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Bolster manufacturing sector to avoid middle income trap: ADB

22 Aug 2013 - {{hitsCtrl.values.hits}}

Asian Development Bank (ADB) has asked Asian economies to up their manufacturing sector in order to achieve economic prosperity and avoid the middle income trap that has held back many countries after reaching the landmark.

ADB showed in their 44th edition of the ‘Key Indicators for Asia and the Pacific 2013’ issued yesterday that virtually no country has become high income without a robust manufacturing output and its employment share reaching at least 18 percent or above for a sustained period.

The message from the multilateral lender could not have come at a better time, because Sri Lankan authorities are currently in the process of formulating strategies to avoid a middle income trap after reaching US $ 4,000 per capita income predicted by 2016.

Samples of 109 economies have shown that the probability of becoming a high income economy is just 5 percent in countries which do not have a manufacturing sector.

According to the structural composition of the Sri Lankan economy, it contributed 30.4 percent in 2012 to the overall economy.

However in Asian countries such as Sri Lanka, it is common to have a very large services sector and a smaller agricultural sector which remains the largest employer. But the danger, according to ADB is that it could shun industrialization which is paramount.

“Right now, as services boom in the region, it’s tempting to shun industrialization, but it will be a serious mistake if a country wants to be prosperous,” said ADB’s Chief Economist, Changyong Rhee. According to the ADB, many Asian economies including Sri Lanka attained high manufacturing output shares between 25-35 percent during the last decades for a sustained period, even higher than the rates achieved by the more developed OECD economies during 1960s and 1970s.

Meanwhile they also called for industrialization of the agricultural sector of developing Asia through the adoption of modern methods to reach same productivity levels as their peers.

It was not long ago when senior economist Dr. Indrajit Coomaraswamy highlighted how unproductive the Sri Lankan labour force has become.

“Our problem is not with the high cost of living. Our problem is with very low productivity. Therefore our incomes are low and we cannot afford the prices of oil and other imported products.”

“We cannot have non-inflationary income without having an increase in productivity,” Dr. Coomaraswamy opined. One third of the Sri Lankan labour force is employed in the agricultural sector represented in almost one tenth of the economy demonstrating how unproductive the sector is.

In that backdrop, ADB called for significant qualitative leap in structural transformation and to focus on transferring labour from sectors of low productivity (typically agriculture) into sectors of high productivity.

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Bolster manufacturing sector to avoid middle income trap: ADB

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