Flight Of Human Capital – A Catastrophic Fait Accompli

By Lalith Dhammika Mendis

Mass Exodus of talent 

Sri Lanka (SL) is experiencing mass exodus of professionals and skilled manpower. The crippling economic crisis that has beleaguered the nation is driving many professionals and skilled individuals away towards greener pastures. As reported by the Ministry of Health, nearly 1000 Doctors have migrated during the period from May’22 to May’23. Many doctors, specialists, and heath care professionals are migrating and this situation is precipitating health security crisis for needy mainly dependent on public sector medical care.

As reported by economynext public sector hospitals have witnessed dramatic rise in outpatient visits and admissions, as low-income segments are unable to afford costly private medical care. economynext has further revealed that nearly 100 rural hospitals are facing closure due to lack of medics. Besides, there is an acute shortage of essential medications in state hospitals and patients are being asked to buy drugs from pharmacies. Healthcare woes of the poor are exacerbating. Against this background, large scale malpractices costing Millions of Rupees to the already bankrupt coffers of SL involving procurement of counterfeit medications are further worsening health issues faced by the common man.

According to the Computer Society of SL nearly 10,000 IT engineers have left the shores. Besides economynext disclosed that construction sector is one of the hardest hits as sector professionals are migrating.  Many professionals are migrating to Australia as it has become a red-hot destination offering best cities, better compensation, better quality life, subsidized healthcare & education, better infrastructure, temperate weather conditions, socio economic stability and potential to secure citizenship.

What drives migration?

Multiplicity of factors have propelled migration of professionals and skilled manpower from SL. Reduction in per capita income, drastic depreciation of Rupee against US Dollar, higher inflation, highly burdensome tax regime, lack of opportunities for growth & gainful employment, political instability, low quality public services and infrastructure, worsening economic crisis, lack of respect for rule of law, loss of trust in the system and loss of hopes for a better tomorrow are some of the catalysts of migration.

Central bank of SL (CBSL) maintained a non-credible peg with the US Dollar exchange rate fixed at Rs 200/- until rupee was free floated in March 2022, which resulted in US$ rate unprecedentedly hiking to Rs 365/-. This triggered high inflation. Depreciation of the rupee resulted in drastic depletion of real incomes and purchasing power of households. Sheer lack of hope for sustainable economic recovery amid fast deteriorating economic conditions, rotting political landscape, reeking corruption in state officialdom, abysmal state of public services and growing anarchy in the country, professionals and skilled people are increasingly becoming disillusioned and seeking greener pastures overseas. The stringent tax policy measures adopted by the government too have exacerbated the woes of masses and witnessed a kind of prodding educated people to take wing to prosperous destinations.       

Recent amendments to tax laws have led to drastic increase in personal taxes due to removal of reliefs and hike in rates. Further, latest amendments to VAT law too is driving prices sky high. Professionals are increasingly finding it difficult to maintain lifestyles they are accustomed to and meet regular financial commitments as disposable incomes are shrinking rapidly. Moreover, they are growing despondent, as they view prospects for their offspring in SL as being very bleak.   

Adam Smith (AS) presented “Canons of Taxation” in his book “The Wealth Nations” in 1776 and propounded that “subjects of every state should contribute towards the support of the government in proportion to their respective abilities”. AS spelt out four basic canons or characteristics of taxation namely, Equality, Certainty, Convenience, Economy.

By equality AS did not mean everyone should pay an equal amount as tax, but it denotes burden of tax should be borne in proportion to abilities or incomes to ensure tax is imposed on an equitable basis. This in effect means that the rich should pay more than the poor.

Modern day writers on Public Finance have presented additional cannons of taxation such as Productivity, Elasticity, Simplicity, and Diversity & Expediency highlighting other characteristics of taxation. Whilst Productivity aims to incentivize production, Elasticity entails flexibility in imposition of tax based on country specific needs to bring about social justice and equal distribution of wealth. Simplicity is all about making taxes as simple as possible to make taxes intelligible by people, so that people could ascertain their own tax liabilities.

Sadly, the current tax regime that heaps unbearable burdens on people seems to defy the logic of the canons of taxation and is proving counterproductive. Arguably it is lacking in equity, productivity, and elasticity. Glaringly unjust heavy taxes instead of incentivizing productivity may compel businesses to relocate to tax friendly destinations. Economynext reports, the hike in taxes is adversely impacting economically vital sectors such as exports, as exporters are exploring the possibility of relocating to tax friendly countries. Increasing brain drain may witness a parallel in relocation of businesses as well in overseas destinations. Erosion of export revenue would prove disastrous to SL which is struggling hard due to shortage of income generated in foreign currency.

In fact, companies being legal persons too could migrate to overseas destinations particularly those offering promising tax regimes.

Catastrophic Repercussions of Migration of Professionals & Skilled Manpower

Migration entails loss of precious human capital (HC). Economic development is driven by HC which denotes skills, competencies, abilities, knowledge, training, technological knowhow, expertise etc of manpower. The HC of a country is vital to face challenges posed by fast-changing global economic landscape. It is a vital element of the resources in a country that gives the ability to generate competitive advantage to stay ahead of the competition.

Governments spend money on education, higher education, vocational training etc, to develop & nurture a whole gamut of skills, expertise, competencies, and know-how in a diversity of spheres of knowledge & disciplines. This amounts to the investments being made on development of HC with a view to accomplishing socio economic prosperity on a sustainable basis. Thus, the loss of professionals and skilled manpower in a wide spectrum of sectors would result in drop in the capacity for economic value creation and institution building leading to reduction in the national GDP.

Loss of professionals, technocrats and diversely skilled manpower representing a wide array of disciplines from Medicine, Accounting, IT to Civil and Electrical Engineering through migration would amount to direct loss of ROI from the funds invested towards development, and nurture of HC. Moreover, it would lead to a huge vacuum of essential skills in many important sectors crucial to drive economic growth. Dearth of skills in vital sectors would hamper productivity in many areas of statecraft as well as running of commercial sector business enterprises. It would impact production of goods and services, and more so in the provision of essential public services and utilities, as it is already evident in the current crisis prevailing in the public health sector where lack doctors, specialists and healthcare professionals is fast precipitating a healthcare catastrophe.

Loss of expertise would directly cripple productivity in vital sectors. Migration of professionals and skilled manpower will cause loss of functional skills that are vital to drive productivity in an economy. Although basic school education may equip people with fundamental skills, development of functional skills necessitates engagement in higher studies, obtaining advanced knowledge, technical training in cutting-edge technologies, and the development of multifarious job-related tasks and skills. This inter-alia entails enhancement of general management and soft skills, furthering professional education and training in best financial practices etc. Availability of functional skills contributes to enhance productive capacity in labor participation making it more impactful to drive economic growth. Functional skills also include social emotional skills such as Work ethics, Teamwork, Persistence, Adaptability and Initiative that would boost efficacy, and efficiency in productive endeavours. Migration results in loss of functional skills developed by making heavy financial investments and cause a HC deficit.

Beneficiaries of Migration

The precious HC continuously lost by SL results in Brain Gain in rich immigrant destinations. Well trained and skilled manpower migrating to developed countries contribute to enhance productivity and economic growth in immigrant countries. At the end of the day, immigrant countries derive economic benefits by using the skills provided by developing nations like SL on FOC basis at the cost of the latter incurring lower productivity & GDP and loss of ROI from heavy investments made on HC Development.

It is a sad irony, that local professionals may be migrating to countries which were either direct funders or even part of the consortiums that provided debt finance to SL which ultimately led to the current economic distress. In such cases, SL may have literally borrowed funds to finance HC Development needs for the ultimate benefit of the funders themselves, whilst losing enormously in terms of heavy debt service costs paid. The global funders are benefiting through Brain Gain from developing countries whilst deriving interest income from debt financing provided to such countries.

Besides, migration for education too is generating substantial income for the host countries. A lot of youth after completing studies overseas opt to stay in immigrant countries rather than returning home. Higher standard of living, better infrastructure, greater avenues and opportunities for growth, economic and political stability, attractive perks etc propel people to permanently relocate to immigrant destinations. These youth boost productivity of immigrant countries and contribute to their GDP’s as well.

Research Findings on Australian Scenario, a Case in Point

As per the report titled “Value of International Education to Australia” prepared by Deloitte Access Economics, (DAE), total contribution made by international education to Australian economy was $16.9 billion, approximately 1% of the GDP in 2014 – 2015. Also, this sector has supported 128,000 Full Time Equivalent jobs which is 1.3% of the total number persons employed in Australia. Expenses incurred by overseas students on purchase of goods and services for living and what is incurred by their relatives when visiting them also contribute to the GDP of Australia.  Overseas students who qualify in various disciplines also help attract more students for enrollment, which results in accrual of benefits to the host country economy on a consistent basis.

International students who choose to permanently relocate to Australia contribute to boost its’ skilled work force. Key findings of the DAE show, in 2014 nearly 130,000 students who completed higher studies migrated to Australia and was estimated to constitute 3% of its work force with similar tertiary educational qualifications. It was further estimated that their contribution amounted to a boost in GDP Per capita by about 0.5%, approximately equivalent to a contribution of $ 8.7 billion to GDP in 2014.

According to Australian Bureau of Statistics, the income generated by international education at $ 18.8 billion was the third largest export of Australia in the year 2014 – 15.

Australian case speaks volumes about the enormous gains made by rich overseas destinations through international education, They capitalize on vast opportunities created by political instability, corruption and economic crises prevailing in developing countries like SL, which fail to meet the aspirations of digitally literate, techno savvy, enlightened and forward-looking youth yearning for  professional accomplishments, career advancements, world class life styles, and promising future prospects for offspring.

Future Outlook

Future economic outlook of SL being what is prevailing today, the trend in migration is here to stay. Foreign Employment Bureau statistics reveal that professionals seeking overseas job placements have shot up by over 300% during the period from 2007 to 2017. Migration of Sri Lankan families has soared as demonstrated by declining net migration rate over the last decade from 2013 to 2023, indicating a greater out flow from SL. Canada, New Zealand and Australia have been popular destinations accounting for 54% of the Sri Lankans migrated in 2019. Besides, Germany, Sweden and Norway are some of the emerging destinations preferred for migration. Revealing a shift in the pattern of migration, China, Malaysia, Singapore and Hongkong are also becoming preferred destinations for education, employment and permanent relocation.

As revealed by the World Bank (WB) Reports, Sri Lankan households have spent a mammoth US Dollars 1.2 billion on education in 2019, and 20% of it or US Dollars 240 million has been expended on overseas education. The amount at the exchange rate prevailing at this moment is a staggering Rs 76.8 billion. This is equivalent to 15.23% of the year 2023 Govt budget allocation of Rs 504 billion for education and 79.2% of the allocation for university education of 97 billion. According to the WB, expenditure on overseas education in SL has been increasing at an annual growth rate of 12.4% from 2010 to 2019. This trend may witness a further rise with future economic prospects appearing to be bleak.

Sri Lankans have demonstrated the ability to vibrantly integrate with global communities. Digitally competent, techno savvy professionals from SL have demonstrated high level of adaptability to employment and other local conditions in immigrant countries and successfully integrated with local communities.

The continued exodus of professionals would create HC deficits in a whole gamut of sectors whilst the outflow of academics would cripple Universities, Professional Educational Bodies and other institutions of higher learning, causing far-reaching socio-economic implications.

However, migration for employment offers noteworthy advantages in terms of acquisition of knowhow and competencies in latest and fast developing globally recognized disciplines, advanced knowledge & practical application skills in cutting edge technologies, exposure to best business practices and fast evolving human resource development concepts & practices as well as work ethics and etiquettes that could positively impact organizational performance. Those who return from overseas bring along a wealth of exposure in these areas which could add value to enrich quality and standards of local practices. Moreover, US Dollar remittances made by migrant workforce are one of the vital sources of forex inflows to SL.

What could be done to alleviate the adverse impact of migration?

SL must create ample opportunities in a diversity of disciplines/spheres with global recognition and provide modern facilities on par with international standards to enable those aspiring to pursue higher education to obtain high academic distinctions and professional qualifications. The number of seats made available in universities and institutions of higher learning would have to be increased to widen the opportunities provided. This would help persuade   part of those who plan to travel overseas for higher education to stay put instead.

Besides, conditions need to be created for those who excel in higher/ professional education overseas to return home and find attractive job opportunities commensurate with academic accomplishments and professional qualifications. One way of attracting local talent groomed overseas would be to engage them in expert/professional roles in policy formulation and implementation of ambitious development programs envisioned by the Government. This way local expertise attracted back home could be offered pride of place in playing strategic roles in spearheading the future development initiatives of SL.

Exploiting Local Talent, Turning Threat into an Opportunity, the Way Forward

Moreover, focused actions could be initiated to attract foreign direct investments to set up word class institutions of higher learning to attract youth from different parts of the world for higher education. These actions must be mainstreamed in the Government’s development agenda with a roadmap clearly defining milestones, timelines and sources of funding. Locals who excel in high academic pursuits and professional accomplishments could be attracted as expert resource people to play pivotal roles in manning and running these institutions offering world class study programs to attract foreign students.

These institutions could generate forex revenue to boost the GDP. SL is a country with a vast reservoir of human talent. It has one of the highest literacy rates in Asia. Illustrious and accomplished sons of Sri Lankan soil are holding globally acclaimed positions in many parts of the world. Policy makers of SL should take a discerning long-term view and take action to capitalize the enormous potential offered by international migration for education. It is a fast-growing business that could be exploited to make SL a vibrant hub for higher education. SL could effectively address the threat of migration and its’ adverse fallout by turning into one of red-hot destinations in Asia offering higher education by capitalizing on its own HC, talents and skills.

GOSL is yet to unveil a clear strategic plan to meet debt service obligations over the next 5-to-10-year time horizon, although is so much bragging could be witnessed about triumphantly extricating SL out of the economic imbroglio. Establishing an International Educational Hub through FDI’s would be non-debt-creating strategic investment with long term prospects.

Being timely is of essence to achieve success

SL should mainstream this endeavour in the development agenda and take constructive measures to implement it in a timebound manner. Otherwise, it too suffers the fate of many a brilliant idea spoken with eloquence, but not seen in the light of day.