Millennium Challenge Corporation in Sri Lanka: Paving the Way for Land Grab by Multinational CompaniesComments Off on Millennium Challenge Corporation in Sri Lanka: Paving the Way for Land Grab by Multinational Companies 1003
Article by: Prof. W. D. Lakshman
The decision of 29 October 2019 by the outgoing Cabinet to sign a compact with the Millennium Challenge Corporation (MCC) has given rise to extensive public discussion and debate. A new President has been elected on November 16, 2019, with a new Prime Minister and a new Cabinet sworn in soon after. The new government is bound to reconsider its predecessor’s decision to sign the MCC agreement.
The proposed MCC compact, once signed, would make a US government grant of USD 480 million available for expenditure in two Sri Lankan projects – a transport development project (costing $400 million) and a land project (costing $80 million). These two projects are supposed to address two binding growth constraints in the country: inadequate infrastructure of transport logistics and restricted access to land for investment purposes. The MCC grant funds will be disbursed in stages over a period of five years. Unlike other official grants, the MCC grant will not be disbursed to the Sri Lankan government. Instead, these funds will be channelled into a Sri Lankan private company specially set up in Colombo for this purpose by the MCC to be used in the implementation of the two accepted projects. This company will monitor the progress achieved in the projects concerned and grant funds will be released step by step if progress achieved in each stage is judged satisfactory. The US government reserves the right to terminate the operation of the project at any time if the MCC is not satisfied with project implementation progress.
It is good to begin this brief article about the desirability or otherwise of signing the MCC compact by placing the MCC in its proper global perspective. The “Western development establishment” led by the US has dragged increasing numbers of developing countries into the net of neoliberalism since the 1970s and 1980s. Sri Lanka has the dubious reputation of having been a pioneer to be so dragged into a neoliberal policy framework. The use of foreign aid conditionality has been the mechanism widely used by the Western development establishment to neo-liberalise developing countries.
The IMF and the World Bank have formed the institutional mechanism used in the process. Under conditionality, the countries receiving grants and loans on concessionary terms were required to gradually meet the laid down policy conditions after loans were authorized and dispensation commenced
in tranches. The grant “assistance” to a developing country1 through Millennium Challenge account of the US signifies a different way of converting the developing country victims into a neo-liberal policy framework. This method has been described as “preemptive” development assistance. It entails refusal and withholding of funds until demands made by the donor country are met.
The conditions to be met are listed under three broad headings, namely
1) ruling justly (good governance);
2) investing in people (health and education for all);
3) “economic freedom” (sound economic policies that foster enterprise and entrepreneurship)
Ever watch the movie, Rocky? I mean, any of those would suffice. But mainly, the original. In fact, if you know anything about Stallone’s life itself, you’ll know that he’s probably one of the biggest success stories in history. Now, there are plenty of famous people who failed but never gave up on their dreams. You can find them all throughout history. There sagas are powerful enough to make you second guess ever giving up in life.
Does the common idea of geniuses having an eccentric ideas and behaviors bear any truth? Here is a story of eccentric entrepreneur for you to decide.
People waste searching endlessly for magic, whereas to Lawrence Perera life itself is a magic. “I didn’t grow up around incredible cars or at a time where there was luxury. Few of my earliest and fondest memories involve automobiles. My story begins as kid who broke every toy car received just so that I could see how it was made. My mother noticed my passion for cars and decided that I should get into automobile engineering field and made me enter the German tech without waiting to go to the university, she was keen to see me making a career in the automobile industry’’ says Dr. Lawrence with a sense of gratitude, by starting his conversation with BiZnomics. “Just as we have moments in time crystallized by places, music or movies that imprint upon us, the automobile left an indelible impression on my experience and who I became”.
Now an Automobile Engineer by profession with over 40 years’ experience in the Automobile Engineering Industry both locally and overseas, Dr.Perera is a diploma holder in Automobile Engineering at the CGTTI, and Institute of Motor Industry of UK. He is also a certified automobile engineer in the Institute of Motor Industry and a fellow member of the Institute of Motor Industry – UK (FIMI).
‘’I know from very hard won experience that start-ups are enormously difficult and risky and chances are you might not succeed” says Dr. Lawrence Perera, Leading entrepreneur, Chairman and CEO of Micro Holdings and Micro Cars Ltd. Dr. Lawrence’s “ hard won experience’’ is based on manufacturing the car “Micro” the first designed , developed and manufactured car in Sri Lanka.
He has received extensive training with BMW, Volkswagen – Germany and Peugeot – France. Dr. Perera described his daily sightings of stranded people on the roads due to the chaotic situation of public transport and realized the crying need for a reliable alternative. ‘’I thought that if people had a reliable, economical, decent, comfortable and affordable car that would take them to the place they want to go, the problem would be solved and many man-hours would be saved. I then set to design and develop a small car with every household in mind – and that’s where MICRO started’’ he said.
Describing his product further he states: ‘’It was the tuk-tuk that influenced me to create a small car. The Morris Minor was the smallest at the time and the dimensions of my drawing were smaller. My product which was patented in 1999 was an 80% local manufacture. As far the brand name, I decided on micro mini and finally named it MICRO’’.
Dr. Lawrence Perera had been skeptical of the success of his product at the time it was launched at the price of LKR 300,000. ‘’ At that time local products were thought to be inferior but MICRO turned out to be acceptable and most bought it because it was economically priced’’. Marketing local brands had been very competitive as it was difficult to challenge and compete with international giants in the market.
The Micro was fitted with safety standards such as air bags and seat belts. Yet, Lawrence had to stop production mainly due to complicated manufacturing process and cost of production increasing.
The garment industry in Sri Lanka has made a big contribution to change people’s mentality in buying ‘made in Sri Lanka goods’. Garments sewn in Sri Lanka have earned in international reputation and Sri Lankan consumers are well aware of this fact. The government should encourage local products, and especially an industry such as automobile requires a certain tax relief for composite material used for making cars. Adding to this, He criticizes the industrial policy and taxation systems prevailing as not being friendly and conducive to local industrialist and manufactures. The Micro brand of which Sri Lanka could be proud of became well known the world over, even in countries such as Germany, China and Korea. But I could not develop Micro because support for the automobile industry is almost zero. For one thing vehicle importers were against local manufacture since their imports business would take a downward turn. And next, the industrial policy of the country and the taxation system does not provide any impetus at all. Although a normal car is not a luxury, but a necessity”. He claims that during the last four years, the company run with losses, and that the financing aspect has been terrible. The bank loan interest rate has shot up from 6.5% to 14.5%. p.a. “Business has been thrown into a quagmire”, he says and adds, “We have to pay much more than we earn”
Dr. Lawrence opines, that Sri Lanka has been in a miasma of uncertainty for a while, and that the combined effects of numerous policy changes have thrown many enterprises including the motor vehicle industry into turmoil, insists that the country should have strong decision-taking and unwavering leaders who will dispel personal gains and crack the whip to drive away corruption while instilling discipline in all sectors, in order that the country could emerge from one of its lowest phases in recent history with a record decline in business.
Dr. Lawrence Perera’s view is that gasoline engines will gradually go out of the market. He states that with the introduction of hybrid vehicles, gasoline engines changed, but that hybrids will survive only with combustion engines. ‘’whereas Japan went for the hybrid, China jumped into electric engines which will last for another 100 years. We should also adopt the electric car. With sunshine around all throughout the year, car solar batteries fitted to electric engines can be charged at no cost and what a saving on fuel that will be! Anyway, gasoline engines will gradually make its way out of the market, in not too distant future.
With the influx of hybrid and electronic cars an eco-environment challenge will be the lack of adequate provisions to dispose of used bittern such vehicles in the future. The lack of regulators for strict recycling and safe disposal of batteries will lead to them ending in garbage dumps. Another area that needs attention to curb pollution and improve and conserve of quantity is to adopt a long-term vision or polices of emission standards. The lack of the stable policy outlook may associate Sri Lanka with volatility and high risk.
Adding to his many innovative ‘firsts’, Dr. Lawrence Perera was the first to design an economical rail solution for the Sri Lanka Railway, in 2004, the first in Sri Lanka to assemble 4×4 SUVs under the technology transfer agreement with the Korean Ssang Yong motor company, with Mercedes technology in 2006, and the first to manufacture a luxury double decker bus with the latest technology complete with fully aluminium low floor monocaqne design for public transport in 2007. Commenting on his economical rail solution Dr. Perera says: “In 2004 I designed an economical rail solution termed ‘Lanka Econo Rail’ for mass transport to replace the car in the megapolis. My proposal was to build carriages using scrapped steel, with automatic doors, good seating and all comfort. My proposal envisaged buses at relevant stations to transport the passengers to their destination like the monorail or metro in foreign countries. It was a light-rail concept place of the heavy locomotive system which has been in operation for the past 164 years. However, this was blocked by railway officers who want the steel to be sold at dirt price by the kilo, as obsolete.
Dr.Perera attributes his success to his family – wife and two daughters who had been very supportive, without their support he wouldn’t have achieved so much. Dr.Perera is determined to showcase Sri Lanka’s potential in the international car industry.
China and India are two large countries with India occupying a greater part of South Asia. China has its territory spanning across East Asia. The two countries together, account for 36pct of global population. China has sustained double digit GDP growth for 30 years up to 2010. India on the other hand, has grown at half the Chinese growth-rate over the same period. China has consolidated its global position becoming the second largest economy in the global landscape. In contrast, India is counted the seventh largest economy as of now, having bypassed many established economies in the traditional developed world. The economic production values and population size of these two countries make them a significant catalyst for driving global growth trends.
Many have spoken about China and its phenomenal ascent on to the global economic stage. It is common knowledge now that China would dislodge the USA from the number one position in the global ranking of economies and would come to dominate the world GDP by 2030. There is no doubt that China has been the most extraordinary growth story in the history of mankind. It has become a classic model of development economics too. For liberating 600 million people from poverty in a span of 40 years, building of course on the socialist foundations laid down since 1949, is an achievement no other democracy can boast of.
The China growth story i.e. profit story, shows that state enterprises need not necessarily be a hindrance to growth, rather they can make the difference; that public investments on infrastructure provides the big push; that import substitution is as important as exports to exploit to full advantage the advances in technology, investment and trade for economic progress; and that state-guided market forces are development friendly. This success story and underlying business cycle fundamentals continue to unfold at a rapid pace across all asset markets. Many economic commentators and businesses alike share the sentiment that China’s dominance would continue in the next 50 years.
A careful analysis of past trends seems to highlight another view. I tend to argue that India would be the next Asian miracle in terms of its Global growth story i.e. profit story, and would match China in 30 years i.e. by 2050. Imagine the emerging Asian economic landscape with China and India free of poverty, with full employment and giving leadership to a new economic order, replacing the hegemony of the West.
Population projections indicate that by 2050, India would have a population of 1,730 million whereas China would reach a population saturation point of 1,400 million (East Asian Forum.Org). These two countries combined would account for 36pct of the world population by this time. This would be a rich population, with new aspirations and changing lifestyles.
Demographic data show that India would be endowed with a relatively younger population compared to that of China (Table-1). India’s young workforce with knowledge and skills would be India’s strength. Those between 15 and 64, are expected to rise from around 64pct of its population in 2009 to 70pct in 2020. Meanwhile, China’s relatively cheap and semi-skilled cohorts of population are expected to start declining from 2014, resulting in labor shortfalls by 2050. This would mean that a more intellectually hungry, urban based middle class would take over the driving of India’s profit story and would unleash a wave of innovation in the sphere of manufacturing, technology and music and film industry. One expects an Indian resurgence in the horizon waiting to explode on the world stage.
By 2050 the Indian economy would be in a much stronger position with leading brands such as Tata, Maruti, Godrej, Infosys, Amul, Bajaj, Ashok Leyland, Asian Paints, Dabur, Apollo Tyres, Britannia, and the zestful Bollywood influencing the world on a much larger scale than what we have seen so far. In this expected scenario India would outpace China by growing at a compound rate of 8.50pct (Table-2) and would reach USD 57.2 trillion with a per capita income of USD 33,700. China in the meantime would struggle to consolidate its current growth momentum over the next 20 to 30 years. It would grow at a compounded growth rate of that of an advanced economy, growing at 3.3pct reaching 47.6 trillion USD dollars with a per capita income of USD 33,900. When compared, the numbers added together are staggering. Additionally, when we look at the merchandise trade turnover between China and India the data indicates these two countries would account for circa 30pct (USD 100 Trillion) of world merchandise exports by 2055 from its current 14.5pct.
In fact data indicates that China’s economy is already showing signs of losing steam. Slowing down has commenced, with 2018 data indicating that it grew at the weakest pace since the first quarter of 2009. This slowing down has been caused by the higher base effect, growing costs of production and labor costs are now seeping into the real economy. Chinese companies have begun to search for other Asian and South Asian economies to house their industries affected by high domestic production costs. This is an indication of how China would now be challenged in the competitive capitalist environment. A declining profit story would only compound the longer term growth trajectory (Figure-1). Added to the Chinese woes is their new breed of westernized economists who are now showing signs of losing sight of its competitive advantage obtained over the golden years of development.
Undeniable Asian Dominance in 2055
The rise of Asia spurred by India and China is inevitable, therefore Asian economies/policy makers and businesses should gradually look at their business models, cultural and geopolitical linkages and synergies thereby carving out their growth plans to suit the new world order by 2055 given that the US will be the only western country to make it into the top five economies in the world.
Whatever the superficial debates that are out there, the ground realities are undeniable and must be taken seriously or we will definitely be left behind in the dinosaur era. It is therefore crucial that Sri Lankan policy makers value both India and China as they are in the Asian continent with significant consumer markets and a burgeoning middle class fueled up with an appetite for modernity. These consumers will be pleasantly drumming up the tune of the Asian Century of World Dominance and we must be ready to dance to the beat. This outcome is indeed sweet music to the ears of Asians (Global Sri Lankans). Unfortunately, many of Sri Lankan and Asian business models are ill-prepared for this eventual reality of the Asian Century.