September 17, 2020
Good evening. It’s a pleasure to see everybody live and in person after months of virtual meetings or having to forego contact altogether. So, it’s a little exciting to actually be joining you here at the fourth Annual General Meeting.
And thank you, Asanka, for inviting me to speak. I really appreciate the opportunity. It is a great chance to share some insights into the current economic environment.
Last year when I addressed this meeting, the United States and Sri Lanka already enjoyed a strong trade relationship and there continues to be interest from U.S. companies in investing on the island. An economically strong, prosperous Sri Lanka is in the interest of both of our countries and as the private sector plays a key role in creating a thriving global economy, finding opportunities for additional local, as well as foreign, investment in Sri Lanka will help this country stake its claim as an attractive, reliable economic partner in the region. That’s a proposition that’s central to achieving inclusive economic growth.
To that end this evening, I’d like to share a couple of thoughts about navigating the current challenging economic environment in ways that will reignite growth.
First, I want to address the importance of private sector-led growth and then talk a bit about how the United States is working with Sri Lankans to expand access to the U.S. market to the benefit of both of our industries. Second, I’ll discuss investment as a driver of economic growth. Finally, I want to speak briefly of the ways the United States is already supporting Sri Lanka’s inclusive economic expansion through assistance to small and medium enterprises and capacity building for young people.
Let’s start with the importance of private sector growth. I feel like I should have a very sympathetic audience here given that this is a business council. So, here’s my value proposition, that private sector-led economic growth with clear rules of the road is the strongest and most stable model for economic development. Market driven, transparent, and future-oriented, the private sector promotes innovation and economic creativity in ways that state-dominated and direct investment generally does not. In fact, Asanka, you highlighted a few examples of some of the ingenuity that has been delivered in response to the pandemic.
Of course, as Ambassador, strengthening the commercial ties and partnerships between our nations is among my top priorities. So, this might seem like a little bit of a self-interested line of argument but nonetheless I offer you some data.
The Asian Development Bank tested this hypothesis of private sector-led growth in a study that it released last year. The ADB analyzed the performance differential between private and state-owned enterprises. The audit concluded that private firms are not only more profitable, they also use equity more than state enterprises, which tend to leverage debt and financial support from outside sources.
This study found that private firms are the most efficient. Given whom I’m addressing again, members of a business council, I hope the conclusion is one that resonates with you.
So, what does the private sector deliver for Sri Lanka? I’m sure you know individually from the perspective of your industries, but I’ll offer a few statistics.
This country has exported close to $3 billion worth of goods to the United States in 2019. A whopping 72 percent increase over the past decade.
Our bilateral trade relationship, which is the largest bilateral trade relationship by a significant margin, amounts to about three percent of Sri Lanka’s GDP. It creates meaningful jobs for Sri Lankans. By our estimates, Sri Lankan exporters to the U.S. provide direct employment for at least 180,000 people here.
But trade can still grow and one way Sri Lankan companies can maximize trade with the United States is to take better advantage of existing trade preferences. For example, did you know that exports under the Generalized System of Preferences or GSP accounted for 5.32 percent of the total exports to the U.S. in 2019? That seems like a very small percentage. A total of 196 million in exports were eligible for cost savings under GSP. This is a marketing advantage that Sri Lankan firms should be broadcasting to prospective buyers as a reason to buy from these companies. It’s an advantage that, in fact, we do not want to be kept a secret. We want Sri Lankan businesses to know about these opportunities, which is why the embassy facilitated discussions as recently as last week explaining how GSP exporters can take better advantage of GSP benefits and we’ll continue to discuss that topic if there is further interest.
Top Sri Lankan GSP products in 2019 were activated carbon, seamless rubber gloves, and tires for construction vehicles. But most Sri Lankan exporters are missing out on tariff reductions accorded to GSP. Why is that? Mostly because exporters don’t know how to claim the benefit. It’s a process issue. So, for example only a little over half of the Sri Lankan exporters who manufacture national flags and sell those to U.S. buyers actually check the GSP box on the Customs form to activate the GSP preference. It’s just that simple. Literally checking a box.
Fifty percent of these exporters are losing out on roughly $180,000 in savings for which they’re eligible. That could be the competitive difference between manufacturers here and in other countries.
My team is working with the Export Development Board to ensure exporters are aware of GSP benefits and we’re going to continue to work with your Sri Lanka Business Council and others to ensure members in the private sector can take advantage of this privilege also.
The global pandemic has undoubtedly created an economic challenge unlike any we’ve ever seen, but it’s demonstrated that the private sector can be responsive to global needs in ways that protect people’s jobs and people’s health. We’ve been proud to partner with Sri Lankan producers of Personal Protective Equipment, or PPE, and other medical suppliers. Thousands, if not millions, of Americans are today protected by Sri Lankan-produced masks. These relationships, which didn’t exist prior to the COVID experience, are already leading to new opportunities as Sri Lankan manufacturers make contacts in new markets in the United States and consider additional product lines to support the pandemic response.
Despite these pandemic-induced difficulties, I think the Sri Lankan private sector has increased exports, steadily rising from the new low in April to more than a billion in July. These results demonstrate that private businesses can be an engine of growth if conditions are right and partnerships are mutually beneficial. While the trade imbalance is largely in Sri Lanka’s favor, U.S. companies have helped make some of this recovery possible. U.S. inputs are part of some PPE and this reflects how the integrated supply chain is in both countries’ interest.
A crucial element of private sector led economic recovery is also maximizing investment. This is the second issue that I wanted to raise. Let me begin on this topic by saying the U.S. welcomes investment from Sri Lanka. I was really pleased, Asanka, that you highlighted that in your remarks that it’s a two-way street. Sri Lankan investment in the U.S. in 2019 amounted to $67 million, so not a huge amount. There’s obviously room to grown. So, please consider doing more.
I’d like to focus my remarks on the flip side of this is. U.S. companies are actively pursuing opportunities in Sri Lanka, and we do receive calls every week from firms seeking information about the investment climate and about partnership opportunities. U.S. foreign direct investment in Sri Lanka was $165 million in 2019 which unfortunately is a slight decrease from 2018. It’s a 3.5 percent decrease. I’d like to see this number go back up and I believe that continuing to improve the ease of doing business is going to ensure that Sri Lanka is seen as an attractive investment destination. And U.S. companies, really, are good partners. So, there is reason to pull them here. They bring new technology, they bring jobs. U.S. companies do not import American workers to work on infrastructure projects funded by loans that could compromise Sri Lanka’s sovereignty. They use local talent and they rely on transparent, financially feasible financing.
American businesses also bring the highest levels of innovation and adherence to environmental standards. They transfer management expertise and incubate a culture of transparency and accountability, characteristics that any savvy international investor seeks when looking for new opportunities.
Sri Lankan business owners want to enact President Rajapaksa’s vision of a resilient and growing economy. These are the business practices that must become second nature. Business practices and investment from and partnership with American companies can bring them. Just get a few more big investments here and hopefully the floodgates will open.
However, I think attracting FDI is going to be very difficult in this COVID environment. According to the United Nations, global foreign direct investment is expected to decline by 40 percent in 2020. That’s a lot. Competition for this limited investment, obviously, is going to be fierce. Sri Lanka’s going to need to stand out as a country worthy of investment and I know attracting FDI is already part of the Board of Investment’s strategy for diversifying Sri Lanka’s exports and growing the economy. Sri Lanka has, in my opinion, a lot to offer investors. It’s got a strategic location along international shipping routes, a talented labor force, a strong tradition of quality exports, and a free trade agreement with one of the world’s largest markets. But these assets are going to mean little if Sri Lanka’s investment rivals have fewer investment barriers.
It’s unfortunate that Sri Lanka has had a history of inconsistent and non-transparent investment policies that wilt investor confidence, as well as time-consuming line agency approval processes that deter investors.
A common question from U.S. companies inquiring about investing here is whether they’re going to have a fair chance to compete. They want to compete for business here in Sri Lanka. They also want to know, is the game rigged against them.
I applaud those in the Sri Lankan government who want to position Sri Lanka to attract diverse investors from around the world. And actions to back up those words is going to be very important given that there’s competition for investment dollars going forward.
I think the investment conversation can’t just focus around foreign investors. We talk a lot about investment from the U.S., but obviously domestic investment is just as important to ensuring the development of a robust economy. It’s true that FDI helps through technology transfer, job creation, access to international markets and financing. In fact, one Brookings Institute study even found that for every dollar of FDI in a country there was an equal domestic investment. And according to the World Bank, domestic investment brings jobs as well. Sri Lanka’s investment, obviously, in its own future is going to matter and its investment in labor force I think is going to matter a lot going forward. We hear President Rajapaksa and others talk to a degree about this and it’s a topic I want to come back to in just a few minutes.
The United States does have tools to support the local business community as it works to invest in Sri Lanka. The new U.S. Development Finance Corporation has a portfolio cap of $60 billion to support private sector development in developing countries globally, but DFC is particularly focused on Sri Lanka. DFC supports equity and debt financing, as well as political risk assurance and technical and feasibility proposals.
We know multiple Sri Lankan companies that are already in discussions with DFC for financing and we look forward to seeing this funding support Sri Lanka’s economic growth. If you’ve got questions, in fact, Susan Walke, our Chief of Economics, can help answer them and put you in touch with DFC.
In addition to supporting private sector through DFC, of course USAID is partnering with Stax on its new Sri Lanka SL100 platform and Reed Aeschliman, our USAID Director, is also here this evening. The Sri Lanka SL100 platform is going to provide business advisory services to mid-market firms. We often talk a lot about the big players. We don’t focus on the small and medium space that’s so essential to growth.
The support through this program is going to focus on optimizing operations and accessing new sources of capital, so businesses can thrive and create value. We’re very excited to officially launch this platform next week and to kick off, to connect with emerging mid-market companies with our first outreach event in Kegalle on September 29th.
So, we’ve talked a bit about the private sector, about investment. What about all the inputs that makes this work? So, then we come back to that theme, the humans that make all this possible. One of the key inputs, that labor market. And especially young people and women.
I may have mentioned this last year, but I want to repeat some of this. That private sector really depends, of course, on the quality of the labor force and that is an attraction for investors that this labor force is skilled. Addressing labor and looking at labor in the context, I think, of the United Nations Sustainable Development Goals, which focus on gender equality, as well as decent work in economic growth is going to be very important to contribute to Sri Lanka’s economic success.
I want to point out that increasing the number of women alone in the workforce will yield dividends. This goes back to the idea of using the preferences, or in this case the resources, that are already at hand. Women’s labor force participation is only 63 percent worldwide and it’s much lower in Sri Lanka than that global general figure.
IMF General Manager Christine Lagarde noted recently that new estimates show that for the bottom half of countries in a recent sample they did, in terms of gender inequality, closing the gender gap in employment could increase GDP by an average of 35 percent. That’s 7-8 percentage points of productivity gained due to gender diversity alone. That’s huge. And especially in a world struggling in the pandemic economy, that alone could make or break some years. Investing in women is a smart move for growing the economy. Sri Lanka obviously has an opportunity here.
As for young people, the United Nations also targets substantially lowering the number of youths worldwide who are not included in training, education, or work. In 2019, 22 percent of the world’s youths, almost a quarter, were not included in any of these activities. They weren’t working, they weren’t in training and they weren’t being further educated. Fortunately, Sri Lanka has a strong record of education, but as your government has identified it could be better. It could probably always be better, no matter where you are.
The Board of Investment has identified by a developing and educating a skilled workforce to ensure a compelling investment climate as a challenge to be overcome. So, there’s recognition of this.
This is something, of course, we want to help with. That’s why I’m raising these issues. They’re essential ingredients. This is perhaps where the private sector is a partner and not simply the leader on this. Female labor force participation and the preparation of young people to join the economy are globally identified components of economic growth. There are real opportunities for Sri Lanka.
And as Sri Lanka’s longstanding development partner, we’ve been trying to help Sri Lankans take advantage of this moment by supporting inclusive employment through enterprise level competitiveness that will enable private sector led quad-based economic growth.
So how are we doing this? Well, through Sri Lanka’s small and medium enterprises, typically those that are women owned and led, USAID’s new private sector development activity will help further develop that enterprise level of capability by building financial management capacity, improving marketing, developing viable business plans and strengthening internal accounting systems.
We believe that this project will further expand ICT, high-value tourism in other sectors, thus creating stability for SME development and entrepreneurship which will, in turn, again benefit a labor force ready to seize these opportunities.
Our YouLead program, I think some of you are familiar with that, is likewise helping create Sri Lanka’s future workforce by investing $12 million to empower youth with employment training and counseling. YouLead works with the private sector to ensure companies have the workers they need to participate in the economy of the future. This program strengthens ties between training institutions and industry, matching skills with needs to increase worker productivity.
That was a lot of talking. Some ideas, a little bit of statistics, trying to pull all these things together and sort an exhortation to continue our partnership.
Before I wrap things up, Asanka noted perhaps a desire in the audience to hear a little bit about what is happening in the United States. And as I said when I came in and we were chatting informally, it sort of depends. It depends a lot on where you are in the United States. As you know, COVID has been a challenge there as in many places. Of course, we have a federal structure and so different states and municipalities handle the public health issues a little bit differently.
That said, the U.S. is still open for business and eager to receive investment. We’re still buying. We’re still selling. And in fact, as you know from the exports have a bounce-back here in Sri Lanka, some of those export relationships still remain really, really strong and we’re looking forward to expanding them.
In that sense our focus has not shifted at all, and we’re eager in fact next month to be promoting Indo-Pacific business opportunities and looking forward to continuing our progress in the region.
In addition, domestically as our Congress has appropriated significant funds to pour back into the economy, whether through social services support like unemployment or loans to businesses or other measures that will help tide businesses over in this time, and we anticipate that kind of support is going to continue in the future in some fashion.
Of course, we have our own elections coming up in November. Unlike in Sri Lanka we put every election at the time on the ballot. So, it’s not just the President. There are a whole host of state, local and federal offices that are up for election this time around and everybody will be watching very excitedly on November 3rd to see what happens when people cast their ballots and all the absentee and mail-in vote ballots are counted.
This is an exciting time in the U.S., but I don’t think that should necessarily deter some of the investment opportunities and discussions going forward. In fact, I would offer that it is exactly the time to make those relationships and seek those opportunities and take advantage of some of the interest that the U.S. government has in promoting private sector development in businesses. And looking to the new DFC for potential cooperation.
The U.S., of course, has been working to expand economic opportunity in Sri Lanka and around the world for a long time. Why do we do that? Because we know that inclusive economic growth can improve lives. This benefits everyone. Americans, Sri Lankans and our fellow people around the globe.
Of course, the United States has been a friend of Sri Lanka for over 70 years. In that time, the American people have furnished over a billion dollars in grants and direct development assistance, in addition to the commerce that I was alluding to with some of the 2019 statistics. These funds and development help have supported Sri Lanka in eradicating disease, boosting agricultural production and educating the youth of this country. And we remain committed to that relationship. We believe that the next step in this long history, of course, is robust private sector-relationship-building as Sri Lanka searches for self-reliance. You’re really getting there, and I think your presence here representing business in a variety of sectors shows that in the strength of some of the trade numbers of course clearly indicate that.
We’re applying, as a U.S. government, resources to make that private sector relationship building happen and we want to do so in ways that enhance Sri Lanka’s sovereignty and the capacity of the talented people here. A strong, sovereign Sri Lanka is the best partner for the United States and I hope really through your membership in this business council that you are also committed to that goal of making sure that the private sector led activity is really contributing to a strong country.
I want to thank you very much for your time and collaboration over the past year and we look forward to working with everybody going forward.