Learning to improve Sri Lanka’s business and investment climate using PDIA

written by Peter Harrington

This past week, the Building State Capability (BSC) program published two new papers about our work doing PDIA-in-practice in Sri Lanka.

The first paper is about working to improve Sri Lanka’s business and investment climate, and is the subject of this blog post. The second is about working to promote foreign direct investment in Sri Lanka, and will be covered in a separate post . 

Both papers follow on from our paper published earlier this year called ‘Learning to Target for Economic Diversification’. They all tell the story of dedicated and difficult work done by teams of Sri Lankan government officials who, with our support, used PDIA to solve critical problems facing Sri Lanka in its path to economic diversification and sustainable growth.

The BSC work in Sri Lanka started in July 2016. The country was facing slowing GDP growth, a high current-account deficit, a decline in export performance and low diversification, as well as a low FDI inflows as a percentage of GDP when compared to countries like Vietnam and Malaysia. The Government of Sri Lanka asked CID to help the government design and then implement reforms to address these problems.

Having learned a lot about doing PDIA with governments in Albania and elsewhere, BSC took the opportunity to iterate again and we adapted our ‘Launchpad’ process (a 6-month intensive action-learning program where government teams tackle priority problems) for Sri Lanka. Five teams of Sri Lankan officials started Launchpad in September 2016, each focused on one of five problems related to the economic issues above, and to each other:

  1. how to identify new strategic sectors for Sri Lankan export and investment,
  2. how to attract FDI into those sectors,
  3. how to improve the business climate in Sri Lanka,
  4. how to stimulate key exports and
  5. how to improve performance in tourism.

The team that focused on the investment and business climate (3) was called the “C Team”. The C team was made up of officials drawn from Sri Lanka’s Board of Investment, and they are the subject and co-authors of the paper covered in this blog post.

As with the previous paper on targeting, our aim with the C Team narrative is to provide a rich, fine-grained and detailed account of the steps both small and large that the C Team took from week to week to tackle this problem, as well as a detailed depiction of how we do PDIA in practice to support such teams.

Starting with an initial workshop facilitated by the BSC team, the C team were first challenged to define the problem which they did thus: “Attraction of FDI is not treated as a national endeavor by state, which affects investor confidence to implement projects speedily.” They were also asked to define what would constitute ‘problem solved’ – i.e. the goal and outcomes. They defined these as: 1) A supportive investment climate to fast-track project approvals and implementation; 2) Increase in the number of projects; 3) Creation of employment and; 4) Improvements in living standards and income.

The team then broke down their headline problem into ‘branches’ and prioritised these. Breaking the work down in this way is based on the idea that significant time can be wasted developing detailed Gantt charts, logframes or project plans that rarely survive contact with reality and tend to assume a linear progression in the project that is quickly disrupted by factors that cannot be known or seen at the beginning.

As soon as these first steps were completed, we asked the team to formulate an action plan with their goals for the end of six months, the next two months, next month, and next two weeks, which was the next time that a BSC facilitator would meet with the team. The team focused their initial action plan in on three ‘entry point’ issues to start to work on:

  1. Lack of consultation with industry;
  2. Lack of research and accessible up-to-date information;
  3. Mismatch in labour training to improve productivity.

The rest of the six-month Launchpad process would be conducted using these two-week ‘push periods’ between progress meetings with a BSC facilitator, where the team would do its work and then ask, ‘what have we done, what have we learned, and what is next?’ Working in such bursts allows rapid iteration, regular checking in and course correction. This leads to the expectation that the assumptions in the initial action plan will be challenged by new information and lead to iteration and changes in the action plan. At the end of the initial workshop we pushed the C team into action quickly (as described in detail by Matt Andrews here) because starting aggressively with quick small steps (with a clear goal in sight) can help generate momentum.

Experience in doing PDIA indicates that big things emerge through small steps. This is especially the case when each ‘next step’ yields learning (with new information, and experiential lessons) and expands engagement (with new agents, ideas, and more). This is because the problems being addressed are complex, and are best addressed by expanding engagement and reach (which opens opportunities for coordination needed to confront complicated problems, and for interaction vital to tame complexity) and fostering learning (which is crucial in the face of the uncertainty and unknowns that typify complex problems).

The principle idea is that action leading to new learning and interaction fosters ‘emergence’, which is the key to finding and fitting solutions to complex problems. Any action can foster learning, and it is thus more important to get a team to act in small ways quickly than to hold them away from action until they can identify a big enough (or important enough) next step.

As they progressed through the first few push periods, the C team encountered a variety of challenges which required course correction. They sought to first engage with industry to validate their problem definition and ‘branches’. They designed a company survey, identified target firms and conducted the surveys. While they struggled to reach certain categories of firm, they managed to compile a large matrix of survey responses which they used to refine their initial problem set. Over the course of the six-month Launchpad process (a total of thirteen push periods), the C team continued to course-correct, refine their understanding and selection of the key problems. They ultimately chose six priority issues to solve, which were driven by the responses from firms themselves. These were:

  1. Simplification of the exchange Control systems affecting firms and Forex payments
  2. Issues faced by certain types of companies in relation to VAT
  3. The need to promote Sri Lanka as a destination for start-ups
  4. Lack of certain labour skills in the manufacturing sector
  5. Lack of a Special Economic Zone for industries with a high water requirement
  6. Need for better coordination of investment approvals process in the Board of Investment

As is evident, these formulations are very different in focus and specificity to the problems assumed at the beginning. This degree of focus was achieved over six push periods and involved considerable iteration, and listening to firms, and could never have been achieved ex ante. With very little support from the BSC facilitators, the C team went on to design solutions to these issues and seek authorisation for their proposed solutions. Along this journey the team sometimes lost their momentum, but regained it, sometimes with help from BSC, and sometimes internally. They encountered a multitude of obstacles, highs, lows, impasses and breakthroughs, all of which are openly chronicled. This is the reality of doing difficult, diligent work to solve complex problems in government – especially addressing real problems that firms face and care about, rather than seeking to merely improve a country’s Doing Business rankings.

In mid-March, the final Launchpad workshop took place in Colombo, marking the end of the 6-month period over which the teams had undertaken their work. Despite being consistently unsure of its progress and often low on momentum and motivation, the C team came closest to completing the work it cut out for itself. All of their selected problems were either effectively addressed or close to solution: 1) Regarding exchange controls, the Central Bank had given assurances that the required exemptions would be honoured; 2) for VAT exemptions – the proposal had gone to the Cabinet for approval; 3) regarding Sri Lanka as a start-up destination, the team’s proposals for a start-up incubator had been discussed at the BoI Board and these were being finalised; 4) Regarding Vocational Training their proposal to set up a new Vocational Training Facility had been approved; 5) Regarding  a water based industrial zone – the team had identified a location, obtained a feasibility report and planned to initiate the land release process. Finally regarding 6) faster investment approvals, the team had presented a new proposal to the Director General, who asked the team to develop the proposal further but committed to approve it and send it to the screening committee.

In addition to this, some other important outcomes had been achieved. First, the firms that the team reached out to now perceive that they are served by a government (represented in this case by the BoI) that is interested in, and responsive to, their problems (and which takes action to resolve those problems, and then follows up to talk about it). This relational dimension, much harder to capture in any metric, deeply affects the confidence that business have that they can flourish under this climate and with this government as a partner.

The second result is perhaps the most important of all. So much of the thought and philosophy underpinning the PDIA approach is the acknowledgement that external interventions or expertise cannot solve a country’s or a government’s problems. Only the country or the government itself can do that. To do so, however, they need capability, and the most valuable outcome of work of this nature is the learning that the team gains in the process (about new capabilities). It is more important than the result (in fact failure is often the best teacher), and will enable the individuals and the institution to tackle similar problems effectively in future, without the need for external support.

We hope that this kind of under-the-hood narrative will help others interested in doing similar work, both on investment climate and PDIA in general. We also want it to display and pay tribute to the hard and often courageous work done by the C team and teams like them, work which shows that great leaps are achieved by committed individuals chipping away at problems with grit and perseverance sticking with it despite the many pressures. All the accomplishments belong to them.

 

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