Your Excellency the Honorable Prime Minister and Ministers, Hon. Minister Abdul Kadir and Rama Rao, distinguished guests, colleagues from the Development Community and Friends,
It is a great pleasure to be here today to address the first ever Sri Lanka Human Capital Summit.
Your presence at this important event will help shape Sri Lanka’s shared prosperity and inclusive economic growth agenda by addressing human capital issues. Your ideas, opinions, and expert advice over the next two days will feed into the Sri Lanka Human Capital Roundtable to be organized later this year, and I want to thank you in advance for your contributions.
Competing in today’s global economy is complex. Countries not only need advanced technical and vocational skills, but also a flexible workforce that can adjust to rapid shifts in demand. That is why investing in skills is so vital to a country’s economic growth and competitiveness. In particular, education systems must be oriented towards producing youth who have both strong foundational skills as well as specific skills for jobs.
As you know, the demand for job-specific skills has been growing around the world. Globally, firms say that the quality and supply of skilled labor is a major roadblock to their growth. Employers around the world are also demanding that new hires have both technical and “soft” skills. Across South Asia, skills development is a common concern. In India, for example, the Government launched a sweeping reform targeting skills training for 400 million workers by 2022. We see similar trends in other countries in the region, as well as in many developed and developing countries around the world.
For Sri Lanka, building job-relevant skills is a pivotal step towards building a more competitive and efficient middle-income economy. Healthy economic growth and structural changes in the economy have been driving increased demand for skilled labor in Sri Lanka. However, the skills gap that has emerged with the changing labor market conditions may be starting to hold back the economy. Economic growth has been accompanied by a shift in the composition of GDP away from agriculture to the higher-value-added industrial and service sectors. People employed in these sectors—as machine operators, technicians, craftspeople, sales personnel, professionals, and managers—need different skills and more education and training than those in a predominantly agricultural economy.
Why has skills development become important?
Let me now summarize three main reasons why an effective skills development system is critical for Sri Lanka.
- First, today’s global economy requires advanced, flexible and fungible skills. Workers must be able to adjust not only to domestic shifts in demand but also to what is happening in the global economy and labor market.
- Second, with the right skills in the workforce, firms can be more productive and competitive; and the economy can grow faster, creating more and better jobs. Sri Lanka ranks 73rd in the Global Competitiveness Index (GCI) – one of whose indices is skills development. Employers here say that the quality and supply of skilled technicians is the third-most significant constraint on company growth, after concerns about power supply and taxes. Effectively skilling the workforce will enhance productivity and growth, while raising Sri Lanka’s GCI ranking.
- Third, and the other side of this coin, is that skills are essential both to reduce poverty and to improve personal well-being. There is international evidence that cognitive, social, and technical skills affect wage premiums, earnings, and employment and occupation status. With the right skills, workers will have a better chance of being employed, or being well-equipped to set up their own business and in turn create jobs for others.
However, it is important to remember that skills, while critical, are not a panacea for all ills. While a skilled workforce is necessary for growth and for alleviating poverty, skills do not automatically lead to jobs and growth. Skills development needs to be part of a comprehensive economic development strategy, and job creation and lifelong skills development should be pursued together.
The kind of skills that should be produced and how
While most of us would agree on the importance of having the right skills, there is often disagreement over what types of skills are right and how they should be produced.
It helps to unpack the skills development process a bit. A worker’s skill set consists of cognitive, soft, and job-specific skills, which are shaped in different ways. What many do not realize is that the foundation that underpins a person’s ability to learn and acquire skills is hardwired in early childhood, and depends on good nutrition, early stimulation, and a safe environment. Attention to early childhood development can increase learning ability and raise wages in adult life.
Basic cognitive skills, such as literacy and numeracy, are typically acquired in primary school—and depend crucially on the quality of education. Job-specific skills are supplied by formal TVET and higher education institutions, non-formal training centers (for example, firm-based training), and informal training (such as apprenticeships). Soft skills may be acquired at any point, often by interactions with family members, peers, or colleagues.
Skills development is a cumulative process that occurs at every stage, takes place in a variety of settings, engages a highly diverse clientele, involves multiple delivery mechanisms, and must constantly respond to changing occupational requirements. An efficient skills development system embraces the entire spectrum of education and training and provides opportunities for lifelong learning.
What are the main elements of an effective skills development system?
There is no one-size-fits-all skills development strategy. It varies from country to country, and even across sector within a country, depending on both skills demand and supply. International experience suggests that an efficient skills development process requires deep understanding of the pressures of demand and supply in the labor market.
Demand for skills is affected by factors like economic changes, urbanization and migration, demographic changes, and the country’s medium- and long-term development goals. Skills supply is determined by the availability, quality, and relevance of skills development programs and by policy interventions that affect their management, governance, and financing.
Matching demand and supply is critical for an effective skills development system and depends on close coordination between government, the private sector and training providers. A close working-level cooperation between these players – e.g. employer participating in designing courses and in curriculum design, or trainees receiving enterprise-based as well as classroom training, is likely to lead to far fewer mismatches.
What are the global lessons in Skills Development?
What have other countries done that has worked? Let me share with you some recommendations based on global evidence that I think will be particularly helpful for Sri Lanka to consider:
First, begin early, in the first few years of life; as well as introduce literacy and soft skill development modules in schools. In most South Asian countries, large numbers of school-goers drop out early; and large parts of the workforce have little knowledge and few skills that would make them more employable.
- Early childhood interventions can make a huge difference, as the long-term gains are enormous both for the Sri Lankans and for the Sri Lankan economy. International evidence shows that one additional year of ECD leads to an increase in income in adulthood of from 6-17%,
- Introducing modules focused on literacy and soft skills as part of basic and secondary education and training programs can also help break the vicious circle of the unskilled being trapped in jobs that require fewer skills, and establish accessible pathways for acquiring skills.
Second, Government has a critical role to play, mainly in regulation, standard setting, M+E, and selective financing of skills development. It should not aim to expand role in provision because this often comes as a cost of neglecting the roles mentioned above. In fact, it should explore innovative public-private partnerships. Korea and Australia show us good practice examples of Governments establishing an industry-driven system for competency-based training and standard setting, and developing a clear articulation between various levels of education and training to allow people to move between education and vocational training systems – so that training is not seen as a dead end.
Third, introduce performance-based financing of programs. Currently, nearly all public funding here is input based. A shift in this relationship—towards financing being linked to outputs/outcomes—will be critical to make training more relevant for labor market needs. Singapore has, for example, establishing mechanisms which link financing of the training system to measures of labor market outcomes, thereby incentivizing institutions to pay particular attention to the needs of industry.
Fourth, ensure employers play a critical role in system. They need to have an important voice at the table at the policy level and be involved in decision making at the institutional level. Malaysia recognized that the government could not provide cost-effective training to school leavers on its own, and teamed up with employer associations to support a system focused on delivering demand driven training that responded to the needs of employers. This has led to significant growth in access to training and labor productivity.
Fifth, Raising the productivity of the informal sector is important. ½ to 2/3rd of employment in Sri Lanka is in the informal sector, and enhancing their productivity through skills development will lead to faster economic growth. Mexico has developed innovative program to support the informal sector and small enterprises, to provide training and a whole range of support services (e.g. guidance on setting up small businesses, managing finances, marketing) which have proven to be effective to enhance the productivity of the sector.
Finally, M&E plays an important role in the design and delivery of skills programs. I cannot stress this enough. Always, always, always evaluate programs, and feed these lessons back to policymakers so that they can make informed decisions about improving the design and implementation of programs. The effectiveness of the skills development programs I have mentioned above has been driven by strong M+E systems.
Education and Skills Development in Sri Lanka
Within this global context, I would now like to highlight Sri Lanka’s human capital development narrative and the role of that this Summit will play to take it further.
Sri Lanka is, in many respects, a development success story. The country’s solid economic growth for over a decade has helped to reduce poverty and promoted shared prosperity.
Human development indicators are impressive by regional and lower- middle-income country standards: Sri Lanka outperformed nearby country comparators on most of the Millennium Development Goals (MDGs), especially those related to education. About 96 percent of its citizens have completed primary school, 87 percent have finished secondary school, and there is gender parity in school completion at primary and secondary levels.
Despite Sri Lanka’s success with strategies for achieving universal basic education, every year about 140,000 youth enter the labour market having completed no more than general secondary education and lacking job-specific technical and vocational skills.
Sustaining inclusive economic growth is at the heart of the government’s development plan. Sri Lanka’s goal is to become a competitive, middle-income country grounded in a knowledge-based economy.
Recognizing that Sri Lanka will succeed in these aspirations only if its labor force is highly educated and skilled, the government has made education and skills development a priority.
However, it has three major challenges which have a major impact on its development goals:
- Although Sri Lankans spend more time in the education system than neighbours in South Asia, employers are questioning the system’s quality and relevance.
- Major skills shortages and mismatches undermine productivity and thus growth.
- Disparities in learning outcomes in primary and secondary education and in access to both vocational education and training and higher education constrain the government’s inclusive growth objectives.
I am very delighted to note that the Government is aware of these challenges and is undertaking major reforms at each level of education.
In closing I would like to say that the world is changing at an incredible pace. The head of the World Economic Forum, Klaus Schwab, has recently argued that the world is undergoing a Fourth Industrial Revolution. The jobs that have driven rapid economic development in the past, from agriculture to light manufacturing, are disappearing and the jobs of the future will be ever more technology-intensive – requiring a higher-skilled workforce. To access these jobs, people will need skills to be able to analyze, adapt, problem solve, manage and work in an increasingly connected way.
There is therefore no time to lose and this summit comes at a very opportune moment. During the next day and half days, we will be hearing about Sri Lanka’s ambitious vision and the plan to implement it, we will be listening to international experience and lessons in skills development from a number of distinguished speakers and participants, and we will work towards developing a national agenda to support Sri Lanka’s growth goals and sectoral goals.
On behalf of my organization, the World Bank – and I am sure I speak for other partners here – we are honored to partner with the Government to support reforms across the entire education and training spectrum, which will lead to the achievement of Sri Lanka's goals.
I look forward to your participation and remain confident that the knowledge shared will be very helpful for Sri Lanka as it develops of a national strategy to develop human capital for shared prosperity.
Thank you
