Economic development policy in relation to agriculture, industry and tourism with a regional bias

Theme Seminar of 2006 Annual Sessions of SLAAS

Prof. A. V. de S.Indraratne

Lecture: When Sri Lanka (then Ceylon) achieved Independence in 1948, Sri Lanka was a relatively open economy except for a few wartime legacies. The country was economically prosperous and was much ahead of her Asian neighbours until around 1955.

There have been several economic policy regimes since then, with inward-looking policies in import substitution in industry alternating with import substitution in agriculture, and the country moving more and more towards a closed economy until the end of 1977. Since then the country has chosen to remain relatively open.

One noteworthy feature during this entire half century, 1956-2005, has been the absence of a consistent national policy of development. Consequently there has been no sustained economic growth and it has not been possible to eradicate unemployment and poverty in the country.

At present, nearly half of her population (45.4 %) live below US$ 2.00 a day, with nearly a quarter of her population considered poor with an equal proportion malnourished; the rate of unemployment is nearly 8% (excluding unpaid family workers).

Judged by the per capita gross national income, her Asian neighbours such as Thailand, Malaysia and Singapore, which were behind her then, are today 21/2, 5 and 24 times respectively, ahead of her.

The other noteworthy feature is that the development that has taken place has been regionally unbalanced. It has been concentrated mainly in one province out of the 9 provinces, namely the Western province. Few statistical data would amply demonstrate this unbalanced development.

This is why there should be a consistent national policy for the development of the main productive sectors such as agriculture (including forestry, livestock and fisheries) industry (including mining and gemming) and tourism etc. There are ample resources for their development in our country.

They are also not concentrated in one or two regions in whichever way one may choose to define the region, or whatever unit, Province, District or Pradesheeya Sabha one may choose as the region for purposes of development. They are widespread throughout the country. The development of these resources throughout the country is vital for balanced regional development.

The balanced regional development is necessary, it must be reiterated, to eradicate the country's high level of poverty along with the high rate of unemployment, referred to earlier. It is only by eradicating poverty , the quality of life of a entire people of a country can be improved.

That is why Sri Lanka, which attended, along with 149 other members, the Millennium Summit at the United Nations in New York in September 2000, signed the MDGs, pledging to halve its poverty and hunger by 2015, which is the number 1 priority of the 8 MDGs.

Agriculture

The improvement of quality of life of an entire nation, not one segment or a small percentage, as has so far happened in Sri Lanka, should be the ultimate goal of economic growth and development. In fact, this is what development should be all about.

To this end, irrespective of the Government in power, there must be continuous or long-term national policies regarding the development of the various sectors of the economy such as agriculture, industry, tourism and other services. Let me examine them one by one.

Sri Lanka is still a predominantly rural agrarian economy. Agriculture comprising both arable and plantation crops has been, and still is, the mainstay of the Sri Lankan economy. It used to contribute nearly one third of the GDP of the country with nearly half of the country's population depending upon it, until the opening of the economy in 1977.

Despite its run down since then, it (including fisheries and forestry) contributes even today (2005) 17.2 % of the GDP, even slightly more than the 16.3 % contribution by the manufacturing industry, with more than 1/3 of the population depending upon it for their livelihood.

Agriculture is local resource based, relatively labour absorbing or employment creating, and has high value addition.

If there had been a national agricultural policy to increase both investment in and productivity of, our land and water resources, marine and fresh water fisheries, which are spread throughout the Island, there would have been less regional imbalance, less unemployment and less poverty in the country.

It also would have enabled to ensure self-sufficiency and security in food and helped to contain the cost of living and inflation better. A surplus generated in this sector would also have helped to quicken the industrialization process, as it has happened in the newly industrialized countries of Asia such as Taiwan, Korea, Thailand and Malaysia. (Indraratna, 998)

Instead, what did really happen in the last three decades? Agriculture received a step-motherly treatment in the midst of export optimism and also what I have been calling export illusion, and the few manufacturing industries which came up have been mainly concentrated in the Western Province and a few other urban centres, except perhaps for the 200 garment factory project initiated by the late President Premadasa.

Now I see some hope. There is a change from the policy or policies of the last three decades. In the vision of the new Government (Mahinda Chintana, 2005), an agricultural policy has been spelt out to give pride of place to domestic agriculture in a national economy.

An intensive and extensive expansion of domestic agriculture by a ready supply of irrigation water with the restoration of 10,000 tanks spread throughout the country, and implementation of several irrigation schemes, on the basis of an irrigation plan, provision of land for the landless peasantry (100,000 of them), making available inputs such as seed and fertiliser at subsidised prices, easy credit for hiring of agricultural equipment, improvement of facilities for distribution, purchase and storage to reduce post-harvest loss and to facilitate marketing, encouragement of the cultivation of subsidiary crops such as potatoes, onions, chillies, fruits and vegetables by discouraging their imports, and revitalisation of the plantation sector by increased subsidies, and financial, tax and other concessions, various incentives to dairy farming to make Sri Lanka self-sufficient in milk, such as increased guaranteed price, provision of cross-bred milking cows to rural families on concessionary terms, input facilities for the establishment of small and medium scale (SME) farms, and expansion and modernisation of the use of fisheries, by provision of 500 multi-boats, development of 100 fishery harbours and fuel subsidy and establishment of processing and canning factories close to fishery harbours round the Island, are the major ingredients of this policy. (For details see Mahinda Chintana: Towards a New Sri Lanka (2005), pages 42-53).

Manufacturing industry has a greater scope for growth and employment generation than many of the other sectors including even agriculture. However, the industrialisation process has not taken off into sustained growth in Sri Lanka owing to the lack of any consistent national policy.

The two main political parties which alternatively ruled this country seemed to have laid different emphasis on industrialisation.

Industry

Before the opening of the economy, industries were set up mainly by the Government for import substitution rather than on the basis of resource availability and or value addition, and they were protected by high import tariffs. After opening of the economy, except for a few of them, they were either closed or privatised.

Even though there was a positive response from the private sector to the liberalisation in regard to industrialisation, few new industries, other than garments, came up. Even these were not regionally spread.

Our agricultural and mineral resources are still exported mainly in raw form without processing or value addition. Diversification of exports has not occurred even to the extent of benefitting fully from the zero duty concessions received under the FTAs or niche markets.

This was mainly due to the lack of both a national policy giving direction or guidelines and an enabling environment with, inter se, an adequate level of economic and social infrastructure and S & T. Sri Lanka, no doubt, has a great industrial potential.

All its three main cash crops as well as some of the subsidiary food crops such as fruits, have much scope for processing and value addition for export. It has a rich endowment of marine (with its maritime boundaries covering almost four times its land area) and a large variety of mineral resources and gem stone, much of which is not exploited at present, and even the little that is exploited is exported mainly in raw form.

Since these resources are widely spread throughout the country and in the seas right round the Island, industries can be established in the regions outside the relatively developed Western Province, catering to much needed regional development.

With the two main parties now agreeing to work on a bipartisan basis, for at least two years, it is opportune to formulate a national policy of industrialisation with a regional bias.

The present Government has not spelt out an industrial policy, as such, in the Mahinda Chintana. Nevertheless, it has referred to many of the ingredients needed for such a policy, such as setting up of 12 new investment zones, establishment of 300 new industries spread throughout the divisional secretariats, many incentives to SMEs in industry including an annual allocation of Rs.500 million in order to make them the backbone of the economy, establishment of 3 textile processing zones for value addition, the increase of R & D to 1 % of GDP, etc. ( see pp. 53-57, Mahinda Chintana), and above all, the massive infrastructure investment contemplated (61-65 ibid.) and as ominous in the 2007 budget.

In addition to these ingredients, a national policy of industrialisation must be embedded with policy direction for large scale diversification of exports to create niche markets as well as to avail of the duty concessions opened up under bilateral (FTAs) and regional liberalisation (with Sri Lanka having joined many regional groupings).

Tourism

Sri Lanka has been well endowed with ample tourist resources, such as clean beaches, shallow seas with coral reefs and ornamental fisheries, right round the country, large natural forest reserves with rich wildlife, amidst its abundant flora and fauna, a large number of rivers and lagoons with their mangroves, scenic beauty with hills and water falls amidst luscious tea estates, and above all, a rich, unique heritage of religious, cultural and engineering feats. Little use of these tourist resources and attractions has so far been made.

Tourism has rather concentrated mainly on the so called cheap "beach tourism". The tourist potential as could be gauged from the wide variety of Sri Lanka's resources is almost limitless, in comparison with countries which have developed much more flourishing tourism with much less tourist resources .

With a properly spelt out long term tourism plan, an environment friendly sustainable tourist industry can be promoted in our country, which could grow to be its number one foreign exchange earner in the foreseeable future.

To my mind, Mahinda Chintana has not diverted enough attention to this. I would have liked to see more space/time devoted to the tourist industry.

Development of tourism is imperative for its other advantages.

It meets the requirements of regional development better. Its has greater ripple effect for employment generation and poverty reduction, two major development policy goals, reference to which, I made right at the beginning of my presentation.