Path To Progress: Building 'Brand Sri Lanka'

Lanka Management Digest

May, 2006

Interview with Husein Esufally CEO Hemas Holdings, Sri Lanka

Husein Esufally has strong views on creating a national identity, promoting unity and fostering development. Rochelle Jansen takes note.

Q: We have been an independent nation with development aspirations for over 50 years now. How best can we fast-track this process to successfully carve out a niche for ‘brand Sri Lanka’?

A: As a nation, I feel it is very important for us to have an agreed collective understanding of what ‘development’ means. Today, there are various indices that measure development – not only in fiscal terms, but also in social dimensions. Once we are clear about this, we should benchmark our pace of development against other countries so that we have a realistic assessment of our own progress. I am impatient by nature, and I become impatient when people say that 50 years is not a long time in a country’s development.

To really establish a strong brand identity for Sri Lanka, we need to be very clear about where our differentiated competitive advantage lies. Once we have worked this out, we must bring all stakeholders – both within Sri Lanka and in the target markets where we want to build our brand identity – to work towards a common objective. In order to succeed, it is essential that there is a good working arrangement between the public and private sectors to realise our goals.

The apparel industry has achieved some notable successes; and in a span of just over two decades, Sri Lanka has positioned itself as a high-quality, reliable supplier of value-added garments.

Contrast this, for example, with tourism. I don’t think we have worked out exactly how we want to position ourselves. This is why we lose out to other resort destinations such as Thailand and the Maldives, which have differentiated offerings. Merely stating that we want Sri Lanka to be an upmarket destination won’t do. We need a much more effective partnership between policy-makers, the private sector and our various overseas partners.

Q: What, in your opinion, are the most pressing issues facing the nation today? How can these be overcome and who should act upon them?

A: One of the key issues facing the nation is the lack of opportunity – real or perceived – for young people. On the one hand, you get youth from the north and east who have lived in an environment of conflict all their lives. On the other, you get youth from other parts of the country who feel largely excluded from the relative prosperity enjoyed by ‘Colombo folk’.

Clearly, a lasting solution to the ethnic crisis that has devastated this country for nearly 25 years is the most urgent priority. No doubt there are difficult and complex issues, but if we could do this, the economic and inspirational returns would be huge. Notwithstanding this, there are other urgent economic and fiscal reforms that need to be accelerated if we are to create double-digit growth, which is the stated aim of both major political parties.

I believe that we in the private sector, too, can make a difference by engaging with the government and rural society – especially the youth – in understanding their needs and aspirations better, and factoring them into the way we do business.

CORPORATE ANGLES

Q: How would you SWOT the Sri Lankan private sector?

A: I would rate the key strengths of our business community as our relatively ethical business practices, the ability to survive or even thrive during conflict and our optimistic outlook. In terms of weaknesses, I would list the lack of international exposure, lack of skilled technical and management talent, inadequate R&D and the lack of a strong strategic focus. Opportunities would include leveraging skills to explore overseas markets – especially in service industries, participating in the offshoring industry, rising incomes and favourable demographics, and creating a burgeoning consumer market.

I believe the single biggest threat facing the business sector is the prospect of hostilities resuming in the north and east, and a breakdown of the peace process. There is also the inability to implement infrastructure plans – especially roads and power.

Q: What is the role of business in the peace process? Why has the corporate community not been successful in contributing towards a cessation of the conflict?

A: For the corporate sector to be an honest broker between the government and the LTTE, it has to first have the trust and confidence of both parties. Unfortunately, the corporate sector does not enjoy this at present.

It can and must, however, support the protagonists in bringing the peace dividend to the people most affected by the conflict. If there is a clear and permanent cessation of hostilities, there would be no shortage of businesses looking to invest and grow in these areas.

Q: How do you rate Sri Lanka’s country-risk profile is at present?

A: The risk profile of a country is mostly relevant from an international perspective. In this sense, political risk would be the biggest factor affecting Sri Lanka’s risk profile. Unstable governments, inconsistent government policies and the north-east conflict have a direct bearing on economic growth. When Sri Lanka is assessed for its investment outlook, these factors have a negative impact in shaping our risk profile.

Although Sri Lanka has great potential in areas such as health care, leisure, financial services, telecommunications, etc., when the above-mentioned factors are taken into acco­unt at a macro level, it is difficult to arrive at an assessment that is on par with the risk profiles of some of our neighbouring economies.

Risk is also largely about perception; and in this regard, we score very poorly internationally. We dwell too much on bad news and not enough on reporting positive developments. Whilst we do have our difficulties, we could certainly put a better spin on things through better public relations.

Q: How seriously has political instability compromised Sri Lanka’s FDI prospects?

A: If one subscribes to the theory that political instability is one of the key factors in perpetuating the conflict in the north, then there can be no doubt that Sri Lanka has lost out – big time! We have only to look at FDI inflows into countries in the region which have traditionally been much less open for business to see how much we have lost. If, however, we analyse this from a historical perspective, we see that some of Sri Lanka’s largest and most successful investments came at the height of political instability in the 1980s and 1990s. This may have been because there were significant favourable factors which far outweighed political risks – thus making a compelling case for investment. Having invested here, many of these companies have reinvested in Sri Lanka and they comprise a significant component of total FDI. They are less sensitive to political instability and are very important advocates for promoting new investment from their home countries.

Q: How can the educational system contribute towards grooming efficient and vibrant candidates for the private sector?

A: Sri Lanka has done well in terms of universal access to primary and secondary education, which is reflected in its socio-economic statistics. But we need to evolve from our traditional paradigm of school education – from that which is centred on teachers, to one that is centred on students. Knowledge should be acquired through independent discovery rather than by rote learning. Creativity should be fostered along with greater tolerance for diversity of opinion. Textbooks could include more examples, case studies and projects, based on contemporary issues, so that they bring subjects alive and allow greater interaction.

In the case of tertiary education, the problems are far deeper and need fundamental reform. The ideal of free education is noble and warranted, but anything that is free does not naturally lend itself to effectiveness. Most universities in the UK, for instance, have moved away from student grants to student loans. This ensures that students pick courses which they feel are aligned not only to their own interests but also to the job market, as they will be called upon to repay these loans upon graduation.

One major difficulty that the private sector is confronted with is the lack of employability among smart young people because of poor English-language skills. We cannot get away from the fact that the language of commerce today is English, and our inability to communicate in this medium puts the country at a significant disadvantage.

Finally, businesses value individuals who can articulate and express themselves in all forms of communication (verbal and written). Therefore, greater emphasis should be placed on developing and refining these basic skills throughout one’s formal education.

SOCIAL ISSUES

Q: Would you agree that justice is the foundation of peace?

A: I would agree that if you analyse many of our country’s – and indeed the world’s – intractable problems, deep down there is always a sense of injustice that is felt by a section of society. If not resolved, it leads to protest in different ways – the most radical being resorting to taking up arms. Adequate institutions exist in this country to provide redress to individuals or communities that feel aggrieved. But unfortunately, justice has not been seen to be done and issues have escalated. Barriers to the proper dispensation of justice in terms of corruption, language, speedy judgements, etc. have contributed in many instances to this feeling of injustice.

Q: Is bribery and corruption a necessary facet of the developmental stages of a post-colonial nation aspiring to achieve developed-nation status? Or is it an obstacle to business and national development?

A: I see bribery and corruption as an unfortunate consequence of a multitude of factors such as excessive bureaucracy, lack of accountability and inadequate remuneration in the public sector.

I think it impedes the progress of the nation and is indeed an obstacle to growth. It places legitimate business enterprises at a disadvantage in their transactions with the government and only helps those who would not benefit if there was a level playing field. This would certainly not be in the government’s best interest in terms of receiving value for money.

Institutionalised bribery and corruption also serves to discourage serious foreign investors who expect to transact with public officials without illegal gratification.

Implementation of reforms in the public sector towards the elimination of bribery and corruption should be undertaken as a matter of priority. Privatisation has to some extent reduced bribery and corruption, but this may not be a feasible option for all sectors of government. The private sector has an important role to play by desisting from such practices in an effort to secure a business advantage.

Q: What are your views on the state of law and order, and the increasing rate of crime in the country? What has contributed to the status quo? Which segments of society should get their acts together to ensure that Sri Lankans can live in safety?

A: It seems that the law and order situation in the country is deteriorating day by day. As a result of the protracted war, the focus of the police has shifted from standard crime-prevention duties to combating terrorism. Access to arms and the number of people willing to join the ranks of the underworld seem to be on the rise. The drug trade also seems to have created powerful mafias. All this crime is very disturbing to the majority of peace-loving citizens.

TOURISM FOCUS POSITIONING IS KEY

“I don’t think we have worked out exactly how we want to position ourselves. This is why we lose out to other resort destinations such as Thailand and the Maldives [pictured], which have differentiated offerings. Merely stating that we want Sri Lanka to be an upmarket destination won’t do. We need a much more effective partnership between policy-makers, the private sector and our various overseas partners…”

As long as part of our country is in conflict and income distribution becomes more polarised, there will always be destabilisation – and criminal elements will be able to exploit the situation. I think our country is armed with adequate legislation and institutions, but the deficiency lies in effective enforce-ment. The delay in dispensing justice is one such manifestation of this.

Whilst we look to the state to provide law and order as one of its key duties, we all have a responsibility to act in accordance with the law and impart right values – especially to the younger generation.

Q: What would you say ails the Sri Lankan people today? How have these factors contributed towards the slow pace of development? How best can these be overcome?

A: There is a sense of hopelessness that has crept into the business sector and the nation at large. Nearly a quarter century of ethnic conflict, ineffective political leadership, natural disasters and other setbacks have sapped the energy of our nation. Whilst focussing on the many individual factors that need to be addressed, we also need to lift our spirits and regain our confidence.

Sri Lanka has enormous potential, a literate and capable workforce, and the goodwill of the international community. We must come together as a nation with a common goal and a sense of purpose. This may provide the environment and be the catalyst for civil society to take a more active and energetic role. Unfortunately, we can’t do this as long as we are divided on so many fronts.

POLITICAL PERSPECTIVES

Q: How would you like to see politics in Sri Lanka change?

A: The main political parties have to provide a visionary leadership for the country today if we are to become a model nation of tomorrow. A national vision that is committed to by the leading political parties should be translated into long-term policies in all key areas. It is also necessary to get out of this vicious cycle where the government in power is trying to focus on policies to get them back into power rather than develop the country. Under the current system, we have some form of elections every year, so there can be no consistent policy over a period of time. If we are to have effective policy implementation, we need good leaders who are long-term, disciplined thinkers. The only rationale for people entering politics should be the well being and prosperity of the nation as a whole.

ECONOMIC CONCERNS

Q: How can we capitalise on our natural resources, whilst seeking to build an export-oriented economy?

A: Whilst this country is blessed with abundant natural resources, one self-evident fact is that they are limited. Given this, it is important to add value to any export of these resources to foreign markets. We have seen how the branding of Ceylon Tea and the pioneering efforts of leading tea exporters have paid dividends in terms of capturing greater value. Through these types of initiatives, not only do we garner more value, but we also capture a share of the minds of overseas consumers, thus building sustainable businesses.

QUALITY OF LIFE SRI LANKA BECKONS

“Sri Lanka has always been where my heart lies. What attracted me was the beauty of our country, the gentleness of our people and everything else that constitutes a better quality of life that people living in so-called developed nations can only dream of…”

Industry-level bodies should challenge them­­selves to move up the value chain and an effective public-private partnership shou­ld be in place to improve competitiveness.

Take tourism, for example. We know we have a limited capacity in terms of infrastructure and room stock. Whilst in the past we have not been able to attract sufficient numbers to fill capacity, we should have a clear strategy going forward to maximise the total yield from this sector. Part of this strategy will certainly include a more cohesive national marketing strategy for Sri Lanka, supplemented by greater efforts from private groups and operators.

Q: What key sectors could drive Sri Lanka in the 21st century, in a mode that will enable it to meet the Millennium Development Goals (MDGs)?

A: The MDGs represent international consensus about essential actions needed to improve the plight of humanity in the 21st century. Certain ambitious targets have been set, with eight key goals to be achieved by the year 2015, and we need a strong political consensus on key development issues in order to achieve these goals.

Eradication of extreme poverty and hunger is a primary goal. Although we have made great strides since independence in extricating a large portion of our population from poverty, there still remain more than five million people living in poverty. The government has been spending close to four per cent of GDP on subsidies and transfers, but this has not been sufficient. Development has been too focused on the Western Province, creating huge regional disparities. Therefore, the current government’s policy on regional development is a step in the right direction. Quality infrastructure is key to reducing disparities and its development should be pursued with vigour. Labour-intensive industries should be promoted to soak up the unemployment problem.

MDGs also focus on reducing child mortality, improving maternal health and combating diseases. We have done pretty well in the first two, in relation to many regional countries, but there still remain marginal groups where improvement is needed. There is an insufficient budgetary allocation for free universal health care and there is likely to be an increased demand for private health care from certain segments. This would help reduce the burden on the public system and improve its effectiveness vis-à-vis the truly needy.

Another target is to make available the benefits of new technology – especially ICT. In this regard, our early steps in deregulating the telecom industry are yielding results and we are witnessing rapid growth in the industry due to the falling prices of handsets and tariffs. The work of the ICT agency in promoting Web-based solutions to enable productivity in rural areas could play a key role in helping us achieve these goals.

Q: What prospects are there for sectors such as leisure, garments, health care, transportation and FMCGs?

A: Whilst the leisure sector underwent a lean period in the late 1990s as a result of the north-east war, we have experienced growth since 2001 – albeit with some degree of volatility. This is because several external shocks – such as SARS, the bird flu and the tsunami – impacted the industry at various times. Whilst we consider a lasting peace mandatory to reap the fullest potential of the industry, a national effort to promote Sri Lanka as a major tourist destination is a necessary condition. This effort should entail building the necessary infrastructure within the country as well as marketing Sri Lanka to the world. The absence of war in the medium term means that we would be cautiously optimistic about industry prospects.

One of Sri Lanka’s key strengths is our geographical position, and with the growth in world travel and trade, the maritime and aviation industries have excellent growth prospects. We are in a good position to make Sri Lanka a hub for South Asia, but we will have to move fast to capitalise on our advantage, given the tremendous strides being made in India in terms of upgrading its port and airport infrastructure.

Health care is one of the fastest growing sectors, both in terms of products and services. The total health spend by the government is around 1.6 per cent of GNP, compared with between five to nine per cent in developed nations. The required investment in the health-care sector by 2010 is estimated at Rs. 150 billion, which means private-sector participation is essential for the future growth of this sector. In terms of stability, this is one sector which has suffered a lesser impact from the war situation and other external shocks. The growth in medical-insurance penetration – currently at around two per cent of the population – is also likely to result in better quality health care.

Growth in the FMCG market depends to a large extent on GDP growth, and given the efforts to increase GDP growth to around eight per cent, whilst containing inflation, we can expect strong consumer demand over the medium term. Of course, lifestyle changes have seen the emergence of new categories and retail formats that will skew growth acr­oss categories. Still, the bulk of consumption happens in unbranded form – and as the industry becomes more efficient and lifestyles change, much of this will change as we have seen in developed markets. In the north and east, where a significant proportion of our population resides, consumer demand could spur significant growth if normalcy returns.

Q: As for the health sector, generic drugs is an option to help the poor. Could the corporates involved in manufacturing pharmaceuticals contribute to this, perhaps as a measure of CSR?

A: The state, through institutions such as the State Pharmaceuticals Corporation, already plays a role in securing generic drugs at competitive prices through international tenders. These drugs are made available to government hospitals around the country by the Director Of Health Services, through the Medical Supplies Division, and are subsequently dispensed to patients at hospitals free of charge. So there is already a mechanism to provide generic drugs to poorer segments of the population. It is difficult to see how corporates could contribute through their CSR activities, especially as the import and dispensing of drugs is highly regulated to ensure patient safety.

There are, however, other areas of health care that companies could get involved in – for instance, working closely with the medical profession to conduct or support medical clinics and health camps directed at poorer segments of the population.

Q: What ails the public sector? How best can it be upgraded to become a more effective arm of government?

A: It was not very long ago that the Ceylon Civil Service was the envy of our regional neighbours, and countries such as Singapore and Malaysia hired our civil servants for their skills and professionalism. The best and brightest students in the years gone by aspired to work for the civil service, where appointments and promotions were based on merit. Independence shielded them from politicians. Somewhere down the line, the system was hijacked and politicised.

One solution may be to fashion ourselves like Singapore or Dubai, which have enjoyed spectacular success over the last few de­ca­des. These countries have modelled themselves akin to corporations and are geared towards maximising stakeholder value.

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

A: First and foremost, we have to reform the overly rigid and inflexible labour market that we have created due to statutes such as the Termination Of Employment Act. It may sound counter intuitive, but unemployment will reduce if we have a more flexible labour market that allows businesses to expand and contract as and when their needs change.

What happens currently is that businesses try to adapt either by employing temporary workers (who are not as productive as permanent ones) or by investing in capital-intensive machines to displace labour, which only adds to the unemployment problem.

Secondly, in any economy, the most dyna­mic is the SME sector; and usually, it creates the highest number of new jobs – so the present government’s policy of encouraging this sector is a step in the right direction. But this policy should not be pursued by distorting the playing field, since we may end up only re-slicing the pie rather than expanding it.

Finally, we need to urgently modernise our transportation system – specifically our road network – so that transit times and costs can be reduced. Most of the unemployment is to be found in the rural areas, and an efficient transportation system will foster greater trade between regions and also allow greater mobility of labour.

Q: How can poverty be alleviated in the Sri Lankan context?

A: I don’t believe there are simple answers to this question. Development aid, subsidies, government support and NGOs are but some of the institutions and remedies directed at solving this key issue. The question is whether we have been successful enough – and whether we need more creative solutions to solve the problem?

In the past, this segment of the population has been largely excluded from the radar of the private sector, which hasn’t viewed them as consumers. However, examples such as the Grameen micro-finance bank in Bangla­desh and the Jaipur Foot Programme show how successful business models can be built, catering to these consumers whilst involving them, thereby helping to alleviate poverty.

BEYOND CSR YOUTH IN NEED

“I believe that we in the private sector, too, can make a difference by engaging with the government and rural society – especially the youth – in understanding their needs and aspirations better, and factoring them into the way we do business…”

Q: How essential is good corporate governance? And why?

A: Corporate governance deals with the rights and responsibilities of a company’s management, board, shareholders and various stakeholders. How well companies are run affects market confidence as well as company performance. Good corporate governance is, therefore, essential for companies that want access to capital and for countries that want to stimulate private-sector investment. If companies are well run, they will prosper. This, in turn, will enable them to attract investors whose support could finance faster growth. Poor corporate governance, on the other hand, weakens a company’s potential and, at worst, can pave the way for financial difficulties and even fraud.

In fact, it is especially important in family-owned companies to institute good governance to differentiate between the interests of shareholders and family managers.

PERSONAL VISION

Q: How would you like to see life in Sri Lanka change?

A: I don’t subscribe to the view that we should pursue economic development at any cost.

Whilst there may be many facets of our society and institutions that impede economic development, the social returns may more than make up for this. What is necessary, however, is to make rational choices about these decisions.

I was fortunate to have had the means to pursue a life overseas if I so wished. But Sri Lanka has always been where my heart lies. What attracted me was the beauty of our country, the gentleness of our people and everything else that constitutes a better quality of life that people living in so-called developed nations can only dream of. I cannot say that the Sri Lanka I envisaged then is the Sri Lanka we live in today, but if we get our act together, we can still build a great country.

The first thing that I would like to see change is for all Sri Lankans to be able to travel all over the country and feel welcome. I would like to enjoy the diversity of our people and our religions without feeling that I had to belong to that particular community. Be it Vesak, Deepavali or Eid, they all constitute the fabric of Sri Lanka.

In economic terms, I would like to see better roads, which I believe is a key factor that can bridge the divide that seems to have emerged between the haves and have-nots.

Q: So what is your personal vision for the country?

A: I would envision a Sri Lanka that regained its former glory as ‘The Pearl Of The Indian Ocean’. Through a series of political, economic and social reforms, we would have the fastest growth in the Indian subcontinent and would set the pace that our larger neighbours would seek to emulate. Of course, we would have been able to do this only because our political leaders had worked out a creative and honourable solution that brought our country and people together. The fruits of development would now be enjoyed not only in the cities, but all over the island, by all social classes.

Sri Lanka would now be a country enjoying a reverse brain drain and one in which even foreigners aspired to make their home. Art and culture would see a resurgence, and facilities for sports and leisure-based activities would be plentiful. Finally, it would be a country where its people would be proud to be ‘Sri Lankans’.

Read article on Husein Esufally:http://www.lmd.lk/2006/May/cov2.htm

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