Sri Lanka’s economic comeback

Rattling through the streets of Colombo in a tuk tuk offers a clear eyeline of a city brimming with construction sites for five star hotels, glossy frontages for international clothes chains and 4 x 4s charging past like elephants on a rampage. The Sri Lankan capital is clearly in the thick of an economic renaissance.

This sizzle of prosperity was notably absent five years ago in May 2009, when the government crushed the separatist LTTE, better known as the Tamil Tigers, after a brutal 26-year old civil war.

Now another battle to hold Sri Lankan government forces and the Tamil Tigers to account for alleged war crimes during the final phase of the conflict is being fought by international human rights campaigners.

But while the economy is in good spirits, Sri Lanka’s current growth path may be about to replicate some of the development crimes other Asian nations have committed.

Anarchic development

Tourismfor one should be a bankable no brainer. In 1265, Marco Polo called Sri Lanka the finest island of all its size in the world. A cornucopia of attractions – fabulous beaches and countryside, diverse wildlife and rich cultural heritage – are still on offer 800 years after the Venetian merchant visited.

But anarchic development, particularly along the coastal areas, is matching the influx of people; the number of visitors to the island has tripled since 2009. Blessed with leopards, elephants and a spectrum of other wildlife, Yala National Park is now so crowded with locals and foreigners that one despairs for the animals. Unless it considers wise and controlled development, Sri Lanka could be in danger of destroying the magic that people travel for in the first place.

The government has identified tourism as central to its national policy and a key driver of socio-economic development. Odd therefore that no singular ministry of tourism, or minister, has been tasked to take charge of this vital industry. The portfolio falls instead under the Economic Development Ministry, run by Basil Rajapaksa, the president’s brother. It is in Sri Lanka’s gift to lay the foundations for a visionary green tourist policy, unlike no other in the region. Now is the time to make it happen.

Policy signals for foreign investors are confusing. The seesawing over foreign ownership of property has left the regulations so jumbled that even local landowners are foggy about the rules.

The roll back of Australian gambling magnate James Packer’s proposal to build casinos begs some pressing questions. Why did the Sri Lankan government approve the license in the first place, then cave into pressure by opponents who claimed the casinos would lead to prostitution? Parliament had already given the go-ahead for an $850 million development by Sri Lankan conglomerate, John Keells Holdings, which would include a casino.

What is the message here? Is the government against casinos; or is it only against casinos not owned by its friends? Potential investors will understandably require the government to clear up the ambiguity if they are to seriously enter the market.

Autocratic tendencies

Part of the disturbance hinges on how politics is fashioned in Sri Lanka.

President Mahinda Rajapaksa is prone to surrounding himself with familiar faces – detractors call them “yes men”. Between them, three Rajapaksa brothers, Mahinda, Basil and Gotabaya, control five government ministries and around 45 percent of the state budget. A fourth brother, Chamal, is Speaker of the Parliament. Although there are more than 100 ministers in government, decision-making is concentrated in the hands of the Rajapaksas and their inner circle.

This leaning towards centralised power could in future prove a lag on the country. Long-term growth is dependent on fostering independent stakeholders in society – like the judiciary, media and NGOs – that challenge the government, not a top-down approach demanding conformity and reverence. Sustainable prosperity is crafted by cultivating an entrepreneurial and dynamic private sector that doesn’t need to wade through confounding bundles of red tape to do business.

Yet for all this, the government has fuelled growth with plenty of sound policy. Key economic indicators are among the best in South Asia. In 2013, Sri Lanka achieved 7.3 percent gross domestic product and the Asian Development Bank forecasts this will reach 7.5 percent in 2014. The population is highly literate and rates of poverty are falling steadily.

Physical infrastructure – a bedrock of early economic development – is continuing apace. The civil war shuttered off swathes of the island into no-go zones. New roads are stitching the country together for the first time in its history. A state of the art highway to the war-torn regions will funnel funds into impoverished areas. Even five years after the guns were silenced, most Sri Lankans still feel relief and excitement at being given the opportunity to safely move around the country.

New ports, airports and communications systems are also powering growth. With Chinese finance, Rajapaksa built a new port in his hometown of Hambantota in the south, part of Beijing’s sea “silk route” revival. China also completed and operates a $500 million container terminal in Colombo. The site is another jewel in China’s “string of pearls” crown, allowing it to link entry points into strategic countries like Sri Lanka and Myanmar along the Indian Ocean.

But other infrastructure fundamentals like electricity supply falls woefully short in many areas. In the historic Southern District, which generates a sizable share of tourism revenue, electricity is intermittent and unannounced interruptions to water flow are frequent. Economic growth relies on a continuous supply of power and water, so to further buttress Sri Lanka’s economic comeback transmission and distribution gaps must be squeezed.

Reconciliation efforts

The potential for political-ethnic fractures in a country still working through its post-traumatic stress is considerable.

Exhaustive work should be done to bridge the divide between the country’s main religious communities. Rising attacks on minority Christians and Muslims by Buddhist monks are alarming and should be addressed as a central priority, not a sideshow.

The vast differences of opinion over how many Tamil civilians were killed in the last days of the government’s military campaign in 2009 will hinder true reconciliation. Tamils still live in poverty and a state of tension in the former conflict-ridden areas. United Nations Human Rights Commissioner Navi Pillay emphasised last year that although the war was over, the suffering of the Tamils was not.

The nature of development in Sri Lanka has to be carefully scrutinised. Sri Lanka’s powerful friend China is flush with ample lessons on how unbridled growth can lead to environmental degradation and endemic corruption.

Other valuable examples abound in Asia on the damage wrought by unchecked development in its tourist hotspots and megacities. Piles of rubbish on Bali’s beaches and the neon that lines Phuket’s streets are an environmental hazard and tragic eyesore. Traffic gridlock in Jakarta cripples business and floods routinely wreak havoc on Manila and Bangkok. With its stunning colonial architecture, much of which is being restored by the military, Colombo has the potential to be a world-class city.

Asian dynasties may have shaped its political landscape for decades, but eschewing this paradigm will ensure the best talent floats to the top. Skilled and impartial technocrats executing policy in an unrestricted decision-making environment is what works best for a globalised economy. Consummating genuine unity amongst Sri Lanka’s ethnic groups will lead to long-lasting peace, security and prosperity. Smart economics is about making poverty, not each other, the enemy.

Zarina Banu is a freelance writer, focusing on economics and business-policy in the Asia-Pacific.