Global poverty comes before global warming - BoI Chief

Dhammika Perera, Chairman /Director General of BOI, delivered this speech at a forum jointly organised by the Oxford University Sri Lanka Society and the Oxford Union recently:

“Emerging economies - what are they? Essentially, the term begs a concrete definition. Over the last three decades, since it was coined in 1981, the meaning of emerging markets has “muddied” from a statistical definition that evaluated stock market performance to a broad definition for economies undergoing rapid economic change. I will interpret the term in relation to per capita income coupled with well-defined regulatory frameworks.
“In my opinion, emerging economies face a great challenge posed by the global warming debate. The Copenhagen Environment and Climate Summit of December 2009 shed new light on our planet, the global warming issue and the responsibility of every nation to work towards the reduction of emissions. The per capita CO2 emission of developed markets are soaring, the shift to environmentally friendly sources is inherently associated with high investments and an appreciation in cost of manufacture. It is accepted that global warming needs control because in the last 100 years, climate change has been dramatic. CO2 levels have risen from 280 parts per million in air to 385 parts per million from pre-industrial levels, increasing global temperatures,” said BoI Sri Lanka Chief Dhammika Perera, addressing a forum at the Oxford Union, on the subject of “Emerging Economies: Challenges Faced and Challenges Ahead”.
“However, the fact remains that global poverty comes before global warming. In order to alleviate poverty, economies need to industrialize. Industrialization in turn leads to emissions. In other words the equation is that a reduction in poverty leads to an increase in emissions.
Industrialized nations believe that rapidly growing developing countries are the source of global warming. But the fact remains that development is a critical need for emerging economies to reduce poverty.
The standard approaches of slowing growth, in order to reverse the trend of global warming, is always the first suggestion made by policy makers and environmentalists. However, I firmly support the arguments that come from the industry and the emerging economies against slowing growth, because economic growth enables economies to be self sustaining and to improve conditions for their populations.
The trade-off for the emerging economies is one of short-term survival as opposed to environmental protection. The answer is always toward immediate survival. Despite the fact that there is a lot of discussion on human rights the world over, the global community has failed to realize that by restricting the developing world from growth, they are engaging in restricting this human right, the right to live now.
We need to focus more on development because it has the potential to lead the emerging economies to be more concerned about the environment. Only when people are rich enough to feed themselves do they worry about the environment and the future generations. Development has the advantage of helping people today for a better tomorrow.
So it is obvious that there is a correlation between per capita income and per capita green house gas emissions. Given this relationship, we need to recognize that learning from the experiences of the developed world, emerging economies too can accelerate their economic growth by harnessing the appropriate technologies for sustainable development. Therefore, you can balance development with concern for the environment.

Terrorism

Let me now focus on Sri Lanka, a nation that till mid last year was ridden by terrorism and conflict for over three decades. Now as she stands on a new threshold of economic recovery and accelerated development, our nation looks to a future where all her people will prosper.
However, this is not to say that Sri Lanka has been economically crippled in the past by the conflict, but constrained. Sri Lanka has demonstrated economic resilience and has been unique in that her GDP growth rates have over the past four years been consistently in the range of 5 to 6 per cent with the exception of a forecasted 3.5 per cent in 2009. Our country has witnessed several additional adverse shocks, including a tsunami, direct effects of the commodity crisis and the pervasive effects of the ongoing financial crisis.

Overcoming challenges

At this point you may question as to how an economy can withstand and overcome such an array of persistent challenges? There is no specific answer but for the fact that Sri Lanka is a nation of people who are characterized by their positivism, resilience and patience. Firstly, I personally feel, that our culture that extends in excess of 2500 years and the Buddhist philosophy that is ingrained in the Sri Lankan way of life have molded us to look beyond problems and challenges and given us the determination to carry on.
Secondly, a pragmatic economic approach has delivered sound returns. Policies that are reflective of an open minded approach and which are contingent to global and local challenges have been the key to Sri Lanka’s ability to sustain economic momentum. Likewise, the nation’s corporate community has rallied around and worked in tandem with national priorities especially over the last four years.
In 2005, His Excellency the President Mahinda Rajapakse envisioned an end to the conflict and the resurgence of the Sri Lankan economy. Towards this end, Sri Lanka adopted a series of policy reforms aimed at acceleration of economic growth with special consideration given to pro-poor growth strategies which would actively favour agricultural production and manufacturing. Agricultural productivity has been a key area of focus to empower the rural economy where 90 per cent of low-income populations reside.
The industrial development policy has aimed to achieve a gradual but a definite shift towards high value added domestic resource based production activities with a concerted focus on strengthening the export orientation of the country’s manufacturing sector. Programmes aimed at regional industrial development have strived to infuse the benefits of industrial activity to the rural hinterland as well as the Northern and Eastern provinces.

Foreign investment

A rejuvenated effort to promote FDI has been a priority since 2005. Sri Lanka’s business environment favours foreign investment. There are no restrictions on entry to FDI and the repatriation of earnings. Moreover, the safety of foreign investments is guaranteed by the Constitution. In addition, Sri Lanka has investment protection agreements with over 25 countries and double taxation relief for over 37 countries. Restructuring of the Board of Investment - Sri Lanka’s focal facilitation agency for investment promotion - has made it more pro-active, focused, devoid of red-tape and corruption free. Testimony to this is that the BOI attracted the total FDI attracted over 26 years in a mere four years from 2005 to 2009. The report on Global Investment Promotion Benchmarking published by the World Bank ranked BOI as the No. 1 Promotion & Facilitation Agency in South Asia for the year 2009.
The service sector development has been critical to Sri Lanka’s overall growth momentum. Of specific interest has been the growth of the communications sector which has demonstrated a growth that has placed Sri Lanka on top of the region for mobile telephony penetration. Sri Lanka’s telecommunications sector remains one on par with global standards. Encouragingly, moves to enhance IT literacy has seen the country’s IT literacy rate rise sharply from 5 per cent in 2005 to 25 per cent in 2009.
For over sixty years, our nation’s per capita income has remained below or on par with USD 1000. In the last four years, as a cumulative outcome of the prudent pro-poor development strategies, the national economy has grown expanding per capita income to USD 2000. Our nation is also on track to achieve the majority of Millennium Development Goals by 2015. Thus, Sri Lanka has grasped the historic opportunity to evolve from a lower-income country mired in conflict, to a middle-income country in lasting peace.
As we look to the future, prospects for future growth are high. The re-integration of the Northern and Eastern provinces with the rest of the economy, provides an opportunity for Sri Lanka to embark on further policy reforms where private-public partnerships will define the creation of a more dynamic and vibrant economy.
Due to the conflict both the Northern and Eastern provinces were unable to contribute significantly to the nations GDP, their integration opens approximately 2/3rd of the nation’s maritime and coastal resources, and 1/3rd of untapped fertile land for productive use. They are home to approximately fifteen per cent of the country’s population.
Thus, the rehabilitation of human capital, the outcomes of comprehensive regional development programmes together with public and private investments will, without doubt, position these provinces as economic catalysts for Sri Lanka in the long term.
As a nation dependent on tourism, the acceleration of the tourism sector development plan, will directly contribute not only to a growth in the foreign exchange earnings but also to the development of air cargo dependent trade sectors such as export-oriented horti and aqua-culture. For each additional visitor to Sri Lanka provides approximately 75 Kgs of enhanced cargo capacity for exports. Thus this symbiotic relationship will aide in the further development of export sectors.
Tourism infrastructure development places emphasis on the development of 50,000 rooms across Sri Lanka as capacity building for the expected surge in tourism activity by the year 2016.
Education remains a key to the future prosperity of Sri Lanka. As a nation focused on creating an investor friendly climate, the quality of our nation’s human resources is vital to its attractiveness as a viable destination for FDI. Currently, Sri Lanka stands as a nation with a high rate of literacy from a regional and global perspective, however, the real intention for the nation is to develop human resources with skills that are in line with the expectations of potential investors. Towards this end, the economy has taken numerous initiatives to curtail the movement of foreign exchange by bringing reputed international institutes of higher education to operate in Sri Lanka. In addition, the government’s invitation to Sri Lankan diaspora to return and add value to Sri Lanka’s economic development will, no doubt, place the nation in good stead.
However, despite the promising outlook for Sri Lanka, it is indeed pertinent, for us to be aware of the fact that the world economy and other external factors will determine and shape Sri Lanka’s forward path.
The worrying signs of an increase in trade protection by developed nations despite the fact that revival of trade is key to support the global economic recovery, will push emerging economies into further difficulties.
From Sri Lanka’s perspective the impending loss of the GSP+ due to pressures from the European Union will set our nation back in terms of competitiveness of our garments trade, will cause loss of employment and to a degree will destabilize our trade. However, Sri Lanka will regain its ability to balance the external environment merely based on the emphasis, the investments made and the degree of sophistication of our garment industry.
Thus, it seems unrealistic that Sri Lanka’s economic progression will be unhindered, however, an open mind, a realistic approach and optimism will, I believe take us there.