors as potential thrust areas but the skills shortage proves to be a substantial barrier, it can partner with the private sector to fix this. Instructive lessons can be drawn from Penang in Malaysia. The high-tech electronics firms that located in the Penang Export Hub, at the invitation and facilitation of the state government, soon realized that they would come up against a skills shortage, along with evolving technologies. The government knew that soon these firms would begin to look at relocating to other countries (or indeed other parts of Malaysia) where better skills would be available. To boost the skilled worker pool and to ensure that these firms can continue to be competitive, the Penang Development Corporation partnered with the firms to set up a special training facility under a PPP model – the Penang Skills Development Centre. This facility produced a steady stream of highly trained workers, required by the firms located in Penang. And since the firms were directly involved in shaping the training programme itself, there was no question of industry relevance not being met.

Conduct ‘Relevance Audits’

There are numerous state-run vocational training programmes for young people, administered by various government institutions. But according to the World Bank (2014) study, over 50% of employers reported that the quality and relevance of TVET curricula were not good. To ensure these are inline with economic needs and industry requirements, the government can conduct ‘Relevance Audits’. The audits, done with the involvement of industry/sector experts, can look in to the curriculum and pedagogy, to see if they are industry relevant. This extends the steps taken in university courses to improve relevance, for instance the World Bank’s ‘Improving Relevance and Quality of Undergraduate Education’ (IRQUE) project.

Lets Open Up to PISA

More broadly, it’s time that Sri Lanka exposed its general education system to a global audit, by way of participating in international performance benchmarks like the Programme for International Student Assessment (PISA). Conducted every three years by the OECD, the PISA tests assess the math, science, and reading ability of 15-year old students around the world. About 64% of employers have reported that the general education system is not meeting their skill needs. We are proud of our long tradition of island wide free education and relatively high educational outcomes, so a weak global performance on such assessments could be politically tricky to handle. But it may provide a crucial alarm call and spur much-needed action.

Challenge Ahead

As Sri Lanka navigates through a tricky middle-income transition, getting squeezed between cheap low cost producers on one side and high-value high-tech producers on the others, enhancing the skills in the economy becomes a formidable policy challenge. Without focussing on higher skills and higher productivity, this tightening squeeze is going to suffocate the economic potential of the country and suppress business competitiveness. By working together, the government and businesses can tackle this challenge. What other developing countries have done, and are doing, offer a useful template to start from.

This is the 16th article in the ‘Smart Future’ column that advances ideas on competitiveness, innovation, and economic reforms.

Expanding Business Development Services to Tackle Inherent Weaknesses of SMEs

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This article originally appears in the Daily Mirror Business of 10th June 2015, under the ‘Smart Future’ weekly series.

In developing the Small and Medium Enterprise (SME) sector, we often assume that the quick and easy fix is concessionary loan schemes. But there is a key issue which goes beyond access to finance, but is also intrinsically linked to the access to finance problem, and that is the inherent weaknesses of SMEs. In identifying factors that constrain SME growth, the inherent weaknesses of SMEs – weaknesses in their management and operations – frequently arise. These weaknesses often make them SMEs “unattractive” or more risky in the eyes of banks – a key bottleneck in SMEs access to finance.

What are these weaknesses?

The inherent weaknesses point to issues of management, professionalism, and operational expertise. Banks, for instance, complain that the quality of business plans, project proposals, loan applications, etc submitted by SMEs are weak. The standard of accounting and financial management and reporting is weak. The ability of SMEs to understand market conditions, conduct market research to identify existing gaps, and identify expansion opportunities, is often weak. There are also weaknesses in SMEs’ management capacity and overall professionalism in the running of the enterprise. To expand markets and become more competitive, SMEs need to continuously upgrade, but their access to technology and ability to absorb technology transfer is weak. Addressing these constraints would not only improve SMEs’ access to finance – and the catalytic results that follow – but improve overall performance and business success. This is where Business Development Services Providers (BDSP) can come in.

What is BDSP?

The Committee of Donor Agencies for Small Enterprise Development – a global forum of multilateral and bilateral cooperation agencies chaired by the World Bank, defines BDSP as any type of non-financial service that is aimed at improving the performance of an enterprise, access to markets, and ability to compete. The majority of BDSPs in Sri Lanka are based in the capital Colombo and in some major cities. A limited number are available outside these areas, but are reliant on donor-funded projects. As a 2014 IPS study found, many SMEs were not able to find BDSPs in their local area, or were not aware of the various BDS schemes on offer.

More BDS Needed

There is a strong case to be made for the government to support more BDS provision. It is a far more cost effective SME development strategy than employing hundreds of government officials (for example, Development Officers) to conduct SME development programmes. It is also far more sustainable than relying on successive rounds of concessionary credit lines. But encouraging both a greater provision of BDS (increasing the number and quality of BDSPs) and encouraging their use by SMEs could have a more catalytic impact on SME development than individual and ad hoc schemes that target just one aspect of SME development (e.g. finance).

Innovative Solutions – BDS ‘Vouchers’

Given the limited number of BDSPs out there, a key step would be to boost the availability of BDSPs around the country. Of course, supply follows demand, and such providers will only emerge if there is a demand for BDS from SMEs. Here is where a small push from government can help. Instead of expanding BDS provision by existing SME development institutions of the government (like IDB and NEDA), the government could introduce a voucher system where SMEs can avail themselves of business development services from registered private providers, and the cost is subsidized by the government. The registered BDSPs would have to of course be vetted by institutions like IDB and NEDA, for quality, reliability, and relevance. The voucher system can ensure that SMEs have the freedom of choosing which BDSP they can use, and the initial subsidy (which is based on usage) can help offset part of the costs borne by the SME. This could encourage more SMEs to adopt such services, and once they see results, they would be more willing to pay for it entirely on their own. The BDS voucher system (which offsets/subsidizes part of the costs) could be valid for a limited time period (2-3 years), after which the SME would need to pay for it entirely. Expanding the demand for BDS provision in this way would also help trigger a growth in the availability of quality BDSPs.

Through BDS, and the improvement of professionalism and competitiveness, SMEs can improve their overall performance, and begin to rely less on concessionary treatment. Government institutions must begin to look at innovative methods of delivering these services that SMEs need; methods that are not expensive publicly funded schemes with lots of staff, but yet get the job done in terms of strengthening the SME sector.

 

This is the 15th article in the ‘Smart Future’ column that advances ideas on competitiveness, innovation, and economic reforms.

The Evolving Dynamics of the Global Oil Market

oil extraction

This article is originally published in the Daily Mirror Business of 3rd June 2015, as part of the ‘Smart Future’ series. It departs from the usual Sri Lanka focus, to discuss the global oil market dynamics, as the Organisation of Petroleum Exporting Countries (OPEC) meet at the end of this week, to decide whether to maintain the status quo with regard to oil production and prices, or to change course. 

Two years ago when Robert Wescott – a former economic advisor to US President Bill Clinton – told a group of us at an economics forum that in a few years the price of oil will drop sharply to undermine alternative unconventional sources, few in the room believed him. It was an era of 100-dollar oil, production of unconventional sources was still muted, and we simply couldn’t see that changes. But exactly two years later we are seeing exactly that playing out. The OPEC in general, and Saudi Arabia in particular, are battling to retain and grow their market share of the global oil market, alongside the growth in unconventional oil production the US and elsewhere. Will this be the defining story of the rest of this decade? This week’s ‘Smart Future’ column departs from its usual Sri Lanka focus to take a wider view on the dynamics of global oil.

High Oil Prices and Recession Risk

Before the oil price decline, the global economy was experiencing high oil prices that were placing immense pressure on the recovery of the global economic out of the prolonged recession. At the I.S.E.O. Institute event in Italy 2013, I asked Wescott about the role of high oil prices in fuelling or prolonging recessions. He said, “100 dollar oil is the dominant macro story of the last seven years”, and “high oil prices were the most important cause of the global recession”. He argued that, “Oil was at 147 dollars well before the Lehman crash and financial meltdown; the world economy was already in recession due to high oil prices. The financial crisis tipped it over”. Going by some of the evidence on the link between high oil prices and business cycles, it would seem that the global economy was lucky this time. The sharp drop in oil prices came at a time when the global economy was going through a tricky transition – recovery in the US, but severe weakness in Europe and tepid performance in China, and Japan. Although the relationship is imperfect, there is research showing that spiking global oil prices and global recessions (as determined by the US NBER) are closely linked.

Oil Prices and the Macroeconomy

There are many channels through which, theoretically, high oil prices affect the macroeconomy of an oil-importing country. Demand effects suggest that high oil prices reduce real income growth and more spending for fuel means less income for other forms of consumption. On the supply side, rising energy costs eat into business profits if they cannot be passed on, and energy-intensive sectors, like transportation (particularly aviation), may cut activity and layoff workers. There are also policy effects of high oil. Although central bankers may emphasize core inflation more than headline inflation, higher inflation may spark fears of a price-wage spiral and cause monetary tightening. This could weaken investment spending, both by households and firms. There are also knock-on effects on business confidence and markets. Higher oil prices hurt both consumer and investor confidence – as equity prices decline, household wealth effects turn negative. Conversely, in a low oil price environment, much these effects are observed in the opposite.

 

Current Oil Price Scenario

The global oil market can be characterized as a partial monopoly market. Nobody controls the whole market, but OPEC can be considered as a partial monopolist, controlling a significant share. The economic theory to understand the behavior of the OPEC oil cartel was developed more than half a century ago by Heinrich von Stackelberg and it appears that the arguments he put forward for OPEC are playing out today. Von Stackelberg argued that if OPEC consistently overcharged for oil, it may 1) cause a global recession and hurt demand for your oil, 2) you may lose market share; 3) you may encourage technical innovation to replace your oil. These features began to emerge over the past decade, and last year we saw OPEC responding with causing sharp price reductions in an attempt to maintain market share and drive out other sources of oil. Oil prices have nearly halved in the past 12 months. From US$ 110 per barrel a year ago, Brent is now hovering around US$ 65 per barrel, after reaching a trough of around US$ 55 in March. WTI (NYMEX) has seen even sharper declines. In May, OPEC ramped up production to a two-and-a-half year high of 31.22 million barrels of oil per day. The continued high global supply of oil is likely to continue to keep prices at a lower price equilibrium than seen recently.

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Economic Recovery in the North: Moving From Aid to Entrepreneurship

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This is the 13th article in the ‘Smart Future’ series, appearing originally in print in the Daily Mirror Business of 27th May 2015.

Last week, Sri Lanka marked the six-year anniversary since the end of the armed conflict in May 2009. In the aftermath of the war, there was an impressive reconstruction and public infrastructure effort, with around 10% of all budget expenditures during 2009-2013 being spent directly on reconstruction in the Northern and Eastern Provinces. Two large ‘Marshall Plan’-type programmes – Uthuru Vasanthaya in the North and Neganahira Navodaya in the East – aimed to kick-start growth through an infrastructure and public works drive. The major connective infrastructure in these provinces – roads, bridges, fishery harbours, etc. – are now of a standard rivaling many other parts of the country. However, the shift from reconstruction, to true economic recovery through industrialization, job creation, and entrepreneurship, has been much slower – particularly in the North. While this article does not take a comprehensive look at all the reasons for this, it points to some key issues that need attention by donors, public officials and the private sector.

Post-war Economic Dynamics

It is clear that the post-war growth spurt is having a tangible effect on the Northern economy, particularly in key cities like Jaffna and Vavuniya. Consumption has picked up sharply, and a lot of the big brands from the South – in consumer electronics and agricultural equipment – are now operating here. There is even a branch of the Colombo-based men’s hair salon, La Passion!. Meanwhile, years of donor interventions have also distorted economic incentives. A local civil society leader I met with on a recent visit remarked that, “A hand-out mentality has been rooted in, and there is a need to promote entrepreneurial effort”. The steady inflow of foreign remittances is also having an economic effect in Jaffna, skewing the incentives to work. Young people who would otherwise be joining the labour force seeking employment are opting to stay out and live off remittance income instead. Locals complain of sharp rises in alcoholism and drug abuse among youth. But the picture is not the same across the peninsula. In Point Pedro, for instance, young people are keen to look for jobs and eager to see new industrial activities start up.

Supporting Industrialization

Atchuvely Industrial Zone is one such activity. This estate, which had been derelict and shut down during war, has now been revamped by UNOPS with funding from the Indian government. Twenty-five acres are now ready for occupation, but the inflow of investment has been rather slow. When I visited here earlier this year, I met with the owners of the few factories that have commenced operations, including a manufacturer of hardware items and a recycled paper producer. Several factories have received American donor support for their equipment and machinery, but are having difficulty finding the local skilled labour required to install and operate these machines. I also noticed that while several other projects had been given approval, the slots allocated to them were empty. Many local entrepreneurs are having difficulties with obtaining project finance to set up. This must be tackled, and local bank branches must play a better role in financing enterprise growth here. There is plenty of opportunity for, and interest among, indigenous entrepreneurs to expand into Atchuvely, professionalize their operations, expand and employ more people.

Meeting with founders of a new industrial start-up at the Atchuvely Industrial Zone in Jaffna. They'll be the first producers of recycled paper in the North.

Meeting with founders of a new industrial start-up at the Atchuvely Industrial Zone in Jaffna. They’ll be the first producers of recycled paper in the North.

Beyond Donor Aid to Accessing Better Markets

In the immediate post-war period, there has been a high dependence on day labour for income – manual labour on farms and civil works projects. But the availability of work is often uncertain, leaving people vulnerable to fluctuations in income. Donor projects have identified this and attempted to support income diversification. These projects have funded training centers for job training and livelihood development and gifted people and households machinery and equipment. But during recent visits to the North, I witnessed in several instances where these facilities lay abandoned. I observed how successive rounds of donor projects have “gifted” assets to people, but paid little attention to help them make productive use of these assets. While these have been built and gifted with all the right intentions, there has been less focus on ensuring that these can sustainably support entrepreneurship. Little attention has been paid to helping them access markets. One local government official in the North remarked to me, “Many NGOs are providing training for people to produce various things in Kilinochchi and Mullaitivu, but the peoples marketing knowledge is weak and so they cannot sell what they make.”

From ‘Cow-Dropping’ to ‘Dairy Entrepreneurship’

Diary projects have similar problems. A colleague I was travelling with jokingly called this the “cow-dropping syndrome”. So many donors have “dropped” free cows on families and hoped that this would improve livelihoods and incomes. Yet, little attention had been paid to help them become ‘dairy entrepreneurs’ instead; helping them maintain healthy animals, improve milk quality, and link up to stable markets and lucrative value chains. In some cases, women of female-headed households who received free cows had simply sold them off, either because they did not have a way of plugging in to a profitable milk supply chain, or even because it became too expensive to maintain owning them (feed, veterinary costs, etc), in the absence of sustainable revenue generation. Amidst this, however, a project by Cargills and Tetra Laval, was different. Supported by GIZ, they built up a group of dairy entrepreneurs who now regularly supplying large volumes of milk at better prices, to the national supply chain. With advice from Tetra Laval’s global ‘Food for Development’ programme, Cargills has been able to learn best practices in dairy farming and milk production. This in turn has boosted Northern dairy farmer’s knowledge in maintaining better milk production. Similar efforts by ILO’s LEED project have also adopted an integrated approach, where local producer groups are closely linked to national value chains.

Next Phase

More of these approaches are needed to boost entrepreneurship to support the growth of indigenous enterprises here, not just support an influx of brands from Colombo. Helping micro-producers link up with supply chains can certainly boost incomes in the North. It is already six years on, and once the dust settles on donor support it is entrepreneurship of the people that will boost the Northern economy more sustainably. The next phase of economic recovery must shift from ‘aid’ to ‘entrepreneurship’.

This is the 13th article in the ‘Smart Future’ column that advances ideas on competitiveness, innovation, and economic reforms.

40% Risk of Reversion to Conflict?

I’m in Jaffna today for consultations around the World Bank’s SCD study, and I am reminded of a groundbreaking paper by Paul Collier et al. It was a unique joint report by the World Bank and UN Peace Keeping Operations . In it, the author’s argue that country’s that have faced a conflict in the past are susceptible to reverting to conflict again.

Post-conflict societies face two distinctive challenges: economic recovery and risk reduction. Aid and policy reforms have been found to be highly effective in economic recovery. In this paper we concentrate on the other challenge, risk reduction. The post- conflict peace is typically fragile: the typical country faces around a 40% risk of reversion to conflict during the first decade of peace. As a result, nearly half of all civil wars are due to post-conflict relapses. Both external actors and the post-conflict government therefore rightly give priority to reducing the risk of conflict.

The authors compare political, economic and military aspects of the post-conflict situation to address the problem of high risk, based on a statistical analysis of 74 post- conflict experiences from around the world. Well worth a read… http://core.ac.uk/download/pdf/6250412.pdf