At a time when export capacity is weakening, Sri Lanka’s appetite for foreign sources of funding to bridge its resource gap has been on the rise. Since obtaining a sovereign credit rating in December 2005, Sri Lanka has so far issued five sovereign bonds to the tune of US$ 4 billion beginning in 2007 (Table 1). This was accompanied by an incremental opening up of the government securities market to foreign investors. The threshold limit of 5 per cent of Treasury bonds outstanding introduced in 2006 was relaxed to 10 per cent in 2007. In 2008, Sri Lanka opened its Treasury bill market to foreign investors with a threshold limit of 10 per cent. In December 2011, the threshold limit was further expanded to 12.5 per cent of outstanding Treasury bills and Treasury bonds stock.

Regulations governing foreign borrowing by Sri Lanka’s private sector have also been eased to encourage private firms and commercial banks to tap foreign sources for funding. For example, the imposition of an 18 per cent ceiling on credit growth of Licensed Commercial Banks (LCBs) in 2012 was relaxed to 23 per cent, so long as the additional funds were borrowed from overseas. The Budget 2013 presented in November 2012, permits LCBs and corporate entities to borrow up to US$ 50 million and US$ 10 million, respectively, each year for three years without the approval from the Department of Exchange Control. Such moves have prompted many private LCBs to resort to foreign borrowing, including plans by the state-owned National Savings Bank (NSB) to issue a US$ 1 billion international bond.

Table 1

Foreign Capital Flows

Notes: a: Includes capital and current transfers, inflows from Treasury bills and bonds and long term loans.

Source: CBSL, External Sector Performance, December 2012.

Enhanced volumes of foreign currency denominated borrowing raise a country’s exposure to external shocks. Indeed, the associated risks to an economy from short term flows, and foreign capital accumulation by the private sector, are well known and recognized. The risks can be better managed in the presence of a buffer from an accumulated stock of official foreign reserves. As evident from a comparative perspective, Sri Lanka’s ratio of external debt stock to exports is high, and compares poorly against the average for developing countries (Figure 1). Of equal concern is that the country’s ratio of reserves to external debt remains low vis-a-vis the average for developing countries.

Figure 1  (click the graph to view it large)

External Debt Stock 2011: Sri Lanka in a Comparative Perspective 

Source: World Bank, International Debt Statistics 2013, World Bank, Washington, D.C.

The stability and composition of Sri Lanka’s official reserves have been areas of concern.  Official reserves declined to a low of US$ 1.3 billion in March/April 2009 as the Central Bank of Sri Lanka (CBSL) attempted to support the currency by selling off reserves (Figure 2). Reserves dipped to provide cover for only 1.2 months of imports, well below the international benchmark of 3 months of imports. With the end of Sri Lanka’s 30 year conflict in May 2009, the country began a gradual process of rebuilding its reserves through an IMF Stand-By Arrangement, short term capital inflows to the government securities market, and the issuance of sovereign bonds at regular intervals. Reserved peaked at US$ 8 billion in July 2011 before once again dipping to US$ 5.5 billion in February 2012 with 3.2 months of import coverage, as the CBSL once again attempted to prop up the exchange rate. With the decision in February 2012 to allow the exchange to move freely, and issuance of a US$ 1 billion sovereign bond in July 2012, official reserves were once more built up to US$ 7 billion with 4.4 months of import coverage by end 2012.

Figure 2 (click the graph to view it large)

Official Reserves 

Notes: Official reserves and months of import as at year end.

Source: CBSL, Annual Report, various years.

In terms of the composition of Sri Lanka’s reserves, the bulk of it is made up of foreign borrowings, including funds raised through issuance of 10 year bonds. In issuing long term bonds and buying reserves, governments are likely to consider not only the current borrowing cost but also future borrowing costs. Here, by simultaneously issuing long term bonds and buying reserves, governments accumulate resources that it can use in periods of higher borrowing costs. However, a cost is entailed in that the return on purchased reserves may be considerably lower than the borrowing costs. Higher costs can be off-set, dependent on the extent to which future borrowing costs are likely to increase.

The strategy of buying reserves carries risks, particularly when a country’s capacity to accumulate resources from non-borrowed sources by raising earnings from exports of goods and services is on the wane. The purchase of government debt by non-residents and purchase of international reserves by governments are both pro-cyclical. During good times with lower default risk, governments may be tempted to borrow more. In the event of any shock to the economy, governments will be forced to cut down on borrowing and use available reserves to smooth out consumption. These conditions can result in a collapse of both the purchase of government debt by foreign investors, as well as the ability of governments to raise foreign borrowings, leading to external crises.

Despite higher foreign borrowing, viewed at aggregate, Sri Lanka’s external debt dynamics appear not to have changed very significantly in terms of the external debt-to-GDP ratio. It increased slightly to 36.5 per cent in 2012 from 35.6 per cent in 2011, largely on account of the sharp depreciation of the exchange rate. However, the overall debt-to-GDP ratio masks the growing external debt service obligations on Sri Lanka, arising from changes to its composition. As more foreign resources were raised on non-concessional terms, the breakdown of external debt composition has changed swiftly, with the share of non-concessional and commercial borrowing rising to 50.5 per cent of total external debt in 2012 from a share of 7.2 per cent in 2006 (Figure 3). The ratio of debt service to exports of goods and services shot up to 21.2 per cent in 2012 on the back of higher re-payments, including settlement of the first sovereign bond for US$ 500 million issued in 2007.

Figure 3 (click the graph to view it large)

External Debt Composition and Debt Service Ratio(^a )

Notes: a: Debt service ratio taken as percentage of exports of goods and services.

Source: CBSL, Annual Report, various years.

Sri Lanka’s external debt has grown at an annual average of 16.4 per cent during 2006-12, while earnings from exports of goods and services have grown at only 8.7 per cent during the same period. The spike in the debt service ratio in 2012 is indicative of the pressures that big repayments can exert. While long term bonds allow for hedging rollover risk, Sri Lanka will already see a significant ‘crowding-in’ of its external debt repayments during 2020-22 as the Sovereign bonds issued from 2010-12 mature. Whilst there are no immediate plans to issue similar Sovereign bonds in 2013, the uptake of foreign borrowing by state-owned banks and other private entities entail continued external sector risks for the country as a whole. The build-up of external payments stress is a cumulative process, where the lines between external public debt, public-guaranteed external debt, and private sector external debt become blurred, and virtually disappear at times of external payments crises. The most prudent strategy to insulate an economy from rising exposure to foreign debt is to ensure a healthy growth in earnings from exports of goods and services, and build-up a ‘war chest’ of non-borrowed official reserves.

As post-war Sri Lanka gears itself towards a faster growth trajectory and reach upper-middle income status, the importance of attracting greater investment from abroad – Foreign Direct Investment (FDI) – has risen to the fore. Although Sri Lanka has seen a steady inflow of foreign investment projects into the country over time, the record has been less than impressive when compared with many emerging economies. Sri Lanka attracted an annual average FDI of US$ 500 million (about 1.5 per cent of GDP) during the last decade while East Asian countries, for instance, attracted FDI inflows exceeding US$ 5 billion annually – close to 5 per cent of GDP.

With a GDP growth target of 8 per cent or higher, Sri Lanka would need to raise its annual rate of investment from the current level of approximately 26 per cent of GDP to at least 35 per cent. With public investment to be capped at around 6 per cent of GDP, this rise would need to come almost entirely from private investment. Within this, foreign private investment plays a critical role. In addition to helping bridge the domestic savings-investment gap, foreign investment brings other benefits as well – technology spillovers, management best practices, links to new markets, etc. Like many developing countries Sri Lanka has offered, and continues to offer, generous tax holidays and other tax-based incentives and exemptions to incentivize FDI inflows to the country. But it is widely acknowledged that they erode the government’s tax revenue base significantly.

Fiscal pressures in Sri Lanka are rising and the government is keen to curb the budget deficit at 6.2 percent, amidst a declining tax-to-GDP ratio. Meanwhile, concessionary foreign aid to the country is also rapidly shrinking owing to the country’s new lower-middle income status. This means that to finance Sri Lanka’s development needs domestic revenue mobilization, i.e., tax revenue, needs to be strengthened. A critical part of this effort is minimizing revenue leakages in the form of tax exemptions and holidays and ensuring that these incentives are effective in their intended purpose – attracting more and quality-wise better foreign investment.

So, the government is currently faced with a policy paradox – the need to minimize the use of fiscal incentives on the grounds of revenue whilst maintaining the stance of fiscal incentives to entice FDI.

History of Tax Incentives in Sri Lanka

Sri Lanka’s use of fiscal incentives to entice FDI could be traced back to the 1960s during the heights of the import substitution industrialization era. From 1963 onwards, some tax holidays were offered in the areas of “pioneering industries”, export enterprises and tourism. These were granted under the Inland Revenue Act and administered by the Ministry of Finance under the Inland Revenue Department (IRD). With the shift in industrial policy orientation from an inward-looking one to a more outward-oriented export promotion strategy in 1977, the attraction of FDI becamethe cornerstone of national development policy.. At the outset, generous fiscal incentive packages encompassing tax holidays of 10 years or more and customs duty exemptions were offered to foreign investors engaged in export-oriented activities operating within specially designated Export Processing Zones operated by the Board of Investment (formerly known as the Greater Colombo Economic Commission). Gradually over time, successive governments increasingly recognizing the importance of FDI extended fiscal incentives to foreign-owned enterprises engaging in all forms of economic activities.

Fast forward to 2013, and Sri Lanka continues to grant tax incentives to varying degrees. Yet, in a significant streamlining move to correct the dichotomous structure that existed earlier of both the BOI and IRD offering tax incentives, all corporate income tax holidays were written in to the Inland Revenue Act in 2011.

Effectiveness of Tax Incentives  is Debated

The effectiveness of tax incentives in attracting FDI is widely debated among tax professionals, treasury officials and investment promotion officers. Some tax experts argue that tax incentives are not necessary for attracting investment, as investors will generally consider other factors that improve a country’s investment climate as more important. Despite insufficient evidence of their effectiveness, tax incentives are still an important part of the policy mix used by countries to increase their appeal to foreign investors.

Tax administrators as well as researchers often highlight the difficulty in measuring the effectiveness of tax incentives due to the absence of high quality firm-level datasets on investment in most countries. Sri Lanka is no different and this paper is also constrained by the same challenge. Estimating the costs vs. benefits of tax incentives is not easy and can be contentious, as widely acknowledged in the literature. Although this was one of the items specified in the mandate of the Presidential Commission on Taxation 2009, it is learned that the Final Report of the Commission has refrained from providing such a cost-benefit outlook. However, rough estimates suggest that, for 2010 the revenue foregone from tax incentives could amount to around Rs. 6.6 billion or close to 1 per cent of tax revenue. This number is likely to be less from 2011 onwards following the substantial cuts in tax rates introduced in the 2011 Budget. These are not new IPS calculations, but rather draw from existing literature.

Can Sri Lanka Do Away With Tax Incentives?

Some may argue that Sri Lanka had to grant generous incentives in the past because of the poor investment climate that existed on account of the armed conflict and now that the war is over we can do away with generous incentives. However, the security situation of a country is not the only factor that would impact an investor’s decision to locate. As this paper (the Research Working Paper referred to above) argues, other factors like the trade policy regime, openness to international markets, the investment policy regime, and institutional and governance set-up, are important as well.

In this post-war phase, where Sri Lanka has a new chance at attracting world-class foreign enterprises, the attractiveness of Sri Lanka as an FDI destination has to be preserved. This is important in order to keep the rate of investment high to generate faster growth, to help Sri Lanka further integrate with the global economy, and to provide more and better employment opportunities for the country’s people and raise living standards. Sri Lanka is continually competing with other FDI destinations in the South and South East Asian region, especially Malaysia, Thailand, and Indonesia and increasingly also Vietnam, Cambodia, Myanmar and Lao PDR.

Sri Lanka cannot completely do away tax incentives for FDI just yet – not only because the country does have to try everything available in its arsenal to attract investment at this crucial stage, but also because competitor destinations are still offering a fair amount of tax incentives as well. However, many of these countries have begun moving away from blanket tax holidays towards more targeted incentives of the type that is advocated in this paper; like accelerated depreciation, investment tax relief, minimum investment thresholds, and renewable certificate schemes. For instance, Malaysia and Brazil are using investment tax relief for investment in higher technology sectors; Vietnam is using accelerated depreciation allowances for investment in ‘difficult areas’; Brazil is introducing ‘minimum investment thresholds’ for investments in the IT sector; and Thailand is planning on introducing a ‘certification scheme’ to ensure better compliance.

Discussion in the Paper

The paper reviews a wide range of international empirical evidence surrounding the use of tax incentives, as a whole, as well as specific types. The paper also provides a fairly comprehensive discussion on the host of types of tax incentives available and their relative merits and demerits. The paper embodies the principle that although economists have often been skeptical about tax incentives and have instead supported broad tax bases and lower rates, there is a continued popularity of tax incentives. With this as the point of departure, the paper puts forward some ideas on how to better design and better monitor tax incentives. On the design side, the paper discusses ideas of administration, better measures to ensure incentives help a government achieve investment targets, tightening qualifying criteria, improved targeting and categorization of incentives. On the monitoring and compliance side, the paper discusses the strengthening pre-approval assessment, tax registration, compliance certification, and closer information sharing among agencies.

Meanwhile, the paper does acknowledge the valuable point that tax incentives are only part of the story – the importance of non-tax factors that determine the investment attractiveness of a FDI-host country cannot be overlooked or compensated for using incentives. Elements of this investment climate include a progressive trade policy, investment policy, and labour market regime.

Accountability of tax incentives is a crucial part of the discussion that is often overlooked, and this paper argues for a comprehensive and formal mechanism for recording tax concessions granted and possibly an estimate of the revenue foregone as a result and for this to be tabled in Parliament. A ‘Tax Expenditure Statement’ or ‘Statement of Revenue Foregone’ of this kind is not unusual, and in fact has been recently introduced rather successfully in India. It enhances the accountability and transparency of the incentives granted as well as the agencies involved in granting them.

Due to severe data limitations, this paper has not undertaken a comprehensive econometric analysis of costs vs. the effectiveness of tax incentives. Rather, it provides a critical overview of the use of tax incentives in incentivizing investment, reviews some of the available tools, and presents an agenda for the way forward for the country. It draws extensively on international literature on the subject and aims to serve as a reference point for further research and policy analysis on this issue. The paper hopes to advance the knowledge that will help policy makers and administrators to develop, implement and monitor smarter tax incentives.

Conclusion

Overall, Sri Lanka must answer a key policy question and structure its incentives accordingly – ‘what kind of foreign  investment does the country desire to attract?’. Like Singapore did, FDI strategy must fit in to broader industrial strategy, which gives investors a credible and stable signal on the government’s direction. FDI promotion cannot sit in isolation from other policies relating to trade and industry.

In concluding, while the paper does acknowledge that tax incentives are not the only factor in determining the foreign investment attractiveness of the country, that tax incentives violate the equity principle of taxation, that the evidence supporting the effectiveness of tax incentives is often contentious, and concessions and exemptions are a drain on the country’s exchequer, it also acknowledges that Sri Lanka would need to maintain some form of tax incentives regime to remain competitive in attracting FDI. But this tax regime must be designed, implemented, and monitored in a smarter and more cost-effective way so that the impact on revenue is minimized while the desired economic policy objectives of higher investment are realized.

International Human Rights Instruments – What is Available?

As migration, unlike the movement of commodities, is the movement of people, it requires that special attention be made to the social dimension, which includes human rights, dignity, and the social protection of migrants. If both countries of origin and destination want to benefit from migration, it is essential that they address the human rights aspect of migrants.

Currently, a range of human rights instruments exists at the international level promoting the human rights of female migrants, migrant children, migrant workers, refugees, and smuggled migrants. Among the treaties which concern migrants and human rights are:  1) the International Covenant on Civil and Political Rights, 2) The International Covenant on Economic, Social, and Cultural Rights, 3) the International Convention on the Elimination of All Forms of Racial Discrimination, 4) the International Convention on the Protection of the Rights of All Migrant Workers and Members of their Families, 5) the Protocol to Prevent, Suppress and Punish Trafficking in Persons, especially Women and Children, 6) the Convention on the Elimination of All Forms of Discrimination against Women, 7) the Convention against Torture and Other Cruel, Inhumane or Degrading Treatment and Punishment,  and 8) the Convention on the Reduction of Statelessness.

Migrant workers are entitled to enjoy the labour rights provided for in all international labour conventions, such as the four sets of rights set out in the 1998 ILO Declaration on Fundamental Principles and Rights at Work[1].  In addition, there are some other international conventions which provide specific rights for migrants workers. For instance, the ILO has adopted two international conventions:  the 1990 International Convention on the Rights of All Migrant Workers and Members of their Families (ICRMW), and the ILO Multilateral Framework on Labour Migration. ICRMW is a fundamental element in protecting the human rights of migrants. It applies to all aspects of the life of migrants and it regulates the full spectrum of workers’ rights without being restricted to employment.

Migrant Rights – Challenges Remain

Despite these international instruments to protect migrant workers’ human rights, there is a considerable incidence of reports of rights being violated.  A significant number of migrant workers face undue hardships and abuse in the form of low wages, poor working conditions, denial of freedom of association, denial of workers’ rights, discrimination, xenophobia, and social exclusion. For example, in 2011, out of the nearly 10,000 complaints received by the Sri Lanka Bureau of Foreign Employment (SLBFE), around 20% were about the non-payment of agreed wages and 16% were about the breach of employment contract. Physical and sexual harassments were the next highest complaint category in 2011. Around 302 deaths, including natural deaths, were recorded that year, with around 2% of these being classified as homicides.

There are practical issues related to the ratification, implementation, and enforcement of existing human rights. Many governments do not have the required capacity to implement these international human rights instruments.  Moreover, human rights instruments available for migrant workers are not popular among governments, policy makers, and often among migrant workers themselves. On the other hand, even in the countries where these instruments are available, the administrative procedures are complicated.

How Can these Issues be Overcome?

There are several ways to enhance the protection of migrant workers. Countries, which still have not ratified these human rights treaties, should be encouraged to do so. Ratification itself won’t be sufficient to minimize the human rights violation, therefore it should go hand in hand with a regular monitoring mechanism. The problem with most countries is the lack of capacity to implement these treaties and to monitor them. To develop this, global partnerships are important.  Donor agencies in developed countries can support other countries to implement, monitor, and create awareness.  In addition, a massive awareness campaign should be launched at the onset, as awareness about human rights is very poor, as mentioned earlier.   This awareness should be extended not only to the governments in sending and receiving countries, but also to the migrant workers themselves. All these actions can be implemented through national level policies and regional cooperation.

At the national level, governments of sending countries need to come up with bilateral agreements and Memorandums of Understanding (MoUs) with receiving countries. These agreements should not be limited to the number of employment contracts and wages, but should also focus on the human rights aspect of migrant workers.  It will be beneficial if governments of sending countries can come up with social security agreements with the governments of destination countries.

At a recent public dialogue, the Director of the International Movements against All Forms of Discrimination and Racism  (IMADR) emphasized the need for a collective South Asian approach to this rather than the current trend of competition between the countries(1).   This highlights the need for regional cooperation in order to have better bargaining power to avoid situations like the Rizana Nafeek’s execution.

Regional Collective Action is Key

Coordination between country of origin, transit, and destination, as well as non-governmental organizations (NGOs), civil society organizations, and migrant workers, is essential to ensure that international human rights of migrants are honoured. Existing Regional Consultative Processes (RCPs) can be employed to protect the human rights of migrant workers in two ways. Firstly, they provide an important platform for multi-stakeholder engagement that can influence national level policies. RCPs allow different groups such as government representatives, international organizations, and NGOs to come together for informal and non-binding dialogue and information exchange on migration-related issues. RCPs are a platform for regular meetings between these stakeholders who wouldn’t normally interact, or would interact only on an ad hoc basis. Thus, RCPs can facilitate better cooperation, and co-ordination among stakeholders.  The participation of such a wide range of stakeholders is essential towards the development of a comprehensive approach to protect the rights of migrant workers.

Secondly, RCPs can influence the setting and steering of national agendas. For example, participating countries can influence the focus of migration issues already incorporated in their agendas. Many countries have reviewed, created and/or amended national legislations in this way. For example, the governments of Panama and Fiji, both undertook extensive reviews of their domestic migration laws and subsequently reformed certain parts of these laws as a result of their RCP participation(2) .

In the South Asian region there are RCPs that exist like the ‘Colombo Process’ and the ‘Abu Dhabi Dialogue’. These RCPs have touched on the human rights aspect of migrant workers. The ‘Colombo Process’, for instance, aims to consult on issues faced by overseas workers and propose practical solutions for the well-being of overseas workers, particularly the most vulnerable, such as women and unskilled workers. Partnership 3 of the ‘Abu-Dhabi Dialogue’ is in place to prevent illegal recruitment practices and to promote welfare and protection measures for contractual workers; support their well-being; and prevent their exploitation at origin and destination.

The existing efforts should reach the benchmark set by the efforts of the ASEAN region.  In 2007, the ASEAN region introduced the ‘ASEAN Declaration on the Protection and Promotion of the Rights of Migrant Workers’.  It is a unique initiative in the ASEAN region which specifically addresses the protection and the rights of migrant workers from a regional perspective and encompasses the responsibilities of origin, transit, and destination countries, to ensure an orderly migration process. A similar effort has been taken by a group of think-tanks in South Asia to form South Asia Migration Commission (SAMC) in 2009. It has conducted three meetings in Colombo but it is yet to be recognized by the SAARC official process.

A country like Sri Lanka which receives a significant amount of remittances – nearly 10% of its GDP – cannot afford to prohibit migration.  However, the fact remains that another tragedy, such as that of Rizana Nafeek, must be avoided at all costs. While Rizana was Sri Lankan, she could just as easily been one of the thousands of housemaids from India, Bangladesh, or any other South Asian country.  As such, collective action remains one of the strongest tools that sending countries such as Sri Lanka, India, or Bangladesh can have in their arsenal to protect their migrant workers.

References

(1) Fedreich Ebert Stiftung Open Forum on ‘Welcome Money: Unwelcome Issues? The Challenges of Sri Lankan Female Migrant Workers,’ 21^st February 2013, Taj Samudra Hotel, Colombo.

(2)Michele Klein Solomon (2005). ‘International Migration Management through Inter-State Consultation Mechanisms Focus on Regional Consultative Processes on Migration’, International Organization for Migration

In Sri Lanka, Public Private Partnerships (PPPs) have existed unofficially for a long period. The first instance that such partnerships were seen in Sri Lanka’s health sector was during the shift in government policy in the post-1977 period of economic reforms, allowing medical practitioners from the government service to practice privately outside their official working hours.

There are around 17,000 government doctors working in government hospitals today. A majority of them consult privately as General Practitioners (GPs) or in private hospitals during their off-duty hours.  A large number of full-time GPs from the private sector provide out-patient care at private clinics on a fee-for-service basis. Additionally, many private sector GPs also make referrals to government hospitals.

The flow of referrals occurs in both directions. In many government hospitals, doctors recommend that their patients obtain prescribed medical tests from private laboratories. The incidence of privately-conducted tests are so prevalent that most private hospitals in Colombo have set up laboratories and sample collection centres all across the country. Despite the cost involved in obtaining such a service, patients are often satisfied as they have confidence in the accuracy of the results.

However, while PPPs exist in an unofficial capacity of this nature, the Sri Lankan health sector remains distinctly a two tier system. The government provides free health care through a network of government health institutions, and the private sector engages in levying fees for the provision of services, arguably aimed at enhancing profit for investment.

PPP Potential

PPPs are most useful in relation to patients suffering from acute illnesses – who are primarily being treated in government hospitals. This is especially poignant in light of the fact that Sri Lanka is confronted with a demographic shift towards an ageing population – a factor that is adding further pressure to the overburdened state health sector. Table 1 below summarizes the current situation of the demand for health care in the country.

Table 1: Summary Highlights of Health Care Demand in Sri Lanka

Source: Adhikari, A., Rajapakse, A., Rajapakse, S., Rodrigo, C., Perera, Y.S. (2010), Characteristics of Older Patients admitted to a Tertiary Care General Medical Unit in Sri Lanka, Indian Journal of Gerontology, Vol. 24 (139-149)

Increasingly the public health sector is finding it harder to cope with the rising demand for its services. This is made evident by the fact that as at present, over 5,000 patients are waiting heart surgery according to a recent announcement made by the government health authorities[i].

Figure 1 below, depicts the incidences of Coronary Artery Bypass Grafts (CABG) performed by public and private healthcare sector providers (data from the public sector is only available up to 2007). The Figure shows that Private Hospitals have improved their capacity of CABG intervention by 2½ times from 600 CABG in 2001 to 2000 in 2012 while public sector was lagging behind from 200 CABG in 2001 to 600 CABG in 2007.

Source: IPS Private Health Data Base (2000-2012)

According to the Private Hospitals Association, at any given time there are approximately 50 patients admitted as in-patients awaiting surgery. This is in addition to the monthly waiting lists of scheduled patients, the numbers of which might run well over 160. A fair number of these patients belong to the high risk category.

The situation described above clearly highlights the disparities in the capacities of the state and private sectors, despite being mostly served by the same medical personnel. The increased instances of CABG performed by private health providers indicate their improved capacity for  intervention for a service  mostly  patronized by the upper and middle class segments from urban and suburban areas.

In this context, the private hospitals are at an advantage because administrators have embarked on the large scale introduction of new bio-medical technologies at a high cost, with the sole purpose of increasing their market share in a competitive health care delivery environment.

Public health authorities too, are taking steps to address the issues of capacity within government hospitals, with the proposed import of Bio-Medical Equipment (BME) at a cost of over Rs.2 billion[ii]. However, procurement of BME by the public hospital authorities will be subject to usual procedural delays, which will contribute to the already immense backlog of patients waiting for heart operations in government hospitals.

PPP as a Solution

An often unreported fact is that the government provides certain subsidies to private hospitals for the import of high tech BME.  As a direct result, there is an abundance of medical equipment and technology available in metropolitan areas – particularly in Colombo city.

Therefore it is reasonable to expect the initiation of a feasible contractual arrangement with private hospitals in order to address the backlog of patients in the government system, until the proposed import of BME to government hospitals has materialized.

It is exceedingly important that the public dismisses the false notion that PPPs will lead to the privatization of the public health care delivery system. Public health authorities have a responsibility to reap the benefits from PPP arrangements, in order to reduce cost, share resources, provide quality assurance, and increase the efficiency of the healthcare delivery system without compromising on equity and fairness. Hence, institutional changes may be required in both the public and private sectors, to better fulfill their social mandate and provide quality health services to the people of the country.

Hydrologists and water resource economists have suggested that by 2030 one third of the world population will be based along river basins and the scarcity of water for agriculture will have a tremendous impact on their livelihoods. Overall, the world’s water demand will grow from 4500 billion cubic metres to 6900 billion cubic metres by 2030 – a 40% increase from the current water supply. Not only in the developing world but also in the developed world countries such a USA, Spain, Germany, and France, are already facing water scarcity for agriculture and have a limited supply of irrigation water for agricultural use. Therefore, policy makers around the world are now confronted with the challenge of formulating alternative strategies for water management to address these issues.

There is increasing evidence to suggest that water scarcity is likely to be aggravated further by the inevitable reality of climate change. The Intergovernmental Panel on Climate Change (IPCC) suggests that climate change affects all components of freshwater systems. As a result, water quality and availability will be major issues in the future. Today, close to 70% of the water in the world is used for agricultural purposes and of that, much is utilized by developing countries. Therefore, it is fair to say that, in the future, developing countries will be more affected by water scarcity for agriculture than developed countries. Climate change affects the intensity as well as the patterns of distribution of rainfall.  The Food and Agriculture Organization (FAO) suggests that climate change will affect livelihoods of the rural masses, especially in developing countries, by limiting the water availability for agriculture. FAO suggests that the increased intensity of droughts and floods can also lead to widespread crop damages, thereby further affecting the livelihood security of farmers.

Ground Realities

Sri Lanka is heavily dependent on agriculture and both rain-fed and irrigated agriculture form the backbone of rural livelihoods. Scientists have suggested that the overall rainfall received by Sri Lanka has decreased in many areas of the country. The established patterns of rainfall have changed and the distribution of rainfall in different parts of the country also appears to be undergoing changes. While the droughts cause delays in planting seasons and are responsible for crop damages, floods have been destroying mature crops awaiting harvest.

According to current statistics, the total cultivated area in Sri Lanka is estimated at 1.86 million ha. About 632,000 ha. of this area is irrigated; the rest is rain-fed. Irrigated agriculture is mainly comprised of major irrigation schemes.  In addition, there are numerous minor schemes, which can be identified as semi rain-fed systems. They include over 15,000 village tanks scattered across the dry zone areas of the country. Irrigated agriculture in Sri Lanka has received a great deal of attention from policy makers over the past several decades, which culminated in the accelerated Mahaweli Development Program in the mid 1980s. Many steps have been taken to rehabilitate and restore ancient irrigation systems.

Majority of the irrigated land in Sri Lanka is used for paddy cultivation. The demand for water is high in paddy cultivation compared to many other crops.  Water is essential for the preparation of land, and the planting and maintenance of the crop throughout the planting-harvest cycle.   On average, the water requirement for irrigated rice is between 900-2250 mm per day.  By 2025, paddy cultivation area is projected to increase by 28%, with the annual growth in the cultivated area of paddy rising to 1077 ha, compared to 836 ha in 1991. Sri Lanka’s dry zone is the main paddy producing area in the country and some parts of this area will face an absolute scarcity of water by 2025. Furthermore, research has suggested that paddy production in Sri Lanka will increase by 10% by year 2025 and that additional amount will be totally irrigation-based.

Applying the IWRM Approach

To manage these challenges, experts have stressed the importance of an Integrated Approach of Water Resource Management (IWRM) to face the rising threat of water scarcity.  The concept of IWRM was first proposed about 60 years ago and was re-examined in the 1990’s. IWRM calls for a holistic approach where agricultural water management is considered a part of an overall strategy of natural resource management.  The way in which water is managed for agricultural purposes is a function of different management practices that are closely associated with the management of other natural resources as well.  Accordingly, management of water will depend on the actions taken by the different users of water and other natural resources.  For example, the management of water for agriculture from an irrigation tank largely depends on the management of the catchment area of the tank. The actions taken by the users of the catchment area will affect the water storage of the tank; thereby determining the availability of water for agriculture.

Even though IWRM has been discussed as the most sustainable way of managing water resources, there is some criticism as well. While it is attractive on a conceptual level, the implementation of macro- and meso-scale water resource management projects has faced certain difficulties. Among the reasons for this are the heterogeneity of water users and poor institutional arrangements. Evidence shows that farmers in Sri Lanka are moving towards intensive commercial agriculture, and privately oriented land/water management strategies are rapidly being adopted. As a result, the emerging agricultural systems have ignored the traditional practices of integrated management of associated resources, such as catchment areas.

However, experts have suggested that innovative ways of IWRM can be used to meet the future demand of water in developing countries. One innovative idea is the concept of “virtual water”. Virtual water refers to the hidden or unobserved flow of water when commodities are traded from one country to another.  The virtual water content of a commodity is the volume of water required to produce the commodity, which is measured at the original place of the production. This contains the sum of water use for that commodity at various stages of the production process. Therefore, if a country with scarce water resources is producing a particular commodity requiring a large quantity of water, then they could potentially import that commodity from another country that has relatively less water issues, and thereby save the water needed to actually produce that commodity in the country itself. Secondly, water-scarce countries can increase the efficiency of their water management practices through new technological/institutional strategies and water conservation. Thirdly, countries can use more efficient, economical, and environmentally- friendly approaches to prevent the pollution of water. Finally, naturally unusable water, such as saline and sodic water, can be treated to use for agricultural purposes with the use of new technologies. However, the application of these strategies should be compatible with country-specific needs and development agendas. With emerging technologies and private sector involvements, agricultural water management has become increasingly complex. Countries like the USA, China, Japan and Germany appear to have placed more faith on larger investments and modern technologies, while developing countries are focussing on adopting an IWRM approach.

Breaking with Tradition

There are significant efforts by governments over the past few years to establish new infrastructure, rehabilitate or renovate existing dams, reservoirs and canals, and promote agro wells and micro-irrigation technologies to meet the rising demand for agricultural water. Despite such efforts, however, the problem of water scarcity continues grow. In order to meet the future demands of agricultural water innovative approaches are needed. The demand for agricultural water has to be balanced with the municipal and industrial water demands. In balancing these demands, the goals of public health, environmental protection, economic viability, and food security need to be carefully assessed. The development of crop varieties that demand less water is one possible strategy to manage competing demands for water. The selective adoption of technologies appropriate for small farmers is another tool. Planning and coordinating irrigation water is also very important to save the excess use of water. Farmer organizations, local institutions, and state agencies such as the Agrarian Development Department, Department of Agriculture, Department of irrigation, and the Department of Meteorology all have an important role to play. They must work closely and share knowledge and information so that irrigation water can be better managed through an IWRM approach.

References

2030 Water Resource Group, 2009, Charting Our Water Future: Economic Frameworks to Inform Decision-Making”, 2030 Water Resource Group.

Imbulana K.A.U.S , Wijesekera N.T.S and Neupane B.R, 2006, “Sri Lanka National Water Development Report, Water: A Shared Responsibility”, Prepared for the 2^nd UN World Water Development Report.

Morrison J. Et al, 2009, “Water Scarcity and Climate Change: Growing risks for Business and Investors”, The Pacific Institute.

United Nations News Centre, 2011, Climate Change Related Water Scarcity to Affect Global Food Production, http://www.un.org/apps/news/story.asp?NewsID=38673#.UUVERzdtiSo, visited on 17^th March 2013.

Bouwer Herman, 2000, “Integreted Water Management: Emerging Issues and Challanges”, Agriculture Water Management, Vol 45, PP. 217-228.

Biswas A. K, 2004, “Integrated Water Resource Management: A Reassessment”, International Water Resource Association, Vol 29, No 2, pp. 248-256

Qadir et al, 2003, “Agricultural Water Management in Water Starved Countries: Challenges and Opportunities”, Agricultural Water Management, Vol 62, pp. 165-185

Senaratne A. and Wickramasinghe K. 2011, “Commons vs Commons: Managing Scarce Water Resources in Dry Zone Village Tank Systems in Sri Lanka, Economy and Environment Program for Southeast Asia (EEPSEA)

Weerakoon W.M.W, Abeysekara A, and Wijesundara C, 2010, “Agronomic Strategies to Increase Rice Yield in Sri Lanka”, Rice Research and Development Centre, Ibbagamuwa, and Regional Agriculture Research and Development Centre, Bombuwela, Sri Lanka.

Sandaratne, N,….. “The Paddy Paradox: Challenges in the Next Decade”, Post Graduate Institute of Agriculture, University of Peradeniya, Sri Lanka, accessed online 18^th March 2013.

Food and Agriculture Organization of United Nations, 2004, “Rice and Water: a Long and Diversified Story”, Conferences proceedings, International Year of Rice: Rice is Life, accessed online 21^st March 2013.

The TE Digest is a bi-annual publication of the Institute, which compiles the articles featured on this blog every 6 months, together with special feature segments. The latest edition of the Digest was launched last week at forum on ‘Igniting the Power of Innovation in Sri Lanka’ that the IPS organised with the National Science Foundation (NSF). As we distribute only a limited number of printed copies of the Digest, we present here an e-version of it for you. Read it online via Scribd below or download as a PDF.

Talking Economics Digest Innovation Special Issue

(Reproduction/reprinting of the Digest by a Third Party for distribution/commercial purposes is not permitted. If you wish to obtain a printed copy, kindly email your name and postal address to talkingeconomics@ips.lk, we would be happy to send you one.) 

Introduction

Increased international trade in food has resulted in consumers benefitting from access to food at lower prices, year-round supplies, and a greater quality and variety of food. On the contrary however, the globalization of the food supply chain has posed new challenges by way of food safety and quality issues, revive previously controlled risks, and spread contaminated food wider[i]. Food safety/quality and trade-related concerns are becoming more pronounced than before. The ongoing horse meat scandal in Europe is a salient example of this. As governments across the globe seek to regulate food markets in the interest of public health and safety, notifications from WTO members show an increasing use of non-tariff measures since the mid-1990s; notably technical barriers to trade (TBT) and sanitary and phytosanitary (SPS) measures. Whilst trade effects of SPS/TBT measures have been widely documented, analyzed, and debated – especially in relation to their developing country market access implications – their implications on consumer welfare have been given little prominence.

Food Safety and Food Quality Risk: An Overview

In Sri Lanka, there has been growing fear/incidence of food safety and quality risks in recent years. In 2008, fears were raised that melamine contaminated imported baby food, milk, and fish feed from China had made its way to the market[ii]. In June 2011, concerns were raised surrounding E-coli contaminated canned fruits and vegetables imported from Europe. Fears were also raised with regards to the importation of bird flu-infected poultry. More recently, a shipment of stainless steel- and aluminum-based cookware with exposure to cobalt 60 (a radioactive material) was detected at the port by the Atomic Energy Authority in September 2012. Adulterated brown sugar mixed with sand imported from Brazil was confiscated by the Consumer Affairs Authority in January earlier this year[iii]. Whilst the documented incidence of substandard food entering the market is sparse, anecdotal evidence suggests otherwise; given the lack of regulation substandard food creep into the market undetected. With the growing incidence of food safety and quality risks it is critical that the government steps up its efforts at and beyond the border to better regulate the quality of imported food in the interest of public safety.

Non-tariff measures (NTMs), such as SPS/TBT measures, are often the first-best instruments to achieve public policy objectives, to address information asymmetries, and imperfect competition as well as protect public health. Given their importance of ensuring consumer safety, 94% of SPS and 23% of TBT measures notified to the WTO relate to trade in agricultural products.

SPS and TBT Measures: Implications for Consumer Welfare

In the presence of information asymmetry one set of agents to an economic transaction possess an informational advantage over others. Under such circumstances producers can/ have the incentive to produce and supply substandard products compromising the health and safety of unwitting consumers, leading to a number of socially undesirable outcomes. The sale and subsequent consumption of substandard food has the potential to cause bodily harm or at worst, fatalities. SPS and TBT measures such as the establishment of Maximum Residue Levels (MRLs), quarantine, the application of processing standards such as Hazard Analysis and Critical Control Points (HACCP) and Good Manufacturing Practice (GMP) certification are designed to address such types of market failure by weeding out those products be it domestic or foreign that have the potential to adversely impact health and safety of consumers.

Information asymmetries are also present in international trade. Countries differ with respect to the safety and quality of goods produced. Preferences of consumers in countries also differ, with some willing to pay more for quality than others. At the same time consumers are unable to differentiate between qualities. Under such circumstances high-quality products may lose out if trade takes place with a country producing low-quality products, forcing high-quality producing countries to bring down quality standards to compete. This adversely impacts the welfare of all consumers in the importing country, as a consequence lowering the overall quality of the imports. Measures such as labeling allow consumers to distinguish between quality and pay according to their preferences. Consumers who are quality conscious are armed with the additional information to differentiate and pay accordingly, which improves the welfare all consumers.

Whilst SPS and TBT measures are deployed by governments in the interest of consumer welfare, if administered incorrectly and/or inefficiently, they have the potential of actually reducing consumer welfare. Adhering to SPS and TBT requirements involve two type of compliance costs. Exporting firms must revamp their production processes and production technologies to meet standards of the importing country and as such firms will incur additional fixed costs to access foreign markets. Compliance also results in increased variable costs as consequences of following testing and certification procures established by the importing country. Increases in both fixed and variable costs have two effects, firstly exporting firms will cut back on export volumes and secondly the least efficient exporters will completely exit the market as a result of not being able to cover their fixed cost. Under circumstance where such measures are imposed in the absence of a genuine market failure (e.g., political economy considerations or otherwise) consumers in the importing country may lose out as a consequence of a reduction in the variety of goods available and also a rise in prices as a consequence of the reduced supply. It is also important to note that inefficiencies relating to compliance procedure in importing countries such as high testing and certification charges, delays in testing and certification have similar consequences as a result of increased variable costs owing to inefficiencies. It is therefore critical that measures enacted to minimize food safety risks are administered incorrectly/inefficient may lead to reductions in consumer welfare, thus when designing and implementing such measures due prudence should be given to ensure undesired consequences of the use of such measures are kept to a minimal

Food Safety for Consumers: Sri Lankan Context

Maximum Residue Levels[iv] (MRLs) refer to the upper legal levels of a concentration for pesticide residues in or on food or feed based on good agricultural practices and to ensure the lowest possible consumer exposure. MRLS have been widely adopted by countries around the world; developed countries, compared to developing ones have adopted much higher standards. In the case of Sri Lanka the use of pesticides are governed by the Control of Pesticides Act of 1980. The Act does indicate that food crops should not contain pesticide residues in excess of levels as “may be prescribed.” However, Sri Lanka has yet prescribed a national list of MRLs. Under such circumstances imports are merely subject to the exporting country MRLs or shippers have the discretion to employ the codex standard[v].

In the absence of MRLs, exporters to do not have any incentive to comply with higher standards and as such there exists a heightened risk that substandard produce with unsafe level of pesticide/chemical residue are consumed by Sri Lankan consumer unwitting. There also exists the very real possibility that food contaminated with chemicals which have been banned in other countries on grounds of serious human health consideration enter the market in the absence of such regulations. In this light is recommended that the governmentestablished a national list of acceptable pesticides/chemicals and associated MRLs in harmonization with the codex standards and worldwide best practices to ensure consumer safety to minimize trade-related food safety implications. It is also crucial that laboratories are equipped with modern technology to detect radioactive contaminants and other emerging biological threats.

Whilst establishing of MRLs is considered a priority it is also key that governments bolster the testing and conformity assessment capabilities of local institutions/testing laboratories both private and public through investments in equipment and human resources to complement and enforce regulations.Exporters in Sri Lanka have complained of the lack of adequate testing facilities within the country leading to increased compliance costs and delays owing to having products being tested abroad. Likewise in relation to imports the lack of testing facilities may lead to inefficiencies and as a consequence increase compliance costs leading to a lowering of consumer welfare.

In Sri Lanka, the task of ensuring food safety is conducted in a rather adhoc and piecemeal manner, tasks are dispersed to a number of government agencies and departmentssuch as the Department of Agriculture, the Consumer Affairs Authority, the Sri Lanka Standards Institute, Atomic Energy Authority, Sri Lanka Customs – Quarantine Department, and the Ministry of Health,based on their respective areas of expertise. Food safety is however a more cross-cutting issue and effectively tackling the issue requires collaborative effort by all agencies concerned. In this light it is envisaged that an overarching independent body/institution along the lines of the European Food Safety Authority, The Food and Drug Administration of the United States and the Canadian Food Inspection Agency be established to better identify and coordinate actions to address perceived food safety risks.

Way Forward

With the growing incidence of food safety risks it is fundamental that regulation be introduced to regulate the flow of imported produce. Sri Lanka has a long way to go in effectively tackling the issue. A good first step would be to introduce a nationally acceptable list of pesticides/chemicals and their MRLs. Due prudence however must be exercised to when designing such regulations to ensure unwarranted outcomes do not materialize.  Investments must be made in testing and certification facilities to ensure effective implementation of regulations. Yet, the need of the hour isthe establishment of an overarching body, as discussed earlier, to better coordinate all these issues so that consumers in Sri Lanka can be ensured better food safety.

On 28^th of February 1909, the first ever National Women’s Day was celebrated in the United States to honour female garment workers who protested against their poor working conditions in New York a year before. The United Nations celebrated the first International Women’s Day on 8th of March in 1975. Since then, the International Women’s Day has been celebrated each year on the 8th of March, all across the world. On this day, women are recognized and appreciated for their past struggles and achievements in the economic, political and social spheres. Most importantly, International Women’s Day is an opportunity to highlight issues and problems faced by women all over the globe. “It is an occasion for looking back on past struggles and accomplishments, and more importantly, for looking ahead to the untapped potential and opportunities that await future generations of women”.[1] The theme for the 2013 International Women’s Day is: “A Promise is a Promise: Time for Action to End Violence against Women”.

What is Violence against Women?

Article 1 of the United Nations Declaration on the Elimination of Violence against Women (DEVW), declared by the UN General Assembly in its resolution 48/104 of 20 December 1993, defines the term Violence Against Women (VAW) as: “any act of gender-based violence that results in, or is likely to result in, physical, sexual or psychological harm or suffering to women, including threats of such acts, coercion or arbitrary deprivation of liberty, whether occurring in public or in private life”. VAW is usually categorized as being physical, emotional, verbal, sexual, economic, and digital (Information and Communication Technology).[2]

Sri Lanka has ratified all key international covenants on human rights. The country has ratified four major international covenants, which have relevance to rape and other forms of gender based violence [International Covenant on Civil and Political Rights-1966, Convention on the Elimination of All forms of Discrimination against Women (CEDAW)-1979, Convention on the Rights of the Child (CRC) -1989 and the Convention on Torture and other Cruel, Inhuman or Degrading Treatment or Punishment -1984]. Further, Sri Lanka has signed the Vienna Declaration on the Elimination of Violence against Women in 1993, the Prevention of Domestic Violence Act No. 34 of 2005 (PDV) was passed, and the Forum against Gender Based Violence was set up in 2005. A separate Ministry was set up to work on women’s issues in 1983 (The Ministry of Women’s Affairs – currently this Ministry is known as the Ministry of Child Development and Women’s Affairs). Several initiations have been taken to combat VAW by the governments and civil society organizations.

Despite the promise of more action, the promise of aligning ourselves with international statutes and conventions, the reality of the situation remains dire. According to the Gender Based Violence Forum in Sri Lanka, rape, domestic violence, sexual harassment, sexual violence, forced prostitution and trafficking are the most prevalent types of VAW in Sri Lanka.  The Forum further states that these crimes are not specific to a particular region or locality, but they are reported across class, race, religion, and ethnicity.[3] Prevalence of domestic violence in Sri Lanka, ranges from 27% (Perera, 1990), 32% (Samarasinghe, 1991) and 40% (Jayatilleke et al., 2010) to as high as 60% (Deraniyagala, 1992).[4]^{, [5]} In the case of VAW, obtaining reliable data is difficult mainly because victims are reluctant to reveal such incidents due to social stigma. However, Sri Lanka’s Demographic and Health Survey (2006/2007) conducted by the Department of Census and Statistics has revealed that regardless of background, women are highly susceptible to violence (see Figure 1).

This is partly because a majority of the women, regardless their level of education or income has the perception that a husband may be justified in hitting or beating his wife. Fundamentally, VAW is a violation of human rights. It effects negatively on a woman in many ways. Violence against a woman damages her health and well-being, thus hindering her empowerment. Further, it also has an inter-generational affect. Violence against women damages not only the health and well-being of women, but also health and well-being of their children.

*Note:   Women were asked if a husband was justified under at least one of five  scenarios: 1) if she goes out without telling him, 2) if she neglects the children, 3) if she argues with him, 4) if she refuses to have sex with him, or 5) if she burns the food. Source: Department of Census and Statistics of Sri Lanka, Demographic and Health Survey  2006/07

Economic Costs of VAW

The Economic costs related to VAW can be broadly classified as ‘Direct Tangible Costs’ (e.g. health care costs), ‘Indirect Tangible Costs’ (e.g. lower earnings due to lower productivity), ‘Direct Intangible Costs’ (e.g. pain and suffering, and the emotional impairment due to violence) and ‘Indirect Intangible Costs’ (e.g. negative psychological effects on children who witness violence which cannot be estimated numerically). [6]  Therefore, VAW has a significant impact on an economy. For instance, in the United States of America, the annual cost estimation of intimate partner violence amount to US$ 5.8 billion. [7] The economic burden of VAW and their children to the Australian economy was estimated to be US$ 13.6 billion in 2012.[8] As most cases related to VAW are hidden and untold, the real economic impact is likely to be much larger.  The economic costs of VAW occur in different forms (see Table 2).

Table 2: Economic Cost of Violence against Women (Cost Categories)

Almost from the very beginning, women have played an important role in the economic development of Sri Lanka. Women form the backbone of the Sri Lankan economy (associated with tea, garments, and remittances). Especially in such a backdrop, it is rather alarming to observe that 83 % of females in the estate sector are victims of gender based violence; 57 % of female garment workers experience sexual harassment at the work place, and 11% of returnee migrant women are sexually abused.[9] Further, 62 % of female employees in the industrial sector have experienced unwanted and unwelcome sexual advances at the workplace at some point of their lives.[10]  Exposure to VAW at the work place hinders the productivity of the worker, while also resulting in the discontinuation of the job and eventual withdrawal from the labour force. This in turn means lower income levels on a household level and lower female labour force participation on a national level. There is no doubt that economic development will be hindered for as long as VAW persists in society.

Incidence reports appearing in newspapers, and complaints made at police stations are just the tip of the iceberg; the magnitude of the problem is much greater and most of the time hidden and unspoken of. While it is true that there have been continuous efforts made by various parties to eliminate VAW from the country, available data, literature, and anecdotal evidence prove that prevalence of VAW is still high in Sri Lanka. In this context, it is important to mobilize the community through better awareness and effecting attitudinal and behavioural changes. It is also important to fully grasp the economic implications of VAW, and to understand that the nation as a whole has to cover the cost. [11]  

The sooner we begin to implement effective policies and programmes, along with a national effort to instill an attitudinal change to end VAW, the sooner we can begin to reduce the economic costs of VAW.

Sri Lanka made a promise to its women when it became a signatory to the international conventions protecting the rights of women. However this has been left on the backburner for too long and the plight of the country’s women is beginning to exert a very real economic impact on the country as a whole. Policy makers and implementers might find that it is always better to keep a promise, rather than bear the costs of a fall out.

The National Nanotechnology Initiative (NNI) implemented by the government can be viewed as a technological milestone for Sri Lanka. Given past failures in grasping the full potential of the technological waves of Information Communication Technology (ICT) and electronics, the timely exploitation of nanotechnology is commendable. Learning by examples of the Asian Tiger economies (i.e., Hong Kong, South Korea, Taiwan, Singapore, etc.,) that moved from poverty to prosperity with the adoption of technological advancements in their development agenda, Sri Lanka has acted wisely in this undertaking.

The much needed ‘quick wins’ has been reached and SLINTEC boasts of seven international patents to date. The nanotech park is also becoming a reality and has begun development of its first phase by laying the foundation stone of the Nanotechnology Centre of Excellence (NCE).  Aside from these successes, given that investment in technology is a partial public good due to its unique traits of non-rival consumption and non-excludability, the many socio-economic benefits of investment in technology and research as well as the high initial costs calls for the state to intervene further in this venture. Nevertheless, it can be argued that nanotechnology does possess features of a partial public good, which are particularly apparent when the patent period of an invention expires. This is the reality as the consumption of an invention cannot be constrained to the inventor and his/her immediate society alone, but will extend to the society at large.

A fitting example of the features of non-rivalry and non-excludability in nanotechnology is the invention of a cure for cancer at a nominal cost through nano research, which will not only benefit the individual researcher, healthcare company, and cancer patients of that country, but will also be an asset to society at large beyond national borders. Once the patent rights eventually expire, other health care companies will make use of past research and will consume its benefits without paying the cost. This explains its nature of being a partial public good and the many socio-economic benefits it carries.

Research and Development lacks a clear and certain outcome and is not time-bound. Contrary to this, entrepreneurs are profit-oriented and have time-bound goals and targets. Hence, a mismatch between technology-oriented research activity and application-oriented businessmen is evident. Even though in most developed economies the percentage of private sector investments in technological research outweighs the state sector, the common perception in the developing world is that the state sector should invest in research and development, while the private sector focuses on less risky investments. Sri Lanka belonging to the latter classification necessitates that the state sector intervenes in the development of nanotechnology which is still at an infant stage; as has been done by Asian Tiger economies at the outset of harnessing technology in their development agenda. The main problems faced by these economies were the apparent lack of a clear mechanism linking research with market forces, the lack of an intellectual property system, and the lack of support services. These problems were addressed in numerous ways by  tax incentives, lump sum allocations, and the formation of a Technology Development Fund, awarding research grants, and developing the venture capital market.

The initial steps taken by the Sri Lankan government to form the Technology Development Fund with the assistance of the Malaysian Technology Development Corporation provided some hope in this direction. Such a fund would ideally finance commercialization of prioritized research, provision of research infrastructure and incubator facilities, and the acquisition of new technologies, etc., and should be duly utilized by the NNI. This fund can also be used to liaise with other international science parks, provide research grants to Multi National Corporations (MNCs), cluster development, incentivize man power training, and build Public Private Partnerships (PPPs).

In the longer term, the state can make further lump sum allocations to address the various ancillary and support fields which are essential for achieving sustainable long term growth in nanotechnology research and development. The funds can be directed towards ensuring the minimization of environmental and social costs of this technology, through the provision of recourse to affected sectors.  For instance, given the invention of nano fabrics and nano paints which may have a detrimental impact on laundries and cleaners, an alternative source of employment for this segment of the workforce has to open to avoid unemployment problems.

Similarly, the invention of certain nano products may have environmental and health implications. The use of a well thought out quality standard procedure will be necessary to market products that are not socially or environmentally harmful. Obtaining certifications from ISO and SLS will be instrumental in this. In order to ensure sustainable (i.e., socially, environmentally and economically harmless) nanotechnology applications, a robust mechanism committed to this task needs to be implemented and funds should be allocated accordingly.

Additionally, funds can also be directed towards building a human capital base. SLINTEC has plans to create an environment which attracts expatriate scientists to the country. Further, the necessity to establish a platform of scientists and technical staff over a short period of time requires local and foreign training, industrial internships, a Presidential award system, etc. Funds can also be committed towards disseminating knowledge among school children and university students on this novel technology, while the gradual inclusion of nanotechnology to the school curriculum is also essential.

However, the key to acquiring the necessary resources do not lie in new policies and over involvement of the state alone, but the astute utilization of opportunities within the existing frameworks. For instance, tax incentives offered for research and development has increased substantially over the past three years and the Board of Investment (BOI) grants special tax holidays and other incentives to ventures that are of strategic development importance to the nation. Machinery and lab equipment used for research and development are exempted from import taxes. Similarly, the 2013 Budget has allocated Rs. 9 billion for direct expenditure on research and related work done by researchers in government research institutions. Such budgetary provisions which encompass the entire domain of research and development should be duly utilized by the nanotechnology venture, which has been enunciated as the priority sector in the five year strategic plan of the Ministry of Technology and Research.

Furthermore, an environment conducive to attracting venture capital funding is of utmost importance to provide finances for startup companies which will undertake the commercialization of research. The initial funds needed to acquire patent rights, legal costs and expenditure on lab equipment should be easily accessible despite the high risk nature of these projects. The high initial cost involved in nanotech research is justifiable, owing to the potential exponential returns through research and development. Jack Uldrich in his book “The Next Big Thing is Really Small” illustrates this through the example of a pond filled with lilies. He explains that if the amount of lilies in the pond double every day and takes thirty days to fully cover the pond it will be only half covered at day twenty nine. However, for it to be fully covered it will take just one day. The return of technology and research can be likened unto this metaphor where, long periods of labored experiments with precede before a clear outcome. Nevertheless, once the outcome is evident the returns will be immense.

That being said, in order for funds to flow to such high risk projects an economy should possess a strong venture capital network. In a country where venture capital funds and angel funds are rarely spoken of, this task seems impossible without the intervention of the state. Despite this predicament, it is imperative to bear in mind that it is primarily the market forces supported by the state sector that should be the focus.  The cooperation of the banking sector is necessary as no state body can fully fund all technological projects of a country. The most the state can do to encourage the flow of funds to these high risk investments is to provide guarantees, refinancing facilities, and concessionary interest rates through various state bodies. Therefore, the banking sector must be willing to pass the ultimate benefit to the borrower, charging reasonable interest rates, prioritizing the allocation of funds, and emerging out of its risk averseness.

As a final thought, the importance of commitment and coherence of policy decision makers in making this endeavour a success cannot be over emphasized. The industrial thrust, budgetary allocations, commitment of financial institutions, education policy, and private sector enthusiasm will be the key success factors in achieving a competitive edge in the international arena. Slower than anticipated progress of developing the nanoscience park can be detrimental to the country due to a potential loss of market leadership and the competitive advantage of investments. In order to avoid such an unfavourable outcome, there has to be a collaborative effort among all parties. Such will be possible when state allocated funds, private sector participation, expatriate scientists contribution, and the financial sector involvement strive to synergise the overall efforts.

(The views, opinions and recommendations in this article are solely those of the author’s and should not be interpreted as the views of the author’s employer. The author is a member of the National Nanotechnology Committee of the National Science Foundation.)

Sri Lanka banned the imports of Genetically Modified (GM) food in 2001, becoming the first country in the world to do so. However, in 2006, the government passed an Extra-Ordinary Gazette to the Food Act of 1980, allowing GM food importation and in 2011 the government passed a National Policy on Biosafety which covers the import of Genetically Modified Organisms (GMOs), i.e., GM food or GM crops. But do we really know what is and isn’t GM? Should we be worried? How important is the GMO issue for Sri Lanka? This article attempts to answer these questions by discussing the present scenario of GMOs in Sri Lanka in the global context.

What are GMOs?

Genetically Modified food (also known as GM food, biotech food, or transgenic food) are foods derived from Genetically Modified Organisms (GMOs) through Genetically Modified crops. GMOs have had specific changes introduced into their DNA by genetic engineering techniques.[i] These techniques include the cutting of genetic material from one species and being merged into another species in order to create a completely new animal or a plant. The process can, and often does, involve the crossing of the species barrier. Genes from humans, bacteria, viruses, plants, and animals are inserted into plants in order to give the crop qualities such as “extra protein,” or allowing them to stay “fresher for longer.” For example, many of these plants are engineered to produce their own pesticides so farmers won’t need to add pesticides to their crops. It can also be engineered to improve taste, texture, appearance, or to provide more specific nutrients.

The first GM food crop, the Flavr Savr tomato, was developed by the Californian Calgene company in 1992 (later acquired by Monstanto) using the transgenic method to improve its quality. Attempts to improve the quality of produce, goes back much further than the GM revolution of the early 1990s. Historically, farmers around the world selected the best looking plants and seeds, and saved them to plant for the next year. Plant breeding, as this is commonly called, became popular after it was revealed that crop plants could be artificially cross-pollinated to improve certain characteristics of the plant. With the development of the science of plant breeding in the 20th century, breeders found more efficient ways to create new and improved varieties of different crops to meet rising food demand.

GMOs: GLOBAL SCENARIO

Figure 1: Global GM Crop Scenario (1996-2011)

                 Source: Pocket K No. 16: Global Status of Commercialized Biotech/GM Crops in 2011

Since 1996, the total area of land growing GM crops has rapidly expanded to reach nearly 158 million hectares in 2011. GM crops are mainly grown in the American region, where the USA accounts for 70 per cent of the world’s sowings of GM crops. Other main growers of GM crop include China, India, and Spain. The year 2011 showed a remarkable growth of 146 per cent in GM crop area, compared to 2010. Thus, it is fair to say that GM crops are the fastest adopted crop technology in the history of modern agriculture. Year-on-year growth measured either in absolute hectares or by percentage, was higher in developing countries than in industrialized nations during the period 2010 – 2011. Soybean (HT) is the most dominant biotech crop, occupying 75.4 million hectares or 50 per cent of global biotech area, followed by HT cotton (more details here).

Countries of the world react differently to GMOs. While USA and some other developed countries encourage GMOs, many countries remain strictly against them. For instance, in 2002, Zambia returned a GM maize shipment from the US, which would have provided relief to 3 million of its citizens suffering from a deadly famine, with the then President Levy Mwanawasa famously referring to it as “poison”. Several EU countries (Poland, Hungary, Austria, France, etc.) have banned GMOs as well.  In addition, some countries have only banned certain identified crops, for example GM eggplant in India and GM maize in Hungary and Austria. Meanwhile, countries like Serbia are now revising their laws to allow GM food imports but under strict regulations.

GMOs: SR LANKAN SCENARIO

How do Sri Lankans perceive GMOs?

According to the study done by S.N. Senarath and R.P. Karunagoda in 2010 on ‘Consumer Attitudes towards Labeling of GM food in Sri Lanka’, it was revealed that most of the Sri Lankan consumers are not aware of GM foods, and yet perceive GM foods to be risky to human health. The majority of the consumers were of the view that GM foods should be labeled. Many were interested in getting a better knowledge of GM food products. It was also found that most consumers tend to read labels on food items, especially to verify the dates of manufacture, dates of expiry, etc., but rarely to check the ingredients.

Are there GMOs in Sri Lanka?

According to available data sources, Sri Lanka currently does not produce any GMOs. There is also little concrete evidence to show that Sri Lanka is importing any GMOs. Some products have been identified as potentially containing GM food items, but they are still in the testing process and final reports are yet to be released. An informed government representative stated that, “It is too early to say that those identified foods contain harmful GMOs as it is still in the testing procedure”.

Can we import GMOs?

According to the existing law, the importation of GM food/seed is not restricted. According to the Extra-Ordinary Gazette to the Food Act No. 26 of 1980 (passed in 2006), all importers have to make a declaration stating whether their consignment contains any GMOs.  If the product does contain GM components, then it is required to be labeled as such. Hence, it becomes the consumer’s choice whether or not to accept products that may contain GMOs. Yet, to date, there aren’t any food items found in the Sri Lankan market with the GMO label.

How Does Sri Lanka Identify and Regulate GMOs?

Presently, GMOs in Sri Lanka are regulated by the Food Act and the National Policy on Biosafety. The Food Act is the main regulation which has been in operation so far, and the National Policy on Biosafety was introduced two years ago. While, the Food Act mainly focuses on GM food, the biosafety policy covers both GM food and GM seeds. Presently, the Ministry of Environment is drafting the National Biosafety Act, which will provide more protection to GMOs.

According to the Biosafety Policy, if an importer wants to bring in a product which might contain GMOs, the request must be submitted to the Environment Ministry. Thereafter, the Ministry will send the information to, and then select, the appropriate institution to conduct a Risk Assessment (Ministry of Health, Ministry of Agriculture, Ministry of Fisheries and Aquatic Resources, etc.) after taking in to consideration the type and nature of the item. The Risk Assessment report is then sent to the Biosafety Expert Consultation Committee, which is a Cabinet-approved committee representing all stakeholders in the field (health, agriculture, customs, legal, and environment, etc.). Once the committee approves, the importer can go ahead and import the item with the appropriate labelling. According to the Food Act, the Health Ministry’s Chief Food Authority will also send their reports to the Biosafety Expert Consultation Committee before they provide approvals to import GM food.

To date there have been very few risk assessment tests done in Sri Lanka. In most cases these tests are being carried out in private laboratories as government laboratories (Medical Research Institute, universities, and ministries’ labs, etc.) do not have the requisite facilities to conduct testing.

Will GMOs be Good for Sri Lanka?

From an economic perspective, the answer is “yes”. Despite an increasing scarcity of land and water, challenges from climate change and changing weather patterns productivity gains can be achieved with advanced technology. In fact, it could be said that these technologies are crucial for production increases. Whenever new crop technologies are adopted, the productivity increase will cause the crop’s supply curve to shift forward, leading to a positive change in producer and consumer surplus. Thus, GM crops could contribute significantly to food security and sustainable agricultural development.

Further, the development of GM technologies leads to public goods that can easily be reproduced. Thus, Intellectual Property Rights (IPR) protection is needed as an incentive for private sector R&D investment. Further, income distribution and effects of  new introductions will also depend on the institutional setting, including farmers’ access to suitable seed varieties, credit, information, and other input and output markets. More public and institutional support is needed to realize the benefits for the poor on a larger scale. The empirical evidence suggests that BT crops in particular, can have significant income-increasing and poverty-reducing effects. Furthermore, the economic results so far suggest that farmers in developing countries can benefit from transgenic crops. However, for the poorest of farmers in the poorest countries where institutional conditions are weak, ensuring access will remain a formidable challenge.

Being a developing country Sri Lanka does not have the advanced technology to produce GM food or GM seeds domestically. Thus, Sri Lanka needs to enter in to contractual agreements with the seed companies, albeit, in a very precautionary manner. Concerns that farmers should get clarified before the adoption of the technology includes, private contractual relations between farmers and seed companies; the environmental impacts of the technology; and the potential impacts of consumer concerns (both domestic and international) on the market for GM products.

Despite its economic potential, there is continued debate on the subject. In economic terms, new technology will increase production but, there is a good chance that there will be some negative impacts as well. Some fears includes the belief that GM seeds will create “super-weeds” or “superbugs” that, over time, become resistant to GM seeds and crops and to other herbicides and pesticides. The potential cross-pollination of GM seeds onto non-GM crops is also a concern to farmers, particularly those farmers that certify their crops as non-GM crops or organic. Another concern centering on the impacts of biotechnology is the possible harm that GM seeds and crops might pose to other, beneficial organisms (for an example, its impact on non-target arthropods in paddy fields).

Lastly, and most importantly, the effect of GM products on human health is not yet fully known. The largest threat to health could be the presence of unknown allergens.

What Needs to be Done?

Considering the benefits and the concerns raised, it is clear that neither the full-scale adoption nor the full-scale rejection of GMOs is a viable option. GM seeds are a revolutionary technology in the agricultural industry. The potential benefits of these seeds will be substantial. But, being a developing country Sri Lanka needs to strengthen its legal and institutional framework relating to GMOs before adopting the technology. There is also a growing need to improve public perceptions and enhance the social acceptance of agricultural biotechnology. Public awareness could be improved through the Ministry of Environment and the Consumers Affairs Authority. Increased awareness amongst researchers, universities,   media, etc, is essential. As GM crops are associated with several potential market failures, the technology has to be heavily regulated. For instance, GM crops may be associated with environmental and health externalities, so biosafety and food safety regulations need to be in place. For consumers, the GM characteristic of food products is a credence attribute, indicating that labeling regulations can help to reduce transaction costs and overcome information asymmetry. Since the government laboratories do not have the facilities to test GMOs, it is essential that the country improves the standard of identified laboratories. At this stage, more public research and institutional support is needed to complement private sector efforts. Since Sri Lanka doesn’t have advanced technology to produce GMOs domestically, a robust intellectual property rights regime needs to be in place in order to enter into contractual agreements with GM seed companies. It is important for Sri Lanka to update its biosafety regulations and establish or revise its intellectual property legislations.