Industrialisation is imperative for Sri Lanka | Sunday Observer

Industrialisation is imperative for Sri Lanka

20 February, 2022

Industrialisation is regarded as one of the key aspects of an economy in the context of growth. Evidently, the countries that have developed the industrial sector have achieved the highest rates of development in the world. Developed countries encourage industrial development on any scale to assist the national economies of their respective countries.

In Sri Lanka, during the past decade, the industrial sector has contributed approximately 27 percent consecutively to the Gross Domestic Product (GDP), with minor year-on-year fluctuations.

With the contribution of the service sector (near 60 percent), this input is significantly high for the country’s economy. Considering the number of prevalent obstacles, the performance of industrialists is laudable, notwithstanding the size of the organisation.

Related entities

Industrialisation stimulates and assists other economic sectors of the country in various ways. The development of one industry can lead to the expansion of other related entities. For example, a vehicle assembly plant requires various components to make a complete vehicle, and component manufacturers are provided with a steady market for the suppliers of accessories.

Similarly, an apparel manufacturer in Sri Lanka requires many accessories that can be produced locally, providing business opportunities to many local small and medium-scale industrialists.

According to the annual survey published by the Department of Census and Statistics, in 2019, nearly 1.5 million people were engaged in the industry sector in the country, in over 21,000 establishments. The monetary output of the sector was reported at an impressive 5 billion rupees in 2019. According to the survey, out of the total number of establishments, over 71 percent were sole proprietorship and partnership businesses, indicating that the majority of the sector consists of small and medium scale enterprises.

Sri Lanka is a country with a relatively small landscape and a comparatively high population density. Currently, unemployment is on the rise due to the recent Covid-19 pandemic and several other factors. Nevertheless, a significant number of people enter the job market annually after passing the GCE Ordinary Level and Advanced Level examinations.

The approximate dropout rate is around 200,000 students after ordinary level and around 300,000 students after the advanced level examination. The number of students enrolled in TVET education is approximately 120,000, producing over 350,000 job seekers annually.

Industrialisation is an extremely effective solution to resolve the unemployment issue in Sri Lanka. According to industrialists, there is a dire demand for young people with technical skills in the country. This demand can be met in full if young job seekers can be lured into technical and vocational skills education and training.

Increase employment

Manufacturing industries, if properly developed, may create more job opportunities than agriculture and service sectors combined. The establishment of more manufacturing facilities could increase employment opportunities. In particular, promoting small and medium-sized industries in rural areas can be an effective way to engage youth in such localities that otherwise possess limited opportunities.

A vibrant industrial sector can increase the country’s foreign exchange revenue by supplying goods to external markets. In addition, they can cater to local market demands to reduce imports. Therefore, encouraging industrialists to earn additional income through setting up or expanding industrial ventures will increase the government’s savings that can be used for public welfare.

Until the late 1970s, the industrial sector in Sri Lanka, dominated by several large-scale and state-owned manufacturing entities, thrived in industries such as fabricated steel, cement, lubricant oil, leather, textiles, sugar, and some other essential goods and materials. However, the liberalisation policies adopted in 1977 brought substantial changes in the sector, with the then Government offering these state entities to local and foreign private sector investors.

The changes made in the late 1970s have significantly affected the industrial sector, where almost all locally manufactured products were replaced by imports, most often at lower costs. In comparison, by 2020, the value of imports had risen to the US $15.5 billion, while total exports had only reached $12.8 billion. This difference has created an adverse balance in foreign trade, widening the trade deficit further.

Native market

Developing localised manufacturing industries to cater to the native market and substitute imports is perhaps the most viable step the Government can take at this point in time to confront most of the challenges, particularly those related to the declining foreign exchange reserves of the country.

The common opinion of many industrialists is that they can produce substitutes for the vast majority of imported products if the authorities lay down a proper policy framework. If they can manufacture substitutes for these imported goods, foreign exchange savings can be huge.

Consecutive Governments have indeed attempted to provide financial and infrastructure facilities for manufacturers in the country. However, typically, the interests and enthusiasm of the political hierarchy change constantly based on their mindset and judgments. Hence, historically, there was no consistency in enacting policies by both politicians and bureaucrats.

However, the current political leadership assigned to the industry sector seems proactive and genuinely trying to provide solutions to the issues that have prevailed during the past few decades. The Ministry of Industries is striving to introduce various models of pragmatic action plans for the sector.

The ministry has singled out twenty different segments and appointed advisory committees to represent the interests of each of the industries.

Upgrade technology

The ministry website reveals that the committees will be chaired by the industry leaders of each sector to analyse and prepare development plans and required recommendations. The intention is to upgrade technology and develop the sector to compete in the global market.

Regrettably, the ministry website has published far less information than required about this important and commendable move. More detailed information on the website is a must for the beneficiaries to understand the concept. As in many other state institutions, the industry ministry website is also seemingly not updated on time and not managed efficiently.

Almost every industrialist this writer interviewed to obtain information complains that they have come across a number of issues due to the bureaucracy that has remained for years in manufacturing industry-related public institutions. They are of the opinion that the Government as a whole is not giving due importance to the development of the manufacturing industry sector, even though the minister in charge and his team are genuinely trying to assist.

The inconsistency of Government policies that change abruptly from time to time is a gruesome challenge for industrialists. In particular, a new industrialist who has the intention of starting a manufacturing plant is reluctant to do so for fear that the Government will waive off import taxes and allow free flow of the item after he sets up the business.

This dilemma is created by the clear disparity between the policies of the trade ministry and the industry sector policies that can be detrimental to industrialists. This is because successive Governments failed to introduce a long-lasting and concrete policy framework. There is an urgent need for the Government to provide a clear solution to this disparity without further delay.

In the context of the economy, sustainable industrialisation plays one of the most vital roles in growth in Sri Lanka. The Covid-19 crisis, but also the rapidly declining economic growth experienced even before the pandemic, is the most critical issue currently facing the country as a whole.

The need for support from all stakeholders, such as the Government, private investors, foreign direct investments, civil society, and most importantly, policymakers, is imperative to the manufacturing industrial sector. A well-managed interaction between these participants will help create a path to the sustainability of a more vibrant industry sector.

External debts

Currently, Sri Lanka is in dire straits regarding the requirement of dollars not only to pay back external debts but also to provide critically essential commodities such as fuel, medicine, food items, and so on.

Developing industries for both local consumption and export is an indisputable way of reducing the burden. There is absolutely no doubt that the Sri Lankan workforce has all the ingredients, such as skilled human resources, creativity, intelligence, and enthusiasm, to help the overall economy.

Now, it is up to the Government to provide adequate backing by way of distinct policies, financial support, and infrastructure.

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