A Review of බලය හා බලය (‘Power & Power’) – Champika Ranawaka’s New Book

I was invited to write an English review of the Sinhala edition of Minister Patali Champika Ranawaka’s new book බලය හා බලය (‘Balaya Saha Balaya’). The review, which I reproduce here, originally appeared in the Daily Mirror of Monday 4th August 2014. In it, I argue that Minister Ranawaka’s book is a formidable look at the nexus between energy, economics and politics and makes a useful knowledge contribution. 


Amidst the aggressive and polarizing late-night political shows on television, the mediocre debates in poorly attended parliamentary sittings, and lofty pronouncements in public rallies, Minister Patali Champika Ranawaka’s new book ‘Power and Power’ (‘Balaya saha Balaya’) comes as a refreshing change. In the current context, it is rather unusual to see well-researched publications coming from politicians. The entire book appears to be characteristic of him – an engineering graduate who became an expert in the energy sector, an independent thinker willing to critique the policy status-quo, and an experienced policymaker with a track record of ideas and action.

A Snapshot of the Book

10506876_1442951439319703_4770659423798861459_oAs he mentions in the foreword, the idea for the book came to him when he was writing a book on energy for school children back in March 2011. He wanted to write a book on energy issues that was deep in its content but simple in its explanation. Nearly three and half years later, he can surely be satisfied with the outcome. Because what ‘Power and Power’ is, is a tour de force of the energy sector in Sri Lanka and beyond, and its intriguing interactions with politics and the state writ large. The energy sector in Sri Lanka is pretty complicated, and often controversial. During his time directly involved in the sector, he gained a lot of understanding and insight into the power and politics at play, the undercurrents that shaped decisions, the institutions that operate in the energy arena, the special interests, lobbies, trade unions, etc. Those first hand experiences have enriched every chapter, and taken the book beyond explanation, to insight.

‘Power and Power’ tackles the nexus between the power that comes from energy and the power that comes from economics and politics – what the linkages between those are and how they are panning out globally as well as here in Sri Lanka. The book is in two parts. The first part tackles the trends and developments in the global power and energy sector and the second part is the politics of power and energy both in Sri Lanka as well as the rest of the world.

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Mattala Airport Not Yet a Lost Cause? – My Interview to BBC Sandeshaya

Recent weeks have seen much controversy over the performance of the Mattala Airport, stemming from an interaction in Parliament between opposition MP Dr Harsha De Silva and Minister for Civil Aviation MP Priyankara Jayarathna. Linked to this, the BBC’s Sinhala service ‘Sandeshaya’ wanted to explore the success or failure of mega infrastructure projects like Mattala (and others coming up in Hambantota), and I was asked to provide some insights. Here is the link to the Sandeshaya interview in Sinhala, conducted with BBC’s Sri Lanka correspondent Azzam Ameen – http://www.bbc.co.uk/sinhala/sri_lanka/2014/07/140726_airport_srilanka.shtml

Screen Shot 2014-08-07 at 6.56.14 PMIn the interview, I argued that mega projects like this have not been undertaken by Sri Lanka for a long time now, and such projects are important – especially connective infrastructure – if the country is to make a steady progress through the middle-income transition. I added that the success or failure of such projects cannot be measures in a short time span, and so the accusations that Mattala is a failure may be slightly premature. However, I also point out in the interview that these were expensive projects, and now that they have been built we need strategies to maximise utilisation and this is where things seem to be coming unstuck. I noted that it may not be appropriate to have the Sri Lanka Ports Authority be the main investment driving force, and that we need a high powered agency that has the best of all agencies. I remarked that we can learn from examples like the Penang Export Hub in Malaysia in making this happen.

Meanwhile in the closing part of the interview (which hasn’t been included in the voice clip but is paraphrased by Ameen), I recommended that instead of chasing passenger airlines to stop at Mattala, we should attract global air cargo players like FedEx, DHL, UPS, etc., to set up there taking advantage of the huge land availability, and make Mattala a cargo hub, linking the sea port and industrial zone nearby. My overall message was that we need to think through the Hambantota hub much more strategically and fine-tune the policies of investment attraction, if these projects are to be a true success. Do listen to the interview and let me know what you think.


Loss-making State Enterprises – 9 Highlights of their Opportunity Cost

The Pathfinder Foundation held an interesting discussion last Friday (27th) on Sri Lanka’s ‘Government Enterprises’ as they called it, and what needs to be done about them. I chaired the session, and delivered some concluding remarks. Let me recap some of those views here.

keep-calm-and-fly-mihin-lanka‘Government’ enterprises are called different things at different times – State-owned Enterprises (SOEs), public enterprises, government businesses, State-owned Business Enterprises (SOBEs), and once even called the “monsters” by a GoSL Minister. Much has been written about the need for their reform. A former Central Banker, W A Wijewardena, writes here that the losses in public enterprises are “a violation of public property”. The debate on reforming loss-making SOEs has often been highjacked by camps at two extremes – on one side, those that believe the state should not be in business in any way and subscribe to the liberal economic mantra of “privatise, privatise!”; on the other end, those that believe that the state must remain in certain enterprises, there is nothing wrong with it, and privatisation is an ugly idea with horrible consequences. The current regime subscribes to the latter view, and government policy documents explicitly state that privatisation is not an option. We can debate the merit and demerit of this policy stance, but the wider issue is that these ideological attachments sadly miss the fact that there is a whole spectrum of ideas between those extremes. Any government has what I like to call “a suite of options” in the SOE reform agenda. A good overview is provided in this IPS publication – ‘Understanding the Conditions for Change in State-Owned Enterprises‘. As for specific policy options, this study from 1997 articulates the idea of ‘performance contracting’ as an SOE reform strategy. Amidst all of these studies (and the latest one by Prof. Sirimal Abeyratne for Pathfinder – soon to be published I hear), Sri Lankan economists have failed to effectively and meaningfully communicate the opportunity costs of loss-making SOEs to the citizens of Sri Lanka. At the end of the day, it is public money, citizens’ tax contributions from their income and their spending, that give the state coffers the money to prop up loss-making enterprises, pay salaries and benefits to their executives and their staff.

Counting the Cost

In my concluding remarks, I attempted to go some way in bridging this gap by providing some numbers for the audience to chew on. Some numbers that, for the first time, aim to help people realise the opportunity cost of loss-making SOEs, to help people realise why SOE losses matter to them. I used the Ministry of Finance and Planning’s Annual Report, which must be commended for containing pretty comprehensive information. I looked at the SOE sector performance, as a whole, but also by sector (aviation SOEs, banking SOEs, etc), and as individual entities. I focussed particularly on 12 of the SOEs making the largest losses*. I then cross-tabulated these against some sectoral investment and welfare spending by the state (education, nutrition, energy, etc) to get a sense of the ‘opportunity cost’. I only relied on the information contained in the report, as I was simply looking for some back-of-the-envelope numbers that would help me convey my message. So, here’s 9 highlights that I found most startling.

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Smokers and drinkers finance health research in Thailand

Health and pharma research financed privately by private corporations have the incentive of high returns on research that leads to successful drug development. However, public research on health is not as easily financed. It can be argued that public research on health exhibits public good characteristics, and requires a more active intervention to provide. I came across an interesting initiative by the Thai government which uses an earmarked tax on alcohol and tobacco to fund public health research. The Thailand Health Promotion Foundation draws 2% of excise tax to fund research on health. Apparently it raises around 50 million dollars a year.

Earmarked taxes often come with a lot of problems especially if the national treasury dips its fingers into the jar on an ad hoc basis when their own funds are short. It’s important the money goes directly into a dedicated, and insulated, fund.

Haven’t read up much on the mechanics and structure of this particular health promotion fund, but there is an interesting paper here on the lessons learnt from the Thailand experience.

Does Sri Lanka Celebrate Its Private Sector?

The Sri Lankan authorities, in the last few years, have firmly maintained their stance that they fully support the Sri Lankan private sector and believe it to be the economy’s ‘engine of growth’. The rhetoric hasn’t wavered, in the sense that the government has never shown signs of being systemically anti-capitalist (no, I haven’t forgotten the expropriations bill, though). Yet, my interactions with many public servants have often left me worried on how genuine they are about it, beyond the rhetoric. And sometimes, this seeps in to the general public too. Recall the Rathupaswala incident where residents agitated against the issue of purported water contamination by a rubber gloves factory. As Dr. Rohan Samarajiva rightly points out in this article, no one – neither from the surrounding areas (including families who depend on the factory for employment) nor from the wider private sector – stood up for the enterprise. An enterprise that is leading the way in Sri Lanka’s move up the value chain – instead of exporting raw rubber, exporting higher value rubber gloves and thereby capturing more value within the country’s shores. Yet, the wider feeling was one of suspicion, not celebration. This week the company lashed out at authorities for dithering on resolving the issue and causing a sharp loss of valuable global market share.


Korean mindset
Last month I visited the POSCO Steel still plant in Pohang. While driving through the sprawling industrial complex we passed by rows of blast furnaces which melt down iron ore and other raw materials in the first stage of steel-making. When passing one of them, the guide pointed and announced proudly – “That is the number 1 blast furnace – the first one installed in Korea. It is now designated as a ‘National Economic Treasure'”. Wow. A ‘National Economic Treasure’ – what a powerful idea, I thought to myself. A ‘National Economic Treasure’, in recognition of the role that blast furnace played in giving birth to the Korean steel industry – now in the global top 3. A ‘National Economic Treasure’ in remembrance of the difficult and backward economic situation that it helped overcome – Korea’s per capita GDP in the early 1960s was less than US$ 200.  A ‘National Economic Treasure’ in reverence of the role private sector development played in Korea’s post-war resurgence, rapid growth, and progress into developed country status in under 50 years.
A museum replica of the first blast furnace at POSCO in Pohang, North Gyeongsang Province, South Korea. The original is still in operation.

A museum replica of the first blast furnace at POSCO in Pohang, North Gyeongsang Province, South Korea. The original is still in operation.

On this visit to POSCO, I bumped into dozens of young school kids on a class field trip. It had been similar earlier that morning I visited Hyundai Heavy Industries in Ulsan. On their field/class trips Korean school kids are brought to leading private sector industries, to take pride in them and their contribution. Where are most Sri Lankan kids brought to, on a class field trip? Independence square, a relic of a bygone era;  the ill-equipped planetarium nearby; or Galle Face green. (Or more recently, to the Colombo South Port, which frankly is about 1/10th the size of POSCO’s own port as I blogged about earlier).


Sri Lanka must too
While we revere the ancient ruins of Polonnaruwa as impressive and valued treasures of our past, we need to embrace our more recent past, our more recent progress, and our foundations of the future. I would suggest that Sri Lanka too declares “National Economic Treasures” – the tea rolling machine or the first colour separator in celebration of a major backbone of our export economy and ingredient of country branding; the Juki sewing machine which mainstreamed the country’s ready-made garments industry and brought a revolution in rural employment; the 2-wheeled hand-held tractor (‘Land Master’) – invented by our very own Ray Wijewardena – that ushered in that initial era of agricultural productivity, are possible candidates. Besides, declaring items like the tea roller, first introduced by the Brit James Taylor, and the Juki machine brought from Japan, as economic treasures could have a spin-off international relations/public diplomacy benefit too.
The Juki industrial sewing machine was at the heart of Sri Lanka's ready-made garments (RMG) take-off

The Juki industrial sewing machine was at the heart of Sri Lanka’s ready-made garments (RMG) take-off

Chambers can take the lead
The country’s Chambers of Commerce will benefit the most from a wider awareness of enterprises’ contribution to the country and help stem “industry-bashing”, and so chambers must take the lead. The Chambers could have a national media campaign celebrating the private sector and its contributions, with TV documentaries that give viewers an insider view of key industries and more school visits to industrial sites. Be it big or small. In an era of overbearing state in economic affairs, we need to remind people that its the private sector that creates growth and this can only be done by the private sector themselves – led by the chambers. The big export factory down the road where your nephew works it is not evil – that’s the private sector and the engine of growth. The small ‘saivar kadey’ at the junction which your uncle runs, that’s the private sector too, and his taxes pay for government services.


PSD in the curriculum
Meanwhile, selected universities (for instance, Colombo, Peradeniya, Kelaniya, Moratuwa, and especially the trail-blazing Uva-Wellassa) and colleges (like NIBM and NSBM), can develop modules titled “Industrial Development in Sri Lanka” or “Private Sector Development in Sri Lanka” within their economics and business degree programmes. A course on Private Sector Development in Korea at the KDI School of Public Policy which I am currently auditing traces the path of Korea’s PSD journey and key success factors and plots future strategies against challenges. Students undertake readings and presentations of case studies of leading companies like POSCO, Samsung, LG, Hyundai, etc., and dissect their success and evaluate how government policy played a role in their growth.


Shifting the discourse
In Dr. Samarajiva’s article which I cited earlier, he observes that “our popular discourse is fundamentally anti-corporate” and warns of dire consequences. A combination of the activities I mooted here – some immediate, others more medium-term – that address the “suspicion” towards the corporate sector, bridges the lack of understanding of the entirety of the Sri Lankan private sector, and develops a more nuanced appreciation for the role it plays in the economy – can go some way in stemming the anti-private sector mindset. People, and more importantly politicians, need reminding that although the post-war bump was due in large part to public spending on infrastructure, sustained rapid growth relies entirely with a thriving private sector that Sri Lankans embrace and celebrate. 

The slippery slope of budget misgovernance

In an era of heightened pressure on the country’s fiscal position, with competing priorities of government spending, and as the free flow concessional donor aid comes rapidly to an end, it is inexcusable for a country to flagrantly disregard good governance with regards to public expenditure. A petition filed by the CPA this week shows that this year too (it was highlighted last year as well) the 2014 Appropriations Bill violates constitutional provisions in several aspects.


An important extract from this, reads:

In its Petition CPA challenged the constitutionality of Clause 5, 6, 7 and 2(1) b of the Bill. Clause 5 and 6 of the Bill permits the Secretary to the Treasury or any authorised officer to reallocate funds between heads/programmes without prior permission or subsequent ratification by Parliament. Furthermore Clause 7 permits the Finance Minister, with the approval of the ‘Government’- as opposed to Parliament- to withdraw monies allocated to a particular purpose, if he thinks such monies are not required. Clause 2(1)(b) of the Bill grants blanket authorisation to the Executive to raise foreign or local loans up to Rs.1100 billion (in the next financial year) without any requirement for Parliament to scrutinize and approve the terms related to the raising of each of such loans.

These challenges, if proven to be valid, are a serious violation of the Constitutional mandate granted to Parliament as ultimately having full control over all matters relating to public finances.

Now this concept is not included in the Constitution just for kicks. It recognizes and protects an important idea.

Public finances are built up from taxation of people’s income and expenditure. This necessarily means that the money that the government gets to spend ultimately belongs to the people. So it makes complete sense that the body that has ultimate authority over this money is the body of individuals who the people actually elect! The people’s representatives should necessarily have more oversight over their voters money. Not an individual minister or a set of “super-bureaucrats”.

Already, Sri Lanka ranks poorly on Budget Transparency, as highlighted in a recent article. An opposition lawmaker recently made an impassioned speech in Parliament lamenting the failure of fellow MPs to take up the good governance gaps in public enterprises as reported by the Parliamentary committee, COPE. Other articles have incisively shown that domestic revenue mobilization is key to Sri Lanka’s sustained development and better institutions are essential to ensure a smooth transition to and beyond middle-income status. Why does Sri Lanka keep shooting itself in the foot, at a time of immense economic promise?

292,706 A/L Sitters: But What Next?

MIT Global Start Up Labs Colombo 2013

A team of Moratuwa University students demonstrate their e-commerce product to academics and industry leaders at the MIT Global Start-up Labs Launch Day 2013 at the Kingsbury Hotel, Colombo, Sri Lanka (image courtesy guest contributor)

The MIT Global Start-Up Labs project had it’s launch day last week (1st Aug), where dozens of bright young Moratuwa University students displayed their techno-entrepreneurship prowess. Talking to them, hearing their ambitions and ideas, watching them confidently present their products to industry leaders, was truly inspiring. But I couldn’t help but say to a couple of them – “work hard, don’t screw this up! – you’re the lucky few who got in to uni”.

On Monday this week (5th Aug), 292,706 applicants sat for their first day of the 2013 GCE Advanced Level (A/L) exams. As each of the boys and girls take their seats at the exam centres this week, open up the question papers, and draw on months of exhausting revision to frantically write great answers – they must all have one thing on their minds – “will I do well enough to enter university?”. Their anxiety is not misplaced. Going by statistics from 2010, only 6 out of 10 of all of them would pass the A/Ls with sufficient results to be considered to enter university. But what must make them most anxious, and indeed most frustrated, is that they could qualify to enter university but never get the chance to pursue their ambition. Why? Because less than 20 of every 100 of those who qualify will actually get admitted to state universities – just not enough capacity to cater to all. This means that each year Sri Lankan universities shut out around 100,000 bright young boys and girls, who have gone through the rigors of national exams and achieved the right results, but simply cant be accommodated. In 2012, 40,000 more of them were shut out than in 2011. Best case scenario – from the batch that is sitting their A/Ls this year, around 32,000 of them will get the chance to pursue university education, leaving behind another 140,000. The hallmark of a knowledge-driven economy is that more people are following higher education and tertiary training programmes, gaining the critical skills that a new economy and a globalized world requires of them.

Leaving behind hundreds of thousands of our brightest minds to figure this out for themselves – often unable to afford expensive private programmes – surely this cannot be compatible with our ‘Knowledge Hub’ aspirations? 

‘They vs. They’ Could Hurt Sri Lanka’s Post-war Economic Prospects

invitation to 18th may military parade

Invitation to a military parade taking place in Colombo, Sri Lanka, on 18th May 2013 marking the fourth anniversary since the defeat of the LTTE by the country’s security forces

“This development is not ours, they just come in and do as they please, and we stand by and watch”. “What are they complaining about so much? We won the war for them. They should be content with that”.

The first was something said to me by a prominent Tamil businessman in Trincomalee when, around the same time last year, I gave a round of calls to my friends in the biz community in the North and East districts to get their pulse on developments since May 2009. He was grateful for the end of the war and the fruits of commerce it brought with it, but was sad how much indigenous businesses, and communities at large, had been sidelined and marginalized in the post-war period.

The second statement was something said to me by a high-ranking Sinhalese local government official in Mannar, around the same time last year when I met him and inquired as to why people seem to feel “left out” of development activities. He said it in raw honesty, he meant it, he believed it, he seemed to be one of many who felt exactly the same. That was quite disconcerting.

These bring me to the point of today’s piece, marking four years since the military defeat of the LTTE, the release of thousands of civilians trapped in the final battleground, and the beginning of an arduous journey towards recovery and development. Two of the most critical challenges relating to post-war economic growth are 1) making people part of the progress, and 2) getting our spending priorities right.

Making People Part of the Progress

Insufficiently addressing the legitimate economic aspirations of the people, and making them part of the new rapid development,  is a recipe for disaster. Not only is it unwise from a socio-political viewpoint as it fosters people’s discontent, but it is unwise from an economic standpoint too. If all people of a country aren’t able to fully contribute to that country’s growth, then the country will be growing at less than its potential. Quoting from Sri Lanka’s first publication that comprehensively looked at post-war inclusive growth:

Inclusive development, however, is not only about sharing growth. It is also about empowering people to participate meaningfully in creating growth. This involves empowering people through investing in their health and education and giving them equitable opportunities to access productive resources.

The businessman from Trinco should no longer be left to feel that “this new economic development is not his”. The government official should no longer be allowed to think that “people shouldn’t fuss about being included in the development, they should be thankful that the war ended”. Everywhere you go in the North and East, the majority are certainly thankful. But that doesn’t mean that this feeling will forever sideline their wishes to be part of progress. The longer a government thinks that, the more toxic the situation becomes.

The Asia Foundation’s Private-Public Dialogues (PPDs) initiative offers salutary lessons on how, at the local level, entrepreneurs and government officials can come together to address area of mutual concern on economic development issues and jointly develop, even in a small way, a collective development vision for the people of that local authority area. I witnessed how the Batticaloa Municipal Council and various producer groups in the town came together to develop their own tourism vision for the district. They acknowledged that the government has its broader plan, but they wanted their own – to determine the tourism trajectory for their hometown in a way that best serves them. That was unique and path-breaking.

One clear characteristic of Divineguma – the new gargantuan livelihood development programme – is that it will consolidate the the direction of development in Sri Lanka by the centre. The government’s thinking must be that, if it slowly loses control of all the Provincial Councils and the Local Authorities in the years to come, it still has the powerful and rich Divineguma development programme to give it substantial influence over people’s economic prosperity, from the center. What better way to keep a grip on the trajectory of an election?

Getting Our Spending Priorities Right

I type this as I watch the military parade taking place at Galle Face (only so I can count the number of new SinoTruk vehicles – more on this in a minute) and the six words that pop to mind are “expensive. can’t afford. better spent elsewhere.”. So the second challenge, most relevant to today, is finding the money for development in Sri Lanka.

As Sri Lanka moves well into lower middle-income status, we will get less and less concessionary foreign aid. Simultaneously, Sri Lanka is collecting less and less tax revenue (fell to a 20 year low of around 11% of GDP last year). Tax revenues are what economists call ‘domestic revenue mobilization’  – a critical ingredient in development. If a government doesn’t have the money, how will it finance development? Of course, it can keep borrowing (on commercial terms) from abroad, but this comes with a whole host of complications that Sri Lanka might not be geared to tackle fully. So at a time when budgets are tight, tax revenues are taking time to bounce back, the country must prioritize its spending. It is all a question of allocating scarce resources, at the end of the day right? Economics 101.

The country must ask itself, “can we afford that extra airport right now? Will the costs vs benefits weight out? Should we put it off a few years?”; “can we afford the lavish parades and May Day rallies on the tax payers account? When we aren’t raising as much revenue as before either?”; “should we not borrow from China for that next coal power plant, and instead come up with a clever PPP scheme and get the private sector to invest, but regulate it effectively?”; “could we have sold that prime state land in the middle of Colombo to a more reputed party who would have paid more for it, been more discerning, instead of to a relatively unknown, unsolicited one who came in through a connection? Doesn’t that hurt public interest, and in turn public finances?”; “do we need those twelve new trucks we see in this year’s parade, all purchased from the Chinese state agency SinoTruk? Why did we buy them, since we are no longer in war-time? Could this have been better spent on building clinics in Kilinochchi and schools in Buttala?”.

These are just a handful of the many questions to be asked, as we enter the fifth year since the end of the brutal conflict. All Sri Lankans fought hard for it. Some directly in the line of fire giving up their lives, while others put off ambitions and aspirations of economic prosperity, suffering high inflation and low growth, to ‘let the country defeat terrorism first’. All Sri Lankans must be part of the progress after its end. That’s just good economic sense. Leaving room for a “they vs. they” situation hurts Sri Lanka’s post-war economic prospects.