As the Sri Lankan economy makes the tricky transition through middle income, it will increasingly feel a lot like a ‘squeeze from two sides’. From one side, Sri Lanka is being squeezed on wage costs – we are no longer a cheap, poor-skilled labour destination and countries like Bangladesh, Vietnam and Cambodia have the labour cost advantage over us. On the other side, Sri Lanka is squeezed from high-value producers - we do not have a highly skilled workforce producing exports at the upper ends of the value spectrum. For Sri Lankan businesses, this ‘squeeze’ will be the challenge that defines the next decade.


Skills constraint
In nearly every conversation with business leaders, the lack of skilled workers for their business comes up as a complaint. According to Enterprise Surveys, a far higher proportion of Sri Lankan firms report the lack of an adequate labour force as ‘a major or severe constraint on their operations’ (16 percent), compared to several other South Asian countries (Pakistan 8.1 percent, Nepal 5.9 percent) and over one-fourth of manufacturing firms experience skills constraints.
Roughly less than 5 percent of all 20-24-year-olds in Sri Lanka are in university and less than 5 percent are in a technical and vocational education or training (TVET) programme. Meanwhile, a 2014 World Bank study warned that, “Current skills development programmes are not yet well-integrated with national development priorities.”


Do universities hold the answer?
Over recent years universities have been continuously blamed for not producing employable graduates – graduates with the skills demanded by businesses. One indication of this gap is the high number of unemployed young people among university graduates. This group then pressures the government to recruit them and due to political compulsions, the government ends up absorbing them into the workforce. It is widely acknowledged now that Sri Lankan universities need to reorient their curriculum and get better at preparing university students for the world of work.

A promising example of where this is working well is the University of Moratuwa. Industry leaders are part of academic advisory councils; private sector firms help to shape and refine the curriculum and joint research, internships and competitions help students understand what firms are looking for. This brings the teaching much closer to what the world of work demands. There is also a case for introducing new courses in line with emerging needs – for instance, more postgraduate and professional programmes in tourism management, construction management, technology entrepreneurship, social business, etc.

Yet, expecting universities to fix the whole problem is optimistic. While they do have a role in teaching in ways that build critical thinking and analytical skills – skills that are transferable in any job – they also exist to contribute to a better society more broadly. Universities don’t solely exist to batch-manufacture potential employees for firms and all university graduates cannot be ‘engineered’ to be attractive to firms. Especially considering that state universities are able to grant entry to around 18 percent of qualified students each year, leaving over 100,000 behind, universities cannot be the panacea to the skills gap problem.


Expanding support for other tertiary education
State universities should not be the end all and be all of a young Sri Lankan’s education prospects. Non-state university and non-university education provision must be expanded. We often hear politicians touting a system that grants free education up to university. While this may be true for the primary and secondary level, at the tertiary level free education extends to less than 150,000 young people. We must expand this to cover more people and taking advantage of private provision is a key element in it.

Firstly, Sri Lanka must pass the required legislation to recognise and regulate private higher education providers. Secondly, the government can provide vouchers for students who did not get into state universities to go and obtain higher education or vocational training from an institution of their choosing. It can either be a state-run UNIVOTEC or TVET facility, or an approved private sector institution (with a maximum limit for tuition costs). This way, the state is genuinely expanding free tertiary education to more, rather than the current few. Government funding can be directed to state training institutions that seem to be attracting more students (due to quality, relevance, etc.) and may require greater investment to expand capacity.


Strategic PPPs to build ‘oases of talent’
There will always be specific skills needs in specific industries, which may not be met by general training programmes offered by the TVET institutions. Put differently, there may be a need to develop ‘oases of talent’ amidst an otherwise dessert of skilled labour. This is where strategic private-public partnerships (PPPs) can come in. For instance, if the government is focussing on aviation services, maritime, or logistics sectors as potential thrust areas but the skills shortage proves to be a substantial barrier, it can partner with the private sector to fix this.

Instructive lessons can be drawn from Penang in Malaysia. The high-tech electronics firms located in the Penang Export Hub, at the invitation and facilitation of the state government, soon realized that they would come up against a skills shortage, along with evolving technologies. The government knew that soon these firms would begin to look at relocating to other countries (or indeed other parts of Malaysia) where better skills would be available.

To boost the skilled worker pool and to ensure that these firms can continue to be competitive, the Penang Development Corporation partnered with the firms to set up a special training facility under a PPP model – the Penang Skills Development Centre. This facility produced a steady stream of highly-trained workers, required by the firms located in Penang. And since the firms were directly involved in shaping the training programme itself, there was no question of industry relevance not being met.


Conduct ‘Relevance Audits’
There are numerous state-run vocational training programmes for young people, administered by various government institutions. But according to the World Bank (2014) study, over 50 percent of employers reported that the quality and relevance of TVET curricula were not good. To ensure these are inline with economic needs and industry requirements, the government can conduct ‘Relevance Audits’. The audits, done with the involvement of industry/sector experts, can look into the curriculum and pedagogy, to see if they are industry relevant. This extends the steps taken in university courses to improve relevance, for instance the World Bank’s ‘Improving Relevance and Quality of Undergraduate Education’ (IRQUE) project.


Let’s open up to PISA
More broadly, it’s time that Sri Lanka exposed its general education system to a global audit, by way of participating in international performance benchmarks like the Programme for International Student Assessment (PISA). Conducted every three years by the OECD, the PISA tests assess the math, science and reading ability of 15-year-old students around the world. About 64 percent of employers have reported that the general education system is not meeting their skill needs. We are proud of our long tradition of islandwide free education and relatively high educational outcomes, so a weak global performance on such assessments could be politically tricky to handle. But it may provide a crucial alarm call and spur much-needed action.


Challenge ahead
As Sri Lanka navigates through a tricky middle-income transition, getting squeezed between cheap low-cost producers on one side and high-value high-tech producers on the others, enhancing the skills in the economy becomes a formidable policy challenge. Without focussing on higher skills and higher productivity, this tightening squeeze is going to suffocate the economic potential of the country and suppress business competitiveness. By working together, the government and businesses can tackle this challenge. What other developing countries have done and are doing, offer a useful template to start from.

(This is the 16th article in the ‘Smart Future’ column that advances ideas on competitiveness, innovation and economic reforms. Anushka is an Economist with a Master’s from University of Leeds Business School. He writes online at thecurionomist.wordpress.com and is on Twitter @anushwij)