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Mr. President, Distinguished Guests, Ladies and Gentlemen,

I begin by congratulating the Employers Federation on its 75th anniversary and wishing this great institution many more years of service to our country, its economic development and the strengthening of the social compact that must bond the Government, the private sector employers and the workers as we move towards common objectives. Seventy-five years is a very long time in the life of an institution. Born in 1929 out of the ashes of the Great Depression and the crash of the stock market in the USA, the Federation first served the mercantilist interests of the British colonial power. From the laissez-faire capitalism of that colonial era to the Corporate Social Responsibility (CSR) of today's globalized world economy the Federation has been a cohesive force and a beacon for the private sector - the undisputed engine of economic growth in our country. As an institution it has been resilient enough to adapt to changes in economic and social policy and yet maintain the core interests of efficient and profit-oriented management, collective bargaining and the retention of a competitive edge for Sri Lankan products.

In my own career I have had the unique experience of working in the private sector, in the public sector and finally in an international organization. From each experience I have derived invaluable lessons leaving me with an enhanced respect for the people who were my co-workers and their respective contributions to add value to the lives of our fellow men and women. Today as I help to manage the peace process I remain grateful for the efforts of the business community in Sri Lanka to assist in the search for solutions. A number of groups such as Sri Lanka First have demonstrated their sense of corporate social responsibility by taking bold initiatives. The economic causes of conflict and the perpetuation of conflict have been well researched by Prof. Paul Collier, who observes that “various identifiable groups will `do well out of the war’. They are opportunistic businessmen, criminals, traders and the rebel organizations themselves. The rebels will do well through predation on primary commodity exports, traders will do well through widened margins on the goods they sell to consumers, criminals will do well through theft, and opportunistic businessmen will do well at the expense of those businesses which are constrained to honest conduct.” [Unquote.] We have to deprive these vested interests of the pickings of war and ensure that the peace dividend makes peace more profitable and more durable than war over and above the more obvious political, moral and social benefits of peace.
I was happy to see many leading employers representing civil society at the inaugural meeting held earlier this month, of the National Advisory Council for Peace and Reconciliation (NACPR) – a part of the new peace architecture designed by President Chandrika Bandaranaike Kumaratunga. The Committees of the NACPR are scheduled to meet next month and I look forward to seeing more initiatives being proposed by the business community. The synergy generated by all sectors of our society working together to seek solutions to the conflict that has ravaged our land can bring about the transformational change that we have all hoped for.
But it is not enough that you bring your ideas and proposals to this inclusive and transparent exercise that is being conducted. We need the private sector to invest in the conflict-affected regions; to begin income and employment generating activities in areas outside the Western Province and to link the various regions of our land through interdependent economic structures. It is this that will ultimately keep us together as we look to each other for essential parts of our livelihood.

The Government's Economic Policy Framework states that our economy is lopsidedly weighted towards the Western Province which accounts for over 50% of the Gross Domestic Product while the Southern and Central Provinces generate 18% and the Eastern, Uva, North Central and Northern together produce less than 5% of GDP each. This is not a situation we can tolerate as socially responsible citizens. While 70% of our population live in rural areas the ratio of the poor among them is disproportionately high with 45% of our people living below the internationally accepted poverty line of US $ 2 (or approximately Rs 200/-) per day.

The employers and the business community in general must realize that relocation of industries serves not only the interests of income redistribution and equity but also of nation building at a critical time in our history. No doubt there will be questions raised about infrastructure and, most importantly, about security. We have frequently been told that businesses are not charitable institutions. That is indeed true. But it is also a little like the argument about which came first the chicken or the egg? If business does not take bold initiatives to locate industry in the conflict-affected and under-developed parts of our country, waiting for the Government to provide infrastructure support or for a permanent peace, we will be perpetuating the inequality and poverty that exists if not worsening it.

Let us think creatively by exploiting for example the enormous reservoir of Diaspora investment resources that exists in Western countries not just among expatriate Sri Lankan Tamils, but among all Sri Lankan expatriates. In Gaza and the West Bank, the private sector – spearheaded by the Palestinian Diaspora and the support of the European Union – has created new banking systems, venture-capital funds, and mechanisms for the privatisation of telecommunication and other industries. The Government of India has also harnessed the resources of Non Resident Indians (NRIs) wisely. We can do the same and bring in capital and skills to the under developed areas in our country. Under the aegis of the National Council for Economic Development I have the privilege of chairing the cluster dealing with North East Donor Coordination. We have merged our cluster with the sub-group proposed by the donor community for post conflict reconstruction so that our mandate is now countrywide and includes both the policy framework and the implementation aspects. I call on the business community to support us in our endeavours. You have the entrepreneurial skills that we need at this moment of time.

The global context of corporate social responsibility provides us with best practices and lessons we can learn and adapt for our own needs. Kofi Annan has done more than any other Secretary General of the United Nations to extend the scope of the UN beyond the Governments who traditionally represent nation states. He has reached out to civil society and to business. Challenging business leaders to join an international initiative to support ten principles in the areas of human rights, labour and the environment, he launched the Global Compact. Today with more than 1500 companies in 70 countries in the Global Compact, I am happy to note there are some Sri Lankan companies as well. This initiative seeks to advance responsible corporate citizenship so that business can be a part of the solution to the challenges of globalisation ushering in a more sustainable and inclusive global economy.

The mechanisms under the Global Compact include policy dialogues and local structures and projects. While the ten principles themselves are laudable objectives we must also bear in mind the eight Millennium Development Goals (MDG) adopted by the largest gathering of Heads of State and Government at the 2000 UN General Assembly. Next year as the UN observes its 60th anniversary we will also have an opportunity to undertake the first five yearly review of the progress we are making in achieving the MDG. The World Bank estimates that there are hopeful signs and that global poverty rates are continuing to fall. In our region of South Asia almost 50 million fewer people were living in extreme poverty than in 2001 and powered by growth in India we are likely to meet the target of halving the proportion of people living in extreme poverty between 1990 and 2015.

Relevant to this discussion of the MDG and to the Employers Federation is the new report on "A Fair Globalization: Creating opportunities for all" produced by a World Commission on the Social Dimension of Globalisation under the auspices of the ILO with whom you work closely. The link between fair globalisation and economic arrangements under it, with peace, prosperity and security is emphasised. The report calls for a better balance between economic and social policies at the national and global level and advocates improvements in the quality and quantity of jobs as well as sustainable livelihoods. The report also urges a focus on people; democratic and effective states; sustainable development; productive and equitable markets; fair rules; globalisation with solidarity sharing responsibility for helping countries and people excluded or disadvantaged by globalisation; greater accountability to people; deeper partnerships and an effective United Nations.

Significantly the Report does not confine its recommendations to the global level and examines what nation states must do in the management of their internal affairs. Let me quote from the Report since it is so relevant to our present situation: “There is wide international agreement on the essentials which we must urgently strive for:

  • good political governance based on a democratic political system, respect for human rights, the rule of law and social equity.
  • an effective State that ensures high and stable economic growth, provides public goods and social protection, raises the capabilities of people through universal access to education and other social services, and promotes gender equity.
  • a vibrant civil society, empowered by freedom of association and expression, that reflects and voices the full diversity of views and interests. Organizations representing public interests, the poor and other disadvantaged groups are also essential for ensuring participatory and socially just governance.
  • strong representative organizations of workers and employers are essential for fruitful social dialogue.

“The highest priority must be given to policies to meet the central aspiration of women and men for decent work; to raise the productivity of the informal economy and to integrate it into the economic mainstream; and to enhance the competitiveness of enterprises and economies.

“Policy must focus squarely on meeting peoples’ needs where they live and work. It is thus essential to nurture local communities through the devolution of power and resources and through strengthening local economic capabilities, cultural identity, and respecting the rights of indigenous and tribal peoples.” [Unquote.]

Another document that is highly relevant to this discussion is the “World Development Report 2005: A Better Investment Climate for Everyone”, published by the World Bank. The report shows that there is a close relationship between the progress each country has made in improving its investment climate and the level of success it has achieved in terms of economic growth, poverty reduction, and improved living standards. China, India and Uganda stand out in this regard. China’s spectacular growth over the last 20 years has lifted 400 million people out of poverty. India has more than doubled its average growth rate since the 1970s and made significant progress in respect of poverty reduction. Uganda achieved a growth rate during the past ten years that was eight times the average in Sub-Saharan Africa. The impact on poverty was also significant.

Many countries in East Asia and Central Europe have also been making substantial progress towards realizing higher levels of real per capita income, widely shared. The findings of the World Development Report clearly indicate that countries that have significantly improved their investment climate are marching ahead, leaving others behind.

Sri Lanka therefore has a great deal of catching up to do. This is not to suggest that we have not been making any progress whatsoever. Despite the conflict, GDP averaged 5% growth during the 1990s, and a recent report published by the Department of Census and Statistics on the official poverty line shows that the poverty headcount ratio declined from 26% to 23% as well. These are very good achievements, bearing in mind the absence of peace and harmony for nearly two decades.

But let us not forget, the overall unemployment rate is 8.6%, while among educated youth (that is, GCE A/L and above), it is 16.4%, as reported by the Central Bank 2003 Annual Report. Moreover, there appears to be a serious gender imbalance. Among males the unemployment rate is 6.1%, while among females, it is 13.5%. This is a highly unsatisfactory state of affairs, reflecting inadequate growth, lack of adequate employment opportunities, especially for females and educated youth, and rigidities in the labour market caused by outdated labour laws and regulations.

Major structural reforms are therefore needed to solve the problem of high unemployment rates in Sri Lanka. The bottom line is whether a 5% GDP growth rate is sufficient to reduce the unemployment rate and also halve the proportion of the population living in poverty by 2015? Clearly not. We have to aim for a 7-8% growth trajectory, which means we must not only achieve this rate, but also sustain it over a period of several years. According to the 2005 World Development Report, this is unlikely to happen in the absence of a sound investment climate. In other words, an enabling environment for private sector development is critical for achieving the twin objectives of faster growth and less poverty.

In the words of Secretary-General Annan: “The United Nations has developed a profound appreciation for the role of the private sector, its expertise, its motivated spirit, its unparalleled ability to create jobs and wealth … In a world of common challenges and common vulnerabilities, the United Nations and business are finding common ground.” [Unquote.] We all recognize that the private sector plays a critical role in development. It creates most of the jobs, it pays most of the taxes needed to finance economic and social infrastructure development, it provides most of the goods and services, and also generates the bulk of foreign exchange earnings. Yet in the majority of developing countries, the private sector is hampered by the absence of a sound legal, institutional and policy environment.

We need to take a close look at our investment climate, identify the problem areas, and come up with viable solutions. The EFC and other key stakeholders in the private sector have a key role to play in performing these tasks in partnership with the Government.

To quote Devarajan and Smith of the World Bank: “The agenda is challenging, but everything does not have to be done at once. Impressive results can be achieved by addressing individual constraints, and by sustaining a process of ongoing improvements. China began by enhancing the security of property rights, India by easing red-tape and trade restrictions, Uganda by restoring macroeconomic stability and building credibility through a series of hard-won reforms. But sustaining progress is no less important, and requires commitment. Many governments are maintaining momentum through effective public education and through the creation of specialist institutions to engage stakeholders and review constraints.” [Unquote.]

Countries like Sri Lanka, which have been affected by conflict, not only have to think about how to improve the investment climate in general, but also have to come up with investment promotion strategies specific to the conflict-affected areas. Let us face the grim reality: Attracting private-sector investment in troubled areas is not easy. It requires innovation. A mix of economic and non-economic incentives will have to be devised. Similarly, involvement of the private sector in the larger work of formulating a strategy for post-conflict recovery will require innovative thinking.

Says Allan Gerson in his paper entitled “Peace-Building: The Private Sector’s Role”: “In countries undergoing the transition from war to peace, the failure of economic programs aimed at growth in a free-market atmosphere can have particularly dire consequences. In this environment, a quick influx of capital and know-how is essential to serve as a counterweight to recidivist violence. In countries where fledgling peace efforts are foundering, a tangible promise of employment, trade, direct investment, and the promotion of local enterprise can have a major stabilizing effect. Yet enlisting the private sector at the stage where it matters the most – shortly after a peace treaty or accord is reached but when tensions remain inflamed and violence can be sparked by the slightest provocation – is problematic. Although a growing number of private sector businesses and companies can be counted on to explore economic participation in post-conflict contexts, they generally shun early engagement. Even if issues of market size and demand can be satisfactorily resolved, the absence of an established rule of law and good governance and the lack of personal security bode badly for foreign investment, especially where good opportunities abound elsewhere. Not surprisingly, therefore, engagement in areas of uncertain security and unpredictable futures is often deferred until conditions stabilize. Herein lies the predicament: stabilization itself depends on private-sector entry; hence, waiting for stabilization as a precondition for entry becomes a self-defeating proposition.

“Today’s challenge is thus to find the means to make private-sector engagement attractive, especially at this early stage. Ideally, corporate participation would provide twin benefits: (1) investment, with resulting jobs and opportunities, and (2) the provision of managerial know-how and expertise to enable all the actors in the field … to operate in a more streamlined and synergic fashion.” [Unquote.]

The Peace Secretariat has regular consultations with civil society and business leaders and I would like to submit for your consideration some key implementation issues that have been raised at these meetings. No doubt these issues must be resolved over time if an improved business climate is to be created in the North and East. We are doing our best to address some of these issues through the NCED, which is mandated to address policy constraints and implementation bottlenecks cutting across the various sectors.

Let me touch briefly on these issues:

  1. Very little information is available to the public on the North-East province. Government needs to develop a mechanism for disseminating key information to the private sector and civil society on an ongoing basis.
  2. Government needs to identify possible sea routes for trading of consumer goods between North and South to bypass the problems of arbitrary taxes and multiple checkpoints (army/LTTE).
  3. Arbitrary taxes and levies or protection money are a serious issue in respect of accounting and auditing. It is also discouraging private companies in the South from investing in the North and East since there is no mechanism in place to enable these companies to recover these arbitrary charges. 
  4. The A9 highway is open only for ten and a half hours. The A9 should ideally be open round the clock. The Ministry of Defence recently agreed to open the A9 for twelve hours. 
  5. Mobile phone companies have to go through a great deal of red tape to invest in the North and East. Government should consider having a special arrangement (such as a one-stop clearing house) for approving and facilitating private sector ITC investment in the North and East. 
  6. The two regional chambers operating in Jaffna have got discouraged by the lack of economic infrastructure development in the North. Basic infrastructure facilities are essential for promoting private sector participation in trade and investment in the North and East. The Ministry of RRR is working hard on this.
  7. Private banks are willing to support short-term income and employment generation in the North and East through lending for commercial activities, especially in the agricultural and agro-industrial sectors. But the lack of adequate marketing infrastructure (farm-to-market roads, market centres, transportation, etc.) is a serious constraint on commercialisation of smallholder agriculture in the North and East. Again, the Ministry of RRR is doing everything possible to improve the infrastructure in the conflict-affected areas. 
  8. Local passenger airlines operating between Colombo and Jaffna (such as Lion Air and Serendib) should be encouraged to also undertake transportation of fruits and vegetables, so as to ease marketing constraints in the North and East. 
  9. Lack of property title is a major problem for banks in respect of lending for housing reconstruction in the North and East. Government should identify options for tackling the title issue, such as authentication of legal documents and provision of Government backed title insurance. The bottom line is that property is held but not exactly owned by the poor. In some of the Latin American countries, more than 80 percent of all their ownership is not legally represented in property documents. As observed by Hernando de Soto: “They [the poor] have houses but not titles; crops but not deeds; businesses but not statutes of incorporation.” These words, uttered in the Latin American context, apply with equal force to the North and East, where as a result of the conflict, absence of property rights is rampant among the poor.

10. Government and the private sector need to identify modalities for working together as partners in furthering the peace process. The private sector could play a critical role in such areas as investment, advertising and promotion. For instance, a leading ICT company has developed a proposal for promoting the ideals of peace, harmony and ethnic reconciliation in schools, in partnership with the Ministry of Education. Just yesterday a leading advertising firm gave me a fascinating presentation of a children’s game which could develop unity among our different communities.
It is beyond the ambit of my talk to go into these modalities, since it is an area of public-private cooperation that requires specialized knowledge and expertise. Herein lies a challenge for the Employers' Federation of Ceylon (EFC): to assist the Government in defining opportunities for local and foreign investors interested in doing business in the North and East and in identifying innovative policies and institutional mechanisms for promoting as well as encouraging early engagement.
I would imagine that agribusiness, fisheries, tourism, information technology and communication, banking, insurance, and micro-finance are some of the areas where there is considerable scope for early engagement. I would also encourage the private sector to examine the potential for rehabilitating the social and economic infrastructure of the North and East through joint ventures. Risk-sharing investment modalities, I believe, are most appropriate for areas undergoing the transition from war to peace.
To repeat an earlier statement, the promotion of private enterprise can have a major stabilizing effect in the conflict-affected areas. We must /make
make every effort to substitute the instruments of peace for the weapons of war. One of the most potent instruments of peace, I believe, is private sector led development in the troubled areas. I would even venture to say that early engagement of the private sector in the North and East is one of the most important avenues for securing peace and harmony in this island as a whole.  

Mr. President, Ladies and Gentlemen it is time to conclude my remarks. I have for many years been fascinated by the melody and the words of a popular Sinhala song entitled "Master Sir" which is about the employer-employee relationship. Let me quote the refrain in the song: 

Apa athare kaba adille tharage me
Nima venne kalpatha veido
Ane sir api mithuran veido
Eda dawasa udawewido

This "kamba adilla" or tug-of-war is not only between employer and employee. It goes on between ethnic groups, between religious groups and between political parties in our country. It is dysfunctional, debilitating and disastrous in terms of national integration, peace building, and economic development. It is time to stop this tug-of-war and to pull together so that we haul ourselves out of the quagmire of conflict and poverty to usher in a new era.

 
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