Lanka Free Library

ECONOMYNEXT – Australia said the country will provide 50 million US dollars in official aid for Sri Lanka which is reeling from the worst currency crisis in the history of its 72 year old intermediate regime central bank.

“We will contribute an immediate $22 million to the World Food Programme for emergency food assistance to help three million people in Sri Lanka meet their daily nutritional needs,” Minister for Foreign Affairs Penny Wong said in a statement.

“Australia will also provide $23 million in development assistance to Sri Lanka in 2022-23.”

“This will support health services, and economic recovery, with a strong emphasis on protecting those at risk, especially women and girls.”

Sri Lanka’s soft-peg (flexible exchange rate) an dual anchor regime promoted to many third world countries collapsed in March from 200 to 360 to the US dollar after two year of money printed to mis-target interest rates.

Many lower income people can no longer afford to buy food which are rising daily with 12-month inflation officially at 39 percent.

ECONOMYNEXT – An International Monetary Fund mission who has arrived in Sri Lanka has met Prime Minister Ranil Wickremesinghe as part of a discussions to fashion policy corrections that will restore monetary stability and allow the country to repay debt.

“Prime Minister Ranil Wickremesinghe commenced discussions with the IMF team a short while ago at the Prime Minister’s Office,” his office said.

The IMF in person team will be in Sri Lanka till May 30.

The team will “continue discussions on an economic program that could be supported by an IMF lending arrangement, building on the progress made during the May 9-24 virtual mission,” the Washington based lender said.

“We reaffirm our commitment to support Sri Lanka at this difficult time, in line with the IMF’s policies.

Sri Lanka to show progress on debt re-structuring before the IMF will lend any money. IMF money goes to the Central Banks reserves and is usually invested in the US to helping finance the American deficit.

However IMF encourages policy corrections that will help halt and eventually reverse money printing (build up reserves by sterilizing inflows) restoring monetary stability.

An intermediate regime central bank (soft-pegged) will run down its reserves by either printing money for the budget deficit, or re-finance private sector activity (reserves for imports) all of which involves mis-targeting interest rates with money printing.

Following severe monetary instability coming from several years of money printing for stimulus (output gap targeting), which was topped up by tax cuts in 2019 and price controls on bond auction in 2020 leading to large scale money printing, Sri Lanka defaulted in April.

The IMF warned that Sri Lanka’s debt was unsustainable as the country ran out of reserves due to money printing and tax revenues fell due to the fiscal ‘stimulus’.

Sri Lanka and the IMF has to now determined a practical gross financing need (GFN) or the debt that can be raised each year based on a mutually agreeable debt sustainability analysis.

In order to bring the GFN down, Sri Lanka has to re-structure a part of its debt. The government in April defaulted on the debt of sovereign bond holders, bilateral lenders and commercial banks.

The IMF and Sri Lanka’s authorities have to agree on a path to raise taxes, cut spending, bring down the deficit before interest (interest rates have to stay up to reduce money printing and finance the deficit) so that money printing can stop and monetary stability can be restored.

Sri Lanka is still printing money and the country is facing shortages of fuel in particular.

Sri Lanka’s rupee collapsed from 200 to 360 to the US dollar in an attempt to float the currency botched with a surrender rule (forced sales of dollars to the central bank) and food prices have shot putting basic foods out of the reach of the less affluent in monetarily driven malnutrition.

Related

Sri Lanka chicken, egg production plunge 30-40-ct amid soft-peg collapse

Sri Lanka chicken and eggs in crisis as soft-peg hits feed

Fish prices have also soared as the price structure of the country adjusts to monetary instability.

(Colombo/June20/2022)

ECONOMYNEXT – Sri Lanka’s chicken meat production has collapsed 30 percent and egg output 40 percent as a currency collapse pushed up costs feed imports were blocked by foreign exchange shortages, an industry official said.

Sri Lanka is now going through the worst currency crises triggered by the island’s Latin America style intermediate regime central bank set up by a US money doctor in 1950.

“Small and medium farmers are leaving the business due to feed shortages and because big poultry companies are stopping buy back schemes,” Ajith Gunasekera, President of the All Island Poultry Association said.

Broiler meat output has fallen 30 percent to 12,000 metric tonnes a month from 18,000 metric and prices have shot up, he said.

A kilo of chicken is around 1,200 rupees from 460 rupee levels before economists started to print money to target an output gap by mis-targeting interest rates, and official inflation rose 39 percent in the year to May 2022.

Monetary Malnutrition

Sri Lanka’s central bank printed money for over two years to mis-target interest rates and collapsed the currency to 360 to the US dollar from 200, in a failed attempt to float the currency with a surrender requirement (forced sale of dollars to the central bank).

Though interest rates were raised in April forex shortages are continuing as attempts are made to enforce an unstable peg at 360 to the US dollar with borrowed dollars and money is printed to pay state worker salaries (Sri Lanka pegs rupee in both directions in May 2022 amid ‘float’).

The current economic problems come from applying floating rate monetary policy (liquidity injections or printing money from open market operations for stimulus) to a reserve collecting peg (flexible exchange rate).

Inflation and currency depreciation created by the central bank have put protein in particular out of reach of the less affluent pushing up malnutrition as had happened when the country’s economists who favour collapsing soft-pegs printed money in earlier occasions.

Basic starch in the form of rice has rise from 105 rupees a kilogram to 230 rupees a kilogram after the latest bout of money printing while people are losing jobs and wages are cut in the private sector.

Doctors at Lady Ridgeway, the country’s main children’s hospital have said they are seeing higher levels of malnutrition among children as the flexible exchange rate bites.

Sri Lanka’s economists have fiercely resisted changing the unstable soft-peg to a single anchor regimee such as a hard peg or a clean float with no reserves so that they could continue to intervene and depreciate the currency (REER targeting) to boost exports by destroying real salaries of workers.

The economists have destroyed the currency from 4.70 to US dollar in 1950 to 360 to the US dollar so far and have imposed trade and exchange control on the public who are net savers are unable to print money and cannot create monetary instability.

Of late expatriate workers are also being scapegoated for sending money to their families hit by inflation, outside official banking system linked to the non-credible pegged system.

Analysts have called for single anchor regime with strict laws to restrain the central bank’s independence to engage in ‘flexible’ policies maintain and monetary stability in the future. (Sri Lanka’s central bank needs accountability and restraint, not independence)

Eggs Production

Eggs which were around 18 to 25 rupees before the latest money printing bout have now shot up to 43 to 50 rupees.

Egg production has collapsed 40 percent, amid feed shortages.

Gunasekera said daily egg production which was around 700,000 to 800,000 and now fallen to around 400,000.

“Chicken are also laying fewer legs due to nutrition problems,” Gunasekera said “A chicken will usually lay about one egg a day but without proper feed they will lay fewer eggs.”

Egg prices are up partly due to high transport costs from Kuliyapititya where most of the large egg farms are located to Colombo, he said.

About 73 percent of the cost of raising broilers was feed.

Maize which was 40 to 45rupees a kilogram has now gone up to 80 to 90 rupees a kilogram but was there was no supply with the domestic Maha season harvest having failed due to a fertilizer ban.

Due to reduced paddy milling, rice polish is also not available.

Forex shortages from the non-credible peg has made it difficult to import maize or soya meal.

The industry is hoping to get some inputs from the Indian credit line. (Colombo/June18/2022)

ECONOMYNEXT- Sri Lanka’s protestors banded together in a human chain from Temple Trees, Prime Minister Ranil Wickremesinghe’s official residence to the iconic ‘Gota go Gama’ in front of President Gotabaya Rajapaksa’s office asking the two to step down as a currency crisis worsened.

Sri Lanka’s protests which reduced after Wickremesinghe was appointed are starting to gather pace as shortages continue with the central bank unable to restore monetary stability.

Protestors called for a ‘system change’ on Saturday as fuel queues lengthened and difficulties in paying for imported diesel, petrol and gas intensified amid continued money printing to pay salaries of state workers triggered forex shortages.

Sri Lanka went through three currency crises in rapid succession from 2015 under as money was printed under ‘flexible’ policies to boost growth (stimulus) and in 2019 taxes were also cut in a fiscal stimulus with state economists claiming that there was a ‘persistent output gap’ as growth fell from previous currency crises.

President Rajapaksa also banned chemical fertilizer imports to save 550 million US dollars in foreign exchange worsening the effects of the central bank crisis.

Failed President? Failed PM?

Saturday’s protest was largely focused on Prime Minister Wickremesinghe, under whom forex shortages have continued though interest rates have been raised by the central bank to smash economic activities which can reduce private credit and drive private savings to finance the budget deficit.

The central bank has again imposed a ‘guidance rate’ trying to enforce an exchange rate peg despite running out of reserves amid continued money printing.

The rupee fell 200 to the 360 to the US dollar in a botched attempt by the central bank to float the currency with a surrender requirement in place (forced sales of dollars to the central bank) and foods and basic essentials are now out of reach of the less affluent.

Malnutrition is also beginning to go up. A factory producing Triposha – a nutritional supplement aimed at combating malnutrition among children of low income families started in the 1970s when money printing and import controls were rife – is closed often without regular supplies of maize and soya beans.

Crisis cuts off vital food programme

Wickremesinghe was appointed Prime Minister after the President’s Rajapaksa’s brother was forced to step down from the post following widespread protest.

The appointment is said to have diluted protests somewhat, but after a month since the appointment and a fall from bad to worse, protestors are saying that he must step down, and the country must go for an election.

“Ranil was brought in ‘for the rescue’, but we know the cynical intentions behind all of that. It’s just politics as usual, and not the system change we are asking for,” said Chaminda Dias.

Dias was part of organizing the human chain, and an active protestor since the #GoHomeGota movement started.

International Approach

Many people waited for the Prime Minister’s more “diplomatic” and “international” approach to leadership in the hopes that he would help bring in much needed forex and international support to Sri Lanka.

However, the placards read different.

“Ranil is the International Face of the Rajapakshas” says one. “Ranil oyath fail” (Ranil you have failed too) says another.

“We cannot give up until Gotabaya goes with Ranil, because as long as these useless leaders [are here] we will not get any assistance…even [from] our own people (migrant workers) living overseas,” said social Activist Vishaka Thilakarathna.

Wickremesinghe, a six time Premier now, has not captured public confidence, and got into Parliament through the National List.

Protesters called his appointment “undemocratic” and demanded an election.

Liesha Lawrence, who had brought her sons along said “If we have billions to spend on defense and
other things, why can’t we spare five billion for an election?”

Youth at the Protests

“I brought my sons along today because this is their future we are standing up for and they need to know what’s going on,” said Lawrence.

“They need to be a part of the solution, they need to be a part of pressuring the government in the next steps that need to be done.”

Her sons, Aaron, Ethan, Kieran and their friend Abiru say that they are “angry with Gota” for his part in the crisis that is depriving them of education.

“Our school is closed a lot. We’re losing a whole year of our life because our O Levels are also getting postponed.”

Sri Lanka’s Covid lockdowns and power cuts severely impacted school children, who missed out on studies and interactions with friends.

Several schools and the country’s largest state university were recently shut down due as fuel shortages intensified.

Crisis-hit Sri Lanka’s fuel shortage forces closure of schools, largest state university 

The boys wanted to encourage more young people to participate in protests.

“Just come, just show up.”

Sri Lankan youth are continuing activism through social media, but the young protesters want more people to take to the street and physically show dissent.

“We’re living through a moment in history, come and do your part. You wanna be able to tell the future gen you did your part.”

Protesting is a Privilege

But showing up physically is not an option for many, who are stuck in Sri Lanka’s ever growing fuel lines, or simply struggling to survive.

Two people died in fuel queues on June 16, bringing the death toll in queues to 10. The protesters
who moved to Galle Face beachfront towards the evening observed one minutes silence in their memory.

“Gota how many more lives do you need to send home?” read one placard.

On June 15, a woman threw her child off a bridge in Wattala, and was prevented from taking her own life.

In March, a father of four died by suicide after struggling to pay off a loan of 10,000 rupees.

“People are dying on the streets. Mothers are throwing their children into the river because they don’t
want to face the indignity of begging for food,” says Dias.

“That is all [Gota’s] responsibility.”

Many protesters said they were taking part in the human chain in solidarity for those who could not make it.

Nigel Karunaratne was part of a crew of cyclists at the protest. He said that the movement might have “lost a little steam” but it was important to speak out.

“Whatever changes that have come are because of the protests at Galle Face. Without them we would still be with Mahinda, Basil and the other cronies.”

The organizers of the human chain however, were happy with the turnout considering the extreme difficulties of living in Sri Lanka at the moment. (Colombo/June19/2022)

Hyperglade was founded by Kalana Muthumuni, Lakshan De Silva, Dulitha Wijewantha, Malinda Muthumuni and Manujith Pallewatte, five experienced startup founders with years of experience in the Sri Lankan startup space, who lead a diverse team, from around the globe consisting of tech wizards, creators and fintech experts to make NFTs accessible and easier to use. But there is more to Hyperglade than a marketplace for NFTs, Kalana and Lakshan explain in this interview.

What was the opportunity that compelled you to conceive Hyperglade?

Hyperglade came up with a solution to a relevant problem that could make a difference and help us grow as a company. We identified a need to support a growing community of artists whose work is often underappreciated, without sustainable models to find the spotlight, monetize their work, and grow. A global platform for these artists and creators is a solution that will give them access to audiences across international markets and a sustainable business model.

Secondly, we wanted to venture into something that would help accelerate the underdeveloped domestic tech ecosystem closer to global standards. That was the challenge we took on with Hyperglade.

We made it possible for Sri Lankan artists to convert their artwork into NFTs to access bigger markets, get exposure and be rewarded for their work. Last year, for the first time in the region, we enabled credit card payments for an NFT auction, an option not even global players like Opensea provided. This feature boosted the engagement for our auction, especially in emerging markets, and several others soon followed our example, so we are quietly proud of the influence and impact we are creating so early in the journey.

Thirdly, unlike most Sri Lankan businesses that tend to follow global trends, albeit with a lag of several years, we wanted to be a pioneering startup from the get-go. That was one reason why we conceived Hyperglade as a product company at the forefront of the NFT revolution – blockchain, smart contracts and metaverse

Can you take us through Hyperglade’s journey thus far? But first, can you explain NFTs to us?

Non-fungible Tokens, in the simplest sense, are digital deeds stored on the blockchain that give ownership rights to the owner that cannot be forged in any way.

The lowest hanging fruit for NFTs was in art, solving two key pain points: first, enabling artists to seamlessly transact with consumers with provenance ensured, and second, earning the royalty on secondary sales.

This resulted in a massive growth cycle for NFTs, which meant that in 2021, the NFT industry grew 15,900%, valued at $40 billion. We then saw multiple use cases for NFTs emerging from community building to validating ownership and allocating assets. Even property is sold as NFTs. But this technology is still in its early stages. NFT also popularized the metaverse concept, which was created in the 90s, but only now being implemented.

Last year, we launched Sri Lanka’s first auction with Urban.lk and the main artwork of the auction was sold for $1,275. Following this, we took part in the BOV venture engine program and incorporated the company in Singapore. We built a regional partner network that spans multiple continents and was joined by brilliant Sri Lankan talents like Gamika Seneviratne. We raised funds at a valuation of $3.125 million (about Rs1.1 billion).

This year, we launched HealSriLanka, an NFT collection to raise funds to meet the rising medical shortages in the country. The collection comprises Sri Lankan art, songs, poetry, and more. Of the sales, 90% of the proceeds will fund the medical supplies, and 10% will go to the creators.

To provide an inclusive service in the NFT space, we have also diversified our business. Hyperglade’s business arm focuses on helping any NFT project to conceptualize, develop, market and launch.

Meanwhile, the services arm complements the products in the Hyperglade marketplace. The marketplace allows you to buy, sell and trade NFTs without a third party crypto NFT wallet or cryptocurrency.

The Hyperglade marketplace is easily accessible through your email and contact number, and you can make payments using credit or debit cards as well as cryptocurrency. We also launched an education wing to inculcate more knowledge in this evolving field.

In terms of our clientele, they are not limited to Sri Lanka, and we are currently expanding. We have projects in the Southeast and South Asian regions. We also have a network of regional partners helping us expand into the United States, India, Malaysia, Australia, Africa and South America.

What is your take on the unfolding economic crisis? How is Hyperglade responding to the challenges, and how do you propose to uncover new opportunities?

There is a global economic crisis brewing on falling food and fuel supplies, compounding the acute domestic political and economic crisis in Sri Lanka. As we understand it, there is a need to pivot towards crisis management, and that is where we can make a difference. For example, an NFT fundraiser for Ukraine brought results within a few days, whereas traditional fundraising would have taken months. Similarly, with HealSriLanka we will target the expat community to raise about a million US dollars for the Sri Lankan medical crisis.

Global startups are bracing for a long winter: investments are quickly freezing as investors look for safer options. That is forcing startups to think deeply about building sustainable business models. At Hyperglade, we are confident that we have a thoughtfully crafted business model that will create value for our stakeholders and the company through the unfolding crisis and beyond.

We are also contributing to uplifting the tech industry of Sri Lanka. It is a matter of playing the right cards and growing the talent pool and capacity sequentially. In our economy, 30% of the population is engaged in agriculture, and the agriculture sector contributes just 10% to the GDP of Sri Lanka, a clear misallocation of resources and lack of vision.

So we at Hyperglade have taken it upon ourselves to change this attitude and pave the way for everyone to box above their weight. We are working on a few projects with the LGBTQI and APAC communities. We are focused on our product, and we are confident we can make Hyperglade Sri Lanka’s first unicorn. We have partnered with leading corporations in Sri Lanka for funding.

NFT is an easier and the best way to reach out to a wider audience, not just traditional investors, angel investors, and VCs, but now you can directly go to the consumer who wants to be a part of your company.

Consumers can also have tangible ownership of the company they are interested in. An investor simply needs to buy an NFT to invest, and it is cheaper than the traditional investment methods too. This could be a great opportunity for Sri Lankan companies to raise funds amid a global and very severe internal economic crisis. We are rolling out a concept very soon which would enable this type of NFT based fundraising.

Our grand vision is to create a decentralized, community-driven NFT marketplace. Blockchain projects, in general, are decentralized, but a lot of NFT marketplaces are centralized. Therefore, we want to build a decentralized NFT marketplace governed, maintained, and moderated by the community in that marketplace. With this grand vision, we want to build an ecosystem that connects with other NFT projects, and the marketplace.

Iconic Developments Chairperson Rohan Parikh shares insights on Sri Lankan real estate prospects amidst an unfolding economic crisis. To thrive, real estate developers must execute well-managed, risk-free projects that deliver modern residences with superior value and appreciation potential; and that is what Iconic excels in doing.

Expressing the company’s commitment to the Sri Lankan real estate market, he aims the spotlight on Iconic Developments’ stellar performance and plans.

As the worst economic crisis unfolds in Sri Lanka, what is your outlook for the construction and real estate sector?

The short-term prospects of the real estate sector look very good from both the demand and supply perspectives. Investors are rushing to invest in real estate because it is an ideal asset to hold on to as an effective hedge against the hyperinflation Sri Lanka is now experiencing. Demand was strong during the pandemic as well. On the supply side, we expect a crunch as many projects stall due to rising costs and tight financing. There will also not be any new entries into the market because nobody will want to start a new project right now. So I think there will be a combination of a demand spike and a supply crunch, which in the short term, will mean that the real estate companies with outstanding inventory in the market will do well.

In the long run, as a real estate developer, we are bullish on Sri Lanka’s real estate prospects, provided there is stability, simply because there is a shortage of affordable quality housing. Factors such as the lowest urbanization rate in South Asia and the highest commute times for people working in Colombo mean that demand for housing infrastructure can only grow.

However, there is a caveat to our outlook. Real estate projects are longtail projects. Developers lock in prices and revenues today, spend over three years to get the project off the ground and then deliver the completed homes or apartments to investors. So, in an environment of economic stress, developers will be hesitant to commit to new projects, and the products that do start will carry an inherent risk. So the medium term will depend on how quickly Sri Lanka can stabilize the economy.

How is Iconic Developments geared to withstand the challenges ahead and unlock growth opportunities? What is your strategy around risk in a volatile market environment?

We have a simple strategy for dealing with volatility: we don’t deal with it. We never commit to a project unless we see a stable macroeconomic environment for the proceeding 24-36 months. In long-duration projects like real estate, and especially in smaller markets, like Sri Lanka, prone to frequent economic shocks, you are essentially taking a bet on the macroeconomy, so trying to gauge long-term stability is critical.

We contain risk exposure for our ongoing projects by spreading revenue flows throughout the project life cycle.

Most other developers try to sell out their inventory in advance and lock revenues and then get hit by escalating construction-related costs. But we don’t do that. Instead, we sell in phases throughout the project development cycle so that if we encounter spiking development costs, we can then adjust our revenue. Given the economic challenges in Sri Lanka, I believe real estate developers will soon switch to dollar pricing, and some have already done so. Sri Lanka will become a notionally dollarized real estate market with prices anchored to the US dollar rather than the rupee. That is the only way real estate developers and investors can undertake long-term projects without succumbing to cost volatility.

Can you tell us how Iconic is reassuring its stakeholders that the company will deliver the best possible outcomes?

At Iconic Developments, we remain committed to delivering the best possible outcomes to our stakeholders by acting on our promises and attracting investors to Sri Lanka while sustainably committing to a greener Colombo.

We proved our value proposition and commitment to this market with our previous projects, the 24-storeyed 110 Parliament Road and the 33-storeyed Iconic Galaxy, both at Rajagiriya, delivering modern apartments with incredible amenities. Our next project, Iconic Skye, will push the possibilities further.

We have a track record of delivering projects on time with the promised quality specs. If we take Iconic Galaxy, despite the 2019 terrorist attack, change in government, the Covid-19 pandemic and the unfolding economic crisis, we will still deliver everything as promised on time.

We can do that because of the intense planning, securing adequate financing, managing every aspect of the project well, and building the financial strength to withstand any threat from external factors. Because we are an engineering company, we understand what it means to plan projects around complex events. So when I say we will deliver stakeholders the best possible outcome, it means you get what you paid for at the quality you expect. And that is something that we’ve been able to ensure in all our projects. I think our clients will be a testament to that.

You are planning to launch Iconic Skye around this time. Tell us more about Iconic Skye and why is it a compelling option for investors?

We intend to embark on this project soon, signalling our deep commitment to this market.

Our success in the real estate market is primarily down to two things. One is offering an unbeatable price-to-value ratio. We’re not the cheapest in the market, and we don’t intend to be. However, any investor can compare our residences on a square-foot basis with anything else in the market and discover an unbeatable value proposition. The second is delivery. Iconic Developers is a financially conservative company. Every project is ring-fenced; we do not deploy funds intended for one project to finance another to ensure we never get into a situation where a project is halted or delayed for financial reasons.

So the fact that we have a high-quality proposition in pricing, timely delivery, and well-designed and optimally located projects meant that investors have always seen incredible appreciation in value. People who have come in at the start of projects have doubled their money or more, and those who have come in midway have seen a 50-60% appreciation after we hand over completed apartments.

Iconic Skye will have a similar value proposition on top of new innovative features. We are introducing the concept of affordable luxury duplexes that offer more space and privacy. Designed to be self-sustained and self-contained, packed with modern amenities, Iconic Skye residents can fulfil their shopping, entertainment and recreational needs without leaving the property, which will also have shared workspaces for those working remotely. Iconic Skye has everything from a swimming pool to a party area, food court, play area, business centre, movie theatre, mini-movie theatre, laundry point, boutique shops and mini-supermarket. You can spend four months in the building and never go outside, making Iconic Skye a high benchmark for unique modern living experiences in Sri Lanka.

I would gladly encourage anyone interested in availing themselves of an early investment opportunity in Iconic Skye to reach out to me directly at rohan.parikh@acresfoundation. org for any assistance.

No crisis is without an opportunity. Sri Lanka’s current economic troubles do offer an unprecedented opportunity for economy-wide structural reforms and for the technology sector to seek new markets.

For any business into exports, the opportunity to launch improved and globally competitive products as well as services is unprecedented according to John Keells Holding’s Executive Vice President and Group CIO Ramesh Shanmuganathan. He says the weaker currency augurs well for any exporter and that advantage should be strongly amplified by collaboration, co-innovation and co-creation through strategic partnerships and investments to create a better and stronger portfolio of products and services to emerge stronger from the crisis.

The crisis can also pave the way for structural reforms in the economy too. Sri Lanka will require to create more predictable and enticing conditions to attract foreign investors to leverage Sri Lanka’s tech DNA according to Shanmuganathan. He discussed these ideas during an interview:

Sri Lanka faces an economic crisis. At this time what do you think the private sector can do differently from what it has done in the past?

I’ve been reflecting on our economic history recently due to the current challenges we face. From the time we adopted an open market economy in 1977 the net beneficiaries have been the countries who have been selling things to us. Our exports have grown to an annual $12 billion dollars or so. Value-added services like IT have exports topping a billion dollars. Our imports now touch $22 billion a year.

I feel that even compared to an average Indian company we now lack the entrepreneurial spirit to take Sri Lankan businesses, products and services to the global markets.

The successive events such as the Easter attack and the pandemic have hurt our economy. As one measure to overcome this, we should have explored offering incentives to investors to leverage Sri Lanka’s potential and the opportunity to establish joint ventures in our growth sectors such as manufacturing, agriculture, technology, transportation, logistics, hospitality, financial services, etc. For example, most countries like India, Thailand, and Malaysia coerced most major exporters to their countries to set up joint ventures and localize their value creation thus creating the right impetus for the economy and broad basing their export portfolio and revenue opportunity as well.

This strategy also helps to speed up innovation as well as drive outcomes faster and there are many long-term benefits to the economy from such an approach as compared to the ones that are 100% foreign-owned.

From a Sri Lankan context, all of our key sectors of the economy – the industrial, services and agricultural, have significant opportunities for innovation and modernization. The key challenge the country is facing in being a net importer of goods and services.

Specifically, if we take agriculture, we have a long agrarian legacy but today we are a net importer of agricultural products when we have so much fertile land. Why aren’t we incentivising the cultivation of crops with export demand and modernising the sector?

Those are a couple of the things that can be done quickly and can soon contribute to a country’s balance of payment like boosting exports. Food is something you can export anywhere; a commodity which is in short supply and with increasing demand due to global consumption.

Today, most are investing in crowded sectors with minimum export opportunities. Given that our domestic market is small, it become an absolute imperative for most to set their targets on global markets through clear strategies to differentiate and move up the value chain. Apparel is one of the biggest contributors to Sri Lanka’s exports, but our value addition has been hugely around the man-power on the shop floor which is at the very low-end of the value chain whereas the opportunity to scale up to drive innovation and the trend for the industry by establishing Sri Lanka as a fashion destination.

All of these aspirations do come with challenges, no doubt. No pain, no gain. We all need to wake up to this opportunity and look at moving up the value chain through collaboration, co-innovation and co-creation. Parallelly, we must develop the human capital required for those to succeed by reinvigorating our education sector through reforms as well as establishing vocational training were required to cater to the emerging human capital requirements. We must take cues from Singapore and Dubai in terms of how they have been able to establish themselves as strong economic hubs in their respective regions within a short span of 30 years.

You’re from the services sector, you lead a successful company in value-added exports. What do you think we should focus on to be more successful in this area?

We have made significant progress, but our exports today from the IT/BPO sector are not a true measure of what we are capable of. The key challenge is that we do not have the entrepreneurial zeal to aspire to go beyond the shores of Sri Lanka. We tend to stick to our comfort zones and have failed to create sustainable value.

Firstly, we have a very unique and significant cost advantage with the depreciating rupee. It may be a short term advantage, but we must strike when the iron is hot. We need to seize this advantage as an industry and look at all possibilities to spread our wings to create and/or acquire new markets through collaboration possibilities. We must leverage the Sri Lanka advantage and this industry must be motivated and nurtured through the right reforms and structures to drive at the least a 3x growth in the next 5 years.

Secondly, we must establish Sri Lanka as a Global Innovation Hub. This is where the strategies and initiatives must link up. We must incubate talent and move them up the value chain through these strategies and initiatives and create a global talent pool in significant growth sectors in tech, namely data/AI, Security, blockchain/NFT, multi-cloud, and low-code/no-code platforms, etc. We must establish the Sri Lanka brand to be synonymous with Open Innovation and create a talent pool that is best in class. The first step towards that is to attract MNCs as joint venture partners and fast track same through the right programs and incentives. This will provide the impetus we need to drive export diversification through technology on a clear roadmap for the economy

Thirdly, we must get into productization to break the linearity in terms of our revenue opportunity. We must build our products and services around the 3rd platform with a mobile-first, cloud-first and AI-first strategy. This will help us grow our revenue stream similar to India, Israel, Ireland, Thailand, Vietnam, etc.

Fourthly, to achieve that sort of scale we have to target the right products and services and the right markets. Today, most target predominantly Europe and to an extent the Middle East and Africa, but not much to the Americas which is one of the biggest, most lucrative and competitive markets. From a GDP point of view, the U.S is $21 trillion compared to Europe’s $15.3 trillion. Those are the two markets we need to actively look at exporting to. Very few companies have made it big in both of these markets.

That’s a food for thought for Sri Lanka’s IT Industry. We have to do what the apparel industry has achieved for itself over the years and look at strategic partnerships to gain access to these markets and build a portfolio that would attract such partnerships.

Due to this crisis, we are at a time of potentially great change. Things that were impossible six months ago may now be possible. If you address the IT sector’s challenges, particularly around talent, and if you were to look for bold solutions, what would those be?

The IT industry for the bigger part has focused on the sub-continent to a greater extent and especially Sri Lanka. The industry as alluded to earlier had a lot more upside globally but must establish itself as a unique value proposition and sustain the same in the longer term. Further, most big Asian companies have a conglomerate structure, similar to John Keells, and have not leveraged IT for their businesses adequately and hence have been challenged to build a viable business out of such opportunities. Those who have made significant strides in commercializing the same to the big IT powerhouses such as TCS, Wipro, HCL, NTT, etc. From a Sri Lankan context, most IT organizations fall under the SMB category and are challenged in building the brand and presence to take their offerings globally.

We at John Keells IT have been serving the John Keells Group as well as external clients who have been mostly based out of Sri Lanka other than specific sectors such as Aviation until 2017. We repositioned ourselves as a boutique consultancy organization focused on digital transformation in 2018 and have expanded our presence greatly into Asia and Middle East and Africa which now gives us the reach together with our strategic alliances to grow our revenue to a 3 to 5x in the next five years. To achieve the same we have continued to make significant investments in establishing our offices as well as creating a significant local presence to ensure that we gain that traction to command such a growth.

We have been shifting gears to fast-track our growth internationally over the last 3-4 years and have established a solid client base which augurs well for our future growth potential as well. We were only able to achieve the same since we matched our ambition by recruiting and developing the talent that was required to achieve the same.

You suggested companies seize this opportunity to go up the value chain and expand overseas. What have you learned from doing these two things at John Keells IT?

One of the main reasons for companies to struggle is because they are just selling bodies or billing clients by the hour. We did ask ourselves these questions – How do we break the glass ceiling? What can we do differently? How do we gain that unfair advantage?

The unique value proposition we had was that we were a prosumer of technology as well as a provider of the same. We mapped out clients who would potentially envision a similar transformation journey by leveraging our best practices as well as learning outcomes and engaged them on a more consultative footing rather than as a provider of technology solutions and services. It was an audacious move, kind of like what most consultative houses like McKinsey or Accenture would do. It paid off!!

Our thinking was, let’s ensure that there is a mutual relationship and buy-in for us to invest time and start an engagement. Our engagement was always focused from the C-suite downwards. This also gave us better visibility of the business as well as their challenges and then jointly map out solutions and services that befit them. This helped us to show the value we can create. It was a Value outcome-based discussion which resonated well with our customers and I personally spend a lot of time leading these discussions with the C-suites of our customers.

The unfair advantage for John Keells IT is that we are both prosumers as well as providers. We walk the talk and we eat our own dog food. This has brought about a bigger incentive for our customers since we have been able to help them leapfrog from our learnings and experience as a prosumer.

The last couple of years have been tumultuous due to Covid and now we have an economic crisis. If there were learnings in the last two years useful or relevant in the future, what would those be?

Sri Lanka must think global. One key thing for boards and leaders to focus on is to manage the overdependence of their business portfolios in one geography. I’ve been a very ardent advocate of building a global brand and a global business with many corporate leaders both locally as well as internationally. Today, most businesses in Sri Lanka have more than 90% of their revenue from Sri Lanka and this dependency itself is an inherent risk which should be better managed.

I felt that Sri Lankan companies were more globally focused prior to 2009, but since the 2009 peace dividend, realigned themselves to focus on opportunities that arose from it by moderating their previously ambitious plans for overseas expansion. This is impacting Sri Lanka in a big way in terms of her growth as well as exports, given that the Sri Lankan market is just 21 million people.

We must look at Singapore and Dubai for inspiration. From day one, these countries recognized their home markets were insignificant and won’t be enough for them to grow. So they focused on exports as their main thrust whilst maintaining certain elements of protectionism to nurture the local businesses. That is where I feel we went wrong, not only in the recent past but since opening the economy in 1977.

It would have been always good to have some level of protectionism to develop certain industries, like what India has done, which may have been useful for building an export platform and creating a talent pool which can create an exponential impact on the economy which in turn will help us to attract and retain the best talent we need to grow our economy.

We also need to look at continuously upskilling our human capital so that we could help them move up the value chain rather than be at the low-end of the value chain. This will also create a revenue portfolio which will be lucrative for the country and will help us retain our talent across the segments. We should look at more lucrative opportunities to train and deploy our human capital. For instance, globally, there’s a huge demand for nurses. We’ve got to identify those market gaps and orient our vocational training to focus on training maybe 10,000 nurses who will probably contribute more than 10x, compared to domestic workers.

It’s always good to examine our balance sheet and think for ourselves as to are we getting the best ROI out of our biggest asset – Human Capital. We must leverage our assets by continuously rebalancing our portfolios by assessing emerging trends and keeping in step to capitalize on emerging market opportunities.

One bottleneck companies face in going up the value chain is the quality of people they are able to hire. How have you addressed this when you grow the business?

John Keells Group has always invested in people. We have multiple programs across the group to attract and nurture talent, both centrally as well as at the subsidiary level, based on the business strategies and initiatives. At John Keells IT, we have multiple programs in addition to what’s rolled out at the group level to address our present and emerging talent needs for both leadership as well as tech talent.

One of the biggest challenges I see is that most organisations don’t invest in developing their people. You hire them for a job, but ultimately do not realize that for them to progress and for us to get the best out of them, we have to develop them.

Most of our best talent will leave us someday and we must understand why? It’s mostly due to a lack of career progression or better prospects. If you examine the reasons, it’s not that they cannot add more value, but we are not giving them the opportunity to do that on a more proactive basis.

We also need to find ways of retaining the talent by broad basing the opportunities that we can create for them. A company which focuses on globally as opposed to locally will be able to provide them with a broader spectrum of opportunities as well which will help the company to retain them rather than lose them.

So, unless Sri Lanka as a country and its companies step up to bigger challenges, we will continue to lose more and more people, especially to migration.

Do you think we should also be more open to inward migration?

Yes, we must have a planned intervention similar to what Singapore, Australia, the UK, USA and Canada have done for decades to source the best talent for growth and development. We must structure the same in a meaningful way so that it will complement what we have and help us fast track a solution to address our deficit in talent in critical and growth areas.

Further, we must encourage entrepreneurs especially if they are bringing investments. Most mature economies have migration programs for entrepreneurs and those with specific skills. We must structure something similar in line with our aspirations.

You explained how John Keells is leveraging Open Innovation and Crowd Sourcing as key strategies to bring in more outside-in thinking and innovation. How can other companies take advantage of these?

We launched our start-up incubator, John Keells X in 2015. We recently launched the 4th iteration of the same and witnessed the participation of almost 400 young people, many of whom were just out of college and bubbling with enthusiasm to start their own business.

For most of them, funding their startup is a challenge. The venture capital market here isn’t so mature. In response to these challenges, JKH started the same with a view of encouraging young entrepreneurs in 2015, but this time around we are looking to create a platform for open innovation for the group where valuable solutions to problems that we are trying to solve can come to us through a crowd-sourcing strategy. This paves the way for any organization to collaborate, co-innovate and co-create with a shared objective and/or outcome. As a concept, this is what we call open innovation.

On the other hand, there are certain skills which are in high demand but you may only need them for a couple of hours a day or a week. It may not make sense to hire that person full time rather you may want to just hire him for the exact duration you need him for. At John Keells IT, we extensively use this to engage expertise which is rare, both locally and internationally, towards better business outcomes. This helps the organization to get optimal value as well as for that person the liberty to work for anyone that requires his/her expertise. As a concept, this is what we call crowdsourcing.

Both of these concepts are very forward-thinking steps for an organization and whoever wishes to embrace the same must have the maturity to make it work. Both have their pluses and minuses and it’s important for each to assess the same and make a clear judgement of their applicability.

We need to look at things more liberally and look at possibilities afresh. This also would mean that our hr practices, employment laws and the way we look at employment also need to change to keep up with the times.

What do you think should be the next steps to address the economic crisis Sri Lanka now faces?

My recommendation in terms of the 7 must DOs and the order of pecking to salvage ourselves from this crisis is,

Pick a SWOT team and a leader who can command their respect and guide them to act swiftly to address the critical priorities of the country. The team must have representation from all stakeholders and subject matter expertise to deliver the best outcome in the shortest possible time.
Focus on the critical priorities such as medicine, food, gas, fuel, electricity, fertilizer, etc to give relief to people in terms of their basic necessities so that life can return to normalcy.
Speak to our Donor agencies and countries whilst working on a focused plan to increase our revenue through established streams such as Garments, Tourism, IT/BPO and encourage local entrepreneurship to focus on exports to boost our liquidity to address (1) above.
Restructure our long-term debts and have a clear program to manage our Debt/GDP gearing with the intervention of IMF and other donor agencies/ countries.
Boost our domestic entrepreneurship and production to be self-sufficient in areas such as agriculture, and dairy, and encourage value addition to our exports whilst curtailing consumption to manage our balance of payments in the short to medium term.
Enrich our bilateral relationship with key trading partners and prospects to boost our economy and seek direct investments with a view to boosting our capital inflow to expand key sectors which can contribute to the economy.
Look at constitutional reforms to bring the power back to parliament with clear accountability and responsibility matrix. Ensure that the executive, judiciary and parliament co-exist with the right checks and balances.

ECONOMYNEXT – Sri Lanka’s Power and Energy Minister Kanchana Wijesekera has suspended the license of 3 fuel bowsers belonging to state run CEYPETCO and Indian subsidiary Lanka IOC after some videos in social media of unloading fuel directly from bowsers on roads went viral.

The videos circulated in the social media which showed a fuel bowser belonging to the two firms unloading fuel and supplying into cans to private vehicles.

“License of 3 Fuel trucks have been suspended immediately by CEYPETCO and LIOC pending further investigations into the 3 Incidents reported on social media on fuel transport trucks illegally unloading fuel” Minister Wijesekera said in his twitter platform.

The Lanka IOC in a twitter message said that strict action in line with the prevalent guidelines has been initiated against the concerned transporter, who unloaded fuel from the bowser in capital Colombo.

Due to the severe fuel crisis in the country, Sri Lankan authorities have taken measures to limit the amount of fuel for private vehicles, and banned fuel hoarding as well as supplying in cans.

Sri Lanka has seen a booming black market for fuel at higher prices around the country amid acute shortage of fuel since April this year. (Colombo/ June 18/2022)

ECONOMYNEXT – The Sri Lanka Army will cultivate over 1,500 acre barren state land across the country to support the national food program to avoid a looming food crisis expected by September, a statement from the Army said.

The Army established a new committee, Green Agriculture Steering Committee of the Army (GASC), on Thursday (16) in order to supplement and promote the island’s food security programme by cultivating more than 1,500 acres of barren or abandoned state lands across the country.

Sri Lanka is facing a looming food shortage after crop harvest dropped in the last two cultivation seasons following President Gotabaya Rajapaksa banned chemical fertilizers from April last year. Many farmers have protested against the move and asked to phase out the ban with a longer duration.

The ban was later lifted in November last year, but the country was unable to import chemical fertilizers as it did not have US dollars to import.

The emergency project to be kicked off in early next month as a supportive mechanism to the government’s cultivation drive, the statement said.

In the first phase of the project, island-wide Army troops would prepare ground soil in those state lands by weeding, tilling and preparing beds for cultivation of selected seed varieties in consultation with agricultural experts, agrarian officers and knowledgeable officers in the Army Directorate of Agriculture & Livestock.

Army further said that all Security Force Headquarters round the country are currently exploring the unattended state lands and paddy fields at regional level.

The identification of state lands at regional level is to be effected in close consultation with respective provincial governors, district and divisional secretariats, land officers and Grama Seva officials before commencement of preliminary ground-preparing work in selected lands.

Sri Lanka needs around 2.4 million metric tons of rice per year and the country expects around 1.6 million metric tons in Yala season and Agriculture Minister Mahinda Amarweera has said a rice shortage may be seen by the end of 2022 and January 2023.

However, Sri Lanka has already decided to import 800,000 MT in 2022, to avoid the shortage expected by the end of the year and with the 2022/23 Maha season production, expected by February 2023, to manage the rice shortage. (Colombo/June 18/2022)

ECONOMYNEXT – Sri Lanka stocks plunged over 3 percent on Friday (17) to close at their lowest in six weeks as fuel shortage, which compelled the government to restrict the public services for two weeks, weighed on the sentiment, dealers said.

After the market closed, the Ministry of Public Administration issued a circular with limits on calling public sector employees to work for the next two weeks. The limit of public services is likely to slowdown the business activities of most of the private sector companies, market analysts said.

The main All Share Price Index (ASPI) closed 3.02 percent or 232.88 points lower at 7,472.39, its lowest close since April 27. The market for a fourth straight session.

“The market was dragged down on fears that the country will go under a lockdown due to the current fuel crisis,” a top market analyst said.

“Investors are feeling the crisis at home. We are expecting the negativity to continue in the market.”

Though a new prime minister and a new cabinet have been appointed, analysts see little progress in both economical and political front. The country is struggling to ensure continuous supply of fuel due to shortage of US dollars. The government on Thursday declared holiday for schools and public sector for Friday due to fuel-shortage led transport concerns.

The more liquid S&P SL20 index fell 3.83 percent or 94.44 points to 2,368.65.

The day’s turnover was 1.2 million rupees, a third of this year’s daily average of 3.6 billion rupees.

Foreign investors sold a net of 17 million rupees’ worth of shares on Friday. The market has witnessed a total foreign outflow of 996 million rupees so far this year.

The market has so far lost 7.7 percent in June after gaining 6 percent in May. It lost 23 percent in April followed by 14.5 percent fall in March.

The market has lost 38.8 percent so far this year after being one of the world’s best stock markets with an 80 percent return last year when large volumes of money were printed.

Sri Lanka’s sovereign debt default has already led the country to be rated with restricted/selective default rating by rating agencies, which has weighed on investor sentiment.

Investors are also concerned over the steep fall of the rupee from 203 to 370 levels so far in 2022.

All Share Price Index was mainly dragged down by Expolanka, which lost 7.7 percent to 160.50 rupees a share.

LOLC Holdings fell 8 percent to 418.50 rupees a share, while Browns Investment slipped 8 percent to 7.90 rupees a share. (Colombo/June17/2022)