A New Outlook for Provincial Economies: From ‘Lagging Regions’ to ‘Secondary Growth Hubs’

For too long now, regions outside Sri Lanka’s Western Province have been characterized as “lagging” and in need of a boost. But has the terminology itself contributed to the problem? The term “lagging regions” entered the lexicon of Sri Lankan development-speak in the early to mid-2000s as the idea of regionally balanced development came into prominence and gained further traction through a report titled ‘Reshaping Sri Lanka’s Economic Geography’ by the World Bank. Since then, the term “lagging regions” was heard used by nearly all development agencies, private sector chambers, government officials, and of course, academics and development experts.

 

Workers at a new factory in the revamped Atchuvely Industrial Zone, Jaffna, Northern Sri Lanka (March, 2015). The 25-acre facility, built with Indian aid, has slowly begun to attract new investors from the region. (Image by Author)

Changing Perspective

The GDP dominance of the Western Province has been steadily declining (from 50% less than a decade ago to around 43% today), giving way to several other provinces like Southern and North Western. While none of these other provincial economies are half as large as the Western Province (given the unparalleled connective infrastructure and industrial agglomeration that the capital Colombo offers), it is well recognised that they offer immense economic potential that needs to be cleverly harnessed. During a recent visit to the Northern Province as part of visioning a SME project, I travelled with an international expert, Thomas Finkel, who has vast experience with consulting on private sector development projects. Through his work in Asia and Latin America he had seen many efforts aimed at boosting growth in provincial economies. He and I began talking about this idea of “lagging regions” and why it is such a terrible name to give provinces that are eager to attract private sector investment, spur new business activity, generate new sources of growth, and provide new economic opportunities for the people living there. He suggested a new terminology was needed – ‘Secondary Growth Hubs’. Finkel argued, “Calling these regions ‘Secondary Growth Hubs’ instead of ‘lagging regions’ gives these regions an optimistic outlook, which is needed if you want to foster growth there. Which investor, be it local or international, feels attracted by a term like lagging regions. Who would want to go there?”

Not Just Semantics

At the heart of the ‘regionally-balanced development’ agenda is the concept of ‘inclusive growth’. Inclusive growth is not about redistributing gains from growth to people living in less prosperous areas. Inclusive is about ensuring more and more people gain from growth and more and more people are productively involved in creating that growth. For this, ensuring that these provincial economies are seen as growth hubs that can contribute to national income and be part of inclusive growth, rather than lagging regions that need extra help with catching up, is critical.

In the course of discussion I asked the German consultant, “But isn’t it just a name change? Why is it important?”. He was quick to assert, “It is far more than just word games”. Finkel went on to explain – “regions are competitive only if you are attractive regarding other factors of the locality. Quality of life, good schools, safety, options for leisure time. Without that you will lose the young and talented. If you are able to provide some of these, the young will stay and your chance of becoming economically successful increases. Calling a place a lagging region is totally counterproductive to all that.”

From a Name to an Approach

Reshaping the narrative from ‘lagging regions’ to ‘Secondary Growth Hubs’ will transform provincial economies into thriving economic centres, attractive for business and successful in creating prosperity. But it’s not all in just a name change. It’s a change in approach. Treating them as Secondary Growth Hubs necessarily means treating them through a competitiveness lens. This means a closer look at what the constraints to growth and doing business in these economies are – what are the licensing and other regulatory burdens that are hurting businesses? Are public sector institutions at provincial and district level geared to promoting SMEs and investment? Are infrastructure improvements addressing not only social needs but economic competitiveness as well? Are national-level institutions linked well to the needs of the regions and are they serving them? Are there value chains linkages created for entrepreneurs in the regions to expand to markets across the country and beyond? The key challenge now is to tackle these ‘framework conditions’ for growth in Sri Lanka’s Secondary Growth Hubs.

A New Strategy for Provincial Growth

Seeing Sri Lanka’s provincial economies as Secondary Growth Hubs certainly helps to transform how all stakeholders engage in partnerships to boost prosperity there. It helps the government, development partners, NGOs, and the private sector, look at them not in terms of how they need to be helped to get out of being “lagging” but rather in terms of how they need to be partnered in creating better economic growth. It requires a shift away from handouts to hand-ups. It requires a shift away from welfare and subsidies towards productivity improvements and skills development. It requires a shift away from extreme centralization of development decision making to allow provinces to play a genuine role in shaping their own economic future. It requires a shift in mindset from seeing them as regions that need to be ‘brought up to a certain national standard’, to seeing them as regions that have inherent potential that just needs unleashing with the right support. While the Western Province accounts for nearly Rs. 4 trillion of national GDP, all other Provinces contribute far less than Rs. 1 trillion each. Through a strong Secondary Growth Hubs strategy, ten years from now Sri Lanka should aim to have at least four other provinces contributing Rs. 2 trillion to national GDP. Our provincial economies certainly have the potential to make it happen. The longer we call them “lagging”, the longer we do a disservice to their potential. It’s time for a new outlook.

This is the 9^th article in the ‘Smart Future’ column that advances ideas on economic reforms, innovation, and competitiveness. This article originally appears in the Daily Mirror Business on 8th April, Wednesday