Ways to achieve faster economic growth

Producers, investors and other stakeholders are very keen on the economic growth rate of a particular economy, as their decisions are totally based on this economic indicator. In other words, every economic theory is ultimately connected with economic growth, since that is one of the macroeconomic objectives in economics.

Irrespective of its location or size, all the countries in the world try to maximize their economic growth using various strategies. Economic growth can be defined as an increase in the amount of goods and services produced per head of the population over a period of time.

When it comes to Sri Lanka, economic growth has been a key factor that all the policymakers and governments paid their attention to but failed to achieve the expected outcomes.

Central Bank Governor Dr. Indrajit Coomaraswamy at a media briefing held last month revised down the economic growth forecast to 4 percent from the initial growth forecast of 5-5.5 percent at the beginning of this year, emphasizing that it has to be realistic, when economic forecasts are made.

Sri Lanka recorded a 3.3 percent economic growth last year, which is considered the lowest economic growth rate since 2001. According to the latest statistics issued by the Census and Statistics Department, the economy grew at an estimated 3.7 percent during the second quarter of this year, compared to 4 percent growth reported for the same quarter last year. All these statements indicate that the economic growth of the country cannot be expected to be so positive.

The graph clearly depicts how the gross domestic production growth has been downward since the first quarter of 2015. By last year, it has gone down further, due to various reasons. If the economic growth needs to be accelerated, plans have to be drafted to increase the amount of goods and services produced faster than the increase of the population.

There are key factors to be taken into account so as to accelerate the economic growth. Accordingly, this is to discuss them in a Sri Lankan context, assessing where we are as a country.

Human resource

Sri Lanka is a country still using labour as the main input for its production. Therefore, quality as well as continuous supply of labour plays a pivotal role in the economy, especially when attracting foreign direct investment.

The quality of the workforce depends on skills and training that an employee posses. The quantity of labour depends on the number of people at working age. The quantity and quality of labour ought to be developed at any cost, as they are at crucial junctures.

Even if it is true that Sri Lanka has a highly literate workforce, available at cheap rates, which can be considered as a reason for attracting leading apparel manufactures into the country, that era passed long ago. The country needs a more capable and skilful workforce to compete in the global market by producing more innovative goods.

Prime Minister Ranil Wickremasinghe at the recently held economic summit stated that the private sector should get involved in education reforms, further pointing out the need for private sector involvement to set up educational institutes for providing employment-oriented education and training, when the government would provide students with the required funding as loans and grants.

Developing human resource should be a top priority for the country, if it aims at accelerating economic growth.

Natural resources

It is needless to state that natural resources are very important for the production process, as many raw materials are taken from nature. Even though some countries in the world are deprived of natural resources and struggle to find ways for production, Sri Lanka is a country fully blessed with a rich natural resource base, which can be strategically harnessed for the production.

The strategic location that the nation has inherited should be also used for attracting foreign investors to set up more production-oriented factories. Although the Hambantota port could have been properly managed and developed by the government, it had to be leased out as the last resort, mainly due to the inability of the country to harness its geographical location.

It should be emphasized that the natural resources that belong to the nation must not be sold under any circumstances. There are so many natural resources with commercial value that need sophisticated technology to turn into cash. Hence, the natural resources should be carefully managed for production.

Capital formation

Capital formation is the increase in the stock of real capital in the economy. This has been a challenge for the country since independence, as the other factors affecting the economic growth were not efficiently used to produce value-added goods.

A country needs a strong base of infrastructure facilities to support the production, connecting markets and coordinating buyers and suppliers.

Moreover, capital formation involves making more capital goods such as machines, tools, transport equipment, electricity and other materials, which are used for high level of production in the future. This cannot be easily done, as it requires money to be produced. In other words, people have to refrain from the current consumption so as to save money for producing capital goods.

When an economy is producing more and more goods, the economy grows smoothly. Unlike in the past, more sophisticated equipment are needed for producing high-quality and value-added goods, which can be sold at higher prices, accelerating economic growth. Since this cannot be done alone, countries like Sri Lanka make attempts to attract foreign direct investment, in order that capital goods are imported into the country for producing goods in an efficient way. This has to a great extent delayed economic growth in Sri Lanka, as capital formation in the country is very slow.

When it is discussed in a Sri Lankan context, people’s savings and investment have gone down considerably, due to higher taxes and interest rate in the country. In the end, if a country consumes all without producing and saving anything, the production capacity of the economy is likely to drastically go down.

Technology

The shortest way to accelerate economic growth is to blend the production process with sophisticated technology, as done by the developed countries in the world. Technology is essential to properly harness the prevailing resources.

Moreover, new products can be made with new kinds of technology by using previously discarded resources. For example, when Norway imports garbage to produce energy, people in Sri Lanka are killed by a mountain of garbage.

Therefore, it can be concluded that due to the necessary technology, even useless things can be turned into valuables that contribute to economic growth. This is what the nation lacks at present.

It is needless to say that a lot of resources are wasted because production is not done by technology. For an instance, agricultural industry is rarely supported by technology. As a result of this, many agricultural items perish, even before being sent to the market and others in the market.

When we import apples from Australia with zero perishable level, we have been unable to take bananas from Embilipitiya to Colombo with zero wastage. Lots of crops get perished in the packaging and transportation.

Political stability

As the economy is managed by politicians, its impact on the economy cannot be avoided under any circumstances. The economic policies drafted by governments direct the economy. Accordingly, clarity and integration of those policies is a must to stimulate the private sector. Political instability negatively affects all the other factors discussed above. Sri Lanka, in my view, is in an economic crisis and on the way for further getting trapped.

Higher taxes, higher interest rates, low profits recorded by bluechips, lack of transparency, poorly performing stock market and weak foreign cash inflows can undoubtedly be considered outcomes of the political instability existing in the country.

When a government spends on infrastructure facilities that will facilitate investors and lowers tax and interest rates by drafting clear policies, it is enough for the private sector to take steps forward. It is with new employments and low taxes that people’s purchasing power will go up.

Unfortunately, the present regime doesn’t seem to be in a position to do so. That is why we cannot predict a higher economic growth rate.

These are the ways to achieve faster economic growth. In my opinion, complicated economic theories are not needed for this task. Everyone should be production oriented. To put it simply, planting at least vegetables in their gardens makes people contribute to the production.

Opening new production avenues as well as making prevailing ones more efficient can be identified as the way to achieve faster economic growth.