Digitalisation

Urgent need for justice reforms: Digitalisation can lead the way

Originally appeared on The Morning and Daily FT

By Tiffahny Hoole and Sumhiya Sallay

The Supreme Court, in the 1994 case of Jayasinghe v. AG, correctly asserted that “justice delayed is justice denied” (1). While the very apex of the justice system recognised that delays in court proceedings hinder litigants’ access to justice, there is a major backlog of cases in Sri Lanka. The entire court process, from the point where a case is taken up to court until its final verdict, is an extremely time-consuming process.

The operation of a country’s legal system significantly influences several components of its economic development such as the optimal allocation of resources and the increase in total factor productivity (2).

In 2021, a three-year plan targeting digitisation of courts was implemented to make the judicial system more efficient. Digitisation of the courts would mean a more streamlined process of court hearings.

Shortcomings of the Sri Lankan legal system

By the end of 2019, there were 4,767 pending cases to be heard in the Supreme Court, while 6,813 were to be heard in the Commercial High Court (3). In the speech delivered by the incumbent Minister of Justice at the Bar Association’s 47th Annual Convocation, it was stated that a total of 766,784 cases were pending by the end of 2019, with approximately 350 judges to hear those cases (4). The situation was only exacerbated in the wake of the Covid-19 pandemic. With periodic lockdowns consequent to seasonal outbreaks of Covid-19 cases, both the Supreme Court and Court of Appeal suspended proceedings (5).

The increased backlog of cases prior to and during the pandemic is attributable to the very nature in which the justice system operates. Sri Lanka’s court procedure and practice has been heavily reliant on in-person proceedings, physical filings, and production of documents and evidence respectively (6); a system too archaic to withstand any external shocks such as natural disasters, fires, or more specifically, a pandemic.

Ease of doing business: A point of discussion

The continuous delay in court proceedings over the years is one of the key factors which contributed to Sri Lanka’s low rank in the World Bank’s “Ease of Doing Business” index (7). Contract enforcement is one of Sri Lanka’s worst performing pillars in the index, as it ranked 164 out of 190 countries in 2020 (8). The average time period required to enforce a contract stands at 1,318 days (3.61 years) (9). In comparison, New Zealand, which topped the index, takes 216 days (0.6 years) (10). In his speech, the Minister of Justice further stated that market research prior to any investment would result in flocking towards countries with higher indexes, concluding that we would be losing “big” (11).

With the data highlighted by the index, in conjunction with prolonged lockdowns, the Minister of Justice soon realised that the backlog in cases had reached saturation. Speedy resolution in litigation is a prerequisite on foreign investments (12). Thus, with the aim of administering the public’s access to justice, major reforms are finally underway.

Reforms: Future of court procedures in Sri Lanka

Upon comprehensive studies conducted in 2017 with the assistance of the Information and Communication Technology Agency (ICTA) in Sri Lanka, the Ministry of Justice embarked on a court automation and digitisation project (13). In the recent Budget 2022 speech, the urgent need for reform was highlighted by Minister of Finance Basil Rajapaksa. Following this, a proposal to allocate a further Rs. 5,000 million towards this cause was presented (14).

The Covid-19 pandemic brought to light how far behind Sri Lanka is in terms of judicial digitised systems. Many countries were able to quickly recover post-Covid, as they already had systems in place to shift to virtual court hearings. However, courts, and other dispute resolution mechanisms such as mediation and arbitration in Sri Lanka, were far behind.

Prior to the commencement of this project, digitisation in court proceedings was being experimented in selected courts on an incremental basis. In November 2020, the “Virtual Courthouse Programme” was pioneered by the Commercial High Court in partnership with Sri Lanka Telecom and the Colombo Law Library (15). Similarly, a key person interview conducted by the Advocata Institute brought to light the efforts made by the lawyers in the courts of Mount Lavinia to transform court proceedings to an entirely virtual platform. In response to the pandemic, reformation was witnessed on an incremental basis. Finally, operations of virtual court hearings were formerly recognised by the Coronavirus Disease 2019 (Temporary Provisions), Act No. 17 of 2021, subject to the condition that physical hearings cannot be held (16).

Nevertheless, by taking into account the complexity and gravity of court procedure, it was understood that reform needed to be holistic. Accordingly, digitisation is not limited to virtual court hearings but also envisions the registration component of the judicial system. This includes scheduling, managing documents, recording proceedings, etc. Furthermore, payment of court filing fees will be shifted to an online platform. In respect of court hearings, reformation is twofold; the first phase is a pilot project which covers 18 courthouses within the Colombo District (17). The second phase is expected to implement court automation procedures across 100 courthouses in Sri Lanka (18). In the interim, existing online platforms such as Zoom and Google Meet will be utilised for this purpose.

A major challenge going forward will be data security and privacy. However, the issue of security already exists even with physical documents and in-person court hearings. Documents are tampered with, stolen, or even damaged. Witnesses may be coerced to perjure in or outside court. Thus, moving towards an online platform will circumvent the damages caused to case documents such as a fire, similar to the recent incident in the Supreme Court Complex (19). In order to minimise the concerns raised, the Ministry of Justice has partnered with professional experts in the ICT sector to build a data protection and data security plan and develop remote data storage facilities (20).

The long-term benefits of digitisation

In the long term, digitisation and automation will make the litigation process far cheaper. Litigation in Sri Lanka is known to be a very expensive procedure. Instead of requiring a 100-page document to be submitted to each judge on a panel prior to the case hearing, litigants would now be able to send a pdf through an online portal. Electronic delivery of paper documents would also speed up the filing procedures (21). Rather than having to commute all the way to a district court that is outside one’s residence, litigants are able to participate in court hearings through Zoom.

Reforms in the justice system play an essential role in restoring the confidence of investors. A representative of the World Bank in the Legal Department highlighted that encouragement of foreign direct investment is at the forefront of government thinking behind legal reform (22). In the wake of the pandemic, it is pivotal that the State prioritises and ensures such essential reforms do take place so as to attract foreign investors. Justice is only delivered in the absence of delay.

References

The opinions expressed are the author’s own views. They may not necessarily reflect the views of the Advocata Institute, or anyone affiliated with the institute.

Our depressing debt diagnosis

Originally appeared on The Morning

By Dhananath Fernando

Sri Lanka must understand how it got here before getting out of here

Last week, the Central Bank announced all export proceeds should be brought into the country within 180 days of shipment. Additionally, they stated that all exporters should convert 25% of their foreign currency earnings to LKR from the invoice value upon entry into the country. This was brought in just a few weeks after they restricted forward purchasing for importers. With these two moves, Sri Lanka’s debt sustainability has come under the spotlight once again. Recent reports from Standard Chartered Bank and Barclays Bank have also contributed to the discussion.

It is clear that the Government and the Central Bank are looking at the problem differently to how investors, financial markets, and other stakeholders perceive the problem. Indeed both sides share their opinion with good intentions of overcoming the current turbulent time. 

As per recent media reports and a press release by the Central Bank, their objective is to build non-borrowed foreign reserves in order to meet our debt commitments. The Government is looking at the problem as a cash inflow-outflow problem. Accordingly, the Government expects about $ 32-35 billion inflows, about $ 15 billion from exports, about another $ 7 billion from remittances, and about $ 1.5 billion from tourism, with foreign direct investments (FDIs) and other transfers, etc. filling the balance.

On the outflow side, the Government expects about $ 19 billion for imports and sovereign bond payments are about $ 2 billion every year, so the debt can easily be served without any problem according to the reports. It further states that total sovereign bonds are about $ 15 billion which is about 17% of total debt, and none of the other creditors have made any concern over our debt sustainability. Recently, the Governor made remarks that the Central Bank buys about $ 10 million per day to build up reserves so we can cover all debt commitments. According to his view, the outlook on exports, FDIs, tourism, and remittances looks positive with the vaccination drive. 

On the other hand, investors and other agencies are of the view that reprofiling debt with International Monetary Fund (IMF) support is the best solution at hand as our foreign reserves are eroding faster than expected. They see the problem as a solvency problem rather than a cash flow problem; that we need to buy time to bounce back with a lesser impact on the entire economy. It’s not that all reserves are liquid as some reserves are in gold and some IMF commitments and swap commitments are already included in the available reserves of about $ 5 billion. The question from the investors is: “If the cash flow is smooth, why does it continue to erode the reserves which are now at a historic low?” In this context we have to evaluate what we should do and what is possible to do.

Let’s get into the basics. In the debt discussion, we have all been debating on how we can settle the debt and how we can keep our noses above the water. But we should not forget the reasons that brought us to where we are today. We borrowed beyond our capacity at high interest rates and invested in projects which generate returns far less than our payment capacity. In other words, we borrowed at market rate and invested in non-tradable goods which did not generate any tradable return necessary to repay a part of the debt. Since we have failed to avoid the causes of the problem, now we have to pick the best possible escape route from the problem.

Secondly, in my view, we have to estimate the extent to which we can build up reserves by buying USD from the market given the current policy stance. The Government has committed to a policy to keep the interest rates unchanged and keep the exchange rate to USD in the Rs. 185 range. We need to understand that the USD inflow estimate of about $ 15 billion is not owned by the Government but by the exporters, and so are our remittances. The same applies for the imports where importers have to have money from the market to import the basics such as fuel, pharmaceuticals, etc. In this context, to build up the reserves, the Government has to buy USD from the market and that is how the Government can capture the USD available in the market from exporters. To do that, the incentive structures have to be there for exporters to sell more USD rather than save USD. Currently, the interest rates for USD are higher than interest rates for LKR accounts, so expecting a currency depreciation, the market perception is more skewed towards keeping their money in USD form. To overcome that incentive discrepancy, when the Government imposes a regulation to procure the USD earnings by exporters within 180 days and to convert 25% upon shipment, it is likely that the exporters under invoice consider options to park their money in offshore accounts, which will further erode our inflows. 

At the same time the regulation will impact some exporters who run on thin margins who have a portion of imports in their exports. On the other hand, the companies who have USD commitments and agreements with other companies now have to face extra pressure and loss on conversions due to this regulation. 

In my view, the sovereign debt problem has a broader dimension beyond just calculating cash flow. Because the Government owns the debt and because the USD cash flow is owned by private businesses and individuals, the Government requires a mechanism to capture it either by taxation or mopping up the liquidy from the market by tightening the systems by allowing the interest rates to move upwards. That will slow down the economy. The Government’s current strategy of buying their own Treasury bills and bonds, in other words printing money, will add constant and excessive pressure on imports through channels where the imports are open, though we have a import control policy. At the same time, it is highly likely that the excess liquidity will convert to credit with the economic recovery from Covid-19 and add pressure on inflation and cost of living. We have to keep in mind that while we build reserves by buying USD from the market, we might have to sell some of it again to keep the exchange rate stable. Changes in the exchange rate will affect our debt-to-GDP ratio.

It is true the sovereign nations have the legitimate power to print money, but ultimately what consecutive governments consumed by taking debt has to be paid in real terms by earning it real value, and there is no shortcut for it. Very importantly, while the debate is on as to what route we need to take, we should not forget the reason that brought us here.

The opinions expressed are the author’s own views. They may not necessarily reflect the views of the Advocata Institute or anyone affiliated with the institute.

Why is the President being ‘landed’ with this request?

Originally appeared on The Morning

By Dhananath Fernando

A digital land registry could help our rural masses 

The “Gama Samaga Pilisadarak” is the President’s most recent engagement programme. Positives and negatives of the programme have both been openly discussed on mainstream and social media. As per media reports, the programme is structured in such a way that officials of key ministries, such as Land, Education, and Road Development, visit villages with the President. 

People are then requested to put forward their problems before this entourage of officials. They try to solve the problems at the location itself, directing the state officials to act faster. The President mentioned that following such a course of action has helped build local infrastructure and helps him understand people’s problems better. 

On the contrary, on social media, views have been expressed on forest destruction concerning areas where the President has been visiting, and describing this as an attempt to prioritise development at the expense of our green cover. 

The objective of today’s column is not to provide a commentary on “Gama Samaga Pilisadarak”, but an effort to put things into perspective regarding the most common concerns people have been putting before Sri Lanka’s First Citizen. Secondly, we aim to explore why the very same issues are being repeated in most of the villages. In my understanding, the problems presented to the President are just symptoms of a bigger problem, and it looks like the solutions instantly provided by the officials are just temporary solutions without understanding the problem at its root. 

Most frequent requests made to the President, as have been telecast in the news, are requests for land to conduct agricultural activities. The fundamental question is why solving issues surrounding land has become a common-priority request, as we saw on television, with people screaming and pleading the President to get their land matters solved.

As indicated multiple times in this column, about 80% of Sri Lanka’s land is owned by the Government. Out of that, about 30% is our forest cover. As a tiny island, land is obviously a limited resource in economic terms. Therefore, if we fail to optimise the utilisation of land, all the natural beauty and biodiversity we brag about is most likely to fade away from us. 

Creating land, like what we did with the Port City, is extremely expensive and environmentally costly. The problem lies in the fact that most of the land our farmers cutivate is only under a licence, and they do not have a title. As a result, the farmer has to visit the Divisional Secretariat to obtain a license, renew the license, or even to obtain approval to change the crop they cultivate. 

Smaller and smaller portions

Most of these lands our farmers cultivate are provided under different land and agricultural projects. Over generations when the original land is divided among family members, the land plot becomes smaller and smaller.

For example, look at what happens when the original land of five acres is provided to a farmer, which in turn is divided among his four children. This will get subdivided after the next generation. Now, instead of five acres, only about 25 perches of land will now be available, and this has limited scope for agriculture. As a result of these smaller land plots over generations, industrialisation or commercialisation of cultivating lands is unfeasible.

Employing technology and machinery to increase productivity on a 25-perch land plot is not feasible. As a result, people ask for more lands from the Government, or encroach on forest cover to do their farming.

On the other hand, these lands do not have titles. So farmers are unable to optimise the maximum usage of the land using technology, because they have no source for capital. They don’t have other assets to use as collateral to access finance, nor are the banks willing to provide them loans without any valid collateral.

As a result, the land problem has become a vicious cycle. These circumstances have led to a scenario where a combination of factors continue to make our farmers poorer and our agriculture unproductive, while trapping our farmers in informal loans and creating severe social concerns such as suicide. There is the additional issue of contributing to the loss of our forest cover and destroying our biodiversity. 

If we look at countries that are in deep poverty, one of the common denominators is that the people of those countries do not have their land and property rights. There is no magical formula for an economy to take off without establishing property rights for their citizens. 

The President expressed his displeasure at rumours circulating on social media on the destruction of forest cover, but until we provide a permanent solution to this problem, we will lose out on every front. The President will have to hear the same complaint at every location he visits.

On top of that, the Government has decided to stop all agricultural imports for the next four years, as per reports by The Morning. This will most likely worsen the situation. Food prices will go up, and more farmers will attempt to do agriculture by practicing their unproductive farming methods. 

The rising prices will punish all our poor consumers already suffering from the high cost of living. At the same time, our tourism will suffer, as it needs some imported agricultural products to prepare the cuisine. However, it is understandable that balancing such a dilemma when foreign reserves are depleting is going to be a serious challenge.  

What is the solution?

The President has a greater opportunity to capitalise on this matter economically as well as politically. We have to have a digital system and a digital land registry. As soon as the “digital land registry” is spelled out, many associate it to the three-letter “MCC” agreement. That is now gone, and there is very little value in debating it now. 

But over the next four years, the President can prioritise the digital land registry, which will mark forest cover on the cadastral survey system with GPS coordinates. It will increase Government efficiency drastically, release the dead capital of land among farmers, and investments will start kicking off. Most of the back-end work has been done, and cases for the need for a digital land registry have been developed. 

The question is: how are we going to find money to implement the survey and purchase the technology? We have to seek out multilateral donor agencies, or a potential bilateral loan, to secure the funding, as this will create massive economic potential. Setting up a digital land registry will be significantly impactful, rather than just developing a road or incurring another massive capital expenditure. 

This is an action which will move us upwards in the Ease of Doing Business Index, and build investor confidence. At the same time this will fall perfectly in line with the President’s manifesto of “Vistas of Prosperity and Splendor” under a digitised economy. 

The ripple effect will trickle down to smaller cases at courthouses, as well as to micro and small business enterprises when the project unfolds. 

Since there have already been many land deed programmes such as “Jayabhoomi” and “Swarnabhoomi”, this will not be a simple and easy project. Having the simple digital infrastructure ready is the first step to address these issues, both at present and in the long term. 

The main opposition comes from lawyers, as they are the main beneficiaries of delayed court proceedings. If the President focuses on this single reform, it will not only be the best-ever environmental conservation reform to protect our green cover, but also a historic economic reform to unlock our dead capital, and reactivate capital markets and agriculture. Most importantly, it will be a big relief for our farmers and fellow Sri Lankans.

The opinions expressed are the author’s own views. They may not necessarily reflect the views of the Advocata Institute or anyone affiliated with the institute.

Unlocking the Potential of Micro, Small and Medium Enterprises Essential to Sri Lanka’s Post Covid Economic Recovery (Part 2)

Originally appeared on Colombo Telegraph, Daily News and Daily FT

By Ayesha Zainudeen

Small and medium-sized businesses (SMEs) represent over half of the businesses in Sri Lanka. They also provide an important source of employment for a large part of the labour force. They have been dubbed the ‘backbone’ of the economy in national policy frameworks. Supporting this sector and helping small businesses to grow should be an important part of the national strategy for post-COVID economic recovery. 

This article is the second in a multi-part series by the Advocata Institute and LIRNEasia on what needs to be done to empower Sri Lanka’s micro, small-medium businesses for post-COVID economic recovery. In Part 1, the Advocata Institute examined the barriers faced by small businesses to formalization and what needs to be done to lower them. In this part, LIRNEasia looks at what is holding SMEs back, through the lens of digital exclusion.

Connectivity is related to better business performance

 A 2019 LIRNEasia survey of SMEs across Sri Lanka showed that businesses classified as ‘high’ ICT users performed considerably better on a number of indicators such as revenues, profits, number of customers, etc. (Figure 1).  Perhaps most interestingly, they were also connected to a global value chain in some way. 

Figure 1: How SMEs classified as high ICT users are different to those classified as low ICT users (Source: LIRNEasia AfterAccess SME survey, 2019)

Figure 1: How SMEs classified as high ICT users are different to those classified as low ICT users (Source: LIRNEasia AfterAccess SME survey, 2019)


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