Securing Food Security

Originally appeared on The Morning

By Dhananath Fernando

World Food Day falls on 16 October. In Sri Lanka, food security has been a topic of discussion for a considerable period of time, especially gaining prominence during the Covid-19 pandemic. 

During that period, there was confusion between food security and self-sufficiency. Instead of focusing on ensuring food security, the emphasis was placed on self-sufficiency, with the belief that all food consumed in Sri Lanka should be produced within the country. There were even discussions among Sri Lankans about shifting from using lentils (dhal) to locally-grown maize.

After approximately two years, when we assess the Global Food Security Index report, Sri Lanka is ranked 79th out of 113 countries. Food security isn’t solely about achieving self-sufficiency by producing all the food within the country; it encompasses the affordability, availability, quality and safety, as well as a nation’s exposure and resilience to natural resource risks.

Prior to the inclusion of the natural resources and resilience component, Singapore led the Global Food Security Index. However, after adding this component in 2022, Singapore dropped to the 28th position, with Finland now topping the Index. India is in the 68th position, Nepal in the 74th position, and Bangladesh in the 80th position, just one spot below Sri Lanka.

Due to the economic crisis, characterised by high inflation rates, particularly in food prices, the number of people who were food insecure exceeded six million. This number has now decreased to less than four million, emphasising the significant role economic stability plays in ensuring people’s food security.

Sri Lanka’s food security has always been a challenge due to economic policies that have been against market dynamics. Monetary instability resulting from the unfettered levels of money printing led to food inflation, affecting the affordability of food. 

The Government’s imposition of price controls led to shortages of protein sources such as eggs and chicken, further impacting the availability of food. Additionally, the Government imposed a Special Commodity Levy (SCL) on selected food items as a protectionist measure, maize being a prime example, driving up prices. 

Maize is a key raw material for the aquaculture and poultry industries. Price volatility in maize also affects the prices of poultry products and other locally consumed protein sources, sometimes impacting the competitiveness of our agricultural exports. 

The Government’s approach, whether through higher tariffs or import bans, is equally detrimental. Our food security structure is simply unsustainable, with weak and unpredictable supply chains and inconsistent policies.

Ensuring food security involves addressing both macro and micro issues. A holistic approach, taking into account land rights, is essential. The documentary recently released by the Advocata Institute titled ‘Land, Freedom and Life’ highlights the challenges faced by farmers due to the absence of land rights, hindering their access to capital or technology to enhance productivity.

In addition to land rights, water management is another critical aspect that needs serious consideration. Currently, our water usage in paddy cultivation is unsustainable. We consume approximately 1,400 litres of water to produce 1 kg of rice. Even if we price a litre of water at 50 cents, the cost of the rice we consume would significantly surpass current prices. 

With the challenges posed by climate change, future water availability cannot be guaranteed. Despite the number of people experiencing food insecurity declining, our approach in food production is not sustainable. Another local or global shock could easily set us back.

The Government has attempted various approaches such as providing subsidies for farmers, free meals for school children, and free nutritional packages for women during maternity. However, in order to truly  address Sri Lanka’s food security crisis, a multifaceted approach is required. 

This should begin with macroeconomic stabilisation, providing land titles for farmers and agro-companies to enhance agricultural productivity, reducing labour costs in agriculture, recognising the interconnectedness of markets, and allowing market forces to operate.

Until these issues are resolved, World Food Day will remain a day for discussing problems without implementing solutions.

Sri Lanka state fails in the core business: administration of justice

Originally appeared on the Economy Next

By Prof. Rohan Samarajiva

In a previous column I stated that “no political or economic theorist would argue that the state should not be engaged in the provision of law and order. . . even extreme libertarians would see a role for the state in law and order.”

Sri Lanka presents a façade of a functioning legal system. Justices and judges get appointed; ceremonial sittings are held. Funds from World Bank loans are expended; buildings are constructed. Lawyers walk around briskly in court premises; many of them live well.

But it is rare to see a modern state fail so badly in this core function.

Evidence of failure

The President’s Counsel currently serving as Minister of Justice presented the evidence in a speech to the 47th Annual Convocation of the Bar Association of Sri Lanka:

– the average time to enforce a contract in Sri Lanka is 1,318 days

– We have been ranked 161 out of 189 countries for the enforcement of contracts

– Our legal system is ranked 5th out of 8 in South Asia.

– Land, Partition and Testamentary cases on average take a generation to be settled.

– A criminal trial takes on average 9½ years to conclude in the High Court.

– A criminal matter on average will take a year to be fixed for appeal and 3-4 years for the said appeal to be completed.

But this is not all. From 1978, we have had justiciable fundamental rights. Fundamental is defined as “forming a necessary base or core; of central importance.” Therefore, one would expect fundamental rights cases to be given higher priority than the cases listed above.

But that is not the case. It took the Supreme Court until 2021 February to issue a decision on a fundamental rights case, Kurukulasuriya v Sri Lanka Rupavahini Corporation (SC FR Application No. 556/2008 & SC FR Application No. 557/2008), notwithstanding the unequivocal language of Article 126(5) of the Constitution: “The Supreme Court shall hear and finally dispose of any petition or reference under this Article within two months of the filing of such petition . . ..” Instead of two months, it took 145 months.

It is said that justice delayed is justice denied. Can it be said that justiciable fundamental rights exist in Sri Lanka?

Then let us look beyond law’s delays, at egregious injustice. At qualitatively bad decisions. We had a Chief Justice who publicly admitted that he absolved the current Prime Minister in the Helping Hambantota case on political grounds.

But this man’s unjust decisions were many, as I documented in an article published in the Financial Times of 27th November 2008. A bench headed by this Chief Justice decided on the 21st of July 2008 (CS/FR 209/2007) a matter that only came up for argument on the 27th of November 2008 before a different bench. That’s right. The case was to come up in November, but the decision was given four months earlier.

The bench headed by the Chief Justice ruled on the tax exemption in July: “The tax relief granted to JKH was not permissible under the existing Regulations and JKH got an amendment tailor made for its purpose and secured the tax exemption” (CS/FR 209/2007, pp. 60-61). Yet, the respondents in the case that came up for argument in November, including the then BOI Chairman Dhammika Perera, the BOI Chairman when the tax exemption was granted Arjuna Mahendran, and former Commissioner General of Inland Revenue A.A. Wijepala, all needed to determine the legality of the exemption, were not among those noticed in CS/FR 209/2007.

By initiating a separate case that was taken up for argument on 27th November and serving notice on the above individuals, the plaintiffs of CS/FR 209/2007 conceded that the tax matter was not part of that case. Yet, the Chief Justice issued a ruling, violating natural justice.

Was the former Chief Justice the only malefactor? What about the other justices on that bench? What about the counsel? I purposely published my indictment on 27th November 2008, the day the tax-exemption case was to be taken up.

It would have been difficult to miss because the editors had put a black border around it and stated that they were not responsible for the content.

Did anyone in the judiciary or the legal profession do anything about it? Was an inquiry initiated? No. Is it unreasonable to conclude that the rot in the legal system was not limited to one out-of-control Chief Justice?

Has the Attorney General’s Department, which wields enormous power, been insulated from the rot? Does it exercise prosecutorial discretion in a fair and reasonable manner? The large number of prosecutions dropped when governments change raise legitimate doubt.

Does the Legal Draftsman’s Department do its job in a professional manner? How could a Constitutional Amendment that sets a quorum of three for an Elections Commission with a membership of three have been cleared by that Department?

How could it have neglected to include the Consolidated Fund as a continuing source of revenue for the Fund of the Disaster Management Council in the Disaster Management Act, No. 13 of 2005?

What is being done?

The current Minister of Justice is striking the right notes:

“It is vital that we look at a complete structural change from end to end and roll it out in a targeted and efficient way. We have to stop looking at the legal profession as one which exists solely for the sustenance of its members, but as one which plays a much more important role as a public centric body which is driving the justice system forward – one which is ready to innovate, to evolve and to take the right decisions at the right time to create a paradigm shift in the administration of justice.”

Even if done in a way that was not quite proper, the Minister has increased the number of judges in the superior courts. Funds have been allocated for court automation. It is hoped that the foundation laid by the comprehensive study completed in 2017 and the extensive consultations the ICT Agency conducted with the judges of the superior courts in 2019 will be built upon.

The above actions will, if adapted from a working system in another country, carefully piloted and scaled up, and supported with the necessary technical personnel, fix the dysfunctions in the “registry” part of the court system, which involves, or should involve, low discretion. If the system is transparent to lawyers, litigants and the public and is hardened to resist malicious attacks and manipulation, a key piece of the solution will be in place. But this will not, by itself, yield the desired outcomes.

The procedures and rules must be redesigned placing the needs of the litigants at the center, and not those of the lawyers and the judges. Even if it is a monopoly buttressed by archaic and arbitrary contempt-of-court rules, what the courts do is supply a service.

The litigants want a service, and they pay for it, either directly or through their taxes. They should be treated with respect and provided the services they seek at high levels of quality.

Decisions, even against those charged for criminal offenses should be of high quality in that they have been reached based on the relevant procedure, and are based on the best possible evidence. High quality also means not having to live in limbo for years, while lawyers and judges take their own cool time.

Unless procedures are reformed to put the litigants at the center, law’s delays will continue. Judges must work reasonable hours and they must impose discipline on lawyers by refusing frivolous requests for postponements. Section 63(2) of the Colombo Port City Economic Commission bill illustrates the dysfunctions of the current system:

“In order to foster international investor confidence in the ease of doing business and in the enforcement of contracts, in the national interest and in the interest of the advancement of the national economy, the inability of a particular attorney-at-law to appear before the Court on a particular date for personal reasons (including engagement to appear on that date in any other court or tribunal) shall not be a ground for postponement of commencement or continuation of the trial or be regarded as an exceptional ground warranting such postponements.”

For cases involving companies registered with the Port City Commission, the conventional rules that privilege the convenience of the lawyers are not to apply. But the rest of us will not only have to continue to put our lives on hold for the convenience of the lawyers and judges; we will also have to suffer the indignity of the fast-track litigants from the Port City cutting in front of us in the queue.

Simply reforming the rules will not suffice. The overall quality of legal education must be improved with a greater openness to innovation. The lowering of the protectionist barriers erected to safeguard the earning potential of members of the legal profession is a necessary condition. In recent debates around bilateral agreements dealing with trade in services, activist engineers told me that they need the kinds of protections the lawyers had erected for themselves against foreign competition.

Innovation requires the transfer of tacit knowledge possible only by day-to-day interactions. It is energized by competition. It is only when the legal profession becomes open to innovation that the judges who are drawn from it can become innovative and responsive.

All professions are protective of the pecuniary interests of their members. They fight back when those interests are threatened in any way. Lawyers are fearsome adversaries. Even the most astute and committed politicians approach legal reform with trepidation. They understand that the reform will take the form of trench warfare unlikely to yield results within the political cycle. They devise workarounds.

Politicians can at least try. System-level workarounds are unavailable to ordinary citizens and businesses. Their workarounds are petty and, in some cases, illegal. They limit transactions to trusted parties, knowing unenforceable contracts are meaningless. They seek the services of thugs to enforce contracts. They keep buildings that can be rented for revenue empty.
Workarounds

The proposed Colombo Port City Commission is a workaround.

Legal-system-related factors are a main reason Sri Lanka is ranked 99th out of 190 countries in the Ease of Doing Business Indicator. Even Nepal is ahead of us; Pakistan is about to catch up. Poor performance in resolving insolvency and enforcing contracts are major contributors to Sri Lanka’s low rank. On enforcing contracts, the country is ranked 164th.

It is unlikely that high-profile financial and service businesses will want to locate offices in Sri Lanka in these circumstances. Despairing that the legal system can be improved, the drafters of the Port City Commission Bill propose to make arbitration by the International Commercial Dispute Resolution Center that is to be established within the Port City mandatory for disputes arising within its area of authority. They also propose a fast-track, exemplified by section 63(2) quoted above, for engagement with the Sri Lankan courts if required.

Despite all the talk of how bad bypassing the Sri Lankan legal system is, this has been going on for a long time.

The disputes between several international banks and the Ceylon Petroleum Corporation over hedging contracts entered in 2008 in the first Mahinda Rajapaksa government were not resolved by the Sri Lankan courts. Arbitrations on the contracts with Standard Chartered and Citibank commenced, respectively, before the English High Court and the London Court of International Arbitration.

Deutsche Bank’s arbitral proceedings against Sri Lanka for the actions of the CPC, Central Bank and the Supreme Court in relation to the failure to perform the hedging agreement were at the International Centre for Settlement of Investment Disputes (ICSID), an organization established by the 1965 Convention for Settlement of Investment Disputes between States and Nationals of other States (ICSID Convention).

The CPC lost the cases. They also bore the considerable costs of participation in expensive cities.

The legal agreements governing the Sri Lanka Telecom privatization by the first Kumaratunga government in 1998 did not give rise to a need for dispute resolution. But had such arisen, the arbitration would have been in Singapore under that country’s laws.

In this context, it is unlikely that commercial disputes where referral to the Dispute Settlement Center within the Port City is not mandatory will come to the Sri Lankan courts. They will go to Singapore, London, Geneva, or Washington DC. They will bypass the Sri Lankan legal system, understandably. At least the International Commercial Dispute Resolution Center will be on Sri Lankan soil and the lawyers need not be paid per diems.

Effects of workarounds

The petty workarounds of the citizen and the businessperson yield no good results. They simply overburden other parts of the system and let resources lie fallow.

We like to teach the Coase Theorem which describes the economic efficiency of an economic allocation or outcome in the presence of externalities. The theorem postulates that if trade in an externality is possible and there are sufficiently low transaction costs, bargaining will lead to a Pareto efficient outcome regardless of the initial allocation of property.

But with a dysfunctional legal system, the condition of properly defined property rights does not exist. Coasean bargaining is limited to the classroom. We are compelled to fall back on the command-and-control capabilities of the state, overburdening it further.

The system-level workaround of the Port City Commission Law could be a holding action until we improve our legal system and associated processes of relevance to investors and service industries that are to be attracted to the Port City.

In the same way that the Greater Colombo Economic Commission (GCEC) was to be a holding action until we improved the provision of planning, utility and related services throughout the country, there could be a plan to gradually bring the enclave within the general legal system which has been improved in the meanwhile. The doing business indicator measures good governance in the country as a whole (though for some components they focus on the capital), not in special enclaves.

It would be good if that were the case. But looking at the situation in the zones managed by the Board of Investment as the successor to the GCEC, we can see that the transition has not been completed even some 40 years later.

Even today, the services offered by the BOI in the zones are superior to those outside. We in Sri Lanka appear to be content with running superior systems and single windows for foreigners (and Sri Lankan who achieve such status) while letting the rest of the country suffer under second-rate systems and multiple windows.

The hope, always, is that the island of good governance will catalyze and drive reforms in the surrounding ocean of bad governance; that the land will take over the sea. We keep hoping.

Rohan Samarajiva is founding Chair of LIRNEasia, an ICT policy and regulation think tank active across emerging Asia and the Pacific. He was CEO from 2004 to 2012. He is also an advisor to the Advocata 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.

Environment vs. development: It's all about land

In this weekly column on The Sunday Morning Business titled “The Coordination Problem”, the scholars and fellows associated with Advocata attempt to explore issues around economics, public policy, the institutions that govern them and their impact on our lives and society.

Originally appeared on The Morning

---

By Dhananath Fernando

The question of how to develop Sri Lanka without obstructing our valuable environmental ecosystems has come to the forefront yet again. The recent incidents surrounding the development of a road in the territory of the Sinharaja Rainforest, a World Heritage Site, is one prominent discussion.

The deforestation in Haputale for cardamom cultivation and the establishment of a prawn farm in Anawilundawa, a Ramsar wetland, also raised serious concerns among the general public and environmental activists, adding more fuel to the debate on development vs. environmental protection.

This debate has come to a point where questions are being asked on whether Sri Lanka can be developed without disrupting the environment, and whether environmental activism is hindering the development of the country.

This is not the first time this topic had taken centre stage. “Save Wilpattu”, the Mount Lavina beach expansion project and the development of the Port City have been popular thematic stories over the years; the human-elephant conflict (HEC) is a continuous battle that gets primetime news coverage too.

What’s the real problem?

On the surface, it seems that all the incidents are a result of efforts to strike a balance between development and environment – which is true to an extent. However, if we dig a little deeper, in economic terms, it is a clear case of an attempt to maximise the utility of a scarce resource – “land”; at the same time, it is an issue of property rights.

And all that we’re seeing is an outcome of our inability to maximise the utility of land by improving productivity, alongside the absence of “property rights”.

Let me explain why and how.

Forests are sacrificed due to the absence of property rights

One of Sri Lanka’s most limited and precious resources is “land”; being a tiny island which is just a dot on the world map, land is not in abundance for us. Our size as a country is quite smaller than average cities or states in the rest of the world. Unlike other resources, land is fixed in size, and increasing the extent of land (similar to what was done with the Colombo Port City) is an extremely expensive affair, both monetarily and environmentally.

Sri Lanka’s total land extent is about 6.6 million hectares. Can you take a guess on the amount of land owned by the Government and the amount of land owned privately by its own Sri Lankan citizens?

Only about 18% (1.2 million hectares) of the land is owned privately by its citizens while about 82% (5.4 million hectares) of the total land is owned by the Government.

About 28% of our total land is forest cover, according to the FAO (Food and Agriculture Organisation of the US). Out of this, about 573,400 hectares (2,214 sq. mi.) of land is categorised as “Protected Nature Reserves”.

So in reality, the Government owns about half of Sri Lanka’s land (more than 50%), and this can be used for economic activity and environmental purposes. We should not be misled into thinking that private land is owned by anyone else other than our fellow Sri Lankans. In other words, many Sri Lankans do not have the rights to their property; they do not have deed titles; many of our fellow Sri Lankans do not have access to land, and the limited access some Sri Lankans have to government land is on a license basis.

According to news reports, a Sri Lankan has to visit 20 institutions just to get clearance (not to obtain a deed title) on land for cultivation on a lease basis. They have to take a licence from the government office if they are to cultivate on land owned by the government; as they do not own it, they have no incentive to use it sustainably.

As a result of agriculture, illegal settlements, and economic activity, the borders of forest land have always been blurred. It has been reported that usually, surrounding villagers and elite businessmen who have political and influential power encroach forest land for commercial purposes. Information reported on deforestation and obstructions on environmental ecosystems make up just a fraction of the ground reality. This is because most illegal deforestation takes place in obscure locations close to forest cover, which is difficult to track.

Inability to maximise on lands and its utility

The inability to protect our land and forest cover is a completely internal issue and of course a political football pertaining to a very sensitive issue. Whether we like it or not, the “market” works in good-case scenarios and worst-case scenarios. When Sri Lanka has a rising population with more households, and when people do not have land and property rights for agriculture or many more economic activities including housing and investments, what do you think would be the outcome if we fail to improve productive usage of land? For example, if we fail to improve the productivity of land by constructing vertical buildings, what would the outcome be if all five million households expect to build houses on 10 to 20-perch plots of land? The same applies to agricultural land, and this is one of the main contributory factors to deforestation across the globe.

According to the Economic Census in 2013/2014, about 2.2 million hectares were used for agriculture, an increase of 18% from 2002. It is obvious that in order to feed our population and sustain economic activity, our land usage has increased. However, we need to focus on improving productivity and efficiency by utilising it effectively for agricultural purposes if we are serious about protecting our forest cover. We have to move to high-yield varieties and vertical farming, and again, it boils down to accessing property rights if we were to increase the utility of land through investment. No person would invest in land they would not want to own. Unfortunately, most of Sri Lanka’s land is dead capital. No one uses it and there is no economic activity. Now, Sri Lanka expects to be self-sufficient in paddy, milk, maize, and vegetables and is aiming to supply the entire demand for rubber within the country. Sri Lanka is also aiming to expand coconut product exports by fewfold; where do we have the land to do all this? We need to take our land policy seriously or else we will put our forest cover into further risk.

President received firsthand information

The President received firsthand information on the gravity of the land issue. One of the main requests by the people or fellow Sri Lankans is for the Government to provide them with land.

His Excellency the President, in his policy statement, stated that land issues are one of his priority areas. Moreover, there were recent news reports on his directives to the relevant institutions to issue title deeds within three months which pertained to unresolved land issues.

Land issues are very sensitive, and all conspiracy theorists have a collective voice; they all suspect that foreigners and other parties may take over our land. However, since 1948, it’s been purely Sri Lankans who’ve owned the land. The responsibility cannot be passed on as it is our own leaders who control 82% of our land. (According to Sri Lanka’s regulations, there is minimal room for anyone who is not a legal citizen of Sri Lanka to buy land. Even the apartments and condominiums can be bought only if it’s above the fourth floor).

According to data, Sri Lanka lost about 490,000 hectares, or 20.9% of its forest cover, in just 20 years, from 1990 to 2010. If the majority of the land is governed by the State and if there is no room for any outsider to exploit our land, doesn’t this mean that we have really failed in our public policy and in understanding the economics of land management?

However, instead of looking inward, we have become masters of pointing fingers at outsiders and fearmongering to cover up our failure, and sadly, our forest cover has become the victim.

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.