Sri Lanka must throw open its borders to foreign workers & immigrants, without many conditions

Vehicle tires hum louder because the sweltering heat-melted tarmac grips the rubber more than usual. The shadeless landscape on one either side of the highway is carpeted in rice fields ready for harvesting before the rains. Rice is mostly machine harvested in Eastern Sri Lanka’s Ampara District. Whether done, the old fashioned way by a hand held sickle or machine, during the hot season harvesting is hard work. Combined harvesters also require skilled operators, a challenge in the thinly populated Eastern province. Soon the monsoon will change the landscape and the rice fields have to be harvested before its arrival.

Indian workers – some skilled combined harvester operators and others unskilled – willing to tolerate the searing heat and being away from their families for months arrive early in the year around the time the harvesting season commences. These Tamil speaking South Indians enter the country on a tourist visa and remain here for a month or longer moving from one farm to another. Sri Lankan rice farmers prefer Indian hires because they work hard, stick to deadlines and are cheaper.

The labour shortage during harvesting, first noticed in the North and Eastern province, has spread to the North-Central and Southern provinces too. Farmers in the Ampara, Batticaloa, Killinochchi, Polonnaruwa, Trincomalee and Vavuniya districts have appealed to local administrators to allow South Indian workers to fill the gap.

Indian farm labour arriving here is responding to a seasonal opportunity. Sri Lankan farmers and consumers benefit because these workers contribute to efficiency and keep rice prices low.

Indian farm hands aren’t the only foreign citizens getting jobs here. Firms constructing Chinese government funded infrastructure employ thousands of people from that country. Chefs at many top Colombo restaurants are foreign as are teachers at some of the island’s top schools that prepare students to sit exams under British and international curricula. Specialist foreign doctors practice in private hospitals here. The Board of Investment also allows foreign investors to appoint staff from overseas to their local operation, as an incentive on top of tax breaks.

So far there has been little resistance to foreign workers; even to ones here illegally, like seasonal farm workers without a work permit, because the skills gap here is glaring. According to the World Bank there is a shortage of 12,000 nurses in the health sector, 600 radiographers and also pharmacists and laboratory technicians. In 2011 the then Health Minister estimated there was a shortage of 7,000 doctors.

Tourism, an industry with the greatest potential to add economic value over the next few years will start demanding 30,000 trained professionals annually according to a 2014 World Bank estimate but its current training capacity can provide only 15% of this requirement or around 4,500 people a year.

National Planning Department estimates Sri Lanka needs 15,000 craft workers for its construction sector but only has 11,000 people. The IT sector also faces a shortage of talent according to the National ICT Workforce Survey.

Sri Lanka added around 240,000 jobs in the three years to 2014. Its workforce tops 8.8 million people out of whom 8.4 million have some sort of income generating job. Unemployment at just 4.3% is at an insignificant level.

Economic research in other countries suggests unemployment below 5% builds wage pressure as businesses struggle to find suitable candidates. Labour shortages – and the resulting higher costs –make markets inefficient and are a disincentive for investment.

Sri Lanka’s debate around open borders has been framed by its labour shortage. The lack of construction workers, hotel chefs, teachers, and medical staff is already hurting the economy and the cost and quality of services to citizens. It is also a bottleneck for economic growth in a country aspiring to quickly rise up the middleincome league table.

This article will argue that Sri Lanka’s potential economic growth and ability to improve the lives of its citizens will be significantly below potential unless it opens its borders soon to foreign workers and immigrants who can find jobs here, and allow those of them with skills to bring their families here offering a route to permanent residency and citizenship.

Singapore and Dubai have shown recently, that a country can rise from upper middle income (defined as $4,000 per capita GDP) to high income (GDP per capita over $12,000) in little over a decade. Sri Lanka’s economy may reach upper middle-income status in 2016.

A confluence of positive factors now exist that can potentially propel the country to high-income status in a decade. But to achieve this, Sri Lanka will have to attract a disproportionate share of global FDI flows by being one of the best places in the world to invest.

Economists have long argued that regulations around Sri Lanka’s main factors – markets capital, land and labour are impeding investment potential. If Sri Lanka limits the relative share of government deficit spending it will release enough capital for private investment. It can also free up capital flows with small tweaks to legislation. Plenty of land can also be released for investment easily.

Open borders however have the potential to unleash growth that neither land nor capital factor market reforms can achieve. In the rich world, Harvard University’s Lant Pritchett estimates, a 3% rise in the rich world’s labour force as a result of migration would yield an economic contribution greater than can be achieved by removing all the remaining barriers to trade.

The economic case for migration is identical to that made for free trade. However unlike free trade, immigration is an afterthought in most countries. The country that has most benefited from immigration – also one built by migrants – is the United States. After Europeans discovered its existence millions of them moved there seeking opportunities and to escape oppression in their home countries.

Throughout its modern history, a significant portion of the US population has always consisted of those born overseas. In the early years as a country, in addition to over 100 million Europeans who migrated to this New World, its population was swelled by tens of thousands of Africans forced in to slavery there. In the last half a century the US population was swelled by millions of Hispanics and Asian migrants. Today 13% of US citizens are those born overseas. Another estimated 18 million or so illegal immigrants (equal to 5% of the US population) also live there. America allows in a million legal immigrants every year, who all plan to settle there. Foreign-born share of the population at close to 25% is the highest in Australia and Switzerland followed by Canada where nearly 20% are those born outside the country. Germany and the US have a 13% share of their population born overseas followed by Britain with nearly 10%.

Singapore is a fine example to emulate for its progressive immigration policy. Despite its tiny size and limited population, Singapore has become a magnet for investment because of the talent it has available. Of Singapore’s 5.4 million residents only 60% are citizens. Of the rest half a million people – who are not citizens – are Permanent Residents. There are a further 1.6 million people in the country most of whom have jobs there or are students.

Anybody already receiving a monthly salary topping 1,800 dollars can apply for an Employment Pass Eligibility Certificate (EPEC). The application can be filed online and soft copies of relevant documents and certificates like university transcripts can also be uploaded. Applicants are notified in seven days about their eligibility.

When an Employment Pass Eligibility Certificate is issued, it makes the holder eligible for a one-year social entry visa to Singapore during which she can secure a job. With a job secured, foreign nationals can apply and – with their new employers support – apply for and obtain an Employment Pass, like millions of people have successfully done. As long as she is working for the employer who recommended her, an Employment Pass holder can live in Singapore. Those earning over 2,500 dollars can bring their family and dependents with them to Singapore.

As most people who find jobs there do, an Employment Pass holder can then apply to be a Permanent Resident there. It only costs $100 Singapore dollars to apply.

Semi skilled or unskilled workers, defined at those earning less than $1,800 and not eligible for an EP, can obtain a Work Permit. They cannot bring dependents along nor can they apply for PR but they can stay in Singapore so long as they have a job with a supporting employer. Many people with construction jobs or who work as domestic aides in Singapore have work permits.

Unlike Singapore, Sri Lanka makes it exceedingly difficult for a foreigner to obtain a work permit here. Any foreign national seeking to work here has to depend on the GATS (General Agreement on Trade in Services) rules. Foreign labour can come to Sri Lanka under so-called Mode 3 of GATS that is only if they are investing here. A professional – however skilled and qualified – cannot come to work in Sri Lanka.

When a Sri Lankan school, preparing students for exams set under an international curriculum, needs a few teachers whom they can’t hire locally; the school makes individual work permit applications on behalf of each of these people whom they have somehow identified. The process is cumbersome be it for a hotel seeking a foreign chef or a cricket team wanting to hire a foreign coach.

When professionals like doctors, engineers or accountants need to be hired, the national association for the profession has to clear the application. The local medical, engineering and accounting professional bodies have shown great reluctance to allow foreign talent in and even greater reluctance to approve their work visa extensions when they have served here for a year or two.

Migrants are motivated and dynamic people willing to work hard to better themselves. Countries opening up to migrants benefit from their youth, energy and enterprise.

The debate also needs separating in to skilled migrants and those without much skill. Like Singapore does, it’s quite easy to separate the two by their average salary. Of Sri Lanka’s 8.8 million workforce only 17% can be categorized as professionals according to their education levels and job titles; that’s just 1.5 million professionals. Tiny Singapore hosts over half a million PR holders and one and a half million nonresidents which includes foreigners working there, living there and students. Tens of thousands of migrants to Singapore obtain PR every year.

Free trade makes it possible for countries to specialise in industry and services at which they are relatively more productive. Immigrant labour then helps stretch and scale these activities in which a country has a relative advantage. Scale makes it possible to spread thinly the costs of innovation and maintain competitiveness.

An example of a Sri Lankan industry struggling with scaling is IT. Some firms here have built specialisations in free and open source software and systems deployed in mission critical operations of large global companies. Some of these firms will soon have to establish campuses in India because they can’t find enough engineers to build scale here. The IT industry has requested software engineers from India be allowed to work in Sri Lanka as part of a deeper economic cooperation deal that was being negotiated with India. If the labour shortage persists Sri Lanka will lose out on investment, because companies will go elsewhere for the people.

It’s not just high technology, but industries like the hotel sector, also suffering from a shortage of skilled workers can benefit from migrants. Foreign workers and immigrants will have a similar effect to that of free trade. The benefits will outweigh its costs, leaving a large enough surplus to compensate losers.

In free trade theory, wages will converge between two countries with similar technology even without migration. However in the real world this rarely happens. Two candidates with the same quality education, similar responsibilities and experience can be earning vastly different wages in two countries even when these countries have liberalized trade with each other. The higher paid of the two adds more value because of the productivity difference due to better quality of infrastructure, technology and institutions in the country he works.

Transplanting the worker from a poor country to one with better technology, infrastructure and an institutional setup, is all it takes for him to start immediately adding more value. Supercharging people isn’t based on alien principles. There are plenty of examples in any economy. For instance when an employee moves to a new job in a company that is more innovative, utilizes better technology and has streamlined processes she will immediately be more productive.

So far the debate around opening the labour market is focused on allowing some Indians to work here under an economic cooperation deal that is over a decade in the making and introducing some flexibility to labour laws. While these are important initiatives they are not going to make the availability of talent here a reason for attracting investors.

Of the factors of production, the availability of labour is likely to constrain Sri Lanka’s economic potential the most.

Tragically even the limited debate about opening borders is stuck around xenophobic fears that politicians and a fearful clutch of businesspeople like to pander to, that swarms of immigrants will displace tens of thousands of workers here and that these foreigners will not integrate.

Fears of foreigners are generally unfounded. Sir Lanka last saw mass immigration when the British – who were then occupying the island – brought in tens of thousands of poor South Indian workers to clear and grow tea in the central highlands, a century ago. These immigrants took jobs that no one else wanted and their willingness to do that work resulted in large investments in agriculture, related infrastructure and support services. Sri Lanka’s economy flourished for a century due to the contribution these immigrants made despite them not even being awarded citizenship here for a long time. Instead of depressing the job market the migration of these people boosted investments and the economy.

Throughout history migration is linked to prosperity. Sri Lanka’s only experience with mass migration also proves this. Detractors may point that the South Indian plantation workers here are desperately poor. They are right. However poverty is relative. The lot of Indian migrant workers also deteriorated after the government’s takeover of private tea estates and their desperately incompetent management.

A rapid burst of immigration might cause wages to temporarily dip. But when talent is available investment will catch up soon enough. Outsiders who look different and don’t speak your language will be distrusted. These apprehensions are real and need to be dealt with rather than be allowed to be captured by a fearful private sector or nationalists who will then drive them to their selfish advantage.

Immigrants may push out of jobs Sri Lanka’s least skilled and uneducated. However even without immigrants these workers are at risk of being replaced by technology and automation. The vulnerable must be retrained and if necessary protected by a safety net. It does not make sense to deny opportunity to almost everybody because a few are unable to compete.

Opening to migration and foreign workers on similar terms to Singapore won’t result in overcrowded airports here. Sri Lankan wages are low because its economy in the global scale is relatively inefficient. A skilled Indian worker will easily find employment in one of that country’s main cities at a better wage than a Sri Lankan firm can afford. Anyone who knows the Indian market will attest that the talent crunch is far more acute there than here.

So who is likely to come here? Unskilled farm and factory workers may easily find seasonal work here. Sri Lankan firms filling senior positions will also have a vast talent pool to select from. Firms competing for a slice of a global market will not just welcome the edge this new talent offers them, but will sigh in relief because it will potentially ease their growth bottleneck.

Open borders should have few restrictions. Like Singapore unskilled workers can be granted work permits and may not be eligible for residency. However skilled managers and other professionals should be allowed to live here with their families and be invited to apply for residency and even citizenship.

The market should be allowed to determine who a skilled manager or professional is. If a person is able to secure a job in a private firm with a salary above the pay as you earn (PAYE) tax threshold – which is currently Rs60, 000 a month – she should be allowed to work here. If someone is able to secure a job paying Rs100,000 or more that person should be allowed to bring the family along.

Migration will start with a trickle but pick up once investors gain confidence once the Sri Lankan economy’s improving productivity is established. A long conflict has also hurt Sri Lanka’s ability to benefit from the demographic dividend. Many young people were lost to the conflict and others migrated. Now Sri Lanka’s workforce is rapidly graying.

Immigration is also no longer a flow from a poor country to a rich one. Many immigrants are now going from one poor country to another or to a middle-income country. Bangladeshis now find jobs in the Middle East and Zimbabweans in South Africa. For decades rich economies have been vigorously competing for the best talent from the outside. So far Sri Lanka had allowed the labour shortage to drive the immigration policy debate. As the rest of the world opens up to grab much of the talent Sri Lanka should not allow its future to continue to be set by a narrow agenda and small minds.