Future financial centres are unlikely to be studded with high rise skyscrapers with big brand logos illuminated with neon lights, as one could find in cities such as Dubai, Frankfurt, London, New York, Singapore or Tokyo, employing thousands of people.
Global financial markets, and multilateral financial institutions, multinational banks and banking practices have changed drastically with the advent of global financial crisis and the resulting economic slowdown.
This writer is of the view that through regulatory tightening it is impossible to regularise the unethical behaviour of the irresponsible bankers whose short-term profit engineering culture has challenged the mere survival of the banking industry.
On 8 September, United States Consumer Financial Protection Bureau (CFPB), imposed a fine of $ 100 million on Wells Fargo Bank, for illegally opening secret unauthorised deposit and credit card accounts. Wells Fargo fired 5,300 employees for opening two million odd accounts without customer’s authorisation. Wells Fargo CEO John Stumpf has tendered his resignation from the Federal Reserve advisory council in San Francisco. The local media reports that similar practices were also common amongst MNC banks operating in Sri Lanka.
Putting good money behind bad to resurrect failing businesses is not a good option. Instead, good money needs to be invested wisely as seed capital in good projects, start-ups, innovative enterprises thriving in the new era founded on Internet of Things.
Policymakers need to always step ahead and be inspired with a vision to align all forces towards a right strategy. Sri Lankan politicians are often confused between vision and good intentions. Unfortunately, it appears none of the major political parties in Sri Lanka is working with a clear vision. They may have good intentions and master plans, yet the challenge is how to convert their plans into reality. Visualising the future with the right foresight and mobilising resources to achieve that future is what is expected out of the political leadership.
The new ‘Chinthanaya’
In the light of aforementioned developments, the overnight new ‘Chinthanaya’ to make Colombo an International Financial Centre by the Government needs a thorough analysis.
President Maithripala Sirisena recently expressed his confidence in the mega-coalition government to continue till 2020, can we dream of Colombo becoming an International Financial Centre by end of his tenure?
A vision enables missions and goals. Goals are dreams with dates attached. In the absence of a clear vision backed up with a mission in place, no one can initiate actions anticipating benefits to accrue to the citizens with purely on good intentions. I wonder about the right meaning for intention – in Sinhala, is it ‘Chethanawa’ or ‘Chinthanaya’?
But history has proven that, without a clear strategy, good intentions have not delivered results anywhere; except for mere political slogans to sell hope for the electorate. The irony is, the absence of one clear strategy backed with a vision forces policymakers and think-tank advisors to get sucked into someone else’s strategy.
The ‘String of Pearls’ theory is one such strategy China put in place around the Indian Ocean region as early as 2005. This was perceived as a Chinese strategy towards achieving military supremacy by constructing ports around the Indian Ocean, enabling the People’s Liberation Army Navy to build up naval bases in these seaports including Hambantota.
The energy-dependent China’s main concern and interest has been to secure uninterrupted passage for its petroleum imports passing through the seaports identified in the String of Pearl localities. Hambantota was identified as one pearl sea port in the string starting from Hong Kong spreading up to Kenya. However building an airport in Mattala and Colombo Port City project in Sri Lanka was certainly not a part of the String of Pearls strategy.
Having constructed the airport in Mattala, and initiating the reclamation work around the Colombo Harbour, now Sri Lankans are thinking of a strategy. This is a reactive strategy as we did not have any right proactive ones. That too, to make the port city a financial centre, ignoring the negative developments in the industry with the advent of the global financial crisis impinged on the excessive financialisation of debt.
This writer highlighted the impact of soaring debt level in a previous article and argued how investment capital is inching towards diminishing returns in the near future.
Sri Lankan policymakers are yet to learn from the past. In the late seventies, Mahaweli Development projects in Sri Lanka were accelerated to supply excess electricity to India. Two hundred garment factories were built to provide employment to rural poor on the advice of apparel merchandising agents of MNC brands to make a killing, by exploiting the rural labour force by undercutting rates with factory owners, driving the race to the bottom.
Seashores to Seychelles
Having commissioned the Colombo Port City project, the previous administration under President Mahinda Rajapaksa was keen to invite casino capitalists from Australia. The controversial Casino Bill presented in Parliament marked the beginning of the end of his administration.
The ongoing investigation of frauds and corruptions of the previous administration reveals the degree of influence the money laundering agents enjoyed those days. Teaming up with these agents, mega deals emerged with the patronage of influential ministers of the then Government. Reclaiming the seashore adjacent to Colombo Port and linking Colombo with Seychelles with weekly Mihin Lanka flights became popular overnight.
The new Government of President Maithripala Sirisena and Prime Minister Ranil Wickremesinghe inherited a badly-managed economy battered with corruption and nepotism with misallocation of debt capital on mega projects not yielding any worthwhile returns to the economy. It appears that the new Government too is getting quite close to these casino capitalist gurus, investment bankers.
There were some media reports about making Colombo a Dubai-type financial centre and encouraging an undisclosed Belgian/Luxembourg philanthropist to park $ 1 billion in Sri Lanka to top up the country’s foreign reserves.
Sri Lanka’s competitive advantage
Sri Lanka’s competitive advantage mainly depends on an expanding digital on demand service economy. Therefore, it is important to develop Colombo as services and logistics hub to cater and benefit out of the trade volumes expected to increase with the China’s One Belt One Road strategy.
In line with this, the new city centre needs to be developed as regional innovative ‘Start-up Hub’ for all integrated services, not limiting it to the finance industry. Sri Lanka needs to tap and attract the ‘intellectual capital’ to succeed. The proposed new port city has to evolve as a centre that offers solutions to human problems efficiently and effectively.
New definitions of future prosperity will certainly be measured in terms of providing affordable solutions to human problems just in time. Otherwise, chances are such that the proposed International Colombo Financial centre could be hijacked by the global money launderers for their own rehabilitation and resurrection.
There are so many Sri Lankan experts and specialists living overseas who could mobilise the much-needed intellectual capital and talent to set up an innovation and creativity hub in Colombo, provided the political leadership works with a clear vision and creates a conducive atmosphere.
What are the key infrastructure developments and the ancillary capacity development works need to put in place in Colombo now, to reap the benefits in future?
To answer the aforementioned question first one should visualise, what will be the shape of future capital markets and financial systems evolving in the current on-demand digital economy? Will capitalism remain intact in the modern era of Internet of Things?
Centuries-old economic theories which defined capitalism have misled about its functions. The bitter lessons on over-dependence on financial markets that has proven inefficient should always be kept in mind while developing Colombo as a creativity hub, compatible with the on-demand, platform-based digital economy.
Accordingly, the new business models will be driven by capital light, data intensive and platform-based start-up firms. As such global venture capitals, green funds and sustainable responsible investment funds should find Colombo as the new destination of responsible finance and investment.
We need to think beyond win-win situations, the best could be a win-win-win situation involving China and India combination, where Sri Lanka can act as middle and soft power, as the island nation has done on many occasions in the past.
In the 21st century, Sri Lanka should be ready to create its own identity and project that image to the rest of the world and invite those who are keen to do responsible businesses enabling a shared and sustainable future, instead of a borrowed future founded on unsustainable debt.
Enabling this to happen, it is high time that Sri Lankan’s visualises the opportunities across the regions and globe and starts to think locally and act globally. Think locally should not get mixed up with the ‘Islanders’ narrow scope, while recognising the trends of reverse globalisation.
(By Jayasri Priyalal)
The writer is the Regional Director responsible for Finance Sector; working with UNI Global Union Asia & Pacific Regional Organization in Singapore.