Industrialisation and economic development

Industrialisation has played a critical role in the process of economic development and was result of the Industrial revolution. Countries with rapid industrialisation have been able to handle development problems more effectively than those which lagged industrialisation. The development strategy that Sri Lanka has implemented in industrialising the country during the early 1960s was import substitution.

But this proved disappointing in achieving its objectives by the 1970s. Instead it resulted in high cost of production slow growth, poor quality in output and lacked capital investment.

The import substitution policies traditionally pursued by all South Asian countries have served to attract foreign Direct Investment into protected activities. These policies failed to create the conditions for dynamic growth of the industrial sector.

In contrast the new industrialisation strategy introduced in the late 1970s stimulated the private sector and directed resources to the export sector. This attracted export oriented private foreign investment.

The recipe for achieving rapid economic development hinged on export oriented industrialisation. In contrast to the import substitution Industrialisation which many had followed historically.

Recent policy reforms have emphasised the importance of accelerating the pace of industrialisation with a view to exploiting its growth potential to achieve a high level of output and thereby create employment.

The inflow of foreign direct investment increased substantially by 110 percent to US$ 604 million in 2006 showing an increasing trend in the recent past. This growth was achieved through increased efforts of the Board of Investment facilitated by preferential tax rates and constitutional guarantees on investment agreements.

The BOI entered into several agreements increasing the foreign inflows to the country. Out of the 354 approved projects under Section 17 and 16 of the BOI Act, 82 projects were fully foreign owned and 87 were joint ventures between Sri Lanka and foreign investors and the rest were fully owned by Sri Lankans.

The country has now matured in the first stage of industrialisation involving the simplest form of export processing in labour intensive industries such as garments. This is a necessary stage which provides employment in large numbers and gives local entrepreneurs opportunities to interact with world markets.

The lowering of quotas has however changed the situation substantially. It is advisable to prepare an appraisal of the country's economic performance, achievements and failures in recent years in comparison with the rapidly growing Asian economies.

It will be useful to formulate policies and measures to move on to the next stage of industrialisation and higher growth.

The primary industries such as agriculture, forestry and fishing sectors recovered significantly and recorded a healthy growth of 4.7 per cent in value added terms last year. The agriculture was 16.8 per cent of Gross Domestic Product due to recorded paddy harvest, considerable increase in Rubber and Coconut production. The paddy production registered a record high growth of 2.9 per cent.

The total foreign direct investment inflows reached the highest level of US$ 604 million in 2006.

The use of statutory Reserve Requirement was rationalized and strengthened during the year. Net inflows to the capital and financial accounts were more than sufficient to offset the widened current account deficit and the Balance of Payments recorded a surplus of US$ 204 million in 2006. Thus the Balance of payments strengthened the gross official reserves for the second consecutive year.

The recent budget was another attempt to plan ahead next year's development process. Budgeting is the process of quantifying management strategies and plans into detailed statements of projected performance. The budget is method to enhance communication at all levels of an organisation or a country as a whole.

The preparation of the budget and the control of the budget involve a tremendous amount of communication. It is based on the mission of the country which is made according to the vision of the nation. It is another step of the Mahinda Chinthana and should be used as a tool of management not a toy to squabble about in Parliament.

Sunethra de Silva