SRI LANKA'S PREMIER BUSINESS CHAMBER CALLS FOR

UNCLAS SECTION 01 OF 04 COLOMBO 000309

SIPDIS

SENSITIVE, SIPDIS

STATE FOR SA/INS; STATE PASS TO USTR; MCC FOR D.NASSIRY
AND E.BURKE; TREASURY FOR S.CHUN; COMMERCE FOR E.YESIN

E.O 12958: N/A
TAGS: ECON EINV XD XO CE
SUBJECT: SRI LANKA'S PREMIER BUSINESS CHAMBER CALLS FOR
RENEWED FOCUS ON PEACE, IMPROVED HUMAN DEVELOPMENT
PROGRAMS AND BETTER INFRASTRUCTURE


1. (U) Summary: Sri Lanka's first "Economic Summit,"
sponsored in January by Sri Lanka's premier business
group, the Ceylon Chamber of Commerce, provided an
opportunity for business leaders to discuss their role
in vital issues confronting the country such as the
peace process and economic development that is highly
skewed toward urban areas. Providing economic
opportunities to marginalized populations was seen as
vital to a durable peace. Nevertheless, the influence
of statist parties continues to keep the economy from
operating at an optimal level. End Summary.

WELL TIMED SUMMIT - FOR A NEW GOVERNMENT AND FOR PEACE
TALKS


2. (U) Sri Lanka's premier business chamber, the
Ceylon Chamber of Commerce (CCC),held its first ever
Economic Summit titled "Economic Growth towards
National Prosperity" in Colombo on January 27-28. The
summit, modeled on the World Economic Forum in Davos,
Switzerland and the India Economic Summit, presented an
ideal opportunity for business leaders to consider
their role in resolving crucial problems confronting
the country. Held relatively early in the new GSL
administration, the Summit enabled new Government
leaders to interact with the business community. By
coincidence, the summit was also well timed with regard
to peace, coming only two days after the Government and
the rebel Liberation Tigers of Tamil Eelam (LTTE)
agreed to meet in Geneva to conduct talks aimed at
enhancing the ceasefire, which had been significantly
strained over the past year. The summit had four
sessions: finding a durable settlement (peace process-
related),economic growth, employee empowerment and
invigorating the rural economy.

BUSINESSES THINKING ABOUT ROAD AHEAD FOR PEACE AND
EMPOWERMENT


3. (U) Opening the summit, CCC Chairman Deva Rodrigo
said the private sector should re-dedicate itself to
facilitate peace and reconciliation in Sri Lanka.
Rodrigo set the tone for the conference highlighting
the highly skewed wealth distribution in Sri Lanka,
where 51% of the GDP is concentrated in Colombo and its
surrounding Western Province. As a result of this
imbalance in economic activity, and as a result of 20
years of civil war, regions outside the Western
Province have been excluded from growth. Rodrigo
stressed the need to remove inequalities and said there
should be opportunities for "talent and hard work" and
not "inherited privilege."

A SOUTH ASIAN GROWTH MODEL - MORE REGIONAL TRADE


4. (U) The keynote speaker, Dr Subhasis Gangopadhyay
of the India Development Foundation, a research
institute in India, discussed his concept of a "South
Asian Growth Model." The model, according to
Gangopadhyay, included increased intraregional trade,
improved agricultural development, improved health and
educational opportunities and capital investment.
Making a strong push for regional trade and giving
examples of how little intra-regional trade was taking
place in South Asia, he suggested that improvements in
this one area alone could provide the impetus for
significant growth throughout the region. He said
trade and open economic policies would bring economic
liberation to the marginalized and help the region to
embrace inclusive and sustainable growth. He said all
countries in the region need to improve value addition
in the agricultural sector, given the large proportion
of people engaged in this sector. He also listed
several policy options for South Asia such as better
quality and access to secondary and tertiary education,
improvements in the health sector and physical capital
improvement, which are needed to support all potential
economic activity.

GOVERNMENT HOPES OF GROWTH THROUGH TRADE AND INVESTMENT

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5. (U) Newly appointed Sri Lankan Board of Investment
(BOI) Chairman Lakshman Watawala spoke of economic
growth through investment promotion efforts woven
around Sri Lanka's bilateral free trade agreements with
India and Pakistan, the EU "GSP-plus" program and
government infrastructure development projects.
According to Watawala, the Government is working on
expanding the Indo-Lanka FTA to cover services.

MAJOR FOCUS ON EDUCATION AND SKILL DEVELOPMENT


6. (SBU) There was intense discussion on the urgent
need to reform the education system to provide the
skills required to fuel economic growth. A university
professor with wide experience in dealing with youth
said that Sri Lanka's young people do not have the
technical and language skills required by the private
sector. Charitha Ratwatte (former Treasury Secretary
under the United National Party government, now engaged
in private sector skills development through Outward
Bound),pushed for urgent change in the educational
system, saying there is a need to ensure that today's
youth are able to participate fully in economic
development and replace a rapidly aging workforce.
Ratwatte argued that most Sri Lankan children are given
a "useless" public education while rich children have
access to private education in Sri Lanka and abroad.
He suggested "freedom" for the education sector -
including removal of exclusive government control over
education, and broadening of curriculum options to meet
the demands and interests of business and society.


7. (SBU) Ratwatte also advocated for privatization of
higher education. (Note: Sri Lankan degrees may only
be awarded from government universities. End Note.)
He called for a change in some educational methods,
commenting that virtually all education involves rote
memorization, with no opportunity for analysis,
creativity or differences of opinion. In response,
private sector CEO's present confirmed the crisis in
education and said that they are unable to provide
employment to those thousands trained in liberal arts
programs that discourage creativity and analysis; for
graduates who obtain their university diplomas but have
no marketable skills.

EMPLOYEE EMPOWERMENT - OPEN DIALOGUE


8. (U) In the employee empowerment session, both trade
union and employer representatives said that the time
had come to change the adversarial relationship between
employers and employees into an effective partnership.
Both advocated more open communication, trust, truth
and transparency as vital ingredients to build
partnership. A trade union leader stressed the need
for a grass roots level dialog. According to this
leader, some employers do not even contemplate
partnership with unions or employees, a result of years
of past militant behavior by the trade union movement.
The human resources director of Unilever Ceylon spoke
of his positive experiences adopting an open
communication style with his workforce. A university
professor stated that the Sri Lankan workforce lives
with a great deal of insecurity, both economic and
social, due to structural adjustments, globalization,
the 20 year civil war and uncertainties surrounding the
current ceasefire. The absence of a social security
scheme for the unemployed further adds to workers'
stress. Therefore, he recommended that changes to
labor legislation be done in the larger context of
social security. NATURE (Sri Lanka's largest trade
union alliance),the Employers' Federation and the
National Labor Advisory Council (NLAC) were identified
as possible platforms to provide leadership to
strengthening the employer-employee relationship.

BUSINESS COULD INVEST IN PEACE


9. (U) In the session titled "Finding a Durable

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Solution," Irish and South African experts provided
useful insights into business community experience in
peace-building and economic development in their
respective countries. In South Africa, the business
community under the National Business Initiative (NBI)
had identified weak points in the peace process and
focused on those first. They initiated a peace
dialogue which resulted in hundreds of peace committees
(with local representatives) throughout the country.
The business community facilitated visits by
international constitutional experts to help in
constitutional drafting and had been a vocal advocate
of continued progress during the crucial stages of the
peace process.


10. (U) An Irish business leader spoke of an Irish
coalition between major businesses (including
multinationals in Ireland) and trade unions which is
known as the "Group of Seven" to speak collectively in
the peace process. He urged the business community to
work hard on peace while influencing the government and
working with people around the world who want to help.
Another Irish expert illustrated a government
initiative in Belfast which created a huge factory
complex in a Sinn Fein controlled area, which was seen
as a catalytic move, triggering investment and helping
to build community confidence in Northern Ireland
(Note: there is some interest in investing in
Liberation Tiger of Tamil Eelam (LTTE)-held areas in
Sri Lanka as Tamils are widely considered industrious
and creative. But the brutal nature of the LTTE and
lack of transparency serves as a major barrier.
However, US investment is prohibited because of the
LTTE's FTO designation. End Note).

ON INVIGORATING THE RURAL SECTOR


11. (SBU) Several top businessmen spoke of their
largely positive experiences going into rural areas for
production and marketing. Dave Ranasinghe, Director of
MAS Holdings, Sri Lanka's largest garment manufacturer,
explained how the company pumps millions of rupees
(tens of thousands of dollars) into rural economies.
In addition to 22,000 factory jobs, MAS has helped
raise rural living standards by sourcing transportation
services, local produce and meals for the staff from
local service providers. Ranasinghe said introduction
of quality management systems in the factories have
also contributed to raised living standards. In
closing, Ranasinghe urged that despite problems such as
frequent power outages, bad roads, the breakdown in
rule of law and inadequate infrastructure and services
to retain top management, there still is a need to go
to rural areas to empower the rural population (Note:
While Ranasinghe's talk focused on MAS's contributions
to the rural sector, it should be noted that most of
the garment industry investment in rural areas was at
the behest of the GSL in the mid-90s, in exchange for
significant tax concessions and other business
incentives. End Note).


12. (U) Hans Wijesuriya, CEO of Dialog, Sri Lanka's
largest mobile telephone operator and a subsidiary of
Malaysia Telecom, revealed how a technology services
company could succeed by moving into rural areas.
Dialog has adopted an inclusive approach, providing a
service that is affordable. 1.7 million of Dialog's
2.2 million customers are pre-paid (small) customers.
Rural customers, however, contribute 50 percent to
company profits. He said that the success of Dialog
in rural areas showed that technology is a great social
leveler in terms of breaking barriers.


13. (U) Directors of several Sri Lankan conglomerates,
with substantial rural presence through agriculture,
also spoke of their experiences and the need for
businesses to move into rural areas. Rajan Yatawara,
head of Hayleys, one of the largest companies in Sri
Lanka, showcased the company's successful "out-grower"
(contract farming) system that includes guaranteed

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purchase of produce and provides inputs,
entrepreneurship development and extension services.
The CEO of the state-owned information technology
agency spoke of ongoing efforts to take IT to rural
areas for socio-economic development.

WISH LIST TO THE GOVERNMENT


14. (SBU) Commenting on the government's role in the
economy, most speakers agreed that the government
should become an enabler of business. Their wish list
to the government includes improving education
(including privatization),building infrastructure
(including rural infrastructure),transparency in
government processes, fiscal responsibility, reversal
of the oppressive tax and levy regime and establishing
better rule of law. For agriculture, they sought
Government support for consistent policies, tax
concessions, credit facilities, technology support,
farmer training and greater state-private sector
cooperation in R&D.


15. (SBU) COMMENT: While some CCC members in the
audience, in private conversations with Embassy staff,
expressed doubt that the various proposals would result
in significant changes to GSL economic policies, we
believe that the CCC has the clout and is responsible
enough to try to work on at least some of the issues.
CCC is the most powerful business chamber in the
country. It has a direct impact on government policy
making (e.g., its chairman is a member of the powerful
Monetary Board of the Central Bank). Several members
also sit on the National Council for Economic
Development (NCED),which advises the Government on
economic policy. According to CCC sources, the
organization is preparing an action plan based on the
summit and identifying issues to be addressed by the
CCC and those to be referred to the Government. We
hope the CCC will play a more dynamic role in the peace
process, taking a cue from the South African and
Northern Ireland experiences. The CCC had launched a
sub-committee on peace and reconciliation a few days
before the summit. Following the summit, the
Federation of Employers of Ceylon (with strong
connections to the CCC) and trade unions have started
to discuss their roles in bringing economic prosperity
to war affected communities.


16. (SBU) Comment Cont'd: With regard to issues like
education reform, the CCC faces an uphill battle given
the current Government's statist tendencies and close
relationship with a major Marxist-Nationalist party.
The President's Economic Advisor, Nivaard Cabraal,
during his presentation, was quite candid when he said
changes in education would be difficult and would take
a long time. Consequently, education will not be a
near-term "equalizer" granting greater opportunity to
the "have nots." Private sector expectation of a more
responsible government is also illusive. The roles of
the private sector and the government were aptly
illustrated by a foreign guest speaker who said "the
purpose of industry is to create wealth. It is not,
despite belief to the contrary, to create jobs. The
jobs are created from the wealth that industry
produces." In Sri Lanka, where even some private sector
players tend to look to the Government as the main
source of solutions for societal ills, this
straightforward message needs to be heard. END COMMENT.

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