Korea Calling: Results from a Snap Survey of Job Seekers and Issues of Youth Unemployment

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By Anushka Wijesinha (Research Economist), Roshini Jayaweera (Research Officer), Nethmini Perera (Research Assistant) and Nisha Arunatilleke (Research Fellow) – IPS

Over 4,000 youth gathered along Havelock Road near the Police Field Force Headquarters on Monday to apply for jobs in South Korea, following an announcement by the government under a bilateral foreign employment scheme with South Korea; an arrangement that could potentially provide employment in Korea to thousands of Sri Lankans annually. This centre in Colombo was one of 29 centres islandwide set up by the Ministry of Foreign Employment that are distributing applications for Korean employment (particularly language tests), and attracted youth from various districts who had queued since afternoon the previous day. While registration of applicants began at around 8am, by 11.15am the officials along with Police support, announced to those queued that the centre is now closed as the maximum number of 3,500 applicants had been registered. Just prior to this, and the slight tension that ensued following the announcement, IPS researchers conducted a snap survey of a sample of 41 youth in the queue, to get some insight into their profile, education level, employment status, and reasons for seeking migrant work in South Korea. This article discusses the key findings, supplemented by background information on youth unemployment and foreign employment migration from current research by the IPS.                                                             
Youth unemployment presents a critical challenge in post-war Sri Lanka (see comments by IPS Board Member Dr. Anura Ekanayake on this issue at the Ceylon Chamber AGM recently - http://ipslk.blogspot.com/2011/08/realizing-post-war-miracle-challenges.html)

The International Organization for Migration (IOM) estimates that, annually, Sri Lanka sends over 250,000 workers on foreign employment worldwide. According to data published by the Central Bank of Sri Lanka, remittance inflows from Sri Lankan workers abroad amounted to 8.31% of Sri Lanka’s GDP in 2010, second only to export earnings from goods, but far above that of average FDI inflows.

According to IPS research, during the period 2005-2009, South Korea had been the dominant destination for Sri Lankan migrant workers compared to other East Asian countries.  A bilateral agreement between the Sri Lankan and South Korean governments on migrant workers has been a key factor influencing this.

What Does the Snap Survey Reveal?

The results from our snap survey show that the majority of the job seekers were males (78%) in the 25-30 age group, and the hometown districts of nearly all of them were either in the Western or the Southern Province (see Table 1). Colombo and Matara showed the most number of applicants, counting 26.8% and 22% respectively.

An important point to note is that, overwhelmingly, nearly 66% of those queuing to apply to work in Korea had passed their GCE A/L examinations (see Figure 1). This is consistent with the overall numbers for Sri Lanka. According to the Labour Force Survey of the Department of Census and Statistics, unemployment in Sri Lanka is highest among those in the 20-24 age category who have passed the GCE A/L exam, a staggering 37% in 2009 (see Figure 3). Moreover, according to this data, the highest unemployment rate for those with A/L qualification is in the Southern Province (20% compared to a national average of 12%), followed by the North Central, Eastern and Central Provinces (see Figure 4).

While between 1989-2006 the majority of out-migrants from Sri Lanka were female, by 2008 the proportion had equalized.  In recent years, more males have out migrated for foreign employment than females. According to data available for 2009, the Western Province sends the highest number of migrant workers overall, of about 27.3%. The Southern Province sent only around 8.7%. The top 4 sending districts in 2009 were Colombo – 12.4%, Kurunegala – 9.5%, Gampaha – 9.6%, Kandy – 9.4%. Five districts - Colombo, Kurunegala, Kandy, Gampaha and Kalutara - accounted for 45% of the total departures for foreign employment.

Although we may be quick to assume that most of these Korean job aspirants were unemployed youth, the survey revealed that in fact the majority were already employed in Sri Lanka, around 63.4% of those surveyed. Around 36.6% were unemployed. When the respondents were asked as to their main reasons for seeking work abroad as migrant workers, 38% cited ‘low wages’ or alternatively ‘low income’ in Sri Lanka, while around 9% cited ‘limited job prospects’. This would indicate that these youth were suffering from underemployment rather than unemployment, and the relative higher wages in countries like Korea was the key attraction for out-migration, rather than pure unemployment in Sri Lanka.

(Of those unemployed, the duration of their unemployment ranged from 7 months to 11 years, but on average, was unemployed for around 2 years.)

Of those surveyed, the majority of 61% reported that they did not have any form of vocational or professional training, with only 39% responding that they do. This is an important point to bear in mind, in the context of the new thrust of the country’s skill development agenda towards increasing the numbers of those with vocational training, under the National Vocational Qualification certification programme and the UNIVOTEC system. This also has an implication on the skills profile of migrants that Sri Lanka sends, where the government is keen to send workers with better skills rather than manual labourers.

The research team also inquired as to what kind of work the job seekers were interested in obtaining. The majority, 58.5% stated that they were seeking ‘any type of work’, while 12.2% stated that they sought ‘factory work’, and another 12.2% sought ‘manual labour’, and 17% sought specific occupations (for example, ‘working in a printing press’, ‘business administration’, ‘technician’, ‘motor mechanic’, ‘mechanic’, ‘welding’, and ‘sewing’). It appears that nearly all of the applicants had targeted Korea as their preferred foreign employment destination, as the survey revealed that nearly 88% had either completed or were in the process of completing a Korean language course.

Better Migration Management at International Level Through Bilatarel MOUs

Bilatarel MoUs of the type signed between Sri Lanka and South Korea, while provided a systematic mechanism for sending an agreed number of workers each year, also have important migration management implications, in an era of increasing foreign worker harassment in countries in the Middle East. In an unpublished report on Sri Lankan migrant worker challenges prepared by the IPS, the benefits of bilateral MoUs with regard to migration management have been emphasized:

• A MoU with a labour receiving country ensures the human rights of the migrant worker such as minimum wage, decent working environment, job security and certainty during the contracted period.  So, the rights of migrant workers to South Korea may be better protected than those to many Middle Eastern countries. Recently, there were reports of Sri Lankan migrants in Iraq being denied their basic salaries for months, resulting in street protests by them.

• Because of this MoU, the Sri Lankan government provides loans for the migrant workers to cover their migration cost through state banks. This is a good opportunity for migrant workers as the migration cost is high in Sri Lanka. One of the qualitative studies on migration conducted by the IPS in 2011, reveals  that most of the migrants from the Anuradhapura district  have mortgaged their agricultural lands to cover the migration cost.

• Migrant workers have to repay the loans when they migrated. Thus, their banking activities are improved and it will reduce the informal money channeling in Sri Lanka.

Korea Job Seekers in Broader Context

Unemployment levels have come down over the last decade, but they are still very high amongst youth (20 to 29 year olds), particularly the more educated (see Figure 3).  Unemployment is more of a problem outside the Western Province (see Figure 4), particularly for the more educated. But, it is surprising that even in the Western Province, where the unemployment rates are very low, even for the more educated individuals, youth are scrambling to find employment abroad.  It is also alarming that a majority of those aspiring to go to Korea are willing to go for any type of job, including for manual labour.

First, this suggests that many youth aspiring to go to Korea, many of whom are already employed, are not satisfied with their employment situation in Sri Lanka. The Labour Force Survey data of the DCS reveal that of those in the non-agriculture sector, about a half of the employed are in the informal sector.  Even in the Western Province, around 40-50% of those employed in the non-agriculture sector are working in the informal sector.  This suggests a need for creating better jobs in the country.

Second, the data suggest that the job aspirations are not very high even amongst youth who have passed O/Levels and A/Levels.  A majority of them are willing to go abroad to do ‘any job’.  This indicates the need to rethink skill development at the senior and tertiary education levels, such that school leavers are better prepared for the labour market.

So, overall, here are some key takeaways from our snap survey and our background analysis:

-    The unemployment situation for youth in Sri Lanka is clearly a pressing issue, and needs to be addressed as an urgent priority in post-war Sri Lanka to ensure inclusive growth and prevent social discord

-    The majority of those seeking work in Korea were in the 25-30 and also the 20-24 age category.

-    Despite the fact that nearly 66% of those seeking Korean jobs were A/L qualified, 58.5% stated that they are seeking ‘any type of work’ in Korea

-    ‘Low income/low wages’ in Sri Lanka were the main reason cited by the youth for seeking foreign employment in South Korea

Source IPS.LK

WORLD ECONOMY HEALTH CHECK: Snapshot of Continuing Concerns

 by Kithmina Hewage and Harini Weerasekera (Project Interns, IPS)

As Sri Lanka is on the cusp of a new economic era, the world economy could be on the cusp of a new economic slowdown. This article gives a quick snapshot of the current state of the world economy, particularly recapping the events of the past few weeks indicating the ongoing fragility of Western economies. In closing, it puts forward some issues for debate on the impact of these developments on Sri Lanka.

Although media debates on prospects of another serious economic meltdown continues apace, it is more apparent that, rather than the prospects of a serious collapse, it is the overall uncertainty and lack of confidence pervading these economies that are blighting the current global economic climate. At the outset of the financial year, the IMF and World Bank identified a possible phase of global economic recovery, which has failed to materialize thus far.

 Sources: IMF World Economic Outlook (WEO) Update (January 2011), IMF World Economic Outlook (April 2011), IMF World Economic Outlook Update (June 2011), World Bank Global Economic Prospects (GEP) Report 2011, World Bank Global Outlook in Summary 2009-2013

According to the latest IMF World Economic Outlook Update (June 2011), despite some ‘negative surprises’, global growth in Q1 of 2011 was around 4.3%. Further, although downside risks have been recognized, the latest IMF forecasts for the EU show upward revisions.  The update further remarks, that, “growth in the advanced economies is projected to average about 2.5% during 2011–12, slightly weaker than in the April 2011 World Economic Outlook. This would represent a modest deceleration from an average of about 3% in 2010”. US growth in Q1 of 2011 was only 0.4% with consumer spending at its weakest in 2 years. The Economist newspaper calls America’s outlook ‘grim’; statistical revisions have revealed a weaker than assumed recovery, and the odds of a ‘double dip’ recession to be as probable as 50%.(1) Over the past 6 months the US has grown at an annualized rate of merely 0.8%, which was well below expectations(2). The Bureau of Economic Analysis (BEA) revised US numbers through the recession, to reveal a downturn more severe that previously understood (3).

Several continuing challenges have had a significant influence on these original forecasts causing a reevaluation of the performance of the global economy.   Given the magnitude of debt and fiscal issues involved (as discussed below), particularly in the US and Euro Area, recovery from global recession will be tenuous and may take a fair amount of time, contrary to preceding expectations.

1. US ECONOMY: DEBT DEAL, RATINGS DOWNGRADE, AND STOCK MARKET REACTIONS

Following weeks of political maneuvering and distress calls from politicians and economists, the American political structure succeeded in agreeing on a debt deal that averted a US sovereign default, the first in the country’s history. Yet, just two days following the passing of the debt deal, indicating continued investor uncertainty, the New York Stock Exchange suffered severe losses. The Dow Jones Industrial Average plunged more than 500 points on the 4th of August, its ninth decline in 10 sessions. This is the Dow's ninth-worst day ever; the worst being a 777-point drop in September 2008 following the Lehman Brothers collapse(4).

 The end of day trading on Monday 08th August 2011, the first full day of trading after the downgrade of US credit rating, resulted in Wall Street’s worst day since 2008 and its performance has proven to have a resonating effect on Asian markets, triggering a global equity sell off. What should be noted though is that the negative turnover in the US market is not solely due to the debt deal or any single domestic matter, but rather a culmination of reasons pertaining to the economy in general and economic problems faced overseas, particularly in Europe.

AAA to AA+: An Unprecedented Fall, but Limited Global Impact?

The downgrading of the credit rating for the United States of America from an AAA to an AA+ rating by the US credit rating firm, Standard & Poor’s, dealt a severe public relations blow to the US, but hardly an indication of a possibility of US debt default.

Given that it is only S&P that has downgraded the US credit rating it could, if at all, add more fear and uncertainty to an already sluggish economic recovery, rather than result in a collapse of the economy itself.  It is important to understand that the ratings downgrade by S&P is more of a reflection of macroeconomic and political factors and not necessarily default risk. Ironically, it is interesting to note that following assurances made by the Federal Reserve on the 09th of August, 2011 the US stock market performed unexpectedly well – the best performance during the last two years. Moreover, US Treasury Bills suffered little from the ratings downgrade announcement, and global investors continue to park their money in them.

Moreover, the fact that it is in the interests of all to ensure that the dollar remains the reserve currency, also contributes to the fact that such a downgrade has limited global impact. Especially given that a potential drain away from US Treasuries will lead to significant losses to those who hold dollar reserves (such as China, the biggest holder), the international community seem to have taken particular interest to limit the global impact of a downgrade in US credit ratings. Essentially, there is no alternative to dollar as a reserve currency for now (especially in view of euro problems). Therefore, it has become a necessity that the dollar remains stable for the benefit of the global economy.

Investor Confidence: Business and Government

The problem for the US and European markets is not a lack of liquid cash available to major companies for investments, but a general lack of confidence in the market, more so, the government. Since the expansive stimulus packages that were effective since the height of the financial crisis in 2008, by choice or by necessity, a symbiotic relationship between the market and the government was created.  As such, today, both the stock market and the economy have become dependent on government support. With greater emphasis by policy makers on spending cuts, the markets are showcasing a growing sense of insecurity, as safety nets for companies are perceived to be shrinking. That creates worries about economic growth, hurting stocks and other risky assets that depend heavily on the economy. (5)

2. EU ECONOMY: EURO AT RISK?

While the recovery of the American economy has been sluggish, the global economic situation is compounded by concerns surrounding the debt crisis in European economies. A string of fiscal crises in Greece, Portugal and Ireland (less prominent of late) have fuelled fears of a collapse of the Euro Zone (Greece being the hardest hit economy by the financial crisis, with revenues falling 15% in 2009). Following crises in these countries, and a re-emergence of concerns in May this year regarding Greek debt refinancing and austerity measures taken to counteract it, Europe is now faced with the new possibility of dealing with a separate debt crisis involving Italy and Spain.

In the EU, especially in countries where sovereign debt has increased sharply due to bank bailouts, a crisis of confidence has emerged with the widening of bond yield spreads and risk insurance on credit default swaps between these countries and other EU members, most importantly Germany.(6)

Italy and Spain

The matter seems to have culminated into greater insecurities with financial tensions rising in both in Italy and Spain with an ever increasing level of public debt in both countries. This has in turn fuelled worries of default and another potential bail out with the assistance of the economically stronger nations in the region, i.e., Germany and France. On a brighter note though, both Italy and Spain have taken proactive initiatives to address financial issues pertaining to their respective country, thereby somewhat reducing this risk.

Response by the European Central Bank (ECB)

Given insecurities regarding the ‘PIIGS’ economies (Portugal, Italy, Ireland, Greece, Spain), there is a growing call for proactive measures by the ECB in order to stabilize the situation. Saddled with large public debt and high, and potentially unsustainable, debt-to-GDP ratios, fiscal reforms regulated and centralized through this European body may become a necessity.

The expansion of the SMP (Securities Markets Programme) to include bonds of Spain and Italy by the European Central Bank (ECB) is also seen as a positive step in reassuring all those involved. The SMP along with the European Financial Stability Facility (EFSF) are essentially designed to get the Euro through the crisis so that fiscal reform can take place in a more orderly fashion.(7)

However, albeit such intervention may be a temporary fix, it is not the cure for the problem. The argument holds that the only way to prevent a complete breakdown of the Euro is by stronger AAA rated economies in the Euro zone such as Germany stepping forward, risking their own credit, in order to refinance loans at reasonable interest rates for the likes of Spain and Italy. It is however, a role Germany is eager to avoid and unwilling to accept, with the consequences mounting as it prolongs such efforts.

3. SRI LANKAN ECONOMY: WHAT ARE THE EMERGING ISSUES?

Sri Lanka is a small open economy dependent on its trade integration with the world economy. As Sri Lanka is on the cusp of a new economic era, the world economy could be on the cusp of a new economic slowdown.

Yet, it may not be necessary to revise Sri Lanka’s growth forecasts for this year despite these concerns, as much of the current growth is being driven less by exports, rather, more by domestic stimulus – heavy infrastructure spending.

No doubt, Sri Lanka’s exports are likely to be adversely affected, particularly as the bulk of the country’s exports are to the very markets that are currently in limbo. Rethinking Sri Lanka’s export destination concentration is an urgent need. For decades now, Sri Lanka has relied on Western markets for its export earnings.  For much of the last decade, the bulk of Sri Lankan exports (ranging from 55 to 60%) have been to the US and EU. In 2010, 21% of total exports were to the US (8) and 35% of total exports were to EU countries (UK-12%, Germany-5%, other EU countries-13% (9)). However, with the weak recovery, sluggish consumer spending, depressed job market, woes due to austerity measures (mainly in Europe), Sri Lankan exports to these markets are under severe stress. The case for developing stronger trade ties with apparently healthier economies of Asia couldn’t be stronger, also given that it constitutes for a large share of FDI flows and other development finance to the country. India and China are growing, along with East and South East Asia; but currently account for only around 16% of Sri Lanka’s total exports (10).

Sri Lanka has been increasingly losing its global export share over the last few years, having a comparatively weak export performance globally. In the backdrop of weak consumer demand in our key markets, is it likely that this situation would worsen? In the medium term, the outlook for the US and EU is, therefore, decisive. Improving our export performance, and thus our export earnings, becomes an added imperative in the context of increased borrowings from international debt capital markets, which means the need to service growing external debt service obligations.

Among the possible impacts on Sri Lanka resulting from the fragile economic health in the West as discussed in this article, here are some important issues for debate:

• A global slowdown would cause oil prices to move downwards, which will benefit an oil importer like Sri Lanka, particularly in containing inflation. But what about other commodity prices? How will changes in commodity prices as a result of a global slowdown affect Sri Lanka?

• The impact of this fragility on investor confidence is likely to be high, as is the likelihood of high risk averseness by the global investor community. In that backdrop, what will be the outlook for FDI and other financial flows to Sri Lanka?

• Will we see more inflows of ‘hot money’ to our region’s emerging markets, from investors seeking better returns? Are Sri Lanka’s current safeguards, like the cap on foreign investment in government securities, sufficient?

• Is there a likelihood that credit rating agencies take a tougher approach in the future, and therefore will maintaining and improving Sri Lanka’s sovereign credit rating require a more stringent approach, where there are no allowances for policy slip-ups?

Source IPS.LK

Sri Lanka Continues its Rise up Global Competitiveness Index: Jumps 10 Ranks in 2011-12 World Economic Forum Report

• Ranks just 2 below the Top 50 
• WEF warns against complacency, biz community expectations will evolve as country develops

By Anushka Wijesinha (Research Economist) and Dilani Hirimuthugodage (Research Officer) – IPS*

The World Economic Forum today (7th September) released its latest Global Competitiveness Report (2011-2012), which reports that Sri Lanka has made an impressive jump of 10 places in the rankings, to 52nd from 62nd in the 2010-2011 report. This is a further improvement from the 2009-2010 report which ranked the country at 79th position.

The Institute of Policy Studies of Sri Lanka (IPS) was the Sri Lankan Partner Institute in conducting the Executive Opinion Survey which is a key element in building the GCR rankings, and on Monday the IPS received an exclusive preview of the results via international audio conference with the WEF headquarters in Geneva, Switzerland. It was noteworthy that the WEF economists speaking to all the partner institutes specifically mentioned Sri Lanka as having performed strongly in rising up the rankings, and are among the top risers in the Asian region.

On the eve of the global release of the report, we spoke yesterday (6th September), directly with an official at the WEF to get Sri Lanka-specific perspectives on the latest report.

Thierry Geiger, Associate Director of the WEF’s Centre for Global Competitiveness and Performance said, “Sri Lanka has made a remarkable performance. When I look at the evolution across all indicators, Sri Lanka shows improvements on 80% of them - 80-90 of the 110 indicators - both in terms of scores as well as rank.”

“Last year was a big jump. But you need to be cautious of ranks. So many countries are ranked so close to each other. It’s important to focus on the scores. In the last GCR, Sri Lanka improved its score by 0.24 points which we consider a big jump. This year the score improvement was not as big as last year, but there is consistency”.

Sri Lanka made the greatest improvements in scores, year-on-year, in the pillars of ‘macroeconomic stability’ (up by 0.48 points) and ‘infrastructure’ (up by 0.33 points). Meanwhile, the most noteworthy decline in scores was in the pillar of ‘labour market efficiency’ (down by 0.11 points).

Certain pillars still sticky

Despite the strong performance, however, scores of certain indicators weakened, reflecting the business community’s continued concern on these issues and their impact on economic activity. Geiger noted that “Everything is on the rise in Sri Lanka except for pillars like ‘public trust in politicians’, ‘irregular payments’, and ‘independence of the judiciary’ which have declined. The pillar of ‘red tape’ has improved significantly from a score of 3.8 to 5.1 (rising from rank of 113 to 59). An improvement of 0.8 is seen in the ‘security’ pillar, which the WEF economist noted was “remarkable”, and attributed it to the improved climate following the end of the war.

Table 1: Sri Lanka’s recent performance on GCR pillars

Notes: *Basket of countries was 133 countries in 2009-10, 139 in 2010-11, and 142 in 2011-12. Due to variances in total countries being ranked over the 3 periods, the key point of interest should be the changes in scores of each pillar.

Source: Global Competitiveness Report (various years), WEF

Guarding against complacency

Some recent reformers appear to have stalled in their rise up the rankings, and this was considered noteworthy. “What is interesting is that we are observing some stagnation among several developing Asia economies, for example Vietnam and Indonesia. Even though they had been doing quite well on the GCR lately, they have stagnated this year. We attribute it to growing concern among the business community that the necessary reforms have not been made fast enough to sustain growth at high levels”, Geiger said.

It appears that, in these countries, expectations have not been met and the business community is “getting impatient”. This had important implications for a country like Sri Lanka where, although improvements in the rankings have been made it is important that policymakers and government officials do not become complacent. Geiger remarked that, “As a country develops, expectations change, the needs evolve. If governments don’t deliver, this creates disappointment among the business community, and this is reflected in the scores of countries like Vietnam and Indonesia this year.”

Can it be sustained?

When asked if it is likely that the recent dramatic jumps in GCR scores and rankings were mainly due to strong positive sentiment by the business community following the end of the war and whether this was likely to taper off in the coming years, he noted that, “it is hard to quantify the optimism. Rwanda observed a similar situation when it came out of conflict in the 1990s. Sometimes we tend to observe overshooting due to short term strong positive sentiment. But for Sri Lanka, it is not only the opinion survey data that shows the improvements, hard data on the various indicators support this too. But the country must guard against complacency”.

Asian picture

Asia’s rise to economic prominence has been accompa¬nied by a remarkable dynamism in terms of competi¬tiveness. Over the past five years, several countries in the region—including China, Indonesia, Vietnam, and Sri Lanka—have made important strides in the GCI rankings. Yet the disparities in terms of competitiveness within the region are unique, ranging from Singapore at 2nd place to Timor-Leste at 131st. Two of the region’s largest economies, Bangladesh (108th) and Pakistan (118th), continue to rank very low, while a number of Asian emerging economies enter the top 30.

Sri Lanka scores better than India (91st) this year too, but the WEF economist cautioned against comparing the two. “You must keep in mind that improvements in smaller economies are easier to make”. However, he added that even among the ‘developing Asia’ country group, and even among smaller economies, Sri Lanka does well. Table 2 provides a selected cross-country benchmarking, showing that the country still lags behind South East Asian neighbours like Malaysia, Thailand, and Indonesia, and clearly has some way to go to become competitive on par with these dynamic economies.

Table 2: GCR 2011-2012: Sri Lanka’s performance vis-à-vis selected economies

Global picture

Switzerland tops the overall rankings of the GCR, while Singapore overtakes Sweden for second position. Northern and Western European countries dominate the top 10 with Sweden (3rd), Finland (4th), Germany (6th), the Netherlands (7th), Denmark (8th) and the United Kingdom (10th). Japan remains the second-ranked Asian economy at 9th place, despite falling three places since last year.

The United States continues its decline for the third year in a row, falling one more place to fifth position. In addition to the macroeconomic vulnerabilities that continue to build, some aspects of the United States’ institutional environment continue to raise concern among business leaders, particularly related to low public trust in politicians and concerns about government inefficiency. On a more positive note, banks and financial institutions are rebounding for the first time since the financial crisis and are assessed as somewhat sounder and more efficient.

Within the Eurozone, Germany maintains the lead, although it goes down one position to sixth place, while the Netherlands (7th) improves by one position in the rankings, France drops three places to 18th, and Greece continues its downward trend to 90th. Competitiveness-enhancing reforms will play a key role in revitalizing growth in the region and tackling its key challenges, fiscal consolidation and persistent unemployment.

The results show that while competitiveness in advanced economies has stagnated over the past several years, in many emerging markets it has improved, placing their growth on a more stable footing and mirroring the shift in economic activity from advanced to emerging economies. China (26th) continues to lead the way among large developing economies, improving by one more place and solidifying its position among the top 30. Among the four other BRICS economies, South Africa (50th) and Brazil (53rd) move upwards while India (56th) and Russia (66th) experience small declines. Several Asian economies perform strongly, with Japan (9th) and Hong Kong SAR (11th) also in the top 20.

Xavier Sala-i-Martin, Professor of Economics, Columbia University, USA, and co-author of the GCR, notes in the report that, “Amid re-emerging concerns about the global economic outlook, policy-makers must not lose sight of long-term competitiveness fundamentals. For the recovery to be put on a more stable footing, emerging and developing economies must ensure that growth is based on productivity enhancements. Advanced economies, many of which struggle with fiscal challenges and anaemic growth, need to focus on competitiveness-enhancing measures in order to create a virtuous cycle of growth and ensure solid economic recovery.”

The Global Competitiveness Report’s competitiveness ranking is based on the Global Competitiveness Index (GCI), developed for the World Economic Forum by Sala-i-Martin and introduced in 2004. The GCI comprises 12 categories – the pillars of competitiveness – which together provide a comprehensive picture of a country’s competitiveness landscape. The pillars are: institutions, infrastructure, macroeconomic environment, health and primary education, higher education and training, goods market efficiency, labour market efficiency, financial market development, technological readiness, market size, business sophistication and innovation. The rankings are calculated from both publicly available data and the Executive Opinion Survey, a comprehensive annual survey conducted by the World Economic Forum with its network of Partner Institutes. This year, over 14,000 business leaders were polled in a record 142 economies. The survey is designed to capture a broad range of factors affecting an economy’s business climate.

*Ayodya Galapattige (Research Officer – IPS) led the IPS team conducting the Executive Opinion Survey for WEF. Harini Weerasekera (Project Intern – IPS) contributed to this article.


  Source : IPS.LK

Is Low Agricultural Productivity Keeping Batticaloa Poor?

By Roshini Jayaweera (Research Officer - IPS)

In considering issues of poverty in Sri Lanka, Batticaloa is conspicuous as a district that requires particular attention. In addition to being identified as the country’s poorest district in 2009/10, it is also one of two districts for which poverty statistics actually increased between 2006/07 and 2009/10.1 According to the latest Household Income and Expenditure Survey (HIES) 2009/10 of the Department of Census and Statistics, the poverty rate in Batticaloa district was five-and-a-half times higher than that of the Colombo district – 20.3% vis-à-vis 3.6%. A major contributing factor to this is the low agricultural productivity which the district continues to experience. This is of particular concern given that the majority of Batticaloa’s residents are engaged in agriculture – especially paddy farming. This article, based on a survey conducted by the Institute of Policy Studies of Sri Lanka in 20112, shares some thoughts on why Batticaloa’s agricultural productivity is low and is, in turn, keeping its people who are engaged in agriculture poor.

 

The survey focused on two of the poorer and more remote DS divisions out of 14 DS divisions in the Batticaloa district - Manmunai West (Vavunathivu) and Kiran. In the survey, 1,545 individuals surveyed were above 10 years of age, and of them 37% were employed - a statistic which features a larger proportion of men than women. Around 24% of individuals were students. Nearly 10.5% were unemployed, a percentage that is slightly higher than the district’s average unemployment rate of 7.4%.3

Youth unemployment is relatively high in these two remote DS divisions - 84% of the total unemployed population is less than 30 years old and 31% per cent of the population aged between 10 and 30 years are unemployed. So, clearly, attempts at reducing poverty in this district must focus on strategies to raise employment levels.

Many in Batticaloa are ‘working poor’

A key issue in this district is the persistence of poverty even among employed members of the population. The existence of this group of ‘working poor’ indicates that employment does not, of itself, guarantee an escape from poverty. So, in addition to lowering unemployment, poverty alleviation efforts must also consider the factors which constrain earnings among the working population of this district.

The three largest categories of employment in Batticaloa are agriculture (largely paddy farming), labour and market gardening (see Figure 1). Taken as a whole, 58% of workers are employed in the agriculture and fisheries sector. The majority of these workers are poor due to low incomes from employment.

Low agri productivity – the blight of Batticaloa?

A main reason for the persistence of low incomes among this group of workers is low agricultural productivity. Batticaloa is ranked among the five districts which recorded the lowest productivity in paddy farming in the 2010/11 Maha season. Certainly, it may be argued that this is due in part to the severe floods experienced in this region in early 2011. However, although paddy productivity has been slightly higher in previous years (i.e., years unaffected by floods), it has still compared poorly with other districts even over time. For instance, Batticaloa recorded the seventh and ninth lowest levels of paddy productivity for the 2008/09 and 2007/08 Maha seasons, respectively.

Thus, it is clear that improving agricultural productivity is the key to transforming the agricultural sector in a manner that meets the challenges currently faced by the district. Consequently, it is important to identify the issues that continue to bar the expansion of agricultural production and incomes.

One of these is weather and other environmental issues. Among those surveyed, 33% of people were engaged in agricultural activities and they reported that this was a key issue for them. Of them, 44% have been the victims of flooding.4 Simultaneously, however, another 22% have suffered from drought. This odd combination would suggest that accelerating climate change may be a contributing factor to low productivity in the region. One of the best solutions to this is the introduction of short-age seed varieties, especially drought tolerant and flood resistant verities. Another possible solution is the development of the irrigation system and sound irrigation water management.

“2/3 of the cultivation areas have no irrigation facilities. Rain-fed farming can only be done during Maha season” - key informant, Vavunathiv

Attacks by wild animals are also a concern in Batticaloa’s agricultural sector. Nonetheless, measures to minimize the effect of this need to be taken not merely by the government but also by farmers themselves. The latter must take the necessary precautions to protect their farms by traditional methods. The government and Wildlife Department could then become involved only in cases where farmers are unable to protect themselves.

A second important issue which was reported as hindering the expansion of agricultural production is a lack of capital. Around 12% of farmers in the sample identified this as a constraint on productivity. Another 11% identified high input costs as a major concern. Given the links between the two (high input costs might be considered a consequence of capital shortages), it may be inferred that nearly 22% of farmers in this area face financial difficulties in their agricultural activities. This is mainly due to low incomes which in turn, as previously discussed, result from low productivity.

Many farmers in the Eastern Province are now keen to utilise higher technology techniques in their paddy fields. However, this equipment is expensive and requires easier access to credit.

http://ipslk.blogspot.com/2010/10/access-to-credit-critical-issue-for.html

“We do not need storage facilities as we have to sell our whole production to the moneylender from whom we borrowed money for the cultivation. We have to sell our products at a lower price to them immediately after harvesting, although the government is buying it at a higher price” – a farmer from Pudumandapathadi

Qualitative information gathered during the survey suggests that the issue is becoming increasingly severe, as most of these farmers also face credit constraints and cannot sell their products at higher prices in order to make larger profits. The low quality of these agricultural products also limits the price that farmers receive and, by extension, their ability to invest in capital. Most of these farmers are unable to sell their paddy to the government’s paddy-buying scheme because it does not meet the required quality standard.

A solution to these financial issues is microfinance. The results of the household survey show that currently, the most important financial sources in Batticaloa are government banks. NGOs, Community Based Organization (CBOs and moneylenders are equally ranked as the second most important financial source. Informal financial lending is high among selected households, mainly due to land ownership issues which give rise to a lack of collateral. Therefore, the availability of microfinance can go a long way in bridging this. Although many microfinance institutions already operate in these areas, and some government banks also engage in microfinance activity, greater awareness must be generated among the population on the availability of such schemes, as well as their benefits. At the time of conducting the survey, most of the villages in this area had an active producer organization or farmers’ organization. These could potentially be a useful medium through which financial institutions could reach the working poor.

A lack of access to inputs is a third obstacle faced by Batticaloa farmers. Insufficient access to seed paddy is a problem, which has become more severe as a result of the floods experienced in the region in early 2011. This contributes to the consistently poor quality of the paddy produced by farmers and, consequently, to the low prices received at the marketplace.

Visvalingam, a farmer in rural Batticaloa, installed a pilot micro-irrigation system on his vegetable plot in 2009, with UNIDO funding. He now earns Rs. 18,000 more a month due to higher yields and lower costs, after moving to better productivity technology for irrigation. Despite his optimism for the future, however, Visvalingam echoes the gripes of other farmers in the area, that getting micro loans from local banks is nearly impossible.

http://anushwij-photos.blogspot.com/2009/10/how-better-technology-is-helping-mr.html

“We get deceived when buying seed paddy” - A farmer from Mandapathadi

Access to crop insurance is also limited in Batticaloa. Additionally, a lack of market access and of infrastructure facilities (notably transportation) contributes to the phenomenon of the ‘working poor’ in this area.

Conclusion

Adverse weather and climatic changes, capital shortages, high cost of inputs, access to credit difficulties, and poor quality of output are affecting agricultural productivity in Batticaloa, and impacting on the incomes of the farmers in Batticaloa. Among these issues, capital shortage emerged as the most pressing issue that needs to be remedied.. Meanwhile, introducing short-age seed varieties, as well as drought tolerant and flood resistant seed varieties could help to overcome issues generated by climate change. For this, greater investment in agricultural research and development is critical. More access to microfinance is also required, to help ease financial constraints faced by the agricultural community. Developing agriculture-based rural entrepreneurship can also be a solution to the problem of seasonal unemployment among agricultural workers. Interventions such as these, particularly those that could improve agricultural productivity, have the potential to pull up the ‘working poor’ in Batticaloa out of poverty and ensure better living standards in the future.

The author acknowledges valuable inputs received from Dr Parakrama Samarathunga (Research Fellow –IPS) and Asha Gunawardena (Research Economist – IPS) in developing this article.

References

1. Department of Census and Statistics (DCS), Household Income and Expenditure Survey (HIES) 2009/2010. 
2. This study was carried out in four districts in the Northern and Eastern provinces: Ampara, Trincomalee, Batticaloa and Vavuniya. 
3. Department of Census and Statistics (2009), “Sri Lanka Labour Force Survey – Annual Report 2009” 
4. This study was carried out in January 2011 immediately after severe floods in the Northern and Eastern provinces and therefore this figure might not be representative.

Source IPS.LK