At the time Sri Lanka became independent, we had considerable achievements in major areas such as health and education including well developed infrastructure. The literacy rate was the highest in Asia except for Japan.
Amid all these achievements, it was industrialization which was the only draw-back, which had not been adequately addressed. Lee Kwan Yew, who visited Colombo en-route to Singapore in the 1950s, had commented on how orderly and well managed Colombo City had been, he wanted Singapore to graduate to that level some day.
"All successive governments failed to take necessary steps for industrial growth. From the colonial period, we exported raw materials to England to be used for manufacture and re-export to Sri Lanka"
Thereafter, in 1959 when he became Singapore’s Prime Minister, the country’s annual per capita income was $400, which has risen to $6000 at present. Sri Lanka has a lot to learn from countries like Singapore and Malaysia. Lee Kwan Yew always stressed the need for a connection between good governance and economic growth. Lee Kwan Yew said, “They are not clean systems; we run clean systems. Their rule of law is wonky;We stick to it. We become reliable and credible to investors.
He added, “Those with good minds to be scholars should also be inventors, innovators, venture capitalists, and entrepreneurs; they must bring new products and services to the market to enrich the lives of people everywhere.”
In addition, Lee Kwan Yew had argued that leadership should be able to convince the people that tough decisions are worth taking for the sake of a county’s development and progress. It is unfortunate, however, in Sri Lanka that though there was progressive liberalization, industrialization had not been carried out as required and had suffered from endemic political failure. The prolonged war and two insurgencies too had adversely affected industrialization and economic growth. This was perhaps a lame excuse too for successive governments for their failure in this area. It must also be mentioned that various industries that were launched such as the Tyre Corporation, Plywood Corporation, Steel Corporation, etc. had also been privatized or shut down due to politicization, mismanagement, etc.
"Lee Kwan Yew always stressed the need for a connection between good governance and economic growth"
Britishers during their rule had been totally committed to develop the plantation sector so that it could provide raw materials to their industries in Great Britain. In the early part of this century, there had been factories for processing Tea, Rubber and Coconut, a brewery, tiles, bricks tea chests in a few other areas only.
In 1922, Britain, however, appointed a Commission regarding the need for industrialization and the Commission had recommended the necessity to develop the existing industries and create new ones. It had however, stressed the need to delay the process until a cheaper source of electricity such as hydroelectricity was provided. The study had recommended cement, spinning and weaving, etc. and had also recommended domestic type industries including handicraft, cloth making, chalk making, etc. In 1932, the newly elected government having received the rights for adult suffrage, had recognized the need for careful and proper planning with regard to the use of plentiful domestic resources, after the Donoughmore reforms and steps had been taken to establish a new division for industrial development. Simultaneously, the then government had taken steps to set up a bank of our own and established the Department of Industries. Unfortunately, the world-wide economic depression during this period had retarded the progress. Thereafter, in 1938, to revive the industrial sector the Department of Industries and Commerce had been created with a view to improving the work that had already begun at cottage level. It is also noteworthy that the government had encouraged the setting up of small factories using machinery as a pilot project. It appears these identical steps taken in India had somehow developed gradually and paved the way considerably in helping the village level industrial growth. Some of the home based industries that had begun during this period are huge conglomerates in India at present. Thereafter in the early 1940s the government took steps to set up factories for plywood, glass, paper, ceramic, pharmaceutical products, tannery, shoes , etc. After Independence in 1948, steps were taken to diversify the economy and reduce the dependence on imports. Accordingly, a five-year plan (1948 to 1953) had been drawn for the purpose of industrial development. Industrial Products Act No.18 of 1949 was also enacted.
In the early 1950s the government in a move to strengthen public and private enterprises established the Institute of Scientific and Industrial Research and the Development of the Finance Corporation. Thereafter, the Parliament enacted Corporation Act No.19 of 1955. With the change of government in 1956, these were not fully implemented. In 1959, it had been specifically stated that the only answer for the growing population and employment opportunities was industrialization.
In January 1961, for the first time a system of Import Control was introduced. In 1963, the Foreign Exchange Commission was set up for allocating scarce foreign exchange on the basis of national priorities and the country became a “Closed Economy”. This paved the way for a highly protected domestic market with extremely low profitability for the exporter. The over valued rupee also aggravated the situation and the growth of industries did not take place as desired owing to negative monetary policies and being a tightly closed economy at the time.
All successive governments failed to take necessary steps for industrial growth. From the colonial period, we exported raw materials to England to be used for manufacture and re-export to Sri Lanka. In my view, colonies not only provided the necessary raw materials, they became the consumers too for British products. It came to a situation, where we had our toilet equipment, etc imported from Britain. This is something like Cocoa cultivators in the African continent getting peanuts for their products and Chocolate manufacturers in Switzerland, France and other western countries making millions after adding value to the product.
It must also be mentioned that there was a period where we built carriages for trains, buses and lorries. We started manufacturing our own UPALI MAZDA cars thanks to entrepreneur’s like the late Upali Wijewardene. In addition, Werahera, and Ratmalana depots had a huge work force where we assembled engines and bus carriages thereby providing employment and saving much needed foreign exchange for the country. Processed food such as jams, etc were imported from overseas then and even now. Dr. N.M. Perera, the then Minister of Finance had commented that, “It is really a matter of concern that predominantly an agricultural country like ours should waste its valuable foreign exchange resources on the import of items which could be successfully produced locally”.
It is extremely important to establish schemes to purchase agricultural products to give a boost to the farmer. There have been news items where farmers have thrown their produce to feed wild elephants because they could not get the right price. Similarly, steps need to be taken to protect small and medium scale industrialists if are keen to take the country forward though industrialization. I am told that the well known Harischandra Industries began the business as a Rice Miller and there are also many others who have built up large business ventures having started in a small way. It must be mentioned that small and medium industrialists face untold hardships in developing their businesses. There appears to be several state agencies to look after the small and medium business and these agencies are, it has been stated, are the saboteurs because they have used bureaucratic authority for personal gain and not for the development of the relevant sector.
It must also be mentioned that the UNP government since 1977, with its open economic policy, on the dictates of the IMF, removed restrictions on imports, allowed foreign exchange for anyone for any purpose, allowed importers to decide what to be imported to the country, with the interest of around 24% , and having devalued the rupee, industrialists, exporters including the average citizen started feeling the pinch. The 30-year war too impacted severely for the downward trend.
In my view, what is happening now is even worse. The government does not own the tyre factory, which was a gift to Sri Lanka from the Russian government. We have closed down our paper factories. Even now rubber is exported in its unprocessed form and imported with value addition. We collect cardboard, iron, etc. and export them to India and we import paper, steel, etc after value addition in India.
Logically, we earlier imported bus chassis with engines and the carriages were built in Sri Lanka. If a chassis could be bought for 25% the balance 75% foreign exchange could have been saved. This helps us to build our economy and our industries and provide much needed employment too. In addition, with the liberalization, our industrialists could not compete with imported goods. Furthermore, while we try to bring foreign investors into our country, we must look after both agriculture and industrial sectors if we need to go forward. We need an aggressive, sincere and a dedicated plan of action to uplift these two areas if we truly love our country and the people.
We need to revolutionize the thinking and come up with a proper and practical import substitution scheme for industrial growth if we have to create new employment avenues, save foreign exchange and uplift the poor, achieve economic growth and sustainable development. Nothing is beyond our dreams like winning the expensive protracted war.