ajith nivard cabraal : the role of productivity improvement in achieving economic prosperity keynote address by mr ajith nivard cabraal, governor of the central bank of sri lanka, at the annual general meeting 2007 / 08 of the international chamber of commerce sri lanka, colombo, 17 september 2008. * * * mr. chairman, distinguished invitees, ladies and gentlemen, i consider it a unique honour to be invited to deliver the key note address at this annual general meeting of international chamber of commerce sri lanka ( icc sri lanka ). i also consider it a great privilege to share my thoughts and views on a very timely topic, “ the role of productivity improvement in achieving economic prosperity ” since productivity improvement is essential from both a micro and macro perspective. therefore, at the outset, i wish to thank the icc sri lanka for inviting me to deliver the keynote address on a vital theme at this important forum and giving me an opportunity to plant a few seeds in your distinguished minds so that such seeds may be nurtured by you in your future endeavours positioning the country at a higher level in the global environment. as we all agree, as individuals, our main objective is to experience a better life and we think, act and react aiming to achieve this. at the same time, the main objective of economic management is to enhance standard of living of the people. hence, relevant stakeholders in the country formulate, implement, revise and re - implement economic and other policies to achieve such goals. whatever the policy we formulate and pursue, the ultimate aim is to raise living standards of the nation. at the same time, we are all aware that it is compulsory to have higher economic growth and fair distribution of benefits of growth for achieving higher standards of living. the issue is, how can we achieve higher rates of economic growth? theory will say savings, investments, diversification, technology, hard work, attitudes and perceptions. yes. all these are important and they have certain importance in a country ’ s overall performance. however, in a highly competitive, globalized environment with a limited resource endowment all of these factors would be second to productivity. for sustained prosperity, productivity is the key. why is the productivity so important? economists agree that, in the long - run, productivity growth is the principal means of improving living standards. the rate of productivity growth influences the economy in important ways, even in the short run, by affecting key variables such as output growth, employment growth, and the

should add high values to the economy. the services sector should be more productive and efficient. today ’ s customer not only demands services, but demands more productive, efficient and reasonably priced services. let ’ s take a closer look at sri lanka now …. undoubtedly, sri lanka ’ s agriculture sector has made its greatest contribution to create wealth and employment in the past. as we all are aware, we have been self sufficient in rice production over the millenniums. we have been producing and exporting agriculture commodities for centuries. at the time of independence, the agriculture sector was dominating with a share of 47 per cent of gdp. however, keeping with the global and domestic economic trends, the relative importance of the agriculture sector has been shrinking. accordingly, the share in agriculture reduced to about 12 per cent of gdp by end 2007. what has been the impact? it has not been able to create sufficient value or wealth with the reduced share of sectoral importance. while recognizing the historic importance of the agriculture sector we should recognize the fact that it has a limitation in the form of low contribution to the national output and low productivity in the current context. notably, as about one third of the labour force is engaged in agriculture, its total output is distributed among a large number of workers. according to the world development report 2006 of the world bank, the agricultural value added per agricultural worker in sri lanka, measured in 2000 us dollars, has been us dollars 696 for the period of 1989 - 91. this has increased only marginally to us dollars 737 in 2001 - 03. however, the comparable figures for other countries, even in emerging countries, have been much higher than these figures. what is the result? as a result, the income of agricultural workers in sri lanka has been very low, keeping them below the poverty line. at the same time, underemployment has been the natural consequence since employment in agriculture is seasonal and there is a higher concentration of a large farm - based work - force on limited extents of cultivable land. even disastrously, the under - employment in agriculture in sri lanka is not only the highest but also on the increase. according to the consumer finances and socio - economic survey of the central bank, the underemployment in the agriculture sector in 1996 / 97 stood at 31 per cent of the employed and it rose to 36 per cent by 2003 / 04. in contrast, the underemployment in the services sector fell from 20 per