THE WAY FORWARD
COUNTRY BEFORE SELF
Susantha Ratnayake speaks exclusively to Rochelle Jansen about
John Keells Holdings’ (JKH) incumbency as the ‘Most Respected’ entity
in Sri Lanka… and on the state of the nation and its engine of growth.

Q: What does it mean for JKH to be recognised, year after year, as the most respected corporate in Sri Lanka?

A: At JKH, we have an aggressive mindset that is committed to growth and value creation. We are aware that this cannot be achieved at any cost and, therefore, are very mindful of our governance structures. To be recognised time and again as the ‘Most Respected’ entity in Sri Lanka is a reflection that what we have achieved and how we have achieved it are equally appreciated. This is a great source of encouragement to all of us at JKH. 

Q: Is the business community – taken as a whole – worthy of the accolades it has received in this respect… if not, what are the lacunae and what can be done for corporate Sri Lanka to truly deserve the ‘Most Respected’ tag?

A: Given the circumstances, we haven’t done too badly. The last two decades have been challenging, to say the least. However, there’s more to do: awareness of good governance, and sustainable business practices and their benefits, could be more widespread. Additionally, the local corporate sector could be more innovative in identifying and seizing the many opportunities that are available for the private sector to actively participate in the growth and development of the economy – yes, even in an uncertain environment.  

Q: What, in your opinion, are the most pressing national issues today?

A: The conflict is the most pressing issue. This has had an impact on the overall quality of life of all Sri Lankans. The negative international publicity drawn by not just the increase in hostilities, but the general state of law and order, do not augur well for the country’s prospects of attracting investment either. Regular and ongoing dialogue between the opposing parties is important.

Secondly, Sri Lanka needs macroeconomic stability – including a stable exchange rate and low inflation – if it is to keep pace with its neighbours, and benefit from the global interest and investment flowing into the region. To achieve this, we require a stable strategy, and a regulatory framework supported by good and disciplined execution.

Thirdly, the country is, once again, seeing an exodus of young talent. This could prove to be the most costly of losses, especially at a time when we need to recoup and develop. This can only be halted if the issues above are addressed quickly. While the policy-makers have much to do, a significant role remains to be played by the private sector to support and fuel a recovery.   

THE MOST RESPECTED “To be recognised time and again as the ‘Most Respected’ entity in Sri Lanka is a reflection that what we have achieved and how we have achieved it are equally appreciated…”

Q: How do Sri Lankan companies – including JKH – venturing overseas to pursue their expansion plans affect our efforts to attract Foreign Direct Investment (FDI)? Can we expect others to invest here, when our own corporates are seeking greener pastures on foreign soil?

A: This is a common misconception. JKH, for instance, is venturing overseas in industries or sectors in which we have a strong local presence and accumulated core competencies – and where we believe we can create value and benefits from scale that is not available in Sri Lanka. The returns on investment, including dividends, will also be repatriated to Sri Lanka.

For example, in tourism, two Sri Lankan companies have substantial investments in the Maldives. They have been very successful investments that have benefited our country. We also increase the visibility of Sri Lanka, which would help attract FDI. We have not scaled back our investments in core businesses in Sri Lanka – on the contrary, we have made significant investments to demonstrate the confidence we have in the country. This would encourage, not deter, FDI.

There are numerous emerging growth opportunities in Sri Lanka – including media and telecommunications, the ports, infrastructure and property development – that will attract both foreign and local investment.

Q: How serious is the brain drain at present?

A: There is speculation of increased emigration in the past year. However, the brain drain is not a new phenomenon to Sri Lanka – given the volatile macro conditions in the past two decades. The local business sector should be commended for mitigating the extent of the brain drain. Growth and expansion in sectors such as garments, ICT, telecommunications – and even financial services – have created not just a greater number and diversity of jobs, but careers that are regionally competitive. These have attracted and sustained local talent and managerial skills that may have otherwise emigrated.   

BRAIN DRAIN “The country is, once again, seeing an exodus of young talent. This could prove to be the most costly of losses, especially at a time when we need to recoup and develop…”

Q: How do you view Sri Lanka’s current country-risk profile?

A: The escalation of hostilities has naturally taken a toll on the country’s risk profile. But despite the various incidents of violence, a greater part of the country has enjoyed an uninterrupted continuity of business. In this context, a high priority on the economic agenda of the government should be to secure positive perceptions of the country in terms of its monetary policy, fiscal prudence and ability to promote export competitiveness. A vision and strategy have to be established – and, more importantly, communicated clearly.

Q: What long-term implications will high interest rates, a free-falling rupee, high inflation and other negative economic indicators have on our economy?

A: It is important that the impact of such volatility be restricted to the short term. Suitable remedial steps should be taken in a timely manner to ensure recovery and growth in the longer term. A good example is the monetary-policy roadmap introduced in early 2007, which could be credited for controlling the rise in inflation. If this is not sustained, we will witness lower levels of investment that will, in turn, have a negative long-term impact on the economy. 

Q: Do you expect the rupee’s depreciation to be brought under control? If so, how?

A: The impact of oil prices and a widening trade deficit will make it difficult to curtail the depreciation of the rupee. It is widely expected that the rupee will depreciate further by the end of this year. While the depreciation of the rupee will promote export competitiveness, it will be necessary to balance these benefits with the negative impact on general investor perceptions and sentiment, and its effect on the cost of living.

Q: The Central Bank insists that inflation will be brought under control by the end of this year, without specifying how this will be done, at a time when the cost of essential items is increasing. How do you view this?

A: The increase in fuel and utility costs – particularly electricity – has resulted in a steady rise in the cost of essential items. However, the Central Bank has been aggressive in tightening its monetary policy and this has somewhat curbed the impact of inflation. The causes and effects of economics are always difficult to establish. What is required is a clear strategy.  

CORPORATE CHALLENGE “Companies are now expected to generate not just economic profits, but social profits as well...”

Q: How best can unemployment be addressed? What is the role of the private sector in this regard?

A: Economic activity and expansion has not been sufficiently broad-based to absorb underemployed and unemployed labour throughout the country, while the conflict has resulted in a part of the population being inaccessible to labour markets. Another cause has been gaps in the public-education system, particularly at tertiary levels, which results in a mismatch of skills.

Naturally, the private sector can play a significant role in reducing the levels of unemployment by expanding its scope of activities to suburban and rural areas, and the government has provided incentives for such expansion in certain industries. However, the level of infrastructure development, and issues such as services and accessibility, continue to hinder the progress of such expansion.

The private sector can focus more on providing equal opportunities and investing in training and development, particularly soft-skills development, which would create greater opportunities for underemployed and unemployed young people. Given the current mismatch between the numbers at O Levels, and the numbers graduating and finding employment, Sri Lanka is ideal in many ways as an offshore destination. This is one area we can quickly bring to fruition if the government and private sector could work together.

TAX BURDENS “The answer is to widen the tax net. In this context, it is imperative that tax structures be simplified…”

Q: How best can poverty be addressed? Can the business sector assist the ‘working poor’ by increasing pay levels, for example?

A: Pay levels will and should be determined by market forces and the relative worth of jobs. These will re-rate with overall economic progress. To a limited extent, corporates could also aid in poverty alleviation via their CSR efforts. There has to be a link between pay and productivity.

Q: How do you perceive productivity in the private sector? How do we compare with our regional competitors?

A: Productivity is extremely important for a country, for its products and services to be globally competitive. This is particularly so for aspiring export-based economies such as ours. High levels of inflation, if not contained, and relatively high labour costs – compared to India and China, in particular – would have a bearing on the Sri Lankan private sector’s competitive strengths in the longer term. Local corporates are evidently productivity conscious, considering the level of investment in technology and process improvements in the major industrial and services sectors. 

Q: Would you support the dismantling of the unsalutary aspects of the business-politics nexus – such that crooked politicians, for example, are no longer solicited, tolerated or felicitated by the corporate community?

A: Cooperation and dialogue between public and private sectors should be based mainly on matters such as business and socio-economic development, economic reforms or the impact of public policy on business. Companies that possess a strong set of core values and conduct their business ethically will gain the regard and confidence of all their stakeholders, and stand a greater chance of surviving and outperforming others in the long run.

Q: How great an obstacle is bribery and corruption to development and investment prospects?

A: This is commonplace in many Asian and other developing economies. Corruption impedes economic growth by diverting funds towards non-productive areas of the economy at the cost of gainful development initiatives. This discourages aid and investment, and in the long run, also affects the productivity and efficiency of the economy. We must instil a system of meritocracy, even if the journey towards it is painfully slow. It is only then that bribery and corruption will become non-entities.

RUPEE WOES “The impact of oil prices and a widening trade deficit will make it difficult to curtail the depreciation of the rupee. It is widely expected that the rupee will depreciate further by the end of this year…”

Q: What is your view of big business funding corrupt politicians?

A: Maintaining the highest standards of business integrity is vital to JKH and is an inherent part of the values we inculcate in our employees. Businesses funding corrupt officials is unacceptable, as this would naturally be in anticipation of favours. We will continue with this policy even if it means that we will lose out on projects. The government needs to decide on policy and investment in projects based on the merits and financial benefits to the country.

Q: How do you view the humanitarian and human-rights crises that Sri Lanka faces at present? What, if anything, can the business community do to address these issues?

A: The government needs to accelerate the process of resettling the Internally Displaced Persons (IDPs) and provide an environment in which they can resume their day-to-day activities.

Many corporates have assisted IDPs through their CSR programmes. Enhanced investment in areas affected by the conflict could be a solution to addressing this, but there has to be a conducive environment before such investments can be made. The key factors are freedom of expression, transparency and the existence of an institutional framework that safeguards every citizen’s rights – irrespective of gender, race or religion.

Q: Why is the business community not pursuing – with more vigour – the advocacy of human-rights issues, a return to negotiated settlement vis-à-vis the conflict and so on?

A: The business community is aware of its responsibility towards society. However, it is not in a position to directly address the human-rights issues, as is not the enforcer of the law. There have been many attempts by the private sector to encourage a bipartisan approach to the conflict in order to kick-start negotiations. Unfortunately, for numerous reasons, these attempts have not been successful… but we will continue to persevere.

Q: What is the role of business – the chambers, in particular – in the peace process?

A: The private sector can form lobby groups to push the main stakeholders to return to the negotiating table. It is important that the nation as a whole is continually reminded of the grave danger that the conflict poses to the long-term health of the economy, not to mention the tragedy of death and destruction.

Q: Can Sri Lanka ever become the next Singapore? Or is this too idealistic now, perhaps… the reality being that we should focus on becoming, say, a Thailand? Or, indeed, are we moving in the direction of becoming a banana republic?

A: The primary impediment to growth and development in Sri Lanka has been the conflict. We must not forget that the country has achieved reasonable growth rates as well as social development over the last 25 years, in spite of the conflict. Given the geographical advantage, proximity to a vast market such as India, and the knowledge and skills of our people, I believe that Sri Lanka has tremendous potential – but we should be careful about modelling ourselves along the lines of any country, as each has its pros and cons.

Q: What is your vision for the country?

A: My vision is for a peaceful Sri Lanka where all its citizens can live without fear or favour. I don’t think I need to theorise on the resultant benefits! All right-thinking people must put the country before self – we owe it, at least, to future generations.

The interviewee is the Chairman of John Keells Holdings.