"Changing the system": How the President could start

In this weekly column on The Sunday Morning Business titled “The Coordination Problem”, the scholars and fellows associated with Advocata attempt to explore issues around economics, public policy, the institutions that govern them and their impact on our lives and society.

Originally appeared on The Morning

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By Dhananath Fernando

A day has 24 hours but the clock ticks faster in some countries, and Sri Lanka is certainly one of them. We have many things to get done, but time is running out and the conditions are right to brew the perfect storm. Our economy’s fundamentals have been in poor shape for a few decades. The country’s economic growth was 2.3% in 2019, a budget deficit of 8.5% in comparison to the GDP of  2020 is expected this year, and we are already on an IMF (International Monetary Fund) bailout programme. There is nearly $ 7.2 billion as reserves in Treasury coffers, but debt servicing payments account for nearly $ 6 billion up to December 2021.

Amidst these conditions, a pandemic was the last thing we needed and its abrupt arrival damaged the main economic engines of Sri Lanka on a larger scale than ever before. Tourism, which brought in $ 4 billion revenue in 2018, and the export industry were severely impacted, and the unfolding events in the US, which is the market for 37% of our apparel exports, are not in our favour. The impact on the Middle East will not only bring down nearly $ 7 billion worth of remittances but will also result in job losses and the repatriation of Sri Lankans due to the global economic contraction.

In that context, it seems President Gotabaya Rajapaksa will have to sacrifice nearly nine to 10 months of his five-year tenure to address unexpected challenges. He has been pushed to a difficult corner with many restrictions from the system itself (postponement of elections, etc.) to convert decisions into actions. Leaving this gloomy story aside, let’s unpack a few opportunities hanging around to get things done along with priority actions to be taken during this difficult time up until the general election in early August.

Reforms through structural changes 

Considering our public finances are weak and the spending capacity is limited, we have a grand opportunity to make structural changes to the system rather than investing our time on micromanagement. The President’s mandate was to “change the system” within a democratic framework and set up a new, functional system. Since the clock is ticking at a faster pace, we need to identify a few major reforms that could generate faster results and meaningfully benefit the people of Sri Lanka.

Below are a few areas the President could focus on in carrying out major reforms through which an impact would be visible within his five-year tenure.

Governance structure and KPIs for State-Owned Enterprises (SOE’s)

The big gaping hole in our national account is the losses of state-owned enterprises (SOEs). In 2018 itself, 54 strategic SOEs out of 527 SOEs made a Rs. 28 billion loss and received government budgetary support of Rs. 58 billion. The total of these two figures is almost two times the entire allocation of the Samurdhi fund. The initial attempt to appoint a separate panel to appoint qualified members for state institutions was commendable, but it had its own challenges.

Since a new Cabinet and new ministers are to be appointed post general election, if we are able to set key performance indicators (KPIs) for SOEs at the soonest time as the first step at the year end, then the President can evaluate the performance of SOE boards and make them accountable accordingly. When every minister is given their appointment letters when the new Parliament is appointed in a grand red carpet ceremony at the Presidential Secretariat, every minister receives an additional file listing the institutions under their purview and indicators under which the minister will be monitored along with their respective institutes’ boards.

In the list of deliverables, we can start with including basic requirements such as presenting an annual report with profits, losses, and employment for each institute so as to ensure the newly appointed boards are accountable. Ideally, the KPIs can be published before the election in selected SOEs as there would be less reluctance from the newly appointed ministers when they take over the job. In terms of management, it would be easier to get the consent for already established guidelines rather than imposing guidelines after they take up the job.

If we have the political capital, we can consolidate a few institutes early on and publish the plan to facilitate the appointment of members for all 527 SOEs, of which the total number of people in the boards alone would be a factory of senior people. When the governance structures are in place, performance will improve and losses, in turn, will decrease. Therefore, the changes will be visible to showcase to the people, and it will bring significant relief to the Treasury. At the same time, it is easier to identify the poor-performing institutes and so the boards of those can be shuffled based on meritocracy.

Public transportation

As highlighted in “The coordination problem” column earlier, public transportation bottlenecks are mainly caused by structural issues rather than investment issues. One main issue every individual goes through every morning and evening is public transportation. Regardless of whether they travel in their own car or via bus/train services, the experience is essentially the same.

In this regard, re-implementing the bus lane structure is a positive move. Removing the route permit structure and having a more open and competitive system is an easy and quick way of improving the public transport system before moving on to large-scale infrastructuring projects, given the tight public finance situation. A period of four years is a good time frame to showcase improvements on public transportation, and these reforms are fairly easier to implement especially as Covid-19 has given the perfect opportunity.

Buses are already operating only under the capacity of the number of seats and we expect that the University of Moratuwa would release official data on the improvement in average speed with the new bus lane system. This is a golden opportunity to implement the long-awaited plans of reformation with the blessings of the people and the industry. 

Establishing E-courts 

Another hassle for a majority of Sri Lankans is the delay in court cases. The outside of every court is fully crowded on weekdays with disappointing faces seen in every direction due to a completely inefficient system. Mostly, the poorest in society have fallen prey to this problem and the problem extends to prison and every sector of the economy. In Sri Lanka, the time for contract enforcement is 1,318 days and it’s just 22.8% of the claim value.

An e-court is a system of services that ensures minimum use of paper during the course of a court proceeding with digitally captured information, an unbroken chain of data exchange, readily available case histories, electronic fee payments, and an overall streamlining of court proceedings. Since a plan already is in place to digitise Sri Lanka, a two-year time frame is more than enough to establish a functioning e-court with necessary legal reforms, given the Covid-19 social distancing guidelines. If less complicated cases are moved to e-courts, there will be space for more complicated cases to proceed with the physical presence. Isn’t this the main mandate of the Minister of Justice and Legal Reforms after the election?

Land reforms

Land is the most precious resource in Sri Lanka and it’s very limited given the size of our country. Most of our economic bottlenecks have a greater bearing on land titling. We should not forget that land is a stable capital asset and only 18% of it is owned by our people whereas the rest (82%) is owned by the government. It is well documented how badly we have managed even our forest cover and sanctuaries which account for 30% of our land. Most of the bottlenecks in agriculture and investments are due to our land concerns. Investment is slow (investments from Sri Lankans) and technology is not entering our shores.

In an age where Google provides live updates of real-time traffic movement at our fingertips, we Sri Lankans cannot spend anymore time without a digital land registry, with the decades-old land registry at government offices wasting our precious time. As long as we continue with the unresolved land issues, which are to an extent connected to our judiciary system, Sri Lanka will not see a connection to the Fourth Industrial Revolution.

Above are the big four insights the present Government should focus on. In my humble opinion, a four-year time frame (calculating for many unexpected events in the global context) is a reasonable period to achieve reasonable progress. Even more importantly, people across Sri Lanka will experience a tangible difference if the above reforms take place. Furthermore, except for e-courts and land reforms, the other two big reforms are comparatively less investment-driven.

Execution over politics

Most of the leaders who take up the challenge to lead the country find themselves preoccupied with micromanagement, appearing in one meeting after another or one ceremony after another. In building the needed political capital, we should not misread the President’s mandate to “change the system” and his voter base appears to be measuring him based on the execution of his big ideas rather than the traditional political micromanagement.

I hope the current Government is reading the peoples’ mandate correctly and would not drift away and lose sight of it after the general election on 5 August. I hope…

The opinions expressed are the author’s own views. They may not necessarily reflect the views of the Advocata Institute or anyone affiliated with the institute.

Ragging is responsible for the misogynistic and anti-intellectual culture in our universities

Originally appeared on The Daily FT

By Dr. Sujata Gamage

When universities closed on 15 March, Pasindu Hirushan, a fresher at the Faculty of Management in the University of Sri Jayewardenepura, was in intensive care. He was hit by a heavy tyre rolled down the stairs during an event organised by the student union. This was allowed to happen despite the recent memory of Samantha Withanage, a student opposed to ragging in the same university who was murdered by raggers.

Our indignation over these crimes may rise with each incident, but a greater crime is taking place every day for every penny we spend on these universities. It is the perpetuation of a political ideology which is anti-intellectual, coercive, and misogynistic. Administrators and university teachers are responsible, some directly and others by their silence.

In this column I draw from reports, research papers, and first-hand accounts from credible individuals, to bring to the attention of the public, the damage done to our higher education institutions by ragging and the associated political agenda.

Universities receive 75% of post-secondary funding, to serve 7% of youth

According to the 2019 Budget estimates, the total allocation tertiary education including higher education, technical and vocational education and youth services was Rs. 110 billion. Of this allocation, 75% goes to universities which serve only 7% of a given youth cohort. 

To put this percentages into perspective, Government budgets 40 times more for a student attending university than for a youth in the neglected 93%.

The responsibility of universities is that much bigger

The taxpaying public do not oppose this anomaly of a small fraction of a youth cohort receiving a lion’s share of scarce public resources. They believe that our system gives opportunities to all youth to attend school but sends the cream of the cream to the universities where they would make a great contribution to national development. Both assumptions must be questioned, but my focus is on the latter. 

Our public universities are a national asset. The contribution of a university to society is through teaching, research, and service. Our universities, which are essentially undergraduate colleges, may not produce cutting-edge research, but they have a responsibility to synthesise existing knowledge and guide students to be informed and inquiring consumers of knowledge. 

Being anti-intellectual is the anti-thesis of a university. But that is exactly what is happening in our universities because they have been captured by ‘a political ideology’ with the complicity of academics, intentional or otherwise. 

Ragging as an instrument of political indoctrination

As we try to make our campuses safe for students, we must understand the forces behind the ragging. A study commissioned by the National Education Commission (NEC) in 2014 stated:

“The lacunae in university administration and teaching have given occasion for entry of national-level political parties and organisations outside the university to encroach on and usurp duties that should properly fall within the purview of university administrations. These lacunae also serve as opportunities for political parties to recruit new members, mobilise students for protests and demonstrations, and use them as instruments for enlarging the party revenues and activities. One party in particular, namely, the JVP, has followed a systematic method to recruit and indoctrinate new batches of enthusiastic supporters and a hard core of activists every year, the party is also assured of a continuous supply of new entrants with the commencement of the academic year at all three universities [included in the study]. The most vulnerable students are, therefore, those who are in their first year at the university.”

Unfortunately, these observations have not been published, let alone acted upon. The Vice Chancellor of the University of Ruhuna was the first academic leader to appear on popular media to put ragging in the context of its political reality. To quote from the interview:

“Annually, university freshers are subjected to extremely inhumane harassments. These rituals are called by different names in different universities, but they involve violence and even sexual harassment. These acts are carried out by the senior students who are led by the student unions, who in turn are led by the Inter University Federation of Students (IUFS). The objective is to make these new entrants to think the way the IUFS want, behave the way they want and even to eat, dress and walk the way they want. This IUFS is led by political parties – in fact, it is one political party. …Ragging is a political enterprise. It is just not a one-or-two-week event. Ragging is used by a certain political Party to gain recruits for demonstrations, picketing, etc. This political party also uses university students to raise funds for their politics. At least once a month these students are sent out across to all corners of the island to ‘shake the till’ and collect money.”

What political party is this? The 2014 NEC report names the Janatha Vimukthi Peramuna (JVP) as the party responsible. Since then, the Peratugami Party, a breakaway of the JVP, is thought to be a force, but overall it seems to be a complex interplay of the two.

Indoctrination leads to anti-intellectualism – the antithesis of a university 

A few faculty members have spoken at length about the impact of ragging on our universities. There are some research reports as well. For example, a survey on ragging in universities was commissioned by the University Grants Commission (UGC) chaired by Prof. Mohan de Silva with funding from the UNICEF. Though the results are yet to be released, I quote from an unofficial copy of a presentation in the public interest.

The survey used the UGC Complaints Database, university records and responses from a representative sample of 1,986 students and 1,551 staff. The results lead to the conclusion that “Ragging is pervasive, multifaceted, debilitating, and disrupts learning and critical engagement and it normalises violence even in non-ragging interactions”. The survey also reveals that one of the consequences of the ragging is the “promotion of an unhealthy campus environment, by way of discouraging individual initiative, idealising mediocrity and gender stereotypes and distancing staff from students, and silencing some students”.

Some recent undergraduate dissertations provide an intimate look at the day-to-day life of an undergraduate in the University of Peradeniya. One study reveals that freshers are forced to memorise the names and deeds of student “heroes” and sing the student hero song at events. Many of these heroes died in the 1988-89 uprising after they had left the university. Those like Samantha Withanage who resisted ragging and were brutally murdered on campus are not mentioned. 

The outputs of the majority of students in the Faculties of Arts do not display much scholarship. When anybody applies for a research position it is customary to ask for a sample of writing. During the last twenty years I have requested for and received samples of writing form university graduates. A typical arts faculty dissertation is written by hand and cites only material written in Sinhala. The purpose of the university is to open the minds of students, no matter their origin, to a larger world in order to re-examine accepted notions. How can our students do that if they cannot consult the global literature on any topic

Raggers actively prevent freshers from learning English according to studies from the Universities of Ruhuna and Sabaragamuwa. Student leaders not only stop freshers from attending English classes, but ‘not using English’ is proudly claimed to be a part of the so-called sub-culture. An undergraduate thesis on student factions notes the same. Professor Sunethra Weerakoon too notes the “politicised suppression of English language in the Faculty of Applied Sciences of the University of Sri Jayewardenepura” in her memoir.

English is not just another foreign language in Sri Lanka. In fact, in a column published in 2015, I argued that the English-Speaking Elite (ESE) in Sri Lanka, intentionally or not, have created a cultural divide which also serves as an economic divide. There has to be a healthy debate about the place of English in our society, but you cannot begin a dialogue on English related issues or any issue by allowing a student faction to tie the hands of our future intellectuals. This anti-English stance of the student unions is a stark manifestation of anti-intellectualism in our universities.

Misogyny and marginalisation of women

According to the 2018 University Statistics report from the UGC, women comprise 64% of the total enrolment in our universities. In the Faculties of Arts, the percent of women can be as high as 80-90%.

What is experienced by these undergraduates?

A 2011 study by Ruwanpura based on fieldwork at the University of Kelaniya finds that sexuality of female students continues to be constrained by a reiteration of social and cultural expectations which are contrary to the setting which is ostensibly liberating and progressive). In a 2011 study of relationships in campuses, Gunawardene, et al. note that “male dominance within relationships resulting in coercion seems to be common in undergraduate relationships though such behaviour was unacceptable to females”. 

The subjugation and denigration of women by men who are in the minority is shocking, as revealed in an undergraduate thesis on student life at the University of Peradeniya. The researcher, having interviewed men and women from both ‘rag’ and ‘anti-rag’ factions notes: 

“Exclusion of women students from leadership positions is a characteristic feature of student politics. Women students experience an inferior position vis-à-vis male students and have to perform such tasks as taking down notes on behalf of male student activists who keep away from lectures, wash and iron the latter’s clothes including underwear, and, once they have found a partner, satisfy the male partner’s sexual needs. This pattern runs similar to that found in the hierarchical relationships between males and females in the rural social context and therefore appears to be replicated on such patterns in the so-called liberal context of university life.

“The subculture slang identifies every male student as a (pora) which suggests machismo and female students by the terms, hitch eka, baduwa, kokka, toiya, which are derogatory and objectifies female students by either relating them to males who befriend them in a potential sexual relationship or to their appearance. The boys’ residential hostels are called “palaces” while girls’ hostels are called “female genital stores” which translates to an expletive in Sinhala, and these terms are handed down to every new batch as part of the subculture credo. The girls are not allowed to do posters or set foot in the wala or the open-air theatre in fear that they would “desecrate” the “sacred” performance space. During the literary festival preparations, the girls are “kept in their place” and are assigned the duty of serving tea when their male counterparts get on scaffolds and engage in “manly” tasks.”

A machismo culture existed in the University of Peradeniya when I was student there in the seventies. One would have expected some progression by now. What is actually happening now is imposition of a regressive culture by coercion.

If universities perpetuate such a culture, what hope is there for curtailing harassment of women in public transport and in other public and private spaces? 

Leadership of the Vice-Chancellors

The Vice Chancellor is the chief executive officer of the university. The prime responsibility of a VC is not only that of providing a safe environment for the students, but to maintain an intellectual environment conducive to education. So far, we have heard from Prof. Sujeewa Amarasena, the VC at Ruhuna, speaking up on the dire situation in our universities and what he is doing to correct it. Though some may view his comments as hurting the image of the university, his interview conveyed the positive message that the faculty and students in our institutions are ready to cooperate with leaders who are genuine and committed.

Unfortunately, the complicity of some of the leaders is evident in the following summary of student views gathered by the UGC survey: (a) Students view staff and administration as disinterested and complicit to ragging (b) [Weak] reactions to ragging hinder the enforcement of a zero-tolerance policy (c) Culture of fear, silence and acceptance prevails surrounding ragging, and (d) The [University] Councils are disengaged from the process of addressing the issue of ragging.

Professor Weerakoon, an eminent mathematician, describes “institutional and cultural corruption within public universities” in her memoir:

“[T]he single greatest issue confronting our public universities remains the high prevalence of ragging, which in many cases extends into intimidation, bullying, thuggery and assault. There is also a strong relationship between ragging and political extremism. At the University of Sri Jayewardenepura, sympathisers of extremist ideology on the academic staff – including at senior level - do not merely acquiesce to ragging but tacitly support it and use student thuggery as a means of consolidating their position and that of their extremist ideologies within university life.”

Professor Dangolla, a long-standing advocate for students’ right to a peaceful environment, summarises his frustrations as follows:

“I have served as the Proctor in the University of Peradeniya under four different Vice-Chancellors (VCs). On 08th December 2016, in the evening around 5 pm, I was called by a senior professor to settle a ragging related incident at the Faculty of Veterinary Sciences. This meeting between freshers and their immediate seniors had been coordinated by the senior professor without my knowledge. I was called in when it had turned into a brawl. I managed to settle the situation and send the freshers back to the hostel. Thereafter, I took down the curtains to the students’ common room to curtail future such incidents since as many academics know that is where the student union does organised ragging. The student union had complained to the VC about my intervention. A JVP parliamentarian had also inquired about this incident from the VC. Without consulting me, the VC went on media to announce that my services would be terminated and had told the same to the students. A preliminary inquiry barred me for four years from any administrative posts and examination work. In 2020, a formal inquiry exonerated me from all charges but the previous punishment (based on a preliminary inquiry) is still in effect. In my view, our administrators do not stand firm with miscreant students and they yield to politicians unnecessarily. If proper discipline is to be adopted within the University, the VC and the Proctor must work together. They should listen to students’ and even politicians’ concerns, but they need to have the integrity and the courage to do what is in the best interest of higher education.”

The Vice Chancellor of the University of Ruhuna has shown that with strong leadership ragging can be eliminated. I only hope that the recent counter-attack by the Acting Vice Chancellor of the University Sri Jayewardenepura, calling the VC of Ruhuna a crazy man, does not reflect the viewpoint of other VCs. 

The solution for ragging is in the hands of each Vice Chancellor. No doubt, they will benefit from a complete disengagement of the JVP and the Peratugami Party from the activities of the raggers, and the end of covert support from the authorities. As has been shown at the University of Ruhuna, with strong leadership, the university community is capable of eliminating the scourge of ragging on their own.

The opinions expressed are the author’s own views. They may not necessarily reflect the views of the Advocata Institute or anyone affiliated with the institute.

Rice crisis: Just give our farmers their lands

In this weekly column on The Sunday Morning Business titled “The Coordination Problem”, the scholars and fellows associated with Advocata attempt to explore issues around economics, public policy, the institutions that govern them and their impact on our lives and society.

Originally appeared on The Morning

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By Dhananath Fernando

Rice, the main source of carbohydrates for the majority of Sri Lankans, is a sensitive political topic. I am sure we have all been experiencing this in the recent past. Most often, it is a political football where everyone passes the blame to one another without unpacking the economics behind the rice problem.

Increasing the harvest

If you ask any Sri Lankan the question “what is the problem with the rice market?”, there will be a few common answers. “A rice mafia/monopoly or oligopoly by rice millers” is the most popular. The second most common answer is the fact that the intermediaries are earning more, resulting in farmers being at the losing end.

The third most frequent response is the lack of modern technology in paddy fields which decreases our yield. Many economists and politicians support this argument with a popular statistic which states that agriculture contributes only to 8% of our GDP in comparison to 25% of our labour force involved in farming. In my opinion, the aforementioned concerns are just the tip of the iceberg.

Sri Lankans consume approximately 108 kg of rice per annum per person while the global rice consumption average is 54 kg. The conundrum is that in a country where consumption is twice the global average, farmers continue to be relatively poor.

The main question with rice is: Should farmers increase the harvest or if the harvest drops due to external weather conditions, will they earn the same amount? At times when rice harvest is high, the prices plummet due to ample supply. During this period, we can frequently observe farmers protesting as they urge the government to purchase their seed rice for a guaranteed price or for the government to impose a minimum selling price for farmers as well as a minimum buying price for rice millers. Rice millers have two main solutions to this issue: Either they stop buying seed rice as they cannot sell it at a competitive price because their cost is higher, or they still buy it which results in rice prices in the market skyrocketing to Rs. 110-120.

The high price is not only difficult for consumers to afford but is also a price that political parties pay, which dilutes their political capital. As a result, the Government intervened in the market with limited and poor storage capacity and in some cases, rice was stored in airports. After a few weeks and months, the Government sold these rice seeds to large-scale millers for a lower rate than what they initially paid the farmers, incurring a massive loss of taxpayers’ money. Some of the harvest is wasted due to the lack of storage facilities and logistics failure. As a result, farmers lose out on their income and taxpayers’ money is lost.

The second scenario is the reduction in harvests due to harsh weather conditions which decrease supply and subsequently increase prices of seed rice. Since the total quantity of the harvest is low, the money earned by farmers too continues to be low. Regardless of whether there is a large or smaller harvest, the farmer’s earnings remain consistently low. Hence, farmers are not given an incentive to increase their harvest and overall yield. Playing to their advantage, rice millers have created an oligopoly and so decide on prices in line with their modern and expensive storage capacity.

Land issues

Then comes the question of why technology is out of reach for most farms. The preliminary reason is that most paddy lands are fragmented for small lands, so it is not possible to run a commercial-level operation with superior technology. The more significant reason is that 82% of Sri Lankan land is owned by the government (out of which approximately 30% is covered by forests) and the remaining 18% is available for people’s private usage.

A small proportion of government-owned land has been given to people for cultivation, but their ability to take loans from banks to invest in technologies such as greenhouses is far beyond their reach. Construction on paddy land is illegal, which means there is a lack of space for any transaction or technological investments.

Land issues are a sensitive political issue, but many believe that if farmers are given full ownership of the land, they will sell it to foreigners, which in turn challenges our sovereignty. However, the government ownership of farmlands for nearly a century does not change the destination or quality of life of our farmers. Making things worse, the regulation is such that the paddy lands cannot cultivate anything other than paddy and even if the farmer wants to move for a better high-yield crop, a license needs to be obtained via a cumbersome procedure at government offices.

Given these challenges, how likely is it that anyone would enter paddy farming even if they have a disruptive agricultural idea?

Loopholes in costing structure

Many Sri Lankans believe that we can easily upscale our farming for rice exports. I sincerely wish we could do that too, but unfortunately, this is far from the reality. Sri Lanka cultivates mainly short grain rice in comparison to long grain rice where the world’s demand mainly lies. Even following a good season and excess rice production after domestic consumption, it is not exportable and will further drive the prices down due to excess supply. Furthermore, water is becoming a scarcity due to environmental challenges and currently, we do not calculate costs for water consumed in farming.

Recent research has found that 1 kg of rice requires 2,500 (1) litres of water and more than half of that is consumed by the plant itself. If we consider the cost of water to be Rs. 0.20 per litre, the water consumed by the paddy plant itself adds up to about Rs. 280 which is almost three times the current-controlled price of 1 kg of rice. The cost of utilising land hasn’t been factored. Fertilisers have been provided with a subsidy and that cost needs to be added to our final cost if we are to create a comparable and competitive costing structure.

Solutions

The decade-long series of solutions are well known by most of us. For example, rice millers impose price controls on the selling price following raids by the Consumer Affairs Authority (CAA) at the retail level, and the list goes on. That has been the same response by most governments and it is pointless to further elaborate on what has happened. As a solution, we need to have an easier regulatory system and allow the farmers to own their land. The draconian regulations have trapped farmers in a never-ending cycle of poverty for decades.

From the supply and demand end, the only buyers are rice millers. When there is a single buyer in the industry, they inevitably get higher bargaining power. It is important to diversify our buyer category and the only way to do it is to make rice an industrial product. Today, rice is not only used as a source of carbohydrates; alcohol products, rice bran, rice perfumes, rice-based milk, and rice antioxidants are produced at a commercial level, which offer far higher prices to farmers at the buying stage. This is the solution to increase revenue for farmers and help them escape the vicious cycle of poverty.

The day our farmers have access to their own land will be the day the market is open for many categories of buyers, which will be revolutionary for farmers. Until then, we as the consumers need to patiently experience the price controls, higher prices for rice, and the political blame game.

The opinions expressed are the author’s own views. They may not necessarily reflect the views of the Advocata Institute or anyone affiliated with the institute.

Production economy: Think small, Sri Lanka!

In this weekly column on The Sunday Morning Business titled “The Coordination Problem”, the scholars and fellows associated with Advocata attempt to explore issues around economics, public policy, the institutions that govern them and their impact on our lives and society.

Originally appeared on The Morning

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By Dhananath Fernando

Why can’t we produce the goods we need? Why do we have to depend on all these other countries?  Why can’t we produce world-class brands? Over the years, these have been million-dollar, or to be politically correct, million-rupee questions. 

From agri-based economic planning to state-owned industries that left a stench not only on the economy but also on the shirts and the sarees of the public, policymakers have ignored or botched time and again economic reforms which could have made Sri Lanka a production-based economy.

Let’s get back to fundamentals – “producing an economic good” and “producing it competitively” are two completely different concepts. I can drive a car, but I’m no Ayrton Senna or Michael Schumacher. In cricket terms, many Sri Lankans can play cricket but only a handful can make it to the National XI. In today’s age, producing an economic good is like playing to win at a World Cup. Observe how the Australians go about their business at World Cups. They play to win. If we are not focused and fail to adapt, we will fail as a nation. As Charles Darwin said: “It’s not the strongest but the most adaptable that will survive.” 

Many centuries ago we produced goods and services for our consumption and all parts and components of that economic good or service had an ecosystem in the same country. With the invention of penicillin, arguably the most important life-saving drug ever discovered, by Scottish scientist Alexander Fleming, the world saw a burst in population and Sri Lanka was no exception. Keeping a growing population fed, housed, and employed paved the way for integrated supply chains to form the world over. 

This is because every country has a competitive edge in a particular good or service. For example, Germany and Japan have it in cars, Korea in electronics, New Zealand in dairy products, etc. Factors such as human capital, education, technical skills, natural resources, the climate, and trade agreements have a direct impact on what we produce. Since independence, Sri Lanka has relied heavily on the big three for foreign exchange, namely tea, coconut, and rubber, but failed to make it as an integrated member of the world supply chain mechanism due to poor branding and value addition. Other countries have successfully done it. There are French champagne, Swiss chocolates, California oranges, etc. 

However, the apparel sector which took off during the post-liberalisation period has eclipsed the rest as a major player in the world apparel sector and an integrated part of the world supply chain. The apparel sector competes on price, quality, service, and delivery with the rest of the world and has won due to specialising in high-value apparel such as lingerie and swimwear. With the exception of the aforesaid example, as a result of not understanding the need for producing goods competitively, we failed to catch up with the fast-growing East Asian tiger economies. 

Joining a global production network

Rather than producing all parts and components of a complicated final product, countries began producing a small component of a big product in a complex procedure. As an example, rather than producing a total computer, companies started producing microchips, transistors, and hundreds of other small components in large scale. Producing small components of large complex products in a gigantic scale brought the cost significantly down and as a result, the price of products became reasonable. This process became a common factor in the range of high-end expensive products like aeroplanes and even to lower-end products like sporting shoes. 

Source: Aeronews TV.com

Going back to my cricket example, winning a World Cup means not only having more talented players but a host of other elements and individuals which are already operating at a world-class level. This includes compatible cricket turfs, safety and cricketing gear (headgear, pads, gloves, cricket bats, boots, cricket bats), training techniques, professional administrators, supplements, and the list goes on. In simple words, now the production of even a simple component or a product is shared across the globe (which is called Global Production Sharing [GPS]). Everyone is contributing to a small component of a complex product and everyone is part of a big value chain (which is called a Global Production Network [GPN]). 

Sri Lanka’s strategy should be to join more and more GPNs if we are serious about converting our economy to a production-based economy. The good thing about joining GPN is that it only requires a basic-skilled workforce to join the network. This will lead to earning better income for unskilled and semi-skilled workers, so the poverty levels will be elevated, because for most vulnerable sections of the society the only tradable good they have is their “labour”, and by joining a GPN we provide the opportunity for them to sell their labour. Countries like China have the unique advantage of being able to produce parts and small components of a complex product as well as assemble it and make the final product due to their large population and availability of labour at all levels (starting from unskilled to supervisory and super skilled). 

How do we do it? 

Some Sri Lankans tend to believe that joining a part of a big production network is an underestimation of utilising full Sri Lankan potential of manufacturing all components under one roof.  Some believe it may hinder Sri Lanka’s ability to create world-class brands and labels. Certainly not; Sri Lanka can create a Sri Lankan label brand for a component rather than a final product. It is already done in Sri Lanka. Certain safety and rubber components that are vital for the automobile sector are manufactured in Sri Lanka. The entire world is aware that Apple computers are not made in the US and even the product itself mentions that it is made in China and designed in the US. The same is valid for Boeing aeroplanes. 

Sri Lanka makes high-end apparel. We manufacture for giant brands such as Victoria Secrets, Nike, and Adidas. But this doesn’t mean that if we launch it under a brand name of ours that there will be the same demand. An apparel manufacturer tried to launch its own brand in India but was not successful. Sri Lanka can move towards assembling and creating more Sri Lankan brands when we evolve from our basics, but as we would all agree, our basics are not right yet. This is where foreign direct investments (FDIs) become critically important. We need to attract one big company to set up here and Sri Lanka should actively capitalise on post-COVID-19 dynamics of companies that are forced to move out from China. If we attract one good investment for a GPN, the rest will follow. That is exactly what Vietnam did, attracting just one company as they knew then the tide would turn. 

Rethink import substitution

A popular strategy to convert Sri Lanka to a production-based economy is considering import substitution. As we have highlighted in this column previously, most of our imports are capital goods and intermediate goods used for many other products (57% of imports are intermediate goods and 23.1% of imports are capital goods). If we are to join GPNs, the inputs have to be competitive. Otherwise, the output will be expensive and uncompetitive.

If we are to carry out import substitution, then ideally it has to be based on the competitiveness of the local substitutes but not substitution through a complete ban or through exorbitant tariff rates for imports. If we are to substitute imports through bans and tariffs it would further impact other local industries due to higher costs and regulatory barriers creating difficulties in managing their input supply chains. That’s why the word “competition” has significant meaning in economic vocabulary. 

The best example for this is the construction industry. Importation of most of the construction raw materials are subjected to a 60%-plus tariff and as a result, our hotel room rates are higher compared to our competitive destinations such as Thailand, given the time taken to capital recover is high (there are more reasons contributing to high room rates but construction cost is one major determinant). So the tourism sector as a whole is impacted just because of one single attempt of import substitution in the construction industry. 

COVID-19 provides us the opportunity to convert Sri Lanka into a production-based economy again, but we need to take the correct path instead of being shortsighted as in the past. We should focus on making our inputs and outputs competitive and look at the broader picture rather than restricting ourselves to micromanagement.  

The opinions expressed are the author’s own views. They may not necessarily reflect the views of the Advocata Institute or anyone affiliated with the institute.

Advocata Policy Brief: Sri Lanka should reduce taxes levied on menstrual hygiene essentials

52% of Sri Lanka’s population is female, with approximately 5.7 million menstruating women. However, for many Sri Lankan women, access to safe and affordable menstrual hygiene products has become a luxury. In light of the continued unaffordability of menstrual hygiene products for women in Sri Lanka, the Advocata Institute proposes a few policy recommendations.

READ COMPLETE POLICY BRIEF

Public transport reform: Covid is our vehicle

In this weekly column on The Sunday Morning Business titled “The Coordination Problem”, the scholars and fellows associated with Advocata attempt to explore issues around economics, public policy, the institutions that govern them and their impact on our lives and society.

Originally appeared on The Morning

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By Dhananath Fernando

We’ve had enough discussions about how Covid-19 could bring about a new normal, and its negative impacts on the economy and our day-to-day lives. However, “crises” do not only bring threats but also open up ample opportunities. That’s probably why wartime UK Prime Minister Sir Winston Churchill said: “Never waste a good crisis.” Reforming our public transportation is one golden opportunity presented to us on a silver platter due to Covid-19. 

What’s wrong with our public transport?

When Sri Lanka progressed to a middle-income country to reach GDP per capita of $ 4,000, people could afford a personal vehicle even with the exorbitant import tariff imposed by the Government. As a result, about 48% of Sri Lankans started commuting to the city in their personal vehicles.

At the same time, our public transport, still lumbering along as it was in the mid-1980s, had not progressed to the aspirations and expectations of a fast-growing middle class. Adding to woes, the quality of public transport depleted at a rapid rate, increasing the number of people commuting in their personal vehicles and burning more fossil fuels, which account for 19% of our total imports. The environment paid the price as our air quality index plummeted. Simply, our problem was that we had been commuting vehicles instead of commuting people. 

Commuting amidst COVID

With Covid-19 hitting us hard, buses and trains cannot operate to their full capacity, according to the Government’s health guidelines. That brings two contradicting problems. People may not have adequate commuting options to adhere to health guidelines, so individuals commuting via crowded public transport pre-pandemic may consider travelling in their own vehicles for health reasons when the economy gradually opens up, spelling disaster and making our existing traffic jam worse.

At the same time, bus owners will be demotivated to field their buses as they cannot make a profit without operating at full capacity without a ticket price revision.

Meanwhile, some commuters may not need to travel at all while “working from home”.

Hidden problems and mediocre solutions

 Whenever the topic of public transportation enters the national discussion, our solutions have been very shallow and out of depth. We have taken a more regulatory and blanket tariff approach instead of understanding the real problems. The popular solutions were increasing tariffs on vehicle imports and discussing a ban on tuk tuks, claiming that they contribute to most of the congestion and accidents, even though hard facts paint a completely different picture.

Looking back 20 years, do you see a different brand or structure of buses running on our roads? It’s the same box-type Leyland or Tata, and the same air-conditioned (AC) Rosa buses. Why has the structure of the buses operating on our roads not changed over the last 20 years, when the world has moved to the extent of offering services of unparalleled comfort and safety?

With limited railway service, the 138 bus route (Maharagama/Homagama-Pettah) is considered the most congested bus route to the commercial capital of Colombo. Even at an electoral level, Maharagama/Homagama is considered one of the most densely populated suburbs where aspirational Sri Lankans live, or in other words, where the educated middle class reside.

Have you ever wondered why AC buses do not operate on this route? Most of the main routes (Galle Road, Kandy Road, Negombo Road, Battaramulla Road, Gampaha, etc.) on which most educated middle-class citizens commute to the city on a daily basis for employment, business, and education, use buses which are in the dilapidated state; the so-called luxury service (AC) is horrendous, despite passengers being charged double the usual price.

Have you ever thought about why, while there is a big demand for people to commute comfortably even at a higher price, no one ever thought to have more AC buses, at least as a surface-level solution? That is where a pragmatic approach to public policy, in this case, transport policy, comes into play.

Deadly combination

Ideology aside, the deadly combination for any market, which leads to its stagnation, is lack of competition, over-regulation, and price controls. Unfortunately, our public transport system has all three in just the right amounts to brew a recipe for disaster, costing the Sri Lankan economy a colossal amount of money and having a significant environmental impact.

The route permit for buses that commute between districts costs several times more than the bus itself. At the same time, the route permit is not competitively priced, creating entry barriers and restricting supply. Private bus owners request that even if new route permits are issued, the existing bus owners should be given priority. Simply put, the public bus owners run a cartel, creating meticulous entry barriers so they can continue to provide a ramshackle service to the public and get away with it. On the other hand, a maximum price ceiling on a ticket price is imposed by the Transport Authority. 

On the flip side, bus owners have no incentive to field a higher quality bus and a higher quality service as the ticket price would be the same, whether a new or old bus. In a similar way, buses can’t charge a premium for providing a friendly and courteous service. Irrespective of whether they operate during off-peak hours or peak hours, the price of a ticket is the same. Due to this, there’s no incentive for buses to operate after dark and the few that do run are often seen racing each other to grab passengers at the next halt, in contrast to the crawl during rush hour.

Think of a situation where airline ticket prices are regulated – undoubtedly, it looks silly, given the dynamism of the industry. The same applies to public transport. As a result, there is no competition in the public transport space. Trains are a government monopoly and there is no competition and no pressure for them to increase their services as they have no incentive, even if they improve the quality and quantity of service. Their incentive is securing overtime via inefficiencies; they earn the same salary regardless of service levels.

The taxi service which has evolved without single government regulation, respecting market forces, is the only hope for the people. As we all know, the night rates are higher in taxis. The taximeter works in a system where when demand in a specific area is high, prices are higher. As a result, resources are better managed and utilised. People can plan their lives methodically and decisions can be made rationally, while convenience is delivered to your fingertips. Of course, there are areas for improvement, but undoubtedly, service levels, experience, and value for money are far superior. 

Central Bank Annual Report 2019 Table 81

Opportunity post Covid-19

Subject experts such as Prof. Amal Kumarage of the University of Moratuwa have done enough research and listed solutions to bring an end to this debacle in many forums.

What the Government could do is reconsider the route permit system and do away with entry barriers for businesses to enter the public transport market which would then end the present cartel.

The Government has to reconsider the pricing formula for bus fares and deploy a flexible pricing structure with the proposed pay card system where buses can charge a higher fare if they operate at night.

A test run has already been done with the participation of some cabinet ministers in this Government.

Given lower fuel prices in the world market, even a concessionary rate can be provided for public transportation to encourage them to operate at lower costs, considering the damage to the environment.

Simultaneously, the Railway Department requires more competition. The Government can consider keeping the ownership of the railway tracks with the Department and provide private investors with the space to join in a public-private partnership to run train compartments, operations, and cargo. If we can check the location of our tuk-tuk taxi, obviously it isn’t rocket science to develop an application to monitor the arrival and departure times and locations of trains. 

Most of these regulatory reforms won’t affect the Government’s fiscal position, and we should look at options to take maximum mileage of market-based pragmatic solutions rather than inefficient government interventions.

When public transportation sees significant improvement, the Government should consider imposing a congestion tax as done in London, where vehicle entry to the city is expensive, so more people are encouraged to use public transport and congestion is discouraged.

The current higher taxes on vehicle imports is a blanket tariff which has no impact on reducing congestion. When the public transportation is up to the mark, vehicle imports (mainly low efficiency-engine vehicles) will automatically drop, so the Government will not have to crush the dreams of aspirational Sri Lankans progressing to four wheels from two or three. Additionally, the Colombo Municipality will earn extra revenue via the congestion charge. 

Last but not least, the Government should abolish the vehicle permit system and treat all its hard-working residents equally. The vehicle permit system has indirectly allowed daylight robbery of taxpayer money, and of course, it has to be kept active for political reasons. This is the golden opportunity to move from the “do nothing” seat to the “do reform” seat, and we should not waste this crisis without making reforms in our public transport system.

The opinions expressed are the author’s own views. They may not necessarily reflect the views of the Advocata Institute or anyone affiliated with the institute.

Resilient food supply: By command or through markets?

Originally appeared on The Daily FT

By Prof. Rohan Samarajiva

The COVID crisis

It is when something breaks that we notice. The curfews imposed at short notice to flatten the curve of COVID-19 infections damaged the food supply chains that Sri Lankan consumers had taken for granted since the demise of ration books that were central to our existence until the 1980s.

Since 2006, LIRNEasia has been studying fruit and vegetable supply chains in Sri Lanka centred on Sri Lanka’s largest wholesale market in Dambulla which was recently shut down by the Government along with several other wholesale markets. 

The closures were preceded by scenes of massive oversupply, frustrated farmers throwing away unsold produce in large quantities, claims that the traditional traders were exploitative “middlemen,” and counterclaims that politicians were seeking to replace them with their own middlemen, and so on. 

At the other end, consumers confined to their homes were complaining not only of difficulties in obtaining supplies but also in some cases of low quality and high prices. The Government’s response included short-term efforts to purchase unsaleable produce directly from farmers and to distribute through government channels. Understandably, it has been difficult to build supply chains from scratch in these strained circumstances. 

Reports of shortages and delivery delays emanating from the United States, home to some of the most complex and advanced food-supply chains, suggest it is unrealistic to expect food supply to be completely unaffected by shocks of this magnitude. Despite the stretching of food-supply chains over longer distances and across borders because of efficient logistics, the system did not collapse. It is reported that locked-down Indian coastal states found international supply chains for edible oils to be working better than domestic ones.

The COVID-19 shock may have impacted food-supply chains in various ways, including difficulties in delivering to homes due to lack of efficient warehouse facilities and logistics; lowered demand in specific segments (for example, the sudden elimination of demand for premium produce from tourist hotels and restaurants); general reduction of demand caused by frugality resulting from concerns about finances; failures in e-commerce, and especially in the form of difficulties in the discovery function wherein consumers locate retailers with desired price-quality bundles and in placing orders; and breakdowns in the producer-end of the supply chain, caused by staff shortages, transport problems and input shortages and delays.

Things were not that great before COVID-19. Growers were poor; supply fluctuated wildly as did prices; waste was pervasive across the supply chains; the jobs of those who work for the intermediaries were uncertain and poorly paid, and consumers were perennially unhappy. All political parties recognise the problem and have proposed solutions within various points in the planning-market spectrum. We should see a lot more promises on food security when the 2020 manifestoes come out.

Command solution

Around 10 years ago, the President’s Office was persuaded of a State-centric solution that rested on village-level officials collecting information on what crops were being grown and harvested for collation in a centrally administered database. When crops were being grown in excess of what the officials deemed adequate, they would command farmers to grow something else or deprive them of planting material, thereby balancing supply and demand. 

Despite many efforts including the development of IT systems, this approach appears to have failed to yield the expected results as evidenced by frequent reports of gluts and unhappy growers. Yet, the notion that the State can “discourage overproduction of certain vegetables” persists, as indicated by a joint letter to the President from the deans of eight agriculture faculties dated 14 April 2020.

The failure of the command model was preordained. It was tried for decades in the former Soviet Union and in China and failed miserably. It produced shortages and occasional gluts and left growers and consumers unhappy. Whenever the command model was relaxed, production went up. Nobel Laureate Friedrich von Hayek made the theoretical case against the command model as long ago as 1935.

For the command model to work, what crops farmers grow and harvest (and the losses they suffer in between) must be reported by officials or by the farmers. These activities are not supported by incentives for accuracy; indeed, the incentives are for the reporting of whatever causes the least trouble with the lowest transaction cost. There may even be incentives for under or over-reporting. 

Unlike in stock markets where all transactions occur on electronic platforms, price data from agricultural wholesale markets in Sri Lanka are manually collected and are open to error and manipulation. Even if the data is accurate, the processing is too complex, as shown by the debates between Hayek and Oskar Lange and colleagues in the 1930s. 

Market solution

Claims have been made at the highest levels that the current difficulties in food supplies indicate market failure. An information problem exists for sure, but not necessarily a market failure. 

The grower must decide what to grow in May based on the price the crop is likely to fetch in, say, August. That price will be determined by the law of supply and demand. How much of a particular crop is grown in May and how much demand there will be for that vegetable in August need to be known. How can a grower estimate demand in the future? She has to go by past patterns, such as prices fetched last August. This knowledge is not exclusive to one grower. If too many growers make planting decisions based on these kinds of common knowledge, a glut can be guaranteed in August. 

But if information on what others are planting is known, growers can make better decisions. Forward contracts is the best way of getting information. Here, a specialist with skin in the game collects and processes the information on supply and demand and offers forward contracts for August. If the data are incomplete or the processing is flawed, he will lose money, having to pay more than spot-market price. That is skin in the game. As more forward contracts are entered into, the buyer will see that supply is trending toward glut. The prices on forward contracts will decrease, prompting growers to consider other crops. 

Supply will be aligned with demand, with no coercion of the grower. Risk is managed by those best equipped to handle it. Additional elements such as insurance and futures exchanges will be needed for optimal results. Forward contracts have other benefits. They can be used as collateral for agricultural credit, allowing the phasing out of the present informal and dysfunctional credit mechanisms. 

Our efforts to interest private investors in establishing the necessary market solutions failed to take off several years ago due to concerns about contract enforceability in Sri Lanka, among other reasons. Government interference in the functioning of India’s incipient agricultural commodities futures exchange at that time may also have contributed. 

Information gaps

Another reason may have been the undeveloped nature of market information systems. Our research showed massive information gaps in the markets for agricultural produce. We found that sustainably filling these gaps with data on what was being cultivated when and on quality and market prices to be challenging in the absence of information-hungry futures and forward traders.

Crop (what is grown, when, how much), harvest and price data are needed for the market approach. Information on forward contracts being signed is also needed in real-time. Those selling such contracts need to know what farmers are planning to grow, while there is still a chance their behaviour can be nudged by incentives. 

One reason the existing data are of uneven quality is the absence of proper planning mechanisms or functioning forward contracts and futures exchanges. Because of the lack of consistent demand for data, sustainable data collection and analysis systems do not exist. Difficulties of capturing the returns of investment in data products caused piecemeal private efforts such as those that LIRNEasia was associated with being bundled into other products. 

Whichever path we take to build robust food supply chains, the data gaps and contract-enforcement problems need to be addressed. These are the productive interventions that will ensure food security; not the repetition of efforts to build a command model. 

Rohan Samarajiva is founding Chair of LIRNEasia, an ICT policy and regulation think tank active across emerging Asia and the Pacific. He was CEO from 2004 to 2012. He is also an advisor to the Advocata Institute.

The import ban will kill the aspirational Sri Lankan

In this weekly column on The Sunday Morning Business titled “The Coordination Problem”, the scholars and fellows associated with Advocata attempt to explore issues around economics, public policy, the institutions that govern them and their impact on our lives and society.

Originally appeared on The Morning

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By Dhananath Fernando

A friend of mine in his mid-40s had a heart attack. I mean a real one. He was a dynamic rugby player and a national-level athlete in school. Everyone was dumbfounded at how a person with such a high level of physical fitness could possibly have a heart attack. I asked him: “When did you last hit the gym or go for a walk to burn calories?” He replied: “After I left school, I did not do any exercises.” He has also been constantly eating greasy and unhealthy food. That being said, are we still surprised at why a dynamic school athlete, who probably was the envy of some of his classmates at that time, suffered from a heart attack?

Past glories

We always reminisce at what a blissful nation we were during King Parakramabahu’s reign and how our state coffers were full when our colonial masters – the British – left us. It’s a distant memory, even surreal now; how strong the exchange rate was and how we were only second to Japan, which is now the third-largest economy in the world, just a shade over seven decades ago in 1948.

While all that is undoubtedly true, the world has evolved. And alas, we have been under the shade of a coconut tree with a kurumba (local king coconut) in hand dreaming of our past glory, while Japan, despite getting nuked no less than two times, forged ahead as an economic superpower.

It all comes down to choice. Japan as a nation could have withered away dreaming about their past glory, being the first nation to launch a purpose-built aircraft carrier, the IJN (Imperial Japanese Navy) Hosho, and later, to rule the seas (at least for short while) with – to date – the largest battleship ever built, the IJN Yamato.

Japan lost the Pacific theatre and ultimately the war, comprehensively. They arrived at a crossroads and decided not to simply fade away. As I said earlier, it simply comes down to choice, the choice Japan made. We all know what that was and so can comprehend why the West calls Japan the Land of the Rising Sun.

Japan is just like us, in that it doesn’t have much in natural resources, despite churning out cars and electronics to be exported by the shipload.

Returning to the Pearl of the Indian Ocean, the quagmire we face raises the question: Have we been engaging in our daily 20-minute exercise to be in the game or at least in the park, to keep pace with the world?

Definitely not. And as a result, we have blocked our arteries and are staring down the barrel of an impending economic heart attack as a result.

No more new cars

At the time of writing, the Government announced a complete halt on the import of vehicles and luxury goods for the next five years.

I want to get this off my chest – the Government’s or Finance Minister Dr. Bandula Gunawardana’s definition of a luxury good differs from mine. Maybe even your – the reader’s – definition of a luxury good greatly differs from mine.

A pertinent question is: How can a luxury good be defined? And can imports be stopped in this day and age without actually doing the opposite of what was intended; hurting the economy? A high-end Mercedes, Lexus, Range Rover, or BMW, even with the present exorbitant taxes, might be needed for the tourism industry. Luxury goods send the right signals to investors and tourists, of a vibrant economy. The economy also becomes a lot less scary. No one wants to go for a holiday to Kim Jong-un’s land. It’s just too boring…and scary.

Similar to imposing price controls, the Government may have drifted towards this move with the good intention to manage our limited foreign currency reserves. Put simply, we have about Rs. 16 billion in debt payments that need to be fulfilled in the next two to four years. To put things in perspective, this is a colossal amount, equivalent to 16 times the debt-to-equity swap we transacted for the Hambantota Port. Regardless of good intentions, this will follow a deadly sequence of unintended consequences. Leaving aside the revenue losses to the Government and the impact on the retail sector and bank credit, the biggest impact would be for “Aspirational Sri Lankans”.

In any country, aspirations and aspirational people drive the economy. They need a dangling carrot to entice and motivate them to reach higher.

Let me give you a few examples. In the midst of the Covid-19 battle, the GMOA (Government Medical Officers’ Association) requested tax relief on duty-free vehicle permits from the Government; this received significant criticism online and offline.

Though I have my own opinion, keeping that aside, a question we should ask ourselves is: Why, in the heat of a pandemic, is a leading trade union requesting duty-free concessions on vehicles, out of all the consumable goods?

Although I see their request as unfair, the reality is doctors are aspirational Sri Lankans, and vehicles are an element of an aspirational Sri Lankan; I would even dare to stay, a status symbol. If you look at the life cycle of a doctor, you observe that they study very hard to get into medical college, study even harder for about five to six years at that medical college, and undergo training at an obscure hospital thereafter. After burning so much midnight oil, is it unfair for them to buy a vehicle from the market? (I refer to the general right for a doctor to buy a vehicle, not a duty-free vehicle; whether to utilise one’s aspirations at a cost of a pandemic, is a different discussion altogether).

This fate seems to be shared by not only doctors but by everyone who dreams big and is really committed to contributing back to the world. Young, middle-class professionals work very hard to accomplish the aspirations that drive them. While writing this article, I recalled a TV advert by a finance company or bank, of a young couple on a motorcycle stuck on the roadside, seeking shade during a thunderstorm. They want to move up in life to be able to afford a vehicle. It’s the same situation; everyone wants to live a good life because they have all made enough sacrifices. What is wrong with that and why should they have to pay for the cock-ups since 1948?

Money isn’t everything, but…

Aspirational people drive the entire economy. They are business people who take on the risk of starting a business, pay salaries to employees, and invest their money on research development and technology.

If you ask students at a university or any young graduate during their job interview, what they hope to achieve in five years, their most likely response would be: “Build a house, buy a vehicle, and travel the world.” These are the three things that top the list. Why are banking jobs and even jobs at the Central Bank very high in demand? Simply because of the so-called 4% interest rate for housing and vehicles extended to staff.

Many alternative arguments have come into the limelight; that we have to measure happiness instead of our living standards; some say the material world is not the entire world. That may be true, but for a country which has continuously missed opportunities over and over again, and which is at the edge of another brewing economic crisis, this is not a time to conduct any social experiments and kill the aspirations and hopes of young Sri Lankans.

Of course, I am a true believer that money’s not everything, but there is a cycle that you come to realise and your aspirational motives are what brings you there.

Most of our tariff lines on housing materials are above 60% and the fate is the same for many consumables for middle-class people. How can we justify asking the middle class to sacrifice their living standards by downgrading them at the cost of import controls for someone else’s sins? They have paid their taxes, they have worked hard, and they have done their job. The private sector hasn’t been given any vehicle permits nor have they used any government relief packages. Instead, every corporation has been taxed heavily, even on profits earned over the prior years when the previous Government was in power.

From a different perspective, Sri Lankans who work abroad and send foreign remittances from the Middle East, Europe, and Asia, do so to upgrade the living standards of their families, who consume goods like vehicles and electronics. You can observe how fellow Sri Lankans buy TVs and washing machines from duty-free shops at the airport. Do you think it is fair to ask them to cut their usage of electronics to cover up the failures of our incompetent politicians who ruled the country for the last seven decades?

Solution

We hope the import controls imposed are a temporary move and the Government will reconsider this decision. In this column, we have highlighted multiple times, backed by facts, that import control is not the way to defend our currency nor is it the path to economic prosperity.

In 1972, this experiment failed comprehensively. At the same time, too many controls mean too many regulations, and this may contradict His Excellency, the President’s inaugural Independence Day speech where he hit the nail on the head on why Sri Lanka failed to succeed, speaking of how badly its people were treated with over-regulation. In unprecedented times, it is understood that we need to take hard calls, but the cure cannot be worse than the disease.

The opinions expressed are the author’s own views. They may not necessarily reflect the views of the Advocata Institute or anyone affiliated with the institute.

What did we learn about distant education during the lockdown?

Originally appeared on The Daily FT

By Dr. Sujata Gamage

With the sudden closure of schools on 12 March, the Sri Lankan education system plunged into a crisis. Overnight teachers had to gear themselves for on-line teaching and other methods of distance education. In contrast to higher education, distance education for school-age children is a new phenomenon.

The Government of Sri Lanka swiftly moved in to address the concerns of students preparing for Grade 5 Scholarship examination and Ordinary Level and Advanced level examinations, due to start from August, by telecasting lessons for those students. However, the schools were not at all prepared for a distance learning mode, and hence innovation became an urgent necessity to reach out to the full student population.

Further, COVID-19 is not going to be fully curtailed anytime soon. Even if schools start, we can expect sporadic disruptions due to new waves of the pandemic. Therefore, it is critical that we come up with short-term fixes as well as long-term solutions to the distance education of school children in the time of calamities.

Considering the need, the Education Forum Sri Lanka (EFSL) has initiated a series of virtual dialogues on ‘Distance Education in the time of Calamities and Beyond’ to identify good practices in distance education and make recommendations to policymakers. Twenty or more case studies gathered through a focus group of teachers and researchers and further contributions by the participants of our first dialogue revealed several issues.

More than 60% of households with school-age children have no internet

According to a comprehensive survey of mobile use in Sri Lanka by LIRNEasia, in 2018 only 34% of households in Sri Lanka with children aged five to 18 had an Internet connection. More than 90% of these connections are accessed through mobile networks using a smartphone. 

Of these households with internet access, an Online Realtime Classroom experience is enjoyed only by students attending a few select schools. This experience would be for about one to two hours per day, with a variety of self-learning educational materials supplementing the online experience. The percentage of children receiving such an online classroom experience seems negligible given that even some of the popular schools in Colombo have not been able to provide that kind of experience to their students.

Essentially, the primary mode of distance education for 34% of families with internet access is receiving notes or assignments over mobile apps like WhatsApp and Viber. For those families for whom the smartphone is the only device connected to the Internet, dedicating it to the use by one or more children, with or without adult supervision, is difficult. When large quantities of notes are sent, the situation becomes unmanageable. The other 60% remained unreached.

Notes and tutes sent over WhatsApp is not education

Parents cannot substitute for teachers. Even parents who are teachers find it difficult to teach your own child at home. Without adult guidance, notes and tutes do not make an education. Further, as parents are finding out, the problem is not technology.

The mode of education in Sri Lanka, where large quantities of facts are communicated to children in preparation for exams, is perhaps the biggest barrier to distance education. Students being used to spoon-feeding is also tied to this testing of facts through examinations.

Plan around the least privileged

The situation is not dire. Even those unconnected are not without resources. To quote Kagnarith Chea, a young social entrepreneur from Cambodia with whom I communicated recently:

“Distance education requires one of three things – Device (phone, tablet, computer, TV), Network (intranet or internet) and Content. In an ideal situation, all three should be available. In a no-choice situation where there is no internet, we can do without it. In fact, when we launched my educational programs through Edemy we did it without the internet. So long as there are devices and content, distance education is still possible. I believe that this is the best scenario for kids without access to the internet in the time of COVID-19. There are always limitations, but access with limitations is better than not having access at all.”

In Sri Lanka, textbooks are given free of charge for all subjects in Grade 6-11, making notes and tutes sent over WhatsApp somewhat redundant. Mail service is available for almost all homes. In a partial lockdown, VIP services can be arranged for school children. Broadcast TV and radio are other modes that are more widely available. As some tech experts have pointed out memory cards or micro-SD cards have a lot of potential for distributing content under no internet conditions. These limitations have their positive side too.

Benefits of a leaner and smarter education will accrue to all

Thinking of distance education under low resource conditions of the least privileged forces us to focus on parts of the curriculum which can be integrated and parts which need to be taught on their own, and ration content overall. If the content is less and students are guided to be self-directed, some of these non-internet solutions can in fact lead to a quality distance education. 

Although the lockdown may be eased, schools may not start for some time, and the necessity of communicating a leaner and smarter education to children without internet may benefit the education of all children irrespective of their level of access to technology. 

No-internet scenario with rationalised content

For example, if we decide that Math is a subject where children will suffer most if they get less schooling, the full focus during a pandemic-induced distance education can be on that subject while other subjects are integrated into a lesson plan where key concepts are threaded around one or more themes. 

For example, valuable contact time and content delivery mechanisms can be focused on teaching math. Since students already have textbooks, all additional content will be supplementary, providing entertaining ways for children to learn difficult to grasp concepts. 

DVDs could be prepared and provided ahead of time for families to play over their TVs. Micro-SD cards can be made available for each math lesson for each grade. Owning a smartphone to use supplementary learning materials is more likely than parents purchasing internet access for undefined content. 

Once school starts, home-based learning drills could include sessions where students try to learn on their own using supplementary materials while the teacher plays the role of a parent who is more involved in the logistical aspects. 

Now, how would one integrate other subjects around one or more themes in distance learning situations? For example, for Grade 16-9 there are 13 required subjects. If you take mathematics out, COVID-19 epidemic provided the best theme ever for bringing other subjects – language, science, history, geography, religion, aesthetics, citizenship, health and physical education practical and technological skills and IT subjects together. The average teacher would need help with theme-based teaching and teacher associations led by veteran teachers could lead the way by developing and sharing lesson plans. 

Overnight, we could go where Finland has reached after years of providing world-class education in a traditional mode. Finland recently announced they will not divide school time into subjects anymore and students will learn key concepts of several subjects woven together around selected themes. If in Sri Lanka we are forced by necessity to limit content through the integration of subjects around a theme, when our children return to school, they may want such education to continue.

But internet access for all should not be far away

Sri Lanka and most developing countries have come a long way from a situation where owning a phone was a luxury to where, for example in Sri Lanka, 97% of households have access to a mobile phone. However, access to the internet is available for less than 50% of households in Sri Lanka. 

If parents see the benefits of their children learning to learn using supplementary content and note that children with better access to the internet have more and better content, those parents will go the extra mile to secure internet access for their children.

According to the 2016 Household Income and Expenditure Survey of Sri Lanka, parents in Sri Lanka already spend 50% of their education expenditure on tuition. If the need for tuition is reduced through a fewer number of examinations to be faced by children and students are required to learn on their own supplementing textbooks with e-content, it could well be that education will be the driver of digitalisation of Sri Lanka.

The opinions expressed are the author’s own views. They may not necessarily reflect the views of the Advocata Institute or anyone affiliated with the institute.

Food security and self sufficiency

Originally appeared on The Daily FT

By Prof. Rohan Samarajiva

Food supply chains are strained or broken, domestically as well as internationally. It is natural and necessary in such circumstances to think about food security. But it is important to think intelligently and in ways informed by evidence.

All rankings and indexes have flaws, either in the data that form their basis or in their design. But they provide a useful starting point for an evidence-based discussion. The Global Food Security Index comprises three components: affordability, availability, and quality and safety. A new component on natural resources and resilience was added in 2019. 

The fact that Singapore, a city-state with over 5 million people and no access to farmland and therefore to locally grown produce, is ranked first in the baseline index signals that this index is based on an approach to food security that goes beyond common sense. Singapore drops 11 places when natural resources and resiliency are accounted for. It is vulnerable to sea level rises, ocean eutrophication and food import dependency. But even in 11th place, it performs better than all South Asian countries.

I have been studying critical infrastructures for more than twenty years. Sri Lanka’s accession to the Tampere Convention on the Provision of Telecommunication Resources for Disaster Mitigation and Relief Operations and preparations for the Y2K problem were the immediate reasons. We have also been studying agricultural supply chains for over a decade.

Resilience-cost trade-off

There is always a trade-off between resilience and cost. If cost is of no concern, one can have extraordinary resilience, with 100% redundant facilities further backed up. Sometimes when the stakes are very high and the environment highly risky, one does have multiple back-ups. For example, in the worst days of the war when the LTTE was attacking Colombo and CEB engineers were striking at the drop of a hat, I was told about battery backup for mobile base stations, that were further backed up by diesel generators. But all this costs money.

It is the same with food security. One may believe that relying on locally produced potatoes reduces risks. But it is well known that the local production costs of potatoes are significantly higher than that of imported potatoes. Domestic producers are kept afloat by slapping special commodity levies on imported potatoes. What this means is that domestic consumers are paying more for inefficiently produced local potatoes and paying indirect taxes to the government for the imported potatoes they consume. 

Protectionist duties add up, making food more expensive for all. As a result, the cost of labour is higher in Sri Lanka. Therefore, many industries that must compete globally are hobbled by high labour costs.

Sourcing from inefficient domestic producers does not necessarily reduce risk. Agriculture is inherently risky. Floods, drought, insects, and disease can devastate crops. Truly resilient supply chains would not rely on a single area (such as Welimada for potatoes), or even a single country. In the same way that one would not be totally dependent on, say, Viet Nam, for all the rice the country needs, it may not be a good idea to think of self-sufficiency in rice as an absolute policy objective. 

In the face of COVID-19 and disruptions in global supply chains, Viet Nam has imposed some limits on rice exports which would give legitimate cause for concern among its customers. But on the other hand, relying totally on local production is also risky, as was seen in 2016-17 when drought reduced production to 1,474 MT from 2,903 MT in 2015-16. 

So, the real answer for food security is not the simplistic striving for self-sufficiency, but the balancing of cost and risk management through diversifying sources and ensuring that supply chains are robust. Preventing the emergence of monopolies that control choke points is an important part of the response. It is these complex trade-offs and balances that the Global Food Security Index attempts to capture through the weighted combination of 34 different indicators.

Sri Lanka’s food security assessed 

Sri Lanka was ranked 66th out of 113 countries in 2019. It was scored high in nutritional standards, change in average food costs, the proportion of population under global poverty line, food safety, food loss, urban absorption capacity, the volatility of agricultural production, and access to financing for farmers. Its score was pulled down by factors such as public expenditure on agricultural R&D, per capita GDP based on purchasing power parity, protein quality and political stability (biggest decline between 2018 and 2019). 

Sri Lanka’s overall score was slightly below the average, and quite a bit lower on quality and safety. It was ahead of its peers in South Asia, but behind peers such as Indonesia and the Philippines in South East Asia. India was ranked 72nd, with Pakistan (78th) and Nepal (79th) even lower. As usual, Sri Lanka was not too bad but could be much better.

When the natural resources and resiliency is added to the mix, Sri Lanka falls back one place to 67th out of 113. The impact of resilience associated factors is greater in some countries. For example, Australia and New Zealand show wide swings. Australia, which is 12th in the baseline index, drops to 16th place when natural resources and resilience are factored in, whereas New Zealand overtakes Australia by advancing five places to 14th place.

Resilience that is sensitive to cost

The response to COVID-19 and the resultant damage caused to food supply chains calls for a thorough re-examination of the entire agricultural system. The fragility of the current system has been laid bare. But the response should be nuanced and based on a sober consideration of evidence, giving due regard to the need for value for money in food. Instead of prohibiting imports and imposing taxes on consumers to protect inefficient producers, the state should ensure that supply chains are resilient because they are diversified both domestically and internationally. The best way to do this is by preventing the monopolisation of links in supply chains. 

Simplistic retreat to slogans such as self-sufficiency will not suffice. Sri Lanka has experience with those policies from the 1970s. Then they gave rise to black markets for the affluent and malnutrition for the poor. What was implemented in a much simpler time cannot be made to work in today’s more complex economy where consumer preferences cannot be satisfied by ration shops. 

The opinions expressed are the author’s own views. They may not necessarily reflect the views of the Advocata Institute or anyone affiliated with the institute.

Price controls don’t work and I told you so

In this weekly column on The Sunday Morning Business titled “The Coordination Problem”, the scholars and fellows associated with Advocata attempt to explore issues around economics, public policy, the institutions that govern them and their impact on our lives and society.

Originally appeared on The Morning

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By Dhananath Fernando

A story my biology teacher taught me when I was a schoolboy is even in the present day a formidable anecdote in the grey area of public policy and economic management. Once upon a time, deer and lions were living in the same forest. The then king was very fond of deer and felt that deer are treated unfairly as they often become prey to a marauding pride of merciless lions. The king ordered his guards to destroy all lions in the jungle. After a few months, the deer population grew rapidly and the king was very happy. A few more months later, the deer population grew exponentially and the food sources in the forest were not adequate for their consumption and they, in desperation, resorted to eating the barks of trees. This resulted in the death of the forest, which ultimately extended to the deer. Soon, there were neither deer nor a forest. The entire ecosystem had collapsed because of one single intervention. 

The public and economic policy have similar dimensions and that is why we should not intervene in markets but allow free exchange, as there could be a chain of unintended consequences, even though the initial intention was good. In the current global economic landscape interdependencies of two or more cogs in the global market make the wheel turn, and the time it takes from action to reaction could be a mere few seconds or just days. A good recent example is the price controls imposed by the Government on tinned fish and dhal which were revoked recently. The Government’s decision to revoke the price controls is commendable, but the damage to the market is done, at least for the moment. 

Markets are not limited to the supply and demand of goods and services so they have a mechanism to reach an optimal price and quality. It’s more than that. It is important that market sentiments are kept consistent so as to ensure the key wheels of the economy – investors, buyers, and sellers – keep turning as efficiently as possible. If this takes place, consumers, that is you and I, get the best products and services at the best price, without being prey to black-market racketeers. 

The domino effect

The Advocata Institute, and this column, highlighted why price controls are impractical and how they lead to the creation of black markets and shortages of food for people. Sri Lanka imports 90% of its tinned fish and has a 35% tariff on imported tinned fish. When the marked/market price is Rs. 225, but the legally allowed selling price is only Rs. 100, the obvious reaction of importers would be to stop importing tinned fish. It’s not the prerogative of a business to knowingly sell at a loss, regulated or not. 

Price controls during a pandemic like Covid-19 look insignificant, but it is not. The stories of the adverse effects of price controls haven’t been spoken about and the connection in this hullabaloo is not visible. It has had the most impact on the poor and vulnerable community in society who do not have a voice. Tinned fish was probably their most affordable source of protein, but instead had to shift to more expensive sources which is beyond their affordability, and in most cases, I’m sure that they stayed with empty bellies due to the unavailability of affordable and nutritious food.  

This has also resulted in the President having to sacrifice his political capital as a significant priority was given to price controls during his address to the nation, and now the decision has been revoked. Price controls in Sri Lanka are not a new phenomenon. Every government has imposed price controls and these have constantly and comprehensively failed, but are continually included in the political theatre to mislead the taxpayer. It is unfortunate that the taxpayers too continue to swallow the same trick, regardless of their past experiences. 

Price controls are not limited to tinned fish and dhal. There are price controls still in place for essential goods such as rice, milk powder, turmeric powder, big onions, and maize. The results from this will not be different from what we experienced with tinned fish and dhal. Not only food essentials, but LP gas and cement also have price controls. In the leisure sector, hotels have a minimum room rate. Our petroleum products (diesel, petrol, and kerosene for example) and bus fares have price controls.   

Price controls, more so than regulation and lack of competitiveness, are sure ways of stagnating any market or industry. Without going into detail, if you observe sectors like public transport, it is evident how the combination of price controls, lack of competitiveness, and overregulation has led to a terrible public service for the taxpayers.

Backward Sri Lanka

Although the world has moved from travelling from Earth to space over the last five decades, the brand of the buses, train compartments, and their service condition have remained the same during the same period in Sri Lanka. The reason is simple. Trains are a complete government monopoly and there is no competitiveness at all; no one can enter that market. As a result, the trains are late, always on strike, and overcrowded. The route permit for a bus is more expensive than the bus itself for most of the routes and is heavily politicised. 

Market entry is extremely difficult and prices are controlled. As a result, buses are always slow with very poor safety precautions. Passenger service is unimaginably terrible as a result of the absence of choice for people to shift to alternatives. Simply, bus owners have no incentive to provide a better service. Making things worse, private vehicular traffic to the city is increasing alarmingly, combusting more hydrocarbons and impacting the environment. As a side effect, we spend billions of dollars on importing fuel to burn on bumper-to-bumper traffic. This is just a single example of the disastrous combination of price controls, lack of competitiveness, and overregulation. 

The other two main macro decisions by the Government this column has highlighted are most likely to cause further unintended consequences with the gradual opening up of the Western Province from tomorrow (11) onwards.

1. Imposing import controls will have an impact on local industries and employment, along with shortages of essential items for consumption, and cause supply-side shocks and create inflation. 

2. Money creation (quantitative easing or money printing) will further depreciate our currency in the long run and create an artificial demand for imports. Already our rating has been downgraded by Fitch.  

Enhance competition

We need to realise that not making a bad decision is equal to making a good decision. Rather than controlling prices, we need to enhance competition with the gradual opening up of the economy, and not waste time during this crisis, without easing regulatory barriers such as price controls and opening up for regulation that is both consistent and transparent. Institutes like the Consumer Affairs Authority’s mandate need to be revisited and they should lead the promotion of competition instead of becoming the neighbourhood cop for price controls. 

The opinions expressed are the author’s own views. They may not necessarily reflect the views of the Advocata Institute or anyone affiliated with the institute.

Review of Prof. Razeen Sally's 'Return to Sri Lanka – Travels in a Paradoxical Island'

By Riyad Riffai.

Digging into the first few pages into the book, Return to Sri Lanka – Travels in a Paradoxical Island, shattered my expectations of an academic piece on the post-colonial Sri Lankan economy. When Razeen said his book was coming out, this is what I expected, what we all expected. But it was a fallacy, what we got was a very personal journey to the unknown bits of a very serious and well known academic, Razeen Sally's life in Ceylon and later Sri Lanka.

In his book, Prof. Razeen Sally writes an extremely powerful story of his recollection of growing up as a schoolboy in the mid-sixties, of challenges faced by a young Welsh mother and her Sri Lankan Muslim husband to raise three young boys, to his unexpected return to the land of his birth. The book narrates the writers' personal experience, on how the model colony had transformed from its utopian state to post-independence epilepsy in less than two decades later, fueled by ideology, supremacy, insecurity and above all the lack of opportunity.

The book gives a fresh perspective to the mysterious past of the four corners and the bits in-between of the island. Razeen has taken great care to write much of the book on personal experience and as a career academic to careful research to add the bits and pieces of history not sparring the inconvenient truth which is customarily left in the hands of the chosen to edit.

At the end of the book, one gets the feeling the writer is demanding for change, serious change if passed we'll be still clambering to escape from Bane's Pit for the next 70 years. Quoting from one of the best books ever written, "It was the best of times and the worst of times" by Charles Dickens' historical novel, A Tale of Two Cities. Absolutely, it is the best of times for a few and worst of times for many. This is the key message for me that the writer refers repeatedly. Unfortunately, for the past seven decades, Sri Lanka seems muddled in the latter as well as the foreseeable future.

This is Prof. Razeen Sally's first shot at writing a book that is nonacademic, of nothing on macroeconomics, trade or commercial policy that he's been churning out from his days at the LSE and now at the NUS. He's done one pukka job. Full stop.

Economic implications of COVID-19

Originally appeared on The Daily FT

By Dr. Sarath Rajapatirana

There is little doubt that COVID-19 will have a substantial economic impact on the Sri Lankan economy. This impact will include direct reduction in output due to the loss of working days and the necessary social distancing to prevent the spread of the virus, medical expenses to deal with persons who have been infected and expenses to prevent greater infections of those who are both vulnerable and not prepared to follow the instructions with respect to the necessary social distancing.

While there will be an immediate effect on incomes, there will be medium and long term effects following from policies used to prevent the spread of the virus. Where the rate of infections is concerned, so far, we have done well. The issue is whether we can maintain the preventative system that has been put in place with the deployment of large number of police and armed forces personnel. 

This shock to the economy is larger and perhaps deeper than those we have encountered with the Global Financial Crisis (2008-2012). There was a limited effect of that crisis since our main exports markets USA, UK and the European Union experienced reductions in their GDP growth rates. The Easter Sunday bombings had a strong impact on our tourism industry from which we had not fully recovered when COVID-19 19 struck. But effect was relatively small and confined to one sector. 

The initial conditions

When COVID-19 struck we were already in an economically weak position. Our GDP growth rate was 2.6% in the first half of 2019 with the impact of COVID-19, a recovery to our average growth rate (average for three decades of 4%) will be difficult to be achieved in the coming three to five years without substantial reforms and large inflows, particularly FDI.

Earnings from tourism are substantially low after the 2018 Easter Sunday bombings. The immediate future for tourism does not look good. Our exports have not risen enough to help with the current account in the balance of payments. Meanwhile, our foreign exchange reserves have remained low at around $ 7.0 billion including a part of borrowed funds. Finally, we have to meet large debt repayments around $ 16 .0 billion in the coming four years 2020-2023.

The economic impact of COVID-19

We can expect a substantial economic impact of the spread of the virus, both directly and indirectly, the latter being more important than the former. Direct impact given is that to date labour is in virtual quarantine. Measures to prevent the spread of the virus will cost funds that have not been budgeted before. And, the relief measures will cost more. 

There needs to be a special allocation of funds for them. Looking at the experience of other countries these infections will increase but if we follow proper protocols our infections will remain low, particularly through social distancing. We can mitigate their impact by proper procedures to provide access to medical services for prevention and treatment. Greater testing and relying on trained epidemiologists would help. 

The direct cost of the virus on the economy arises from the reduction in output given that production in all the sectors has virtually come to a full stop, only to increase in areas where the curfew has been withdrawn. But most workers are from the highly populous three areas of Colombo, Gampaha and Kalutara and are still in their homes. 

In terms of national income – wages, profits and interest incomes will remain low in the near term. This makes for much-needed policies for recovery. While we deal with the emergency, we have to think beyond the near term for proper policies. Measures taken for this emergency situation will have effects on the medium term and long term.

Government programs to mitigate impact of COVID-19

The Government has proposed a full list of relief measures. These include: 

• Grace periods for the payment of income tax. And VAT, for driving licence renewals, paying water bills, and assessment of taxes less than Rs. 15,000, monthly credit card bills of less than 50,000 given and extension of until 30 April. 

• Suspend leasing loan payments of three-wheelers for six months. 

• No recovery of loan payments from Government and private sector employees until 30 May.

• Suspension of repayments of personal loans less than Rs. 1 million.

• Rs. 20,000 allowance to be paid to graduates chosen to follow training.

• Agrahara insurance benefits for health workers involved in prevention activities and civil security personnel are to be doubled.

• Six-month debt moratorium to be granted to tourism and apparel SMEs.

• Bank of Ceylon, People’s Bank, National Saving Bank, EPF and Employees Trust Fund are to jointly invest in Treasury bills and bonds to stabilise money market at 7% interest rate. 

It is noteworthy that none of these measures are based on the price system. Most are based on directions, orders and quantitative measures.

Additional measures to provide relief include 

• Maximum of 15% interest rate on credit card domestic transactions up to Rs. 50,000 and a 50% reduction in minimum monthly charges.

• All bank branches are to remain open during non-curfew hours.

• Ports, Customs and other regulatory bodies to issue essential food, fertiliser, pharmaceuticals and fuel to relevant individual continuously.

• Samurdhi beneficiaries and Samurdhi cardholders be offered interest-free advances or Rs. 10,000 through Samurdhi Banks. 

• Samurdhi Authority to issue title certificates to low-income families immediately to issue nutritious food items. 

• Exempting Sathosa and Cooperative Store from VAT and other taxes. 

• A special account opened at BOC at the Presidential Fund to provide relief to health and social care. Rs. 100 million allocated. Provide rice, dhal and salt on a weekly basis. Tax and foreign exchange restrictions waived for domestic and foreign donors to contribute to the fund.

Despite all these measures, it is difficult to deliver economic relief to the poor and particularly the unemployed and self-employed. This because Samurdhi is not properly targeted. Some persons who deserve help have no access to these income transfers while others with high income get Samurdhi funds. The issue needs to be addressed in our future programs to help the deserving poor. 

Other countries like Chile have such a system of income transfers based on detailed family and income data. A recent initiative by our Government to provide ration cards to those who are very poor and not recipients of Samurdhi will be helpful. But in the medium to long term, we need to reform the Samurdhi programme and target benefits to the deserving. 

Meanwhile, the CBSL introducing import controls through credit restrictions which will create medium and long term distortions in the economy and lead to higher inflation. With these policies, it signals a greater reliance on quantitative measures rather than use prices to manage the economy including a competitive exchange rate. When the price system is not used the quantities have to be allocated by an authority or a “czar” that breeds irrational allocations and corruption. 

Conclusions

The measures proposed by the President are appropriate to address the short-run situation created by COVID-19, especially on the consumption side. But complete shut-downs such as the closing of the private pharmacies is counterproductive to the maintenance of health standards of those who need daily doses of medicine like those who have diabetes, chronic heart disease and asthma. It was found feasible to relax control such as allowing private pharmacies to open.

However, since we are starting from already weak initial conditions, the task is not easy. And, carries the danger of over-playing the hand of controlling the economy and extending the role of the Government in the economy. And, at times underplaying it, given that implementation of relief measure including income transfers depend heavily on the public service. It is not known to act efficiently and quickly. 

Overplaying the hand of the Government carries with it the danger of bestowing additional and permanent power to the Government. We have seen the results of that experiment in the 1970-1977 period, with income ceilings, near 100% import controls restrictions on the transport of paddy. This overplaying of the hand of the Government led to disastrous results during that period. GDP growth rate fell, as did employment followed by a sharp reduction in living standards.

CBSL would do well to avoid direct quantitative measures to influence the volume of credit. It will reduce the flexibility of the economy to deal with the COVID-19 shock and signal its preference for quantitative measures including the management of reserves specially avoiding flexible and competitive exchange rates. 

Direct measures could lead to a non-competitive economy, especially harmful for our export growth. Banning imports directly will create a bias against exports. We have to depend on incentive reforms to raise our GDP growth rate by raising the productivity of the economy. What has been done in the short run may be necessary. But not it is not sufficient to ensure medium and long term growth. 

The opinions expressed are the author’s own views. They may not necessarily reflect the views of the Advocata Institute or anyone affiliated with the institute.

What economics can teach Sri Lanka about PCR testing

In this weekly column on The Sunday Morning Business titled “The Coordination Problem”, the scholars and fellows associated with Advocata attempt to explore issues around economics, public policy, the institutions that govern them and their impact on our lives and society.

Originally appeared on The Morning

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By Dhananath Fernando

Beginning with our education system, when a student successfully completes their Ordinary Level they are segregated into Commerce, Arts and the ones with the best results choose Maths or BioScience. A completely new direction from the humble times of the O/L. A student at the end of their studies in their chosen field can become a great medical practitioner, a legal profession, or even an engineer. But during their time at university or as a matter of fact in school their basic knowledge in economics, such as what drives inflation, interest rates, why am I getting less dollars than last year at the money changer, is at the mercy of a silver tongue politician, a master of selling excuses. The excuses which are hastily gulped by you, the ordinary citizen. The current economic situation created by Covid-19 is a sterling example of this disconnect. Many well-educated citizens who haven’t studied rudimentary economics during their learning years join the workforce in obedience. What you don’t know won’t hurt you. Sometimes even those who studied economics have forgotten that ‘Economics’ is the social science of production, distribution, and consumption of goods and services. We all often miss the common sense that we have to make a continuous effort on making our choices with limited resources available and organise and coordinate to achieve maximum output by increasing productivity. Ultimately economics is about you. In this case “ability to test” at present is our limited and most scarce resource. How we utilise it to the greatest effect is probably the decision-maker on how fast we can overcome and how to minimise its impact on the wallet of each Sri Lankan. Undoubtedly “testing” in isolation will not work without the policies of social distancing and medical policy management. Economics, medicine, bioscience, technology or anything is no longer isolated. There is always an economic angle. We have to find the winning formula to come out of COVID-19.

Economics of testing strategy

The countries who faced the pandemic successfully have one thing in common. Their testing strategy and coordination between policies has been incredible. New-Zealand, Vietnam, South Korea, Taiwan the unsung hero and even China have given absolute priority to testing. Ability to test has been discussed on various platforms in Sri Lanka. But still, the public seems to run on an attitude “This shall be passed”. Some tend to think opening up is the end of this battle, without weighing the pros and cons to the economy. Let’s face the grim reality we are not a rich country and the world doesn't want our currency, hence running the press in perpetuity is not a solution, it’s the opposite of it. Hence, the only viable economic option is to be at the helm of the new normal and “testing” will determine the shape of the new normal.  Sri Lanka did a commendable job in combating the wave 1. (Wave 1 is infected cases directly from China). We had a very successful quarantine process and all index cases (cases, where the person got infected, is traceable) at the beginning was identified and did not provide any space to progress onto community transmission (infected cases from small clusters of the population). In contrast, some developed countries like Italy and the USA were hit immediately with community transmission right from wave 1.

However, Sri Lanka has seen a sudden uptick in cases as a result of coordination issues between our social distancing policy and a few vital loopholes in our testing policy. At the beginning, the testing capacity was about 100 and to increase that limit to 1,000 we took a considerable amount of time. Testing even at this juncture is a limited resource, so we have to maximise the productivity on testing. We have to maximise resources to increase testing capacity, while also ensuring that we test the right samples while overall testing numbers are increased. That is where exactly we slipped (Advocata highlighted the loophole in the testing policy)

Source: https://www.worldometers.info/coronavirus/ (Accessed on 1st of May 2020)

Basic visual diagram to understand the initial testing strategy by the author

We took a fairly long time to increase the testing as it is yet not up to a reasonable level. We did not utilise the private sector from the get-go, even though it has critical capacity for lab tests in the island. Additional lapses in testing the forces who are a high-risk segment (as they manage the isolation on the frontlines) caused a sudden increase in infections. According to medical experts’ opinion COVID-19, some infected cases indicate symptoms (symptomatic cases) while there are many cases that don't indicate symptoms (asymptotic cases). However, they both are the carriers of the virus. On our testing strategy, since testing capacity is limited, we have to provide priority for individuals who are symptomatic and who have been contacted with a previously identified patient. In economics, we had the opportunity cost of not testing asymptomatic cases at the beginning. It is not that simple; there are some high-risk groups who arrived from overseas and some asymptomatic cases in quarantine centres. So maximising the limited resource “testing” became very complicated. We did not expect a member in the triforce to get infected and the possibility of their high-frequency commuting carrying the virus across domestic borders. Some of them having gone on leave to take a break after the yeoman service they delivered have now become part of the problem by increasing the probability of more cases in low-risk areas. Countries like Vietnam identified this loophole early and they conducted frequent tests among high-risk groups. Drivers, cleaning staff at hospitals and often committing all individuals all fall into high-risk categories.

Economics on increasing testing capacity

One main delay to increase the testing capacity was lack of engaging the private sector on testing at the beginning of the pandemic. Private sector labs are mainly run by major hospital groups that are well regulated by the Ministry of Health and have the critical capacity to get the numbers in. A PCR test is a confirmatory test (Symptoms have to be indicated and a doctor has to recommend the test) and an individual cannot get it as a screening test (a test to identify an infection/ disease). As a result, private hospitals can only conduct PCR tests for the in-house admitted patients only. Of course, the cost of the private sector tests will be higher but by restricting private sector to conduct the tests as a laboratory test and imposing price controls on the tests is a sure way of discouraging the ability to increase the testing capacity from volunteer testing. The outcome would be someone who could afford a test at a higher price will now utilise the state health apparatus, adding further strain on limited resources. At the same time price controls will discourage the private sector to invest and further expand testing capacity. In an ideal case scenario, the private sector has to be encouraged to conduct the tests out of hospital premises to reduce the degree of transmission of the disease. 

Given community infections being reported we can’t adhere to our previous testing priority strategy as now the asymptotic cases have been reported and the opportunity of voluntary testing has to be opened up. The cost of an economy that is idle is not bearable for a developing country like Sri Lanka.

Solution

The only solution lies in improving our testing strategy and increasing capacity. There were some locally made PCR tests reported which is commendable and we should encourage them to upscale it to a commercial level. However, introducing a commercial scale medical equipment takes time as the process needs extensive testing is needed for approvals to ensure accuracy and reliability of the tests. Increasing testing by using basic economics on what is available and more feasible. Having fewer regulations on the private sector on testing, while we maintain free testing conducted by the government is the first most economically feasible option. Engaging the private sector will save an opportunity cost of testing more cases in the government healthcare for people who can’t afford it. As community infections have been reported now voluntary testing ability is a must. Only the private sector is likely to bring the investment for advanced and convenient testing like drive through tests, and mass-scale testing needed for industry. To coexist with Covid-19 till the boffins at labs to come up with a vaccine is still in the distant horizon, hence increasing tests is the only way out to defeat the invisible enemy at the moment. 

The opinions expressed are the author’s own views. They may not necessarily reflect the views of the Advocata Institute or anyone affiliated with the institute.

Curtailing liberty

Originally appeared on The Daily FT

By Prof. Rohan Samarajiva

Imagine a day in the life of a daily wage earner, before COVID-19. Of a woman who makes her living by providing cleaning services to several houses in Colombo.

She was free to take public transport, and on occasion a three-wheeler to get to work. She was free to take up or decline work and negotiate rates and days. She was free to keep cash, put some money in a bank and withdraw when needed. She could choose the vendors from whom she purchased groceries and other items.

It was no walk in the park. The work was hard, the madams were not always nice, the buses crowded… But she was able to feed her family and live her life. She could make small donations and participate in a seettu. She was not dependent on handouts or charity. She had liberty.

Now imagine her post-COVID-19 life. The money has run out, the jewellery is in the pawnshop. She cannot work, she cannot earn. April is burning hot, and her family is cooped up in a tiny tenement. Even when she has money, she cannot choose: she must buy whatever is offered at whatever price by whoever comes down the lane. She has to rely on handouts from the Government and from others. It used to be like this after the floods, but then one knew the water would recede and normalcy would return.

The curfew was supposed to be just for the weekend when first imposed. Now it has been over a month. Dates are announced and then changed for reasons unexplained. No one knows when this will end. Will she be welcome in the houses she used to clean? Will they fear her as a carrier of the disease and do their own cleaning? Will there be other work? She sees the streets are still being swept. Who should she talk to, how much is the bribe?

This is what the loss of liberty is for daily wage earners, for those whose work requires co-presence, those most affected by the curfew. The freedom to earn a living, to traverse public thoroughfares, to choose from whom to buy and what, to have some peace with the children out playing. All taken away by distant politicians and officials whose earnings are certain, who have no worries about food on the table when they are driven home by a chauffeur after a drink at the Hilton with a friend.

Let us concede that the lockdown (or its more severe version, the curfew) was needed to prevent the health system from being overwhelmed.

To save the lives of the elderly and those with weakened immunity. To buy time to get the tests and the acute-care beds and the PPE [personal protective equipment] organised.

The curfew was State action with significant positive externalities for society. Everyone benefited, including the daily wagers and the politicians. But the costs were not borne evenly. Those with the curfew passes and the Government vehicles may have borne none. Those among them who exercised discretionary authority may have even benefited.

The child who could not celebrate a birthday bore some of the costs. The executive who could not maintain the jet-black head of hair did too. But their costs were nothing compared to the daily wager cooped up in a tiny tenement without money to buy food and no certainty about what next week and next month would bring.

Giving these people money is not charity. It is compensation for the harm done to them by the State that dwarfed the benefits they received. It has been common practice to provide compensation when the State takes away assets or livelihoods. That is what has been done by the curfew.

When the State acts in ways that result in life-changing impacts on citizens (the curfew in this instance, but could also be allowing infected individuals to clear the airport), there must be accountability. There must be evidence that decisions were taken on the best available information and with best efforts made to minimise harms to citizens.

For this, two things are needed. The decisions must be taken under some written law and must be documented. There must be independent entities such as the Courts and the Legislature in place to examine the way the decisions were taken and with the power to hold the Executive to account. Do these conditions exist now?

The Acting IGP makes all sorts of announcements and arrests are made. But what laws are being broken by persons using public roads? What laws made by our elected representatives require shops to be closed?

Who decides what is essential and what is not? On what basis? Where are the emergency regulations? There can be no emergency regulations when an emergency has not been declared. There is no Parliament where questions can be raised, and the Courts are not fully functional.

A week of improvisation can be understood and forgiven. But now it’s more than a month. It is time to abide by the Constitution that all elected officials have solemnly committed to uphold. Perhaps we should consider requiring the unelected decision-makers to also take an oath of office, so they are reminded we live under law.

The opinions expressed are the author’s own views. They may not necessarily reflect the views of the Advocata Institute or anyone affiliated with the institute.

Let’s not look too far ahead

In this weekly column on The Sunday Morning Business titled “The Coordination Problem”, the scholars and fellows associated with Advocata attempt to explore issues around economics, public policy, the institutions that govern them and their impact on our lives and society.

Originally appeared on The Morning

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By Dhananath Fernando

In cricket, most great batsmen will tell you that they don’t go out to bat thinking “I will score a century today”. They break their innings down to phases; “let’s score 10 runs”, “let’s score 20 runs”, “let’s survive the next four overs”, etc. Basically, “let’s face the next ball”. While this may be misconstrued as a lack of ambition, the underlying principle is that when you look too far ahead you can lose sight of the here and now. In cricket, this could mean getting out for zero while your mind is on the 100. Covid-19, the virus that found its origins in China, not only has Sri Lanka locked in its megalodon jaws but the entire world as well. While this too shall pass, we have to admit that we are well and truly in an unprecedented crisis. We will not be safe until the world is safe and that is the reality. Having faith that things will be back to normal soon is good but our actions should go beyond simply being optimistic and hopeful. Without beating around the bush, let’s be realistic and pragmatic by being scientific. In the past, we have relied on soothsayers who appear on television, devil dancers, turmeric (good luck finding turmeric, now that there’s a price control), and our love of bashing coconuts. The fact is that until we see the production of a vaccine or an acceptable solution, the entire human race is sailing in the eye of the corona storm. Many corporate dons and government officials in Sri Lanka have been pitching in with their business plans and strategies on what can be done “post-COVID”. Sri Lanka has faced the pandemic reasonably well compared to a few of the other countries, but in a crisis of this magnitude, in a closely connected world, the impact of a neighboring nation’s mishandling of the crisis can serve as a cautionary tale for the rest of the world. There is no point in early celebrations for doing well or having anxiety about those who may have mishandled the crisis, as we all are at square one and need to overcome this together. Sentiments on anti-globalisation and going back to the fallacy of “self-sufficiency” is not the solution as we failed that experiment comprehensively almost five decades ago. In a crisis of this scale, all predictions made will fall apart in a matter of not months but days. Take Sri Lanka as an example. We had all planned to open up the Western Province on 22 April but reported cases increased rapidly just two days before. How do we plan in an unpredictable crisis and what should we do is the question that has to be answered sensibly.

Historical examples may have limited relevance

As with managing any crisis, we generally make our decisions based on historic perspectives we have and connect with learnings from peers. First, we have to realise Covid-19 is an unprecedented scenario and how we managed previous crises will hardly help us to overcome the current battle. The strategies that worked for us in overcoming the Boxing Day Tsunami, fighting the brutal civil war against the LTTE, and overcoming the Easter Sunday bombings last year may not work in this battle against Covid-19. We are in a situation where every contract/agreement signed at every level has been challenged. It starts from a simple violation of a rent agreement, by not being able to pay the house rent on time, to a national-level crisis where we lack adequate foreign currency to pay our foreign debt commitments. Having seen the negative side, the reality is there will be a multitude of opportunities which will open up once the storm dies down. The challenge is the inability to predict the opportunities or the shortfalls. So when managing and strategising for the long term, a “one size fits all solutions” plan is very futile at this juncture. However, it doesn’t mean that we need to take a comfortable seat or take a “do nothing and wait” stance. Our game plan has to be pragmatic and dynamic. A game plan can be pragmatic if we have our basic fundamentals right. Predicting opportunities and developing strategies for a crisis without having the “basics” is similar to trying to solve an integration and differentiation mathematical question without having the basic knowledge of addition, subtraction, and multiplication functions. In a recent conversation with Advocata, Export Development Board Chairperson Prabash Subasinghe said it well: “This is a marathon, not a race.” At this point of time, it is of paramount importance that we have a strategy to float for the next 12-18 months and we have to play it dynamically and sail based on the direction of the wind. For the economy to stay afloat, we have to negotiate with the International Monetary Fund (IMF) for a balance of payment (BOP) bailout programme and request them to provide financial assistance to keep us afloat in the coming months. At the same time, we need to use our foreign office and actively seek bilateral loan facilities to manage the crisis. Import controls, liquidity injections, the Government taking over food distribution, and price controls are not at all advisable actions and they won’t help us to keep the rupee afloat, versus the dollar. Rather we will lose our dynamism and pragmatism and crush even the little credibility we have on markets.

The status of our basics

The next question is what can we do and what should we do to get beyond the floating stage. We have to evaluate the status of the basics and spend time on getting our basics right at this dark and stormy hour. Our fundamentals for sound economic policy have never been right in the last three to four decades. We should not lose the benefits of bringing hard reforms and getting the fundamentals right while we fight this crisis. For example, when pay cuts and job losses take place post opening up, people will actively look at part-time opportunities and work more to earn an income. At that point, if our business registration takes three months and if getting an online payment platform takes months for an e-commerce business to take off, the million opportunities created due to Covid-19 will be taken away by our neighbouring competitors. A study done by the Advocata Institute has found that registering a sole proprietorship is far more difficult than incorporating a private limited company. If we fail to fix that level of basic reforms (which can be easily fixed) we will not have any space to capitalise on the opportunities even if we get the support from development agencies over the next few months. Convoluted and complicated customs procedures and red tape have been discussed for years. South Asia Gateway Terminals (Pvt.) Ltd. (SAGT) CEO Romesh David, at a recent online forum on Sri Lanka’s exports economy with Advocata, said that even in the context of Covid-19, goods can cross borders and systems can be automated. If we are not ready to fix these basic regulatory barriers at Sri Lanka Customs, even our revised export target will be just an imaginary number. In summary, our strategy from a national level to that of a small business has to encompass the ability to float pragmatically as we are still in the eye of the storm. At the same time, we have to make sure to utilise our energy on getting our basics in economics right if we are to capitalise on the opportunities that will unfold when the storm is over. In difficult times people will be open to hard reforms and governments can spend political capital on getting hard reforms done. The Government should move back to their role as a facilitator rather than trying to become an active player and throw long-term strategies during one of the most serious crises in the history of mankind.

The opinions expressed are the author’s own views. They may not necessarily reflect the views of the Advocata Institute or anyone affiliated with the institute.

Polling amid a pandemic while preserving rule of law

Originally appeared on The Daily FT

By Prof. Rohan Samarajiva

As I let the contending views on how and when the General Election should be held wash over me, I am comforted by the fact that most participants in the conversation cite provisions from the Constitution. Those arguing that the Constitution is silent on the specific question before us, including the Elections Commission, want the Supreme Court to give a solution. In all, good signs that constitutionalism has not been abandoned. Constitutionalism is respect for words on paper that say what power holders can and cannot do; it is basically about the widespread respect for law; it is at the core of rule of law. In an essay I wrote just before the 2010 Presidential Election and then twice in 2015, just before the Presidential Election and then in a reflection on the Election and the subsequent 19th Amendment, I described the Sri Lankan polity as being torn between the default Kandyan feudal mindset and Constitutionalism. In 2010 we went one way and in 2015 the other way. Where will we end up in 2020?

Ending the impasse
The references to Articles of the Constitution by proponents of holding elections before the country returns to normalcy is obviously a good thing. It indicates that they place weight on what the Constitution says various entities can and cannot do. One hopes that the independent Election Commission will be able to navigate the rough waters ahead. They wished to seek guidance from the Supreme Court on the unanticipated situation the country finds itself in. But only the President can seek such interpretations according to the Constitution. The President’s refusal to serve as a conduit for the Election Commission has put the Commission in a hard place. What it can now do is to seek advice and assistance from the Attorney General and several independent counsel, recognised as eminent practitioners of constitutional law. The final decision will have to be made by the Commission. But the larger context is not conducive to optimism.

Why no emergency?
Let’s take the curfew and the various orders issued in relation to it. A curfew is a serious infringement of liberty. Millions have been prevented from engaging in their livelihoods; many have been compelled to draw down their savings and even pawn their valuables; businesses have suffered enormous losses; and so on. Thousands have been arrested for curfew violations. Let me be clear. These have been necessary sacrifices. I agree with the emergency measures that were implemented on advice from experts within Government on control of epidemics and from various parties including a trade union representing Government doctors. The success of the preventive measures may be seen by the relatively low incidences of cases (though it appears that South Asia is an outlier in terms of the disease). According to a recent report in The Hindu: “According to the latest figures, the eight SAARC nations account 1.1%, approximately of the world total of 2,265,727 coronavirus cases. In terms of fatalities, the SAARC total is half a percentage point or (0.49%) or 768 of the total of 155,145 people who have died of the infection.” This must be seen in relation to the fact that these eight countries are home to 21% of the world’s population. Yet, I am discomfited by the lawlessness of the anti-COVID-19 measures. In law-governed societies, the state does not violate the liberty of the citizens outside the powers set out in some form of written law. In countries that give primacy to the rule of law, actions necessary to deal with extraordinary events such as disasters, civil unrest and epidemics are taken under legislation that set out “states of exception” or states of emergency, which is the term used in Sri Lanka. The basic idea is that a piece of legislation defining the start and end of a state of emergency is approved by the Legislature and amended periodically as necessary. All actions during the state of emergency are taken according to emergency regulations promulgated under the law. These regulations are worked up by the Executive and need not be approved by the Legislature prior to coming into effect. But their very existence in written form allows the Legislature to modify or rescind them later and, most importantly, for affected citizens to challenge actions taken beyond what is permitted by regulation. Because of the abuse of the Public Security Ordinance, No. 25 of 1947, by various governments, especially by the 1970-1977 Government headed by Sirimavo Bandaranaike, the law was amended in 1978 to require monthly approval for the extension of the state of emergency by Parliament. Even though the ruling coalition in 1994-2000 had a wafer-thin majority, it managed to use emergency powers by going through this procedure month after month.

Absence of the rule of law
If ever there were circumstances meriting the declaration of a state of emergency, it is now. But the powers set out in the Public Security Ordinance are not being invoked. Curfews are being declared, people are being arrested, livelihoods are being affected, businesses are being closed and opened all without any specific authority granted by regulations promulgated under the Public Security Ordinance. And sadly, surprisingly, no one, including those who seek to represent the people at the General Election that is in contention, seems to care. No one is making a fuss about this fundamental disregard of the Rule of Law. This is why I am pessimistic about constitutionalism in Sri Lanka. The silence and implicit concurrence of citizens and opinion leaders indicate the dominance of the Kandyan feudal mindset. The King is all-powerful and can do anything. What need do we have for written law?

The opinions expressed are the author’s own views. They may not necessarily reflect the views of the Advocata Institute or anyone affiliated with the institute.

Sri Lanka has to shift away from passive tests, to active, voluntary and targeted testing as curfews are lifted

Covered in Economy Next and the Daily News

By Fellows of the Advocata Institute

Voluntary testing, random testing of people in high-risk areas will increase the chance of asymptomatic index cases and members of clusters being discovered.

In dealing with the COVID-19 pandemic, Sri Lanka has been aggressively contact-tracing and later testing contacts of index cases that have turned up showing symptoms. Contact tracers in the health service and military have done a commendable job.

Initially, Sri Lanka did not test contacts of index cases as soon as they were quarantined and also did not test quarantined persons before release. But these are gaps that have now been closed.

In addition, tight curfews have been placed in the country for weeks, for any exposed person that the contact tracers had missed, including anyone who came to the country before March 19 when the airport was closed, to develop symptoms and come to the hospital.

Several large clusters including the Bandaranaike Pura cluster relating to an index case that returned from India on March 12, as well as the cluster from a case found in Suduwella Ja-Ela during curfew shows that the strategy was useful.

Source: Ministry of Health, Sri Lanka; Ministry of Health, Vietnam

Current Testing Strategy is Dependent on Symptomatic Cases

The current contact tracing strategy has a serious flaw in that it is too dependent on symptomatic cases and there is no way to detect an infected index case that is asymptomatic.

The best practice adopted in the countries with the most success is to trace at least three levels of contacts (F1, F2, F3) of an index case (F0). If there are confirmed cases at any given level, the next level is traced, quarantined and tested.

The longer the delay in discovering the index patient, the higher the chance that the disease has spread to multiple levels. Each level expands exponentially, therefore time is of the essence.

Contact tracers wait for index cases to show up in the hospital with symptoms to find the contact levels to kickstart the tracing process.

Authorities also wanted to get all index cases to state hospitals where they are able to exercise tight control and prevent further spread.

In a situation where tight curfew is imposed, this may be acceptable as the exponential expansion of new levels of contacts is stopped and the cluster is localized to where people can move around in houses close by.

However, it will not be the case when the curfew is lifted.

High-Risk Groups during Curfew and After

Even during curfew, there are several high-risk groups that may get infected. These are delivery personnel, postmen, drivers and cleaners of vehicles, as well as medical staff and cleaning staff at hospitals.

Once curfew is lifted, the front office staff of any institution including airports, quarantine workers, cleaning staff, people working in economic centres, and drivers may be exposed to higher risks.

Those in driving/delivery related jobs, in particular, would also be in a position to spread the disease faster and to a greater area.

After curfew is lifted the government could sample test people in high-risk areas.

These include front office staff of hotels or any company, cleaning staff, transport and delivery personnel, restaurant/supermarket workers, taxi, truck, and other vehicle drivers and sex workers.

Voluntary and private random testing

Sri Lanka has imposed a price control on PCR testing. This price control does not account for the costs of personal protective equipment, the cost of medical staff, and the safe disposal of medical waste.

If the concerns of authorities are that hospitals could get infected, testing and sample collections could be done outside of private hospitals.

Removing the price control would allow competition to drive the cost down, and would allow the private sector to expand testing capacity.

Opportunities should be provided for companies to negotiate bulk discounts and multiple validated testing points should be allowed. Companies and employees could be encouraged to share the cost.

To reduce the cost on the government, opportunities should be provided for voluntary testing and testing at the cost of the employer; especially for front office staff and sample testing of factory workers.

This way any index cases that have slipped through the net and any second contacts of index cases who have since recovered could be discovered.

Under the current testing strategy, there is zero chance of an asymptomatic person being discovered by authorities. Since the growth of a cluster is exponential, time is of the essence.

People may require a test for a variety of reasons.

Any individual who does not have symptoms but may feel that he/she was exposed due to going to a crowded place or any other high-risk location, that they have COVID-19 should have an opportunity to get a PCR test from at his or her own expense, preferably through a drive-through system.

Any individual who has to look after an elderly person or visit an elderly person may have a need for a test.

Many countries, including Korea, are already asking for pre-flight tests from foreign visitors. The current state testing regime there is no opportunity for anyone to get a test.

Drawing from the process adopted in countries like the UAE, results could be sent by text messages and other online methods. The same could be shared with authorities to construct a live map without burdening the public sector.

Sacrificing food security for self-sufficiency

In this weekly column on The Sunday Morning Business titled “The Coordination Problem”, the scholars and fellows associated with Advocata attempt to explore issues around economics, public policy, the institutions that govern them and their impact on our lives and society.

Originally appeared on The Morning

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By Dhananath Fernando

The fallacy of a society that thrives on the myth of “self-sufficiency” after the colossal failure during the mid-70s that left nearly the entire population sans the ruling elite’s belly full is making the rounds again. The very definition of the term “self-sufficiency” has different meanings. One school of thought is going back in time to an era where Sri Lanka never existed on the international map with absolutely zero trade. In this instance, one had no choice as you live off of what you grow. Then there are the alternative arguments – the one that argues that one needs self-sufficiency to ensure food security; to be self-sufficient in food but import fuel, coal, medicine, raw materials, and other “essentials” as prescribed by the state. There are others who believe our trade deficit is beyond our means and we need to be self-sufficient to the extent of our export capacity. Out of all the arguments, the one on food security is the most popular. Hence, let›s take a look at data and definitions on food security and evaluate whether Sri Lanka can truly be “self-sufficient”.

What does food security mean?

The popular belief of “food security” is to have enough food for our consumption during a crisis. The present global COVID-19 crisis we are grappling with is a prime example. Another common myth on food security is having sufficient food stocks to last six months and the ability to produce the required calorie intake within the country’s territorial borders. The Food and Agriculture Organisation of the United Nations (FAO) and the World Food Summit have defined food security as follows: “Food security exists when all people, at all times, have physical and economic access to sufficient, safe, and nutritious food that meets their dietary needs and food preferences for an active and healthy life.”

Despite popular belief, to achieve food security, the country in concern need not produce the food it needs within its borders. The key is to produce the required food at scale and desired quality economically. Otherwise, we will waste our precious and limited resources. For example, take Singapore which has a land area of just 725.7 km2, compared with Sri Lanka’s 65,610 km². Singapore has topped the global food security index for the second year running, despite lacking commercial agriculture. This is because Singapore has integrated fully into the global food supply chain and constructed adequate storage to feed its citizens during external shocks. This is truly remarkable as Singaporeans can consume food that is, as defined by the FAO, safe, sufficient, and to the preference of the consumer. In comparison, Sri Lanka is ranked 66th in the same index. How can we ensure fellow Sri Lankans have access to food physically and economically at all times? According to the FAO definition, it is evident through the COVID-19 crisis that although we have food physically, our food security as a country has been hit by not having physical access to this food due to delivery concerns, people losing both economic and physical access to food due to the interruption of their daily wages, and the absence of food preferences. The failed socialism experiment adopted by the Bandaranaike Government failed to achieve any of the above. Food was inadequate, to say the least; choice was a dream and quality was never present. If a citizen was apprehended with anything more than that was rationed, it was deemed a heinous crime and he or she was promptly jailed. Flour was infested with bugs and rice with stones, and apparel was perfumed with the stench of kerosene and the risk of setting on fire those who were careless near the wood-fired kitchen stove. We had the longest queues in the world for the poorest quality of bread, and that too for only one loaf irrespective of the size of your family. In summary, for the urban community (where the majority had cash to buy food), food security was challenged by the absence of physical access and preferences, while the rural and estate communities’ food security was challenged by the absence of income and preferences as they consumed whatever that was available in their gardens or that grew in the wild. So it is obvious that food security is not something we can attain just by trying to be self-sufficient as there are so many other components to it such as access, affordability, safety, preferences, and nutritional value. According to FAO, the average daily per capita energy requirement per person is 1,680 kcal and Sri Lanka on average is at about 500 kcal above the limit, but according to census and statistics data, the energy intake in the poor segment across Sri Lanka is below world standards. So if we are serious about food security in the long run, we need to ensure our people can afford safe and nutritional food, maintain access, and ensure choice rather than living in the fallacy of self-sufficiency. To achieve this, we need to create secure access to the global food supply chains so that our people can afford the diverse range of food required to meet their energy intake (balanced diet). Then the next question one may have is whether this means that we are going to import all our food and whether we have enough foreign exchange to import all that we require.

Low agriculture productivity

To answer both aforementioned questions, we need to check why the productivity in our agriculture (sector) is low. The technology not reaching our paddy fields is the common excuse that has been given over the years. But have we thought about the reason why technology hasn’t reached the paddy fields? Out of 6.5 million hectares of land in Sri Lanka, 5.4 million hectares are owned by the government. As a percentage, private lands are just 18% of Sri Lanka’s total land extent. Farmers are required to take a permit from the government office if they are to cultivate a higher-yielding paddy. Access to a bank loan is very limited for most paddy lands as farmers are not given the title to the land they cultivate. No construction can be done on paddy land as it’s forbidden by law. Under the current regulatory regime, no investor would invest in a greenhouse farm or high-tech farm. In addition to the above, most of the paddy lands are fragmented, so the opportunity to scale up for a big operation is very limited, keeping costs of production high. This means that even if we were to go back to self-sufficiency and cultivate in our backyards, we have just a fifth of our entire land to cultivate, build houses, and do all other industrial work. This also means that we have about 25% of our labour force engaged in farming, but contributing only 7-8% to our GDP, which leaves most of our land unproductive.

Importing food and the trade deficit

Extreme self-sufficiency is not at all an option regardless of how resourceful we are, as it is obvious that we can’t produce all that we need – for example, fuel and machinery. The only way to keep our trade deficit narrow and convert it to a surplus is to develop our exports. Exports and imports are two sides of the same coin. We import products we cannot produce or products for which we do not have a competitive advantage. We export commodities and services where we have a competitive advantage. Following is an extract from FAO which summarises why food security can only be achieved by global collaboration: “Global food trade has to be kept going. One of every five calories people eat has crossed at least one international border, up more than 50% from 40 years ago.” Therefore, our inability and traditionally lethargic approach to developing our exports should not be a trade compromise for the real and meaningful food security of our people.

The opinions expressed are the author’s own views. They may not necessarily reflect the views of the Advocata Institute or anyone affiliated with the institute.

Covid-19 Policy Responses: A summary note to policymakers

By Advocata Institute

At the time of writing there are more than 1,300,000 cases worldwide and more than 74,000 deaths. Humanity faces a global crisis on a scale never seen before.  Health sector, security and emergency services personnel deserve praise and gratitude for their dedication.  

We offer the following for policymakers as input to make the difficult decisions in front of us as Sri Lanka deals with the COVID-19 pandemic.

To deal with the short-term problems, use existing mechanisms 

The government’s centralized and controlled approach to the delivery and distribution of goods has meant consumers, traders and producers have been squeezed at every node of the supply chain. In order to allow some parts of the economy to run at minimal risk, and reduce incentives for people to break curfew, the government should consider expanding the definition of essential services. 

Developing a non-reversible and consistent policy on curfews for supply chain actors, including delivery personnel, will ease pressure on consumers and producers who at the moment can’t get their products into the hands of consumers.  

A roadmap for reopening the economy

It is useful to think of the policy responses for the pandemic in phases. In the first phase the objective is to slow the spread of the virus by using a strategy of self-quarantine for much of the population by the way of curfew.  Yet the curfews cannot last forever, and they come at a significant human and economic cost.

As the short term emergency situation begins to settle,  policymakers should work with epidemiologists, security personnel, private sector and other stakeholders to develop a roadmap for re-opening. This will enable people and businesses to plan their activities effectively so as to mitigate the cost to their daily lives and business operations.  

An action plan for expanding testing 

The “trace - test - treat” method has shown to be effective in countries such as South Korea and others which have faced up relatively well to this public health crisis. The government’s decision on 31st March to expand testing to check for community transmission is a step in the right direction.

It is vital policymakers develop a clear and focused action plan to utilize the country’s existing testing capacity in government,  universities, research institutes as well as the private sector. The government can tap into private sector access to international supply chains and engage with potential donors to acquire and expand the testing capacity in the country.  

Re-examine the policy on wearing masks

Preventing a rise in cases will depend on individuals limited outings only to the essentials, practicing strict physical distancing and wearing masks. While the official stance of the WHO is that if you are not a medical worker and you are not ill, you do not need to wear a mask, it is also clear that this recommendation is driven by a global shortage of masks. Most recently, the United States of America shifted their stance, with their Center for Disease Control recommending general mask usage to lower rates of transmission. 

As such, while Sri Lanka should also prioritise mask supply for health care workers and others on the frontline on this crisis, the government should revisit its position on mask-wearing, and actively engage with the private sector to rapidly increase mask production.  

Letting the markets work

Re-visiting price controls and understanding their medium to long term impact

The government has already imposed price controls on a variety of items.  As research by Advocata Institute shows, even in normal times these controls mostly serve as political theatre,  with the government's own data showing many consumer items being sold at above the controlled rate. A  price is a signal wrapped in an incentive; it signals shortages and surpluses,  if a producer can’t make a profit they would not go through the trouble and risk of acquiring the item. In a lockdown,  price controls will only exacerbate the supply constraints.

In the coming months, price controls are a policy measure that should be avoided. 

Moving away from planned import restrictions

In an attempt to ease pressure on the exchange rate and protect the local agricultural industry, the government has announced the halting of all non-essential imports. As of the point of writing, this statement has not been substantiated by either the Central Bank or the Ministry of Finance, creating policy uncertainty. The introduction of a negative list of those items that will not be imported into the country in order to protect the rupee could be considered,  yet this should be a short-term, time-bound measure.  

Prolonged import restrictions and a government-imposed ‘essential lists’ will create ripple effects that will harm the welfare of consumers, producers and vital supply chains. The revitalization of our export industries and the manufacturing sector will be key to economic recovery in Sri Lanka. Intermediate goods and raw materials amounted to 46% of Sri Lanka’s imports in 2017, and long term import restrictions will hamper the ability of local businesses to recover and recoup losses after this crisis passes. This will also make domestic incentives favourable to non-competitive import subsidies. 

Moving towards a recovery 

Going forward, monetary policy and fiscal policy must work together well based on a credible macroeconomic program. While its effectiveness will be low in the short run due to COVID-19, it will signal a government committed to surmount the present difficulties.

The World Bank project of USD 128.6 million was much needed, and now having secured this, Sri Lanka should work towards a concrete engagement with the IMF. Apart from being a source of much-needed funding, an IMF programme will also bring fiscal discipline to the country. We should also actively explore engagements with the Asian Development Bank, with an aim to speed up the disbursement of existing loans. 

Overall macroeconomic policy should aim to keep inflation and current account deficit in the BOP sustainable, as this would create the necessary environment to undertake real sector reforms. Trade reform to ensure the free exchange of goods and services, and domestic regulatory reform to help businesses recover and restart should be priority areas of focus.   

Private sector participation in the path to recovery is crucial. Clear, consistent engagement with independent-minded experts, and including these individuals in an advisory capacity to the Central Bank and Ministry of Finance would lend credibility to the government, and signal that Sri Lanka is serious about laying a strong foundation for a healthy economy.

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