An industrial policy framework is long overdue: IASL 2015-10-06 02:33:27
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Following is the speech delivered by Industrial Association of Sri Lanka (IASL) Chairman Nilam Jayasinghe at the association’s 24th Annual General Meeting (AGM) held at Cinnamon Lakeside recently.
Ladies and gentlemen, welcome to the 24th Annual General Meeting (AGM) of the Industrial Association of Sri Lanka (IASL). The membership of the IASL comprises of 70 plus members representing a diversity of industries large and not so large, extending from glass to electronics to energy and to the fast-moving consumer goods (FMCG) industry. Therefore, the issues and challenges faced by the membership are both unique and specific to an industry, but some are also common to all industries.
I’m sure you will agree that we are conducting the AGM of the association at an opportune moment after the general elections in September. The industries functioned in the past six to eight months, in a period where there was a degree of uncertainly and indecisiveness. However, with the mandate and wish of the masses, there is a new government in place, which we believe, will have both the will and ability of embarking on an uninterrupted programme of development over the next six years. The IASL, as in the past, has made representations to regulatory agencies regarding issues faced by our members. These vary from taxation to tariffs, labour-related issues and also regarding policy. However, we are also encouraged to see the progress made by the Ease of Doing Business forum initiated by the Finance Minister engaging the private sector to deal with the specific issues faced by them, to be resolved promptly. We are also heartened by the government’s five-point plan of a ‘new country’ by building the economy, developing infrastructure, developing the education system, ensuring due freedom to people and eradicating corruption within 60 months, as committed in the election manifesto. We, the private sector, sincerely hope and wish that the government will be able to deliver the expectations of industries and society at large, while the association will support the government in meeting its desired goals, when and where necessary. Ladies and gentlemen, Sri Lanka today is in the category of lower-middle income country. But if it is to migrate to a higher-middle income country, it needs to move strategically, from low productivity agriculture, low-tech manufacturing and low-value services to high-tech agriculture and manufacturing and high value-added services, in the next three to five years. To do this, we need to focus attention and deploy necessary resources right now and not in the future, as the opportunities of doing so might fade away. In relation to what I have mentioned before, I wish to stress on a few areas in my address:
The economy Sri Lanka’s economy that grew by 7.4 percent in 2014 is expected to slow down in 2015, to approximately 6.4 percent as predicted. The industry sector, which is the second largest, contributed 32 percent of gross domestic product (GDP) in 2014 and grew by 11.4 percent during the last calendar year. Most members represent the factory industry sub sector, the largest contributor to the manufacturing sub sector, which has has grown by 8.5 percent in 2014 and contributed 16 percent towards GDP. However, as in the more developed economies, the contribution from the factory industry sub sector needs to be increased to at least 25 percent of GDP in the next two to three years. There are also some concerns I wish to raise in relation to the economy. On a cumulative basis, the trade deficit during the first six months of this year increased by 15.6 percent to US $ 4.1 billion.
The overall balance of payments is estimated to have recorded a deficit of US $ 791 million during the first six months of 2015 in comparison to a surplus of US $ 1.95 billion recorded during the corresponding period of 2014, which is also of concern. The gross official reserves were US $ 8.2 billion, a comfort zone, and equivalent to 5.1 months of imports by the end of 2014. However, gross official reserves have declined to US $ 7.5 billion as at end-June 2015, equivalent to 4.5 months of imports. These factors perhaps trigged the Central Bank to effectively float the rupee on September 4, which resulted in a fall of the rupee by almost 4.5 percent against the US dollar. While this move will be welcome by exporters, as done in 2011 where the rupee fell by 17 percent and as well as what has been done this year, one off devaluations of this nature are not considered healthy and it is advocated that the true value of the home currency be maintained on a continuous basis. Meeting revenue targets is going to be equally challenging for the government this year. Therefore, it will be quite interesting to see what the budget will have to offer in November.
Fast-tracking export development I wish to make reference to the address by the Prime Minister at the recently concluded Economic Summit, where he stressed that increasing export revenue was the only way forward, if Sri Lanka is to reach its true potential. Exports as a percent to GDP, which was 34 percent in 2000, had declined to 17 percent by 2010 and has now further declined to 14 percent in 2014. On a cumulative basis, exports declined by 0.6 percent during the first half of this year in comparison to the same period last year. Apart from the success seen in apparels, value-added exports need to grow significantly if Sri Lanka is to control its widening trade deficit, which grew by 15.6 percent during the first six months of the year. There are however only a few companies that have continuously increased their export revenues other than apparels, but these are only a few and far between. As a matter of interest, exports as a percent of GDP in Singapore, is over 200 percent of GDP with resources, absolutely limited. If exports are to make economic sense in Sri Lanka, exports will require registering at least 25 percent of GDP in the next two to three years. We are also pleased about the initiatives taken by the government in entering into free trade agreements (FTAs) with countries such as India and China. However, we urge that these be pursued with some degree of caution based on the principle of, ‘a level playing field’ and also through a consultative process by engaging key stakeholder, as it has been done otherwise in the past.
Need to increase FDIs exponentially In 2010, foreign direct investments (FDIs) were US $ 516 million but have steadily grown to US $ 1.68 billion by 2014, which is encouraging. However, this figure is merely 1.3 percent of GDP,
which is far below that of most comparable countries, which has a ratio in excess of 3 percent. To achieve this, we really need to improve the ‘Doing Business Ranking’ where Sri Lanka is in the 99th position this year having been at the 85th position last year. This shows that there are almost 100 countries competing for investments ahead of Sri Lanka. The concept of a One Stop Shop has been spoken for years, but this has yet to be a reality. We urge the government to take all necessary measures to encourage investors mainly with Green Field projects by creating a very conducive and investor-friendly environment. We also wish to urge the government to ensure a consistent policy framework and refrain from imposing one off taxes such as the Super Gains Tax and the laws such as the Land Alienation Bill, which could be harmful to possible FDIs.
Industry competitiveness Innovation, research and development and upgrading capabilities with the use of advanced technologies such as automation and robotics are essential in maintaining long-term sustenance of industries. While the prevailing interest rates are yet conducive to borrow and invest in such initiatives, industries should be encouraged to do so, to maintain its long-term competiveness.
Labour issues and productivity We are heartened by the government’s plan to create one million additional jobs to bridge the economic development gap between Sri Lank and Southeast Asian nations such as Malaysia and Thailand. We sincerely hope that this challenging goal can be achieved. However, industries are faced with an issue of lower productivity and also a scarcity of skilled labour. We believe the long and eagerly awaited labour reforms will be dealt with by the new government as a matter of priority. We also hope these reforms will enable improving labour productivity and will remunerate the workforce in tandem with output and in turn make industries more competitive internationally. Last year, worker remittances grew to over US $ 7 billion, which is predicted to rise over US $ 8 billion this year. While recognizing the significant contribution to the economy from overseas remittances, this exercise has had a huge psycho-social cost at home to families and also a scar on the dignity of certain individuals. As done in certain other countries in the region, the government is urged to initiate measures reversing this trend by encouraging both blue and white collar workers to return home for gainful employment. This initiative could assist industries plagued with a shortage of gainful labour while addressing the issue of heavy social cost to society.
Industry policy framework The industry sector as a whole can be expected to benefit from the incentives offered to largely
small and medium enterprises (SMEs), the technological upgrading in manufacturing processes, expansion of industries in rural areas, policy changes to support local value-adding industries and establishment of industrial zones in rural areas. We are also encouraged by the proposal to set up Economic Development Mega Zones and Industrial and Technology Development Zones in Raigama (Kalutara District including Horana) and in Hambantota, Mahaoya, Kandy, Galle, Jaffna, Killinochchi and Vanni, which we believe will enable create an investor-friendly environment also conducive to attract FDIs. Ladies and gentlemen, there was a long felt need for an industry policy framework which sets out a process by which an integrated approach is used to map the role of each stakeholder in meeting future industry goals. With this in view, A Guideline for Consensus on a National Industrial Policy Framework was developed by the IASL some years ago, which was developed with the assistance of the Institute of Policy Studies with the World Bank’s financial assistance. Though this was made available to the relevant line ministry and key government officials, unfortunately this was not even acknowledged. The IASL yet holds the view that a framework for the development of an industrial policy is long overdue. The suggested framework would consider the role of each stakeholder, such as the industry participants, technocrats, labour representatives, chambers, etc., and should be carefully thought through integrated approach, for the industries sector to reach a target of at least say 35 to 40 percent of GDP and the factory sector to reach 25 percent of GDP. With this in view, some initial work has been carried out by the IASL and currently work is in progress. Areas such as the development of SMEs, development of industries in key sectors and industries engaged in import substitution will be included in the policy framework. The success of any association of this nature relies mainly on the degree of engagement of its members. I hope in the ensuing year, we will have a much greater degree of member involvement, which will generate value and a meaningful contribution both to our members and the economy at large. In conclusion, I wish to thank the members of the executive committee, our Secretariat headed by Rohan Cassiechetty, the Ceylon Chamber and the general membership for all the support and guidance given to me during the past year. - See more at: http://www.dailymirror.lk/90169/an-industrial-policy-framework-is-long-overdueiasl#sthash.2qg6YmOU.dpuf
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Industrial development needs smarter policies 0
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Visit of UNIDO Director General offers opportunity to push ‘ISID’ approach
New industrial technologies like additive manufacturing are revolutionising the production process, globally. Even in Sri Lanka, 3D printers like this one are enabling even small firms to find new sources of competitiveness – Pic by by Anushka Wijesinha
Today, Sri Lanka sees the visit of the highest-ranking UN official since the new Government took office, and indeed since 2010. That this official, Li Yong, is the Head of the UN’s industrial organisation – UNIDO – at a time when Sri Lanka is aiming to boost its economy through growth of its real sector, is particularly noteworthy. Director General Li’s visit offers a wonderful opportunity to marry Sri Lanka’s objective of boosting economic growth across the country together with UNIDO’s new ‘Inclusive and Sustainable Industrial Development’ framework. Sri Lanka certainly has had a history of industrialisation, albeit a relatively lacklustre one compared to many Asian peers. The island-wide garment factory program, the BOI Export Processing Zones, state-owned industries (with mixed success), etc., have helped grow light manufacturing in the country. Yet, the examples of modern and high-tech manufacturing are few and far between. In fact, even the recent growth of the industrial sector (at least in terms of the numbers) has largely been due to the construction sub-sector (growing from 7% to 8.7% over the last decade) and not really the manufacturing sub-sector (growing from 16.3% to 17.1%). However, although it is not widespread yet, a handful of competitive and highly competent Sri Lankan industries have emerged on the global stage through innovation as well as environmental leadership. Industry and (not or) services In the last decade or so, the Sri Lankan economy has certainly gone through structural transformation, away from agriculture (declining GDP share from 20% to 11%), towards industry and services. Industry’s share grew by just under 4% (reaching 31%) and services share grew by just over 5% (reaching 58%) over this period. Together with its high share in GDP, employment in the services sector has been the most prominent feature of the recent structural change; employment in the sector now reaches nearly 45%, far ahead of the 26% in industry. A prima facie reading of these numbers may suggest that Sri Lanka’s economic future lies in services and services alone. Yet, this apparent prominence of services must be looked at beyond the headline numbers. Much of the services sector in the country consists of domestic non-tradables like wholesale and retail trade (nearly a quarter of GDP), and transport, storage and communications services (over 14% of GDP). These are not particularly dynamic sub-sectors in the economy, are not export revenue generating, and do not necessarily capture high-income shares for those employed in it. So, we cannot assume that a larger services share in the economy will necessarily bring catalytic impacts in terms of export growth, productivity, and higher incomes. So, there still is a strong role that industrial development has to play.
As the UNIDO Director General has asserted, “there is not a single country in the world that has reached a high stage of economic and social development without having developed an advanced industrial sector”. Industries and services aren’t mutually exclusive either. A great example is the revolution that is taking place in the apparel industry. Firms like MAS and Brandix are increasingly positioning themselves as providers of apparel industry solutions, rather than just makers of garments. It is the advent what economists call ‘the servicification of manufacturing’ – the embedding of technology-based services into the manufacturing process. The point being made here is that growing the industrial sector doesn’t simply mean setting up more and more factories; it is about enhancing manufacturing value-added in the domestic economy and finding a lucrative role for related services. ‘ISID’ and Sri Lanka: Inclusivity Recent growth in Sri Lanka hasn’t worked for everyone. While GDP data suggests monthly per capita GDP is LKR 35,300, household data suggests that rural per capita income is just Rs. 11,003 – one-third of per capita GDP. So, UNIDO’s new framework for promoting shared prosperity through industrial progress – ‘Inclusive and Sustainable Industrial Development’ (ISID) – resonates well with Sri Lanka’s new priorities. The ‘Social Market Economy’ policy ideology of the new UNP-led Government is keen to promote market-oriented economic growth, but in a manner that does not compromise on social and economic justice for all. This is the cornerstone of ‘inclusive growth’. Within this, inclusive industrial development can play a strong contributing role in this. What better way to promote inclusivity in the industrial sector than through Small and Medium Industries (SMIs)? According to the Annual Survey of Industries, over 95% of all industrial establishments in the country have less than 20 employees. Moreover the lack of geographical dispersion of industries still remains a challenge, with 61% of all
industrial establishments still being concentrated in just two provinces – Western and North Western.
Li Yong ‘ISID’ and Sri Lanka: Sustainability It is now firmly established that choosing between industrial growth and environmental sustainability is no longer an option. Even in China – the most rapidly industrialising economy with the strongest impacts on pollution – are recognising that promoting cleaner and more resource-efficient pathways to production cannot be ignored. For a smaller economy like Sri Lanka, too, this becomes important; probably not because our industrial carbon footprint will be very large, but because we can use it to position our industrial sector globally. In fact, several Sri Lankan apparel brands have shown that this approach is helping to enhance their brand appeal globally, in the eyes of international merchandisers and consumers who are becoming ever more ‘green conscious’. Technological advances are offering new opportunities to make production processes cleaner and greener and make energy use in industry more efficient. With more technology being developed in Asia, the dependence on expensive climate-friendly technologies coming exclusively from the West is no longer a constraint. Through collaborations with these economies, Sri Lanka too can find the right technologies at a better price, and UNIDO can play a strong supportive role in this. Coherent and holistic industrial policy Promoting industrial development sits in the wider remit of a government’s industrial policy. Sound industrial policy-making remains a top priority among governments around the world, particularly in the aftermath of the global recession in which traditional views of taking a laissez-
faire approach to industrialisation was supplanted by more interventionist approaches. Whether it was subsidies for the growth of the Chinese clean-tech sector, the American auto bailout, or the grants for youth entrepreneurship across Europe, industrial policy has made a come back and it is taking different forms in different country contexts. While ‘industrial policy’ is no longer seen as a protectionist endeavour, the new incarnation of industrial policy however (unlike that practiced in East Asia) isn’t about ‘picking winners’ or protecting infant industries either. The new breed of industrial policies is more nuanced. Governments (probably with the exception of some in East Asia) are notoriously bad at successfully ‘picking’ which industrial sectors to promote. Yet, this rarely stops many governments from doing it anyway! In Sri Lanka today, with less leeway on public finances available now than a decade ago and with competitiveness and market dynamics evolving faster than public sector institutions and officials can keep up with, any Government interventions with regard to industry (promotional policies, subsidies, tax and other incentives) must be carefully conceptualised and well-targeted. As Luis Moreno, the Chief of the Inter-American Development Bank has said of Latin America, Sri Lankan policymakers too must answer the following questions before pursuing such policies: 1) Is there a clear market failure that justifies government intervention?; 2) Will the proposed policy be effective in remedying the market failure?; 3) Does the country have the institutions necessary to execute the policy?. Without assessing these, interventions by the Government could potentially waste public funds without having the desired impact, distort markets, and even have perverse results. Education, innovation, doing business Industrial policy cannot be taken in isolation of other economic policies of the country. It must be intertwined with considerations of human capital (education and skills), innovation (science, technology, entrepreneurship), and doing business (institutional and regulatory issues). In a field visit today, Li Yong will visit the Sri Lanka Nanotechnology Centre (SLINTEC). SLINTEC offers a wonderful opportunity for leveraging private-public cooperation in scientific research to impact the next phase of Sri Lankan industry and structural change in the economy. It could have catalytic impacts across several industrial sectors – apparels, rubber, agriculture, minerals, petroleum, etc. Meanwhile, as part of twinning industrial policies with human capital development, the education and skills challenge must also be tackled. Developing new industrial competencies will not be possible without building the requisite skill base domestically, and possibly attracting a complementary talent pool from overseas (whether Sri Lanka diaspora or foreign nationals). Meanwhile, the role of getting institutional and regulatory systems in order, in a way that doesn’t hinder industrial progress but facilitates it, cannot be overstated. Across the gamut of public sector interaction with industry – licenses and permits in starting up an industrial undertaking, to complying with regulations while running it and closing it down – streamlining is needed. In regulating industries, Government officials should move from a culture of suspicion, to giving the benefit of the doubt. This requires a complete mindset shift in the public service – a mindset that recognises industries not as targets for intrusive regulation, but rather as sources of job creation and growth that need to be supported. Way forward In the next three to five years, Sri Lanka must take at least one new sector out of mediocrity and into the international arena, and a possible candidate is processed foods. Across all districts in the country, it is the ‘manufacture of food products and beverages’ sub-sector that has the most number of firms, especially among the SMI category. This, coupled with the immense agricultural potential in the country, means that the potential for growing this sector and making it export-oriented is certainly there. Processed food exports have now emerged as a dynamic export product line for developing countries. Middle-income countries grew their share of
processed food exports in total food exports from 38.5% in 1991 to 59% in 2011. While in Sri Lanka is it just over 15%, in Vietnam it is 75% and in Thailand it is 45%. The focus on transparency, good governance, etc., offers an excellent opportunity to both build trust between Government and industry – by bringing private sector in for genuine consultations in the policymaking process – and also to begin refocusing on industrial development to drive prosperity and economic growth in this decade. Policies to promote industrial development aren’t just beneficial to firms in the industrial sector – they are necessarily linked to broader objectives of job creation, poverty reduction, productivity, entrepreneurship, innovation, balanced intra-country development, etc. The visit of the UNIDO Director General, then, is very timely. The twin pillars of ‘inclusivity’ and ‘sustainability’ of UNIDO’s ISID approach make a lot of sense in the Sri Lankan context too, and can easily be adopted in a new industrial drive of the country. While UNIDO is not a donor agency that provides generous grants for government programmes, it has a unique ability to help Sri Lanka refine its industrial development approach, foster collaborative links with global partners, and guide the country’s move towards inclusive and greener industry. References: Kelegama S. (2015), ‘Towards the 2020 Vision of US$ 20 Bn Exports and Beyond’, presentation at NCE AGM, 19 January 2015. • Department of Census and Statistics, Annual Survey of Industries (various years) • Department of Census and Statistics (2014), Household Income and Expenditure Survey 2012/13 (Anushka Wijesinha is an Economist, with a MA in Economics from the University of Leeds and is widely published and quoted in local and international publications. He is an Advisor on Industrial Development to the Minister of Industry and Commerce. Anushka blogs at thecurionomist.wordpress.com and is on Twitter @anushwij.) - See more at: http://www.ft.lk/2015/02/05/industrial-development-needs-smarterpolicies/#sthash.KyQwbBje.dpuf •
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Master Plan for industrial development - A welcome move by Professor R.P. Gunawardane-Dean, Faculty of Science,University of Peradeniya It is heartening to note that a Master Plan for industrial development will be a reality soon. Although belated it is certainly a welcome move. In my two previous presentations - S.W.R.D. Bandaranaike Memorial Oration in London (1995) and the Bandaranaike Memorial Lecture in Colombo (1996), I reiterated the importance of the formulation of a Master Plan for industrial development in Sri Lanka and its rapid implementation to meet well-defined targets. The main purpose of this article is to stress the need to implement a well-formulated master plan for industrial development and to highlight some important areas to be considered in the formulation of this much needed Master Plan.
Comprehensive industrial policy There is no doubt that Sri Lanka urgently needs a comprehensive industrial policy and a long term plan for rapid industrial development. Similar to what Malaysia did 25 years ago, it is absolutely essential for Sri Lanka to formulate a Master Plan for accelerated industrial development and implement the action plan vigorously to meet the targets. It is necessary to stress that, proper coordination is absolutely essential for the implementation of the Master Plan and industrialization strategy since a number of governmental agencies under different ministries are involved in the process. For the industrialization drive, Sri Lanka could learn much from the experiences of the countries in the region. In the early stages of industrialization the Malaysian government focused special attention on the exploitation of its natural resources
through processing industries. The first stage of the Korean industrialization was focused on institution building for R & D and this helped them greatly towards the transfer and adoption of technology. It is worth noting that most NICs have achieved rapid industrial development through the utilization of S and T with the active support of their universities and research institutes.
Master Plan The first phase of the proposed Master Plan for Industrial Development should be drawn up to cover a period of 10 years. This would envisage the reorganization of some existing institutions and the creation of new institutions for effective implementation of the Plan. The National Development Council established under the Chairmanship of the President should be the apex body responsible for the plan formulation of the overall national development. It is necessary to set up an Industrial Development Authority (IDA) under the Ministry of Industrial Development with wide powers as the institution solely responsible for the implementation of the Master Plan. The Task Force on Industrial Development may serve as the advisory body to the Industrial Development Authority. For efficient functioning, the establishment of two main organizations are proposed under the Industrial Development Authority. They are as follows: 1. Centre for Transfer and Development of Technology (CTDT) 2. Industrial Development Bank (IDB) Creation of a CTDT is of urgent necessity since no such organization exists at present. This Centre should have a wellequipped technology information base linked to international data bases, particularly to cater to the small and medium industrial sector. This Centre should be linked to a network of university faculties of science and engineering and national research institutions for efficient functioning. CTDT should be devoted to the development of technology demanded by the industries. It is also expected to bridge the gap between innovation and commercialization. The Centre for Transfer and Development of Technology (CTDT) should take a leading role in transfer and development of technology in the country. It should (i) assist in the technology transfer, adaptation and improvement to suit the domestic conditions, (ii) promote and assist commercialization of new inventions and (iii) provide up-to-date technology information to entrepreneurs. It is expected that the CTDT will fulfil the essential technological needs of the entrepreneurs in the country leading to a tremendous impact on the drive towards industrialization. This centre is all the more important because the development of indigenous technology in support of local industries is virtually non-existent at present in Sri Lanka. This is despite the fact that 3 organizations - CISIR (1955), IDB (1966) and NERDC (1974) have been set-up mainly for this purpose. Thus, it appears that there is a strong justification to create CTDT and ensure that its aims and objectives are achieved. The proposed Industrial Development Bank should cater exclusively to the financial requirements of small and medium scale industrialists. The CTDT through its strong technology information base and the linkage to the network of research institutes and the universities could provide technology backing to the industrial sector with the financial support from the Industrial Development Bank. The Industrial Development Authority should formulate all policies and strategies for rapid industrial development in consultation with the National Development Council and the Task Force for industrial development.
Industrial policy and strategies Important proposals that should be included in the industrial policy statement may be listed as follows: 1. Expansion of FTZs (mainly for multi-nationals) 2. Substantial incentives for direct foreign investment and for manufacturing industries 3. Means of increasing productivity and investor friendly labour relations 4. Establishment of Industrial Estates in provinces (mainly for SMEs) 5. Technological and financial support for SMEs with possible infant industry protection (particularly to establish labour intensive industries) 6. Promotion of linkages between SMEs and MNs 7. Emphasis for R & D, quality improvement and technology adoption 8. Emphasis for utilization of local raw materials Infrastructure development is an essential requirement to create a conducive atmosphere for rapid industrial development. The State, with possible private sector participation should launch extensive programmes to bring infrastructural facilities to international standards. Similarly, bureaucratic procedure and red tape should be reduced to absolute minimum in all government institutions which support industrial development. Since about 80% of our people live in rural areas, regionally balanced industrialization is most appropriate for Sri lanka. In order to achieve this, establishment of industrial estates in the provinces should be given high priority.
Small and medium manufacturing industries The following incentives would certainly promote small and medium manufacturing industries. 1. Incentives to private sector and commercial banks to develop industrial estates 2. Special incentives for regional location of industries 3. special assistance to commence new industries based on local raw materials 4. Substantial incentive and financial assistance for R & D, quality improvement of products, invention of new products and advanced technology adoption. Substantial institutional support through the two arms (CTDT and IDB) of the proposed Industrial Development Authority should be given to the small and medium sector. The CTDT could assist SMEs to adopt new technologies with the financial backing from the Industrial Development Bank.
Priority industries should be earmarked for promotion among investors. Some of the industries which should be given high priority are rubber, plastics and leather products, light engineering, electric and electronic industries etc. It is essential to be more productive in all spheres of activity, which would certainly enhance the quality of life of our people. It is necessary for the government and the employers to provide an environment conducive to productivity. Substantial incentives must be given to high productivity achievers and promotions and fringe benefits of the employees should be linked in some way to productivity.An alarming feature in Sri Lanka is that our labour productivity is one of the lowest in Asia. The main reasons for this are poor work ethics, too many holidays, inadequate technical skills and perhaps poor working conditions as well. It is essential for Sri Lanka to develop more disciplined and skilled work force. This cannot be done by legislative means alone, most importantly attitudes and work ethics should change. For instance, productivity could be enhanced to a considerable degree if Sri Lanka can reduce the number of holidays and make flexible working hours. Presently we enjoy 26 holidays (perhaps a record in the world!) compared to USA 6, China 7, Germany 9, UK 11, Japan 12, India 17. It is possible to reduce the holidays considerably with a reasonable number of optional holidays available to workers depending on their religious faiths etc. This would certainly go a long way to improve our productivity.It is also important to stress that favourable labour relations and a conducive environment must be the created for foreign investors to come to Sri Lanka. If we do not create this situation the multinationals will certainly find alternative locations. In fact, there are many such locations in the world today. Labour laws therefore, should be investor-friendly particularly because Sri Lanka has to compete with many countries in the region for direct foreign investment. The need of the hour is to attract investment and create more employment, and therefore, our strategy should be geared to achieve these objectives.Skill development and training of manpower is another area which needs immediate attention. Although Sri Lanka is acclaimed by international organizations for achieving a high literacy rate, the country still lacks the required technical skills for rapid industrialization. Therefore, a comprehensive programme should be launched to train the technological manpower.
Importance of S&T Application of science and technology and continuous research and development should be an integral part of the Master Plan. It is disheartening to note that Sri Lanka has still not recognized the importance of investing in science and technology. Even today Sri Lanka spends less than 0.2% GNP for science and technology, the lowest even among the developing nations. In addition, our local private sector has not considered S and T to be a vital force while multinationals entirely rely on R and D carried out by their laboratories abroad. Unfortunately, they have not made any attempt to build up R and D capacity within the country.In this scenario it is vital and important to raise government funding to R & D at least to a level of 1.0% GNP and provide adequate incentives for the private sector to invest in S & T. This is absolutely necessary in order to build up S & T base, which is an essential requirement for rapid industrial development.
Local raw materials Utilization of local raw materials is an essential factor for industrial development of any country. Sri lanka is fairly rich in industrial minerals. It has an enormous reserve of sea water and natural products (plant and animal products). All these natural resources can be exploited profitably to obtain commercial products.There is a vast potential for the commencement and expansion of industries which are agro-based and mineral-based. For instance, our silica and quartz minerals are excellent raw materials for the production of electronic grade silicon, which has a ready market all over the world. Similarly, there is an enormous potential to develop chemicals industries based on sea water in coastal areas such as Hambantota. In addition, there are many agro-based industries which can be promoted and expanded in this country. In all these industries it is absolutely essential to ensure maximum value addition. Concerted action in this direction would certainly give us impetus to achieve rapid industrial development.It should also be noted that mineral resources are non-renewable. Thus, the present practice of export of minerals without any value addition should be prohibited. It is also essential to plan the industries so that these resources are utilized for a long period of time to last at least for a few more generations.All these ideas presented here are feasible, within our capacity and certainly deserve consideration for inclusion in the Master Plan. There is no doubt that the early implementation of a well formulated Master Plan for industrial development is vital to achieve the desired targets in the drive towards rapid industrialization.(The author is a Member of the Task Force on Industrial Development)
http://www.priu.gov.lk/news_update/features/Master_Plan_for_industrial_development.htm#Compre hensive%20industrial%20policy ////////////////////
Policies for boosting industrial and agricultural exports View(s):
Sri Lanka’s export growth has been unimpressive. The Institute of Policy Studies, (IPS) in its State of the Economy Report 2014 states: “Despite higher GDP growth in recent years, what appears to be an inexorable decline in the ratio of exports to GDP-falling to a low level of 15.5 per cent in 2013 is a matter of serious concern. Second the declining share of GDP is compounded by loss of market share globally, which is an indicator of the country’s waning competitiveness in international markets”. Increasing exports is vital to reduce the trade deficit and strengthen the country’s external finances. The Government is considering revising upwards the current merchandise export target of US$ 20 billion for 2020. A higher target can be achieved only with policy changes conducive to export expansion. Need policies Increasing exports is a challenging task that requires comprehensive economic policies such as ensuring healthy macroeconomic fundamentals; economic policies that are conducive to export manufactures; agricultural policies that increase production for exports; foreign direct investment in export industries; friendly relations with trading partners and above all a flexible exchange rate policy that makes exports competitive and imports dearer to promote efficient import substitution. Micro economic policies that assist exporting firms to be competitive are also important. Private sector exporting firms, too, must improve their organisational and management methods to increase their productivity. Technology, skill development and labour productivity to enhance export competitiveness are vital. Macroeconomic policies A competitive exchange rate is one of the foremost macroeconomic conditions needed to encourage exports and reduce the bias in favour of inefficient import substitution created by import protection. The exchange rate must be flexible to enable exports and to reduce imports. The Government has been reluctant to depreciate the currency as prices of essential imports such as wheat, sugar, milk, fertiliser and oil would increase. In the process it has made many other imports too attractively priced and thereby increased imports and made exports uncompetitive. The balance between incentives to produce exports and produce import substitutes is important.
A higher profitability of import substitution could divert production from exports to import substitution that would be inefficient and retard economic growth.
Many barriers to exporting are within the country itself. A 2010 International Trade Center survey of exporting firms in Sri Lanka found that nearly 70 per cent of the barriers to exporting were within the country. These include overvalued exchanger rate, slow process of approval of exports by various ministries that have to issue certificates of compliance of various types, bureaucratic procedures and bribes to officials to clear goods for exporting. Microeconomic policies Microeconomic policies that increase the profitability of export activities and exportable surpluses are also important. The cost structures of exporting firms and their keeping abreast of market trends and requirements are vital in an intensely competitive global market place. In today’s global chains in production of most items, especially electronic items like computers and accessories, television and mobile and IPhones, only the most efficient firms could compete. Efficient firms in Sri Lanka, especially in garments, have secured recognition in producing upmarket and quality products at competitive prices. Education, skills, training and management efficiencies are critical. While the state plays a vital role in providing and enhancing education and skills to industry, firms themselves must upgrade the skills of their staff. An export bias in taxation and pricing policies could reduce costs of export products. Many countries assist their manufacturing industries by favourable discriminatory prices on intermediate inputs and energy. This has been lacking in Sri Lanka. For instance, although petroleum prices were reduced, the price of furnace oil that is important for many export industries such as ceramics was not reduced. Agricultural exports Agricultural export earnings have not expanded adequately owing to supply constraints. For example rubber that has an international market ceased to be exported in recent years due to supply constraints and its use for domestic manufactures owing to inadequate production. Similarly, coconut exports are minimal as domestic consumption has outpaced production. There is inadequate production of spices, cashew, fruits cardamom, cinnamon and other exportable crops. Productivity increases and expansion of cultivated area are needed to achieve higher exports in agriculture. A severe constraint is that of the Government not releasing large extents of
uncultivated lands for cultivation of coconut, palmyrah, cashew, orchards and vegetables especially in the North and East for cultivation of crops on a large scale for export. Diversifying markets Diversifying export markets is considered an important strategy for increasing manufactured exports as most such exports are to Europe and the US. However there is little demand for our exports in those countries as they too produce similar goods. This does not mean that we should not explore selling to them, but increasing exports substantially to them is unrealistic at present. Export promotion through free trade agreements, diversifying export products and markets and friendly relations with trading partners are important, but appropriate macroeconomic policies conducive to developing competitive export products is the fundamental prerequisite. Misconception One misconception in export policies is that our exports should be of high-value-added items. Our exports of manufactures will continue to have large import content as the country’s raw material resource base is narrow. As today’s world, trade is on the basis of comparative advantage in value adding within a supply chain, even a small country like Sri Lanka can participate and be efficient by specialising in one stage of the production process. Even though exports have high import content, increases in the volume of exports could yield high export incomes. Most exports today are based on imported raw materials, imported components as in the manufacture of computers, mobile and I phones. What is important is to have comparative advantage in a wide range of exportable commodities rather than high value added. Conclusion Enhancing export capacity involves incentives for both agricultural and industrial production. The current supply inelasticity of exportable goods must be addressed by a realistic exchange rate that encourages exports and prices imports correctly. Efforts to redirect trade to newer destinations and cautious use of regional free trade agreements could help increase exports but it is more important to ensure the preconditions for increasing exports. http://www.sundaytimes.lk/150426/columns/policies-for-boosting-industrial-and-agricultural-exports146167.html
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