Looking behind Sri Lanka's declining FDI

Despite the generally rosy economic numbers that are frequently in the news I don't think the economy is in good shape. Some of these weaknesses are evident in the recent Central Bank report.

Crucially, FDI in 2013 was down 2.7%, (to US$ 916m) and youth unemployment rose to 19.2%, (in 2012 it was 16.8%). Looking behind the FDI numbers reveals and even worse state of affairs.

To start with some basics, what is FDI and why is it important?

The IMF defines FDI as investment as that made

“with the objective of establishing a lasting interest in an enterprise resident in an economy other than that of the investor (direct investment enterprise). ”Lasting interest” implies the existence of a long-term relationship between the direct investor and the enterprise and a significant degree of influence by the direct investor on the management of the direct investment enterprise.”

Simply put, FDI is investment in actual businesses: in factories, services (eg software development) or other trades. It is important to distinguish FDI from portfolio investment, which is what happens when an investor buys shares or lends money to an existing business.

Portfolio investment is useful in the long term in helping develop a market for capital that businesses could potentially tap for future expansion, but it does not lead to immediate job creation.

FDI generally implies new investment, which in turn implies that this creates new jobs. The first step towards improving the livelihood of people is to be able to offer them jobs. Direct investment is what generally creates jobs. It does not matter whether the direct investment is foreign or local, what matters is whether it creates jobs, preferably well paying ones.

Investment depends on savings, which is scarce in poor countries. Poor countries with low incomes have low savings, which in turn means low investment and few jobs. This is a vicious circle that can be broken if there is sufficient investment from abroad to make up the local shortfall, hence the importance of FDI.

High youth unemployment maybe be expected if investment is low, something that the statistics seem to bear out. Unemployment in the entire labour market is much lower (4.4% according to the Central Bank, up from 4% in 2012) which could be explained by migration for jobs overseas. The unemployed youth of the country find employment overseas, which brings down the overall unemployment statistics.

Examining the composition of Sri Lankan FDI reveals still further weaknesses. The biggest source of FDI is from Malaysia, the bulk of which comes from Dialog Axiata, the mobile phone operator. Having spent some years working for the telecoms industry I can testify that telco investments in this country (not just those of Dialog, but of the industry as a whole) are singularly unproductive and create little or no employment.

Why is this? The problem lies with the regulator, which does not ensure that a proper infrastructure sharing regime is in place. Each telco operator view its infrastructure with a jealous and proprietary eye, a source of competitive advantage. In simplistic terms the argument is thus: putting up a new tower opens up a new market. Why share it with other operators? The bigger operators try to squeeze out the smaller ones by refusing to share their infrastructure. Nothing illustrates this better than Airtel's experience when they entered Sri Lanka in 2008.

The telco market was fairly well developed by 2008 so there was little need to invest in the major towns. The large operators however refused to share their infrastructure with Airtel, hoping to frustrate them in to quitting the industry. After languishing for a while Airtel decided that they would stay but were forced to start building their own network from scratch, an expensive and wasteful process.

Building a bridge across a river is very useful and allows communities on either side to trade. Building multiple bridges in the same area serves no purpose. It is the same with duplicated telco infrastructure. 

Naturally this new investment would have been reflected in a favourable boost in the FDI statistics but it would have created little in the way of increased productivity or employment since the country had no need for an entire new network, built from scratch. This is the sorry tale that is played out on a larger scale in the industry as a whole.

It is not that there is no sharing at all, there is some sharing, but almost always on a limited reciprocal basis. An operator usually needs to give access on one of their own towers before they can hope to get anything anywhere else. Certain critical parts, such as SLT's fibre backbone are pretty much closed off. If this where shared properly a lot of radio towers would be redundant.

Not only is the lack of sharing wasteful, it is also ugly, as towers not strictly necessary scar the landscape, destroying the view of the countryside, not to mention creating a huge unnecessary drain on power (the towers consume a lot of electricity). The carbon footprint alone should be enough incentive for the regulator to ensure proper sharing, never mind the strain on the electricity system, which itself is in crisis. 

The financial losses are evident in the low return on investments seen in the telco sector which should be of concern to their shareholders and bankers (see note below). Unfortunately, the much larger social price for these white elephants is paid by society at large.

The regulator exists to ensure that these social costs are minimised. Instead of doing its job, the TRC is building a massive tower of its own on the Beira lake, doubtless to the great satisfaction of the building contractor and the people involved in doling out the juicy contracts. Why bother to regulate, when there are more interesting opportnities for personal enrichment through doling out construction contracts?

Another contributor to FDI are the Chinese infrastructure projects – which again create few jobs or opportunities since they are built with Chinese labour and use a high volume of imported material. The FDI comes in but a lot of it simply then goes out, leaving the economy itself little benefited.

Thus not only is the FDI number declining, a fair chunk of what comes in creates little economic impact, which means things are even worse than they seem.


Note:
SLT reported an ROI of 6.8% in 2013 and 6.35% in 2012, while Dialog reported an ROI of 9.42% and 14.07%. Return was calculated using profit and adding back net interest cost. This was divided by equity and total borrowings. As the telco sector is highly geared it is necessary to include debt as part of the investment.

Update:

Another significant source of FDI is the United Arab Emirates - the bulk of which probably represents investments by Etisalat, another mobile operator.

Tales from the Grave

Another grave site has been discovered, this time in Mullaitivu. The GoSL blames the LTTE. 

We do not have much to go on, but an analysis of the reporting of the story tells us quite a lot. To begin with this is a major story, especially a month ahead of the UNHRC summit in Geneva.

The news of the discovery emerged on Twitter on the 28th of February (Friday). When I first saw this I was uncertain as to its veracity and searched around but there was nothing on the web.

Within a few hours however, it had been picked up by the news wires and full stories were being put out. It could have made the Saturday morning papers here, but did not.

Now Sunday is the day on which newspapers in Sri Lanka have the greatest circulation. It is the day on which people have some time to relax and look through the advertisements, to buy or sell a car, a house or even find a prospective partner for an unmarried relative in the matrimonial columns. The perfect day on which to carry a major new story.

If splashed across the front page, this story could have sold a few thousand copies more of whatever paper carried it. Once upon a time, when the newspaper was a major source of news, some would have even done a special early edition, just to carry this piece, preferably with some special insights, pictures, interviews or something that would differentiate a particular paper's reportage from that of its competitors.

We have a number of different newspapers, the variety is seen as a sign of a vibrant free press. 

Yet from the English press there was complete silence. (I can only comment on the English press since these are the only ones that I read).

On Monday, once the news had spread and was impossible to conceal, the Daily News ran a headline story blaming the LTTE. Only once the state owned daily broke the story did the other 'independent' press carry the story. The largest circulating English daily, the Daily Mirror rather timidly carried an AFP report on page four of its Tuesday edition. Not even its own story, something picked off the newswire that any overseas paper might carry. No local insight or analysis.

Since then, the rest of the press have mostly toed the official line, putting out little boxed stories echoing whatever comes out from the state channels.

Examining the GoSL reaction to the story is also useful. If we assume, and it may certainly be true, that the LTTE were responsible for this, then the GoSL reaction to this is muted and completely out of character.

Facing the challenge in Geneva, this discovery should have been a godsend. What better opportunity to deflect the arguments of our opponents? Why do we need to talk of old atrocities when evidence of new ones is just emerging? The ministries responsible for this are usually masters of the dark arts, why have they failed to exploit this? Where are the expensive advisers, Thompson Advisory Group? Are the people in charge asleep at the wheel?

We do not know, but the questions need to be asked. 

  

Patriotism

It's time to be patriotic again and the assorted fools, knaves, thieves and courtiers almost seem to be falling over themselves, trying to be the most patriotic of all. A good time then to take a step back and ask ourselves what this all means.

The rocker Bob Dylan wrote a number of songs that became anthems of the US Civil Rights and Anti-War movements. His song Sweetheart Like You, carries a telling verse on patriotism. Very relevant to us, today.

"They say that patriotism is the last refuge
To which a scoundrel clings
Steal a little and they throw you in jail
Steal a lot and they make you king
There’s only one step down from here, baby
It’s called the land of permanent bliss
What’s a sweetheart like you doin’ in a dump like this?"

Dealing with a new job

I moved in to a new job some months back. It has been a fairly tough period involving a lot of learning. Its in a completely new industry and one that is highly technical.

There is also the problem of added responsibility, having to carry the can, so too speak.

The pay is better, the work is 'real'-grappling with day to day issues in controlling the business; not doing meaningless plans, wasting time in interminable and pointless meetings or fiddling around with PowerPoint presentations.

While I now seem to be slowly getting on top of the work, it never seems to end. A bit like catching a tiger by the tail, as long as one keeps running one can stay ahead of the beast, the slightest slip or slow down results in a bite. A fall would be disastrous.

What worries me is exhaustion, how much longer can I keep running at this pace?

Who should run a country?

Two Provincial council elections are around the corner and voters have a choice of actresses, singers and other sundry characters, mostly unsavoury to choose from. I am wondering if it is even worth voting at all.

Should there be some sort of qualifying criteria for politicians? The problem with electoral democracy is that such a thing is not possible; it would be seen as inherently unfair. Other countries also have their share of lunatics in the fray, South Korea created a blacklist to filter unsuitable candidates; an idea that is worth exploring. This I will leave to others interested in governance to lobby for; it is a measure that can do some good in the short run.

This post is not about blacklisting, it is about examining the deeper question of who should really run a country. It is a serious business and should never, I repeat never, be left in the hands of politicians.

Since we are so enthralled with China these days it is only appropriate that we take a leaf from the book of governance that the Chinese developed.

The people who should really be running a country is its civil service. The politicians are merely figureheads who will suggest broad policies; it should be left to the civil servants to filter, refine and administer policies. I will come to this  a bit later but first lets be clear on the requirements for an effective service.

When I speak of a civil servant I do not refer to a crony who owes his appointment to some political master. A civil servant should be one selected on the basis of excellent academic credentials and a rigourous entrance exam. This ensures that only bright, intelligent people are brought in to the service. This is then followed by a period of internship where they learn the practical aspects of administration by working alongside senior colleagues. It is only then that they will be fit for the real administrative work in running a country.

Thus, the people we entrust with administration will have a minimum of three years of university study and two years of practical experience, even before they start real work. Remember that we have selected the best of the graduates (based on their grades) and subjected them to a further rigourous examination so we are reasonably certain that we are working with intelligent people whose minds have been trained to think. We have then invested a further two years in on-the-job training, which means by the end of a five year process we have the basic material with which we may hope to build a system of administration with some degree of success. 

With no entry qualifications, minimal or zero education and only the ability to appeal to the basest of popular sentiment; the politician is the most dangerous creature in which to vest the reins of power.

Yet electoral democracy calls for persons to be elected by popular ballot and the field should be open to all. How can this be reconciled to what I have just said?

The question is valid and merits a closer examination of the system of government. The system of administration will be broken into various departments (finance, local government, agriculture, trade etc) depending on the specific needs of the country. Each of these departments is headed by a senior civil servant who is the permanent secretary to the department. He (or she) is the person who is ultimately responsible for all the administrative work of the department.  His appointment is permanent; he cannot be removed by a politician or a minister; his appointment, transfers, pay and all other matters are handled by an independent civil service commission.

It is the permanent secretary who runs the show but although he is extremely powerful he is not unaccountable  - he is accountable to parliament, through the relevant minister. Therefore, although the civil servant, though well qualified and experienced must also lend an ear to popular concern, as expressed by the minister concerned.

The minister has no real power but has influence, so the hasty promises made at election time cannot be implemented ad-hoc: they are refined and adjusted in keeping with the constitution, the law and practical considerations. It is through this process that promises are turned into practical policy. Often the relationship between the two will be tense; the politician inexperienced and idealistic will demand things that sound nice but which may be unfair to some citizens (people outside his particular constituency), too expensive, unsustainable or otherwise impractical.

The comedy 'Yes Minister'/Yes Prime Minister is based on the tension between the well meaning but bumbling minister and the crafty permanent secretary Sir Humphrey Appleby. Although the comedy portrays Sir Humphrey as being devious, he is performing a vital function in checking and tempering the enthusiasm of the minister.

The education, training and experience of the civil servant is thus essential in tempering policy. The politician is involved only at the larger policy level and unless there are pressing problems to be resolved has little role to play.  Belgium ran quite successfully for a better part of two years without a proper government (ie politicians)  and could have carried on for much longer with no serious difficulty; its administration functioning properly under its civil service.  

The ideas I propose are far from new or radical. They were first practised by the imperial Chinese, with the first formal exams being introduced in around 605AD.  This was refined and expanded over a period of 1,300 years until 1905. These bureaucrats, the Mandarins, were the scholar officials who ran the Chinese empire, at one time the greatest in the world.

This system was adopted and further refined by the British, who in turn ran their empire on these lines. It is estimated that only around a 120,000 people were involved  in running the British Empire, although only 4,000 were directly involved. Sri Lanka today boasts 1.2m in public service, about 500,000 of who are in the military, leaving about 700,000 to run the civil administration.

It is also the system that was used in independent Ceylon, until 1962 when short-sighted politicians, facing difficulties with implementing their various hare brained schemes decided to abolish the civil service; starting the rot that leaves citizens today wondering whether to even cast their vote at all.

An important check on the politicians was removed so now it is the irrepressible politician, who hold the reins of power. Unless checks are introduced, we can only close our eyes and hold on tight and hope that the descent will not be too bumpy.

Sorry, we don't do locals

I was telephoning a few hotels in Embilipitiya, trying to find accommodation for staff on a site visit. I called a place that looked nice, had a decent review and was cheap.

The conversation was in Sinhalese and the fellow who answered the phone first wanted to know where I was calling from. I answered: Colombo. He then asked: local or foreign? Local, I replied.

He was a bit apologetic saying that they did not cater to locals. He explained that there had been problems with noisy groups resulting in complaints from other guests so that they had now stopped accepting bookings from locals.

I heard the same story from the owner of another small hotel a few years back. Again, we were conversing in Sinhalese and he said that the foreigners and Sri Lankan's had different ways of "enjoying" - he used the English word.

The locals, he said, wanted big noisy parties with lots of alcohol. This did not generally go down well with the foreigners so he had stopped catering to locals.

The question is: Is this discrimination? Certainly, but is it racism?

I myself abhor the large groups (referred to as 'Homeboys' or Yakko's) and quite understand the problem. Boisterous, noisy and generally drunk they are a nuisance to all around.

The problem is that the hotels are reacting by refusing all local custom. I think this is a racism of sorts, although rooted in something more complex than ordinary racism.

If the hotels had some finesse, what they should do is refine their polices to exclude large groups, which is the source of the problem. Small groups, especially families are generally quiet and will cause no disturbance to other guests. This is sometimes easier said than done, sometimes even a group of 10 may be noisy enough to annoy other guests. Clearly defined rules, stated in the booking and by way of signs may also help enforce some reasonable standard of behaviour.

Any thoughts?

The decline of mainstream print media

How many people bother to pick up and read a newspaper nowadays? I used to be an avid reader of the local press but my interest has waned in the last year or so.

The problem is that there is very little that is in any way challenging or interesting. Even when a decent story emerges coverage tends to be superficial.

I now glance at the printed papers on Sunday and occasionally flip through the weekday papers, usually a day or two late. The best thing in the Sunday papers are the Hit Ads; the Sunday Times is worth getting for this. The rest of the paper is worth glancing at, there are the occasional stories that are worth reading but the Hit Ads can be studied carefully over the whole week.

In a funny way things seem to have come full circle: I remember my parents saying that the Sunday Observer (and to some extent the Daily News)was bought mainly for the obituaries, the vacancy advertisements and sometimes the tender notices.

There is a major story that is breaking now: that of the Mannar mass grave, but it has (as far my limited reading allows me to judge) received scant attention in the mainstream press. Yesterday's Daily Mirror had banner headlines about a child being run over by a lawn roller in school but nothing on the mass grave.

The silence tells us something about the state of the media; either bought, controlled, mesmerised or kept; which in turn reflects on the health of our democracy.  

The new aerial menace

I was amazed to read that there is now a new and growing aerial menace.

Are we being threatened, once again by the LTTE's air arm? Hordes of flying cockroaches? Perhaps vampire bats that descend from the heavens to suck the blood of the sleeping townsmen?

No, we are now being threatened by peacocks; not vampire peacocks, or even vampire ducks, just plain peacocks. 

They are a threat not to the population at large, the people in the surrounding areas or to the vast majority of the airline traffic to the country but to the handful of flights that touch down at the Mattala airport.

The authorities are, with admirably straight faces, now calmly proposing a mass cull. The only minor niggle that has apparently prevented the execution of this brainwave has been some religious beliefs surrounding the peacocks.

Lucky for the peacocks, but not so lucky for the multitude of other wildlife being threatened by the airport. The airports authority previously closed up all the waterholes in the vicinity, now they seem to torching the surrounding jungle as well but this has not had the desired effect since the airport happens to be in the middle of the Eastern Bird Migratory Path.

Aha! What we suspected all along! These are not local birds at all, as usual it is the interfering foreign intruders who are the problem.   

In the nine months since the airport opened the only airlines to touch down are the state carrier and one budget carrier. Few people seem to want to fly in that direction voluntarily, except the birds so the simplest solution would be to close down the airport. It will eventually have to close anyway, once the debt laden state carrier goes bust.

The airport itself seems to have cost something in the vicinity of Rs.35bn to build, which, funnily enough, is close to the loss that SriLankan Airlines seems likely to make this year.

In relative terms writing off the cost of the airport is not a huge loss. Besides, keeping it running will only incur further losses so on the principle of not throwing good money after bad it would be sensible to shut it down.

This will never happen, so I will leave my readers with a quote from a different aerial menace, a vampire duck. Its from one of my favourite cartoons: (watch the intro here, its pretty funny)

Castle Duckula, home for many centuries to a dreadful dynasty of vicious vampire ducks: the Counts of Duckula. Legend has it that these foul beings can be destroyed by a stake through the heart or exposure to sunlight. This does not suffice however, for they may be brought back to life by means of a secret rite that can be performed once a century when the moon is in the eighth house of Aquarius. However, the latest reincarnation did not run according to plan – and when tomato sauce was ineptly substituted for blood during his resurrection ceremony, Count Duckula was brought back to life as a vegetarian vampire.

Online visa's, trying to buy bus and railway tickets :Regular frustrations in Sri Lankan life

The Company I work for was expecting some visitors, potential buyers from Africa and South Asia, We told them that they need to apply for business visas and the simplest was to get it on line.

Unfortunately the Process for ETA business not clear. The home page claims that it can be obtained from missions overseas or on arrival. Sri Lanka does not have embassies in all African countries so the buyers thought that the simplest thing would be to get it on arrival.

Apparently this is not how it is supposed to work.

Talked to a friend in the Foreign Ministry, he tells me that the process is to apply for ETA on line, get the on line approval and then get the visa stamped on arrival.

Unfortunately the on line application has no section for business visa. It was there a few weeks ago when we last had visitors but apparently no more. No explanation why it is missing or alternative instructions either. Therefore I need to call the Department of Immigration.

I get in to work early to beat the traffic, so I'm in office by about 7.30am but now I need to cool my heels until about 9am before I can start ringing up the Department of Immigration.

I was advised to speak to an Assistant Director or Deputy Director but the website only has the contact of the Controller, so I rang him up.

Deputy Controller was dealing with a number of people so no time to talk, gave me some other numbers to call. Tried calling, no one picked up. Called again and someone asked me to try the hotline.

Immigration Hotline 1962 does not work. I tried dialling it does not connect. Called the hunting line, waited on hold for a couple of minutes and gave up.

Eventually got through to someone who said that we can make the application in Colombo. We need to go the Department in person with the passport copies and a letter and fill out the application. So much for that.

On a more personal note, there is a weekend coming up, almost a long weekend (if one takes the Monday off its five days at a stretch). No time to plan anything special so am going to visit a friend in Galle.

I will be going alone so no point taking the car, I will take the train instead. Unfortunately it is not possible to buy tickets in advance (let alone online) so one has to go to the station and buy it just before the journey. Due to long queues this may take anything up to an hour.

Since I plan to leave Friday evening the possible trains are the 17.20; the 17.50 or the 18:45 trains. Even if I rush of from office at about 16.45 there is only a slim chance I can make it to the second train, due to the time taken to get a ticket. The last train only reaches Galle at 22:55, which is a bit late.

Added to this the fact that I will have to squeeze in with the office/long weekend crowd and the prospect does not appear very inviting.

Then I had an idea, why not go by the highway bus? The problem is to get to Kottawa to board the bus which is why I chose the train in the first place (getting to Fort or Maradana is easy, Kottawa is a fair way out of town). On balance, given the prospect of being squeezed in 3rd class all the way to Galle, its probably worth the bus ride to Kottawa for the added speed and comfort on the rest of the journey to Galle. Even if I get in at Kottawa at 6.30pm (which I have a decent chance of doing) I will be in Galle by 7.30pm, hurrah!

The problem is that there is no timetable for the highway bus. Online sources claim that the last bus leaves at 4.45pm, which is far too early for me and the only other link is to the Government information hotline (1919) which is fairly helpful but only operates at normal office hours.

I finally get through and am informed that there are buses until 8.40pm and that they leave every 20 minutes, which is a workable proposition. The question is why did I have to search high and low to try and get this basic information?

How can we ever hope to be a hub for information services if such basic things are not in place? 

Central Bank Roadmap : NGO's and INGO's to be monitored by CBSL

The Central Bank of Sri Lanka has published a Monetary & Financial Road Map for 2014 and beyond.

Its a peculiar document, part propaganda and part paen to the mighty. I'm still trying to make sense of it but buried on page 150 was the announcement that the Financial Transactions Reporting Act (link to act here) was to be extended to cover NGO's and INGO's.

The Act in question is supposed to identify terrorism financing, money laundering or other crimes and is currently applicable to deposit taking institutions. The reporting follows the broad trend in banks worldwide that has taken place over the last decade or so.

Not that money laundering or financial fraud, both growth businesses in Sri Lanka are of any concern-as long as they are being done by known parties. The CSE has listed Ponzi schemes, laundries and various scams running (see for example this old article here) but no gives a damn.

The Act results in customers and banks having to fill in a lot of forms and supplying documents when it comes to opening accounts or when transacting business internationally.

The Act specifically prohibits the divulging information on the reports sent to the Financial Intelligence Unit (the section of the CBSL that does the monitoring). The CBSL already monitors NGO's/INGO's bank accounts and requests periodic reports from the banks on the nature of transactions, the identity of the people involved etc. All this has been occurring without the knowledge of the customer concerned.

Now it appears that the CBSL will start monitoring the institutions directly. The question is why?

As far as the stated purposes of the Act are concerned all its requirements can be met the monitoring of the banks, so this is probably designed to probe a lot deeper.

It may also provide a convenient tool for the bashing of NGO's. Financial compliance is tricky, the banks already have a hard time working through the thicket of regulations (principally exchange control but some others as well). This is despite having good systems and dedicated compliance teams. The regulations are byzantine (there is a need to refer to various acts, circulars and guidelines, some of which date from the 1960's) and where there is a high volume of transactions it is easy to make a mistake.

Mistakes have been seized upon by Central Bank auditors and the banks penalised. Those that are out of favour report frequent audits and heavy penalties.

For NGO's, especially those not used to stringent financial reporting, this could prove to be a problem. Errors could easily result in fines or imprisonment. Compliance will add costs (they may be required to appoint full time compliance officers and may also have to set up better data storage systems) that will strain budgets.

My advice to NGO's would be to start talking to people with experience in compliance and start thinking about how they store data and documents. They should study the standards reports/templates being used by banks and develop similar ones for their own use.   

Will Sri Lanka become like Spetses?

Our Rulers want to make Sri Lanka a hub for aviation, tourism and many other things. Will they inadvertently end up creating something like Spetses?

Spetses is a small Greek island, a an exotic playground for rich tycoons. Once a destination for cheap package holidays, the country moved up-market in the 1990's and now caters mostly to the super-rich who can afford to pay high prices for all services and products, much to the dismay of the small population of residents who find that living there is unaffordable.

The parallels between the two struck me when a friend rang me up asking if I knew of a place that would charge a reasonable rate for a holiday. Some friends had come from overseas and were looking to get out of Colombo. Many places were full and were quoting the most absurd rates.

When checking with a friend in the travel trade he told me that a couple of Eastern European and Russian charters had arrived, filling up a number of hotels. Sri Lankan expats, returning home for holidays and willing to splash out (partly to show off?) had booked up the rest.

The problem is that Sri Lanka has witnessed a continuous outflow of people over the last few decades. Some for political reasons but many because life was hard. They return for holidays and December seems to be the month that most now favour.

Hotels, clubs and restaurants make the most of it, gouging their customers with exhorbitant prices. The expats and the tourists may grumble but eventually cough up. Its either that or stay under-entertained on a holiday, which does not seem worthwhile, given the time and expense taken to get here in the first place.

For the locals, this presents a huge problem. If its just a case of planning a holiday for oneself, then its a simple case of postponing, but what do we do if one wants to go somewhere with some of those same expats? Not a happy choice to make, its either spend time with friends or worry about costs.

The holiday rush generally takes place in December, with a slightly smaller 'season' in March/April (Easter/'Big Matches) and July/August (summer). Its fairly predictable so canny locals can try to avoid these months when planning holidays, although going to the gym or finding parking at a shopping complex can be real headache.

Discretionary costs, like holidays can be managed but the bigger issue is high cost of living, a daily problem from which there is no escape. Unlike in Spetses where it is the rich visitors who have driven up prices in Sri Lanka it is the Government that is driving up prices through taxation. This causes people to leave, who then return for holidays and drive up the costs of everything for the season. A bit of a vicious circle, or a virtuous one, depending on how one looks at it.

To the expats, marvelling at the smart streets, shops, hotels and flats Sri Lanka looks to be booming. There are places to go and things to do, at a price. The expats who marvel at the skyline will look for opportunities to return. Many don't. Although things seem to be booming, somehow the opportunities don't really seem to exist. 

It does seem strange, with all the constuction and smartening up going on there must surely be jobs? There are jobs for construction workers, waiters, barmen, room boys but not a lot that would be of interest to the educated. The problem is that, apart from construction, and that too mainly Chinese, not a lot of investment is taking place.

Those that do return soon find that old evil-the cost of living, dogging them again so they leave. I know workers at my local garage who have been on several overseas stints; each time they swear it will be their last. After a while they are forced to leave again.

The funny thing is that it is actually the remittances from overseas workers that props up local demand- not many families can live comfortably without the help from overseas. It is also my (unverified) belief that this is the critical the factor that has pushed Sri Lanka to middle income status-not low-wage manufacturing/service jobs (although this factor is not absent).

From casinos to night races, from luxury shopping to boutique hotels Sri Lanka seems to be gearing up to cater to the rich. Will we then find ourselves in a trap, a country where we love to visit but can never afford to live? 

Tales of public buildings in Sri Lanka

"Great nations write their autobiographies in three manuscripts—the book of their deeds, the book of their words, and the book of their art. Not one of these books can be understood unless we read the two others; but of the three, the only quite trustworthy one is the last. The acts of a nation may be triumphant by its good fortune; and its words mighty by the genius of a few of its children: but its art, only by the general gifts and common sympathies of the race.

Again, the policy of a nation may be compelled, and, therefore, not indicative of its true character. Its words may be false, while yet the race remain unconscious of their falsehood; and no historian can assuredly detect the hypocrisy. But art is always instinctive ; and the honesty or pretence of it are therefore open to the day."

John Ruskin (from St. Mark's Rest: The History of Venice)

Old Parliament Building , Colombo 

New Parliament, Kotte

 Old Law Courts Complex, Hulftsdorp

New Supreme Court Building

Take a look at the pictures above. The new Parliament building was constructed during 1979-1982, shortly after the second republican constitution of 1978 sounded the death-knell for democracy in the country.

The Supreme Court was established by the constitution of 1972. That constitution abolished the right of appeal to the Privy Council in the UK, leaving the Supreme  Court as the  highest court of appeal.

The decline of the judiciary was a slower, less sharply defined process than the decline of Parliament but the rise of the new courts complex reflected the erosion of the independence of the court.

These buildings serve now only as tombstones, unwitting monuments to the dead institutions they house.

Christmas Recipe : How to Make a Banana Republic.

I know cooking is one of the more popular topics on Kottu, so let me take a stab at my own, a Christmas Special, if you like.

I am a great fan of plantains, sometime referred to as banana's. I was looking for some interesting things to do with banana's (for the record I do not possess a dirty mind) when I came across a recipe, for the making of a proper Banana Republic.

Things you’ll need

Theology – An established religion is a necessary ingredient. But if not, then any set of whimsical thoughts, hallucinations and outdated ideas will suffice.

Slogans – Slogans are mandatory. Without them you are not going to end up making a successful banana republic. In fact, banana republics chiefly rely upon slogans – slogans of democracy, slogans of rule of law, slogans of becoming the best nation in the world, slogans of triumph over the enemy, slogans of ‘national sovereignty’, slogans of chosen nation by gods, slogans of Mard-e-Mujaahid, slogans of food, clothes and shelter, slogans of the ‘shinning’ nation are all the buzz words which can be utilized to tranquilize masses in your banana republic.

A Constant Enemy – banana republics can’t exist without a constant enemy, which you can continuously keep the masses afraid of. A constant enemy is actually your friend, because it serves the purpose of enabling you to drag the attention of masses over it, while giving you time and chance to loot and plunder them. There are many benefits of a constant enemy. Your armies can churn up a fair share of budget on name of defense. Your institutions can utilize public money one name of developing new war technologies. Your every policy can be formed keeping in view the danger of that constant enemy. You can plant the seeds of patriotism because of that enemy. In fact, the advantages are numerous, the list is long.

Note: Class society is a presupposed fact in this regard, since no state can be erected in a classless society.

How Tos
1-      Start by propaganda in press and media that the country is in real danger, its finances are low, taxes are essential, austerity measures are inevitable – thus people have to sacrifice.
2-      Often repeat the mantra, ‘Motherland is passing through difficult times!’
3-      When inquired about your governance, again repeat the mantra, ‘All is fair’.
4-      Start a controlled exchange of fire or a semi-war with your constant enemy, and often keep that side of danger open. This will enable you to fool the masses into thinking that country is really in danger. They ought to drop aside their usual economical and democratic demands.
5-      Whosoever dares talk to you on matters of state and affairs, try to make him/her subdue by making excuses from banana republic’s theology/theory.
6-      Tighten up policing, keep judiciary in your pockets, offer bribes often, and keep in close touch with religious clerics.
7-      You may sabotage the political activists who are against you.
8-      Secret police and your intelligence agencies should often pick people and kill them after. Off course, you have need not bear any voice of descent in your banana republic
9-      If people get tired with your autocratic rule, return to shallow ramshackle democracy, which should continue the same old rule under new name and faces.
10-   For direct exploitation of your masses, sell your all resources of country to private firms, multinational companies, privatize as much as you can. And then call it ‘development’.
11-   Dose people with religious dogmas; celebrate religious rituals and days often.
12-   Put the label of ‘national interest’ on every action you do in your self interest.
13-   Make national fascism, while exploiting people’s natural love with their homeland. This patriotism is your most useful weapon.

This way, you will at least lay the foundation of a banana republic.

When I wrote this almost seven years ago, I think I was only half-serious. Reading through this article made me think: have we reached the level of lunacy where this appelation is now entirely appropriate? Will anyone care to fill out the list of ingredients and see what we end up with? Certainly not a Breudher, thats for sure. Maybe a Banana Split?

Sri Lanka in the Limelight

The fightinme had written something about Sri Lanka being in the spotlight.

It is true that some of the criticism is orchestrated by the Tamil/Tiger diaspora; I’m never sure where the Tamil diaspora ends and where the Tiger diaspora begins. Whatever criticism made needs to distance itself completely from the Tigers, which unfortunately it does not. As I pointed out here the Tigers have equal responsibility for the final war and its terrible end.

Coming back to fightinme’s argument, I think we need to change the discourse to one of individual liberties. What we must ensure is that the liberties of individuals be protected. The only lasting protection can come from institutions: the constitution (which is supposed to limit the ruler’s power), the courts and parliament which are also supposed to check the ruler’s power.

The entire system has been broken completely; by corruption and the culture of impunity. Citizens no longer enjoy any rights and if one comes under threat one needs to turn to the protection of some politician; not the police or courts.

The war did not end in Jaffna. The incidents on Katunayake, Chilaw and Rathupaswela are simply extensions of the same culture of impunity and the treatment of opponents.

There are many others, like the above at a smaller, individual level, such as the torture of painter, a small businessman and an orderly in a hospital.

The victims during the war were mostly Tamil. Today it can be anyone, anywhere. You and I may have some political connection that the unfortunates above lacked; we may think ourselves safe; for the moment at least. It depends how much longer our political connections can last and how soon the politico will fall from grace.

Why is the GoSL so agitated about international criticism?

Because local criticism is stifled completely; they can do as they please and get away with it. The press is pretty much under control and with the police and courts doing their bidding, no action is possible anyway. Foreign criticism is a bit harder; it causes them to pause, even for a bit.

Thanks to CHOGM and David Cameron, the regime has paused to think, put the BBS back in the drawer, held the Northern Provincial council election, moved on the Khuram Shaikh murder and is even talking of a TRC style commission.

As I said before; what matters to us today is not what went on in the war; it is the fact that it continues to stalk us today. For the unfortunates like Shaikh, it may come too late, but perhaps their fate will serve to spare us.

How ironic that sixty odd years after independence, the best guarantee of liberty today comes from Britain's Prime Minister.

A hundred posts, a new look and maybe a new beginning

I started playing around with the look of this blog, I'm not not the greatest designer but I think a change in look will help refresh my mind.

I've managed a hundred posts this year but at the expense of quality. There are a few posts that I am happy with but a lot that are below par. Not enough time to think or reflect. I have not done any proper reading for almost six months and my brain is feeling pretty dead.

I changed jobs in July and work has been pretty hectic. When I get home I don't seem to have the energy to pick up a book. Also my Economist subscription was delivered at my office. As I have not yet got around to persuading management here that I need it, my regular source of news and analysis has been cut off.

The local press is hardly worth reading and even the online resources are looking tired and stale; it sounds like the same old story being repeated. The local Blogosphere is as dead as the dodo and while twitter is a useful source of news no debate takes place. 

My New Year's resolution is to start reading again, I'm easing myself in with Tea & Memories and Sri Lankan Memories.

Why are the budgets of so many Pradesheeya Sabha's being defeated?

Something strange seems to be going on in the Pradesheeya Sabhas. Many of them, despite having a majority seem unable to pass their budgets.

For a while I was wondering if there was some sort of conspiracy or some underground opposition activity that was manifesting itself. It sounds unlikely but was a possibility; given that the opposition members and some ruling party members seemed to be teaming up.

Had a chat with a friend about this and he was as mystified as I was. He said that the only common denominator was that in each body, it was a move by the members against the Chairman and sometimes the Vice-Chairman.

It was then that a little light bulb went on. Could this be a simple case of thieves falling out?

About seven or eight years ago a classmate of a friend was campaigning for a seat in a Pradesheeya Sabha. My friend was quite involved in the campaign lending his friend his car and helping out by other means. My friend mentioned to me that the target for the Chairman of a Pradesheeya Sabha to earn over a 5 year period of office was Rs.30m!

This sum was earned mainly by collecting bribes for the issue of building permits, authorising water and electricity connections and similar activities. It could not be earned in Colombo and the major towns because there was not much housing being built but in the suburbs where lots of housing schemes were coming up there was much opportunity.

From the point of view of the corrupt official, the Pradesheeya Sabha offers an added advantage: near invisibility. The local press, generally docile anyway, tend to ignore local Government issues as they are seen to be unimportant, which means no likelihood of embarrassment. The liklihood of punishment is rare anyway but occasional embarrassing exposures are sometimes possible.

Based on the limited knowledge that I have gathered over the past few years I believe the scale of bribery has expanded massively in the last 7-8 years, therefore the intensity of competition for political office has increased.

It is likely that once ensconced in office, the Pradeshheya Sabha Chairmen have been trying to keep all the loot to themselves and not share it out equally with other members, hence the reason for wanting to eject the Chairman by defeating the budget.

This is only a hypothesis, but does anyone else have any information to share?


Update 20th December

Met a friend yesterday who has to deal with the Pradesheeya Sabha's. He said that he had heard complaints before from members that the Chairman/vice chairman was not sharing the spoils. 

Felling trees to pay workers dues - is this sustainable?

The proposal to fell the timber on estates to pay the statutory dues (EPF, ETF) of workers is again in the news, but no one seems to be posing the most fundamental of questions: can this be sustained?

If this proposal works out they may be able to settle the past dues, but once this is done, how do they plan to make payments in the future?

The plantations being (mis)managed by the state are almost all running at massive losses. Things have got so bad that these estates have not been able to pay the statutory dues of employees for decades. I looked at some of the numbers of these estates around ten years ago. At that time there was about ten years of unpaid statutory dues. I don't think anything of significance has been paid since then.

Until somethig is done or a miracle takes place, operationally they will continue to make losses. Therefore there is no possibility that they can meet dues in the future either.

Has anyone even thought about this? Stripping assets is something that can be done on a one-off basis, but how do they plan to stop the financial black hole where money vanishes in to thin air?

Its a bit like surgery; cutting off a limb or some organ is acceptable if the patient is cured. If it does not cure but only provides temporary relief, it will only be  a question of time before something else needs to be cut off, just to survive. Keep cutting and the patient will eventually be killed.

In my opinion, approval for this should not be given until and unless a comprehensive workable plan is in place to restructure the estates. There is also more to this than meets the eye.

For a start, how can a state enterprise not pay statutory dues for a period of a decade or more and not face a problem? How could something this sensitive go unnoticed for so long?

There are plenty of loss-making state enterprises around;  but to my knowledge none of them avoid paying their workers dues. Indeed the principal purpose of many state enterprises seem to be job-creation. If the Government had dared to delay workers payments in any of these the unions would have taken to the streets and there would have much hue and cry raised by the opposition.

Talking to some old planters, they believe that the reason the problem grew so large was because the workers affected belonged to a voiceless underclass: Plantation Tamils.

The Tamil plantation workers are a constituency no one is interested in and are therefore effectively voiceless. Please note that I am not saying that the union is not powerful: it is but it serves mainly as a vehicle to fatten the pockets of its leader, not to speak for its representatives.

The modus operandi of the plantation union leader is as follows: he delivers a block vote to the Government, in return for which he is allowed to extract whatever he can from the estates/ministry. If one recalls the history of this man (and his father); they have been in every single Government of whatever hue. He collects his votes, generally in coalition with the UNP and then joins whoever is in Government.

Once a year he goes and tells the Government that he needs to keep the vote base happy and that in order to do so he needs to extract a wage hike. The Government then muscles the private estates who cough up the money. Since it comes at no cost to the Government they are happy enough to oblige. However the Government estates and other problems where the Government is involved are ignored.

When travelling around tea estates I have spoken to some workers on the Government properties; they claim that not only are the EPF, ETF and gratuity not paid sometimes even the wages are not being paid.

On private estates the rule that the estates must provide 22 days of 'work' a month is rigidly enforced, on state estates it not. One employee on Hare Park told me that they get about three days of work a month. The workers eke out an existence by cultivating other crops and odd jobs.

Since the unions and opposition are silent, the question also needs to be posed as to what is driving this proposal. Most probably the opportunity to make a quick buck by either undervaluing the timber being sold or removing more trees than the estates get paid for.

There is now an enabling culture where dealmakers are allowed to flourish. As there is little transparency in processes and no liklihood of punishment, everyone is looking to make money as quickly as possible.

No one is interested in business; everyone wants a 'deal'. Whether it is ETF and Sri Lankan Insurance funds being used to buy overvalued shares (which just happened to be sold by cronies) to clearing jungles, nothing is off the table and nothing is sacred.

Truly, a bandit economy.


ps. I wrote about some of the other aspects of the problem in felling trees on estates here.

Food prices and the budget for 2014

The satirical LBO piece, A Dress to Kill Budget, apart from being very entertaining is quite seriously, best summary of the main thrust of this years budget. They could have added that defined professionals (including accountants, lawyers, accountants, engineers and some academics) were given a tax reduction (to a maximum of 16% compared to the current 24%) and, even better, if they were in practice could be expected to be taxed between 12%-16%.

Truly a budget where benefits were doled out to the richer sections of society. Taxes on food, a staple for this regime went up, the tables below will be of interest to anyone who wants to know by how much these changed. (Source: CT Smith Stockbrokers)

A CHOGM Post: Did Britain grow rich by exploiting its colonies?

When we were is school we told that the British (and the Portuguese and Dutch before them) invaded the country and exploited its resources and grew rich in the process. This was said as if it were accepted wisdom, simple statements but with no analysis. No one thought this was very important, since it was old history anyway and no one bothered to question this. 

They were rich, we were poor; they colonised us, ergo this must be true. This claim and variants of it is now in the media.

The question that I have been pondering is, if the British were growing rich on the country's resources, why did the country fail to prosper after independence? The easy answer to give is that although the country received political independence, trade and business remained in the hands of the British. A neo-colonial instrument of control that continued after independence.

Some of our leaders believed this and a  wave of nationalisation and land reform saw the end of almost all foreign owned businesses by the 1960's and early 1970's.

Yet we did not prosper.

Indeed the country's fortunes declined further. At independence the country's economy was primarily agricultural, the most important produce being tea, rubber and coconut.  By the 1970's these were all controlled by the local population, either directly or indirectly through the state.

Sri Lanka was not alone in this experience. All over Africa and Asia the European powers retreated from their colonies but their exit did not result in a sudden increase in wealth. Many African nations, despite enormous wealth in natural resources; Nigeria, the Congo, Angola to name just three, are now poorer than they were at independence.

Meanwhile, the nations of Western Europe rebuilt from the ruins of the second world war are, despite all the problems they face now, much richer than they were at the end of the 19th Century. Countries like the United States, Australia and New Zealand, which started off as colonies prospered despite a lack of significant colonial expansion.

The answer to the question of as to how colonial powers grew rich seems a bit more complex than the simple statement that we were taught.

I believe the enormous wealth that was created in Britain between the 17th and the end of the 19th century was due to two factors: the industrial revolution and free trade.

In Britain's case  the colonies did assist trade by creating new markets in which British companies and products had preferred access. Thus British business had an advantage over other European and American companies (and any local businesses that were around) which helped them prosper. This helped but I don't think it was the key determinant of success, ultimately it was trade that created wealth.


The countries that have prospered over the last fifty years did so through increased trade, Japan and East Asia being spectacular successes. In the early 1950's the bet was that it was the African continent, with its abundant resources that would succeed, but it was not to be. Countries that looked inwards, from India until the 1990's to China until 1978, remained stagnant. Once China started to trade its fortunes improved.

At first China started trading internally. Instead of only being allowed to work on the collective farms farmers were allowed to cultivate a part of the land and sell the excess. Food production increased rapidly and soon the private produce exceeded that of the collective farms. This experiment was extended gradually to other areas of the economy and now it is the largest trading nation in the world.

If we close up to the world, try to trade only internally, a popular suggestion these days, we will be doomed. It was tried in the 1960's and 1970's it did not work; it will not work any better now.

Scenes from my childhood

I had to pay a visit to one of the company's sites today in Embilipitya. I had not realised quite how far this was, somewhere off Ratnapura and the site itself yet further into the interior.

It was pretty much off the main tourist track, the only thing of any note being an abandoned paper mill.

I enjoyed the ride on deserted, slightly bumpy rural roads, hedged on either side by a sort of semi-dry zone forest. I could not make up mind as to whether it was wet or dry zone, it was in the region of Uda Walawe so it may have been a bit of both. It took me back to my childhood memories of travel, seeing roads lined with trees, not necessarily forest, but trees, trees and trees. Lots of coconut trees, but also plaintain trees, jak trees and all sorts of wild greenery.

Buildings in rural areas were wattle and daub, thatched with coconut. Bricks and tiles were mostly in towns and for bigger buildings. Now the scenery seems dominated by signboards and glitzy glass-fronted shops.

On the way back we passed by some stalls selling curd. When I expressed an interest in buying some, my colleague who is a regular visitor to the site (it was my first visit) told me of a stall run by a family who produce it from their own herd. We stopped there and I bought a couple of pots, which turned out to be very good. Not as thick as some varieties, but with a rich creamy flavour. I was told that I needed to finish them fast, since they done use any additives. We sighted a herd of buffalo on the paddy fields as we drove past.

It struck me that the buffalo is now largely extinct, as a beast of burden. When I was little the farmers would be working their fields with buffalos, now they have been replaced almost completely by the hand tractor, just as the outrigger canoe (or catamaran) has been displaced by the motorised boat at sea.

The triangular sails of the catamarans used to dot the horizon when looking out from the seashore. Now they are only found as decorations in hotel lobbies or beach side restaurants.

I have a very good memory and I even remember seeing bullock carts and even the odd rickshaw, which used to take children to school.

That these have disappeared is a sign of progress, people are better off now and they using modern equipment, which is a good thing. A part of me however remains an incurable romantic and sight of some of these older scenes leaves wallowing in a nice, warm,  nostalgia.

There are a few nice pictures on an album on Flickr

Also picked up a few pictures from the web, for the benefit of anyone who never saw these. Hope you like them, does anyone have any colour pictures of similar scenes?

A question for all the marketing people out there on Anything.lk

Anything.lk is a daily deals website. They sell discount 'vouchers' (in electronic form) for various products and services. The Company negotiates various deals with manufacturers or service providers and offers them to their customers, less a margin.

The question is, what does Anything.lk offer that cannot be done more effectively by a bulk sms offering a discount direct to users? Or, a direct discount on a credit card offer?

In effect it's about sending a discount offer to a set base of customers. In the case of a credit card offer there is the certainty that the customer exists. There is also other information on spending patterns, which cannot (and should not be) shared at the individual level but may be used for macro level profiling.

Anything.lk only has website hits, Facebook 'likes' and records of past purchases to offer- a far more dubious proposition in my view.

I have no idea of relative costs between the two, can anyone volunteer any information?  I suspect Anything.lk's charges to be a lot higher than that a credit card provider and its customer base to be transient.