Sri Lanka as an Emerging Economy
By Deshal de Mel, Research Economist – IPS
An article recently featured in the Economist (http://bit.ly/aBpGB1) outlined some of the developments in the world’s major emerging markets – particularly focusing on the evolution of these economies from sources of cheap labour to being hubs of innovation. The Sri Lankan government has announced ambitions of becoming a major emerging economy within a few years. It will of course be near impossible to match the economic weight of economies such as the BRICs given the sheer population sizes of these countries. Sri Lanka is immediately at a disadvantage in terms of attracting investment given this population constraint. This is why India, despite having relatively arduous investment procedures can still attract large amounts of international and domestic investment. Therefore it becomes important to match or surpass competing economies in the other aspects. Two of the major possible criteria for creating a flourishing centre of innovation are access to high quality labour and a vibrant group of firms driven by competition. How does Sri Lanka fare in terms of these criteria?
i) The number of graduates available could be much higher if the capacity of universities was higher. In 2008, the number of students admitted to university was 20,069 whereas those eligible for entry was over 121,400 (http://bit.ly/bpxSHD). The ability of the state to increase capacity in the short term to match this differential is questionable. Therefore it will become necessary to create an enabling environment (including an effective regulatory environment) and encouragement for private provision of higher education to fill this lacuna.
ii) It is also important to emphasize the development of transferable skills in addition to pure academic skills which will provide graduates with the flexibility to move between sectors and industries.
iii) Greater resource allocation to universities to ensure that the best teachers can be attracted and retained.
iv) Enhancing curricular relevance, particularly in arts and humanities, where very often graduate skill sets do not match demand in the economy leading to high levels of educated unemployed.
v) Increased resource allocation for science stream education in secondary schools will be a pre-requisite for creating more science and IT graduates. Many rural schools lack the resources for science laboratories and this reduces the number of potential science students entering the university system.
Along with access to high quality human resources, the second factor that has driven innovation in emerging markets is the emergence of top class domestic and international firms. Consequently both local and foreign investment becomes important. We shall therefore consider how Sri Lanka performs in two of the major perception indicators for investment climate, viz., the World Bank’s Doing Business Indicators and the World Economic Forum’s Global Competitiveness Report. From the most recent editions of these reports, there are clear signals as to where Sri Lanka needs to improve when benchmarked against competing economies.