THE PROPOSAL TO ESTABLISH AN INDUSTRIAL DEVELOPMENT BANK (PART 1)
Posted on August 15th, 2020

BY EDWARD THEOPHILUS

Wide publicity has given a proposal to establish an industrial development bank in Sri Lanka by the Minister of Industries, Mr. Wimal Weerawansa, and it is a good ideological contribution from a politician, and the government must instigate the idea. An industrial development bank needs the country to stimulate investments in industries that have been neglected areas of the economy as the investors in the country turned to service industries to make quick profits from services such as tourism, contracts, sales, and others. When the service sector attracted to provide employment and to promote businesses in the country after the Cold War industrial development was given less attention. Many developed countries followed the promoting service sector neglecting the manufacturing sector. The best example is Australia. Mr. Weerawansa as the minister of industries has proven that he can develop good policies as well as can implement policies that are copious for the economic progress of the country.

After taking over the ministry before the election, Mr.Weeravansa has taken keen steps to revive industrial firms that have been abandoned and neglected by the previous government, and these industrial firms need modernizing in a variety of ways such as product developments, product quality development, application of technology, improvement of the production process, marketing of products, searching for export markets to sell products overseas, Industrial research, and many others. To successfully play the new role in government industrial firms demand the injecting funds to industries and the government has limits to allocate funds in the current economic environment of the country.  In this background, an Industrial Development Bank could play an excellent role and promote investments.

The COVID pandemic has given a signal that Sri Lanka may need to restrict the exporting skilled labour and now it might not easy as was in the past. While making an internal market to absorb repatriate labour industrial development effort to contribute 25% of GDP would be an alternative approach to policy development. An industrial development bank could play an effective role to absorb repatriated labour in various sectors of the economy.  The policy-makers in the past considered short-term indulgence exporting domestic labour, and they didn’t consider that encouraging a production-based economy would bring more benefits to people while allowing exporting excess labour.

When looks at the policy developments of Taiwan and Hong Kong it seems that the UK supported during a long period to come up Hong Kong, and Taiwan gained economic strength in a short period with the supports of direct investments from the USA and trade supports from China.  Sri Lanka has a similar land area and population to Taiwan, but it is behind Hong Kong and China, talking about the past and to becoming a Singapore, where shows the prosperity in statistics based on the lower population.  I don’t abase the achievements of Singapore and my argument is attempting to become a Taiwan would be the best choice.  Sri Lanka could come up to the level of Taiwan if it can provide intelligent investment services for expanding the economy in the industrial sector. An industrial development bank could give leadership not only providing finance supports for industrial development but also to develop policies for the entire industrial sector with great supervision.

It is seen in newspapers reporting industrial base innovation by young people, these products have not been tested considering multiple aspects of the products such as quality, marketability, cost of production, application of technology, safety, and many aspects.  They report for the publicity and vanish or neglect after new reports.  An industrial development bank can motivate such innovation and provide financial supports to commercial productions. China, India, Japan, Korea, and other industrial countries have been working for industrialization giving priority for innovation, and an Industrial development bank can play a massive role in this process. Before the establishment of the national development bank, big talks were in the country practically administrators have neglected the role, and an executive of the national development bank turned to preach religion and play politics. An industrial development bank should learn lessons from the past and must focus to achieve the purposes.  Financial institutions in Sri Lanka including the Central Bank, trading banks, long term financial institutions, savings banks have incompetent to achieve purposes because they were launched misguided policies by stupid executives.       

The operations of trading banks have become a critical issue in the country as the mountain of non-performing credits the system is a congruous factor for circumscribing industrial credits, and many related factors have become a dogma to the banking market in Sri Lanka. The proposed industrial bank should not follow the steps of the management style of other banks that are like a contrite sinner with a volume of transgressions.  According to the idea of the minister, the proposed institution should be a government bank that means the preponderance of ownership shall be in the government hands. There is a strong logic in the idea of the minister because the capacity of the private sector in Sri Lanka doesn’t appear that it can provide a monumental volume of capital to successfully operate a bank that aims at providing financial supports for industrial development. Industrial development should have a massive volume of capital due to two major reasons, inflation and declining the foreign value of Sri Lanka Rupee. The liquidity and the lending capacity of the bank should be based on the volume of the capital of the bank 

If Sri Lanka’s government has reserved funds from budget surplus and foreign exchange reserves to spend for industrial machines, raw materials, and other input the keeping full ownership of the proposed bank in the hand of the government would be a good idea, but at this crisis time, could the government budget allocate sufficient funds, to establish an industrial development bank is a question. As the government has many commitments with the COVID pandemic it is required to consider a different structure for the proposed bank without harming the idea of government ownership.

The government policy-makers must agree with the idea to inject a large sum of funds to establish a bank if the entire volume of capital is contributed by the government. The current economic condition in the country shows that the government is not in a position to make a huge contribution and it invites to rethink the capital structure.

The proposal to establish an industrial development bank should focus to invest massive sum of funds, and strategically, it should work as a measure to control and reduce inflation and to attract excess money in the economy for development purposes.  Helicopter money created in the COVID 19 pandemic situation has caused increasing prices of consumer goods and services, and if the government has strategies to reduce money from the market it shall support reducing the prices with production incentives, especially in the agricultural sector.  How can encourage people in Sri Lanka differing consumption to invest in the industrial development bank might be a problem to the government policymakers. But they must find strategies with an effective marketing campaign.   

When the government plans to establish a bank, it needs to consider a broader area of aims and strategic structure of the bank and the purposes of using funds. The proposed bank must be free from political influences and an institution that operates consistent with its policies.  As it is known to people banking market in the country pushed a weak environment as it had not been operating with a strong policy structure and political influences and dishonest of the management launched the banking market to a trap.  The policymakers in connection with an industrial development bank must learn lessons from past banking operations.  The government policy needs focusing to manipulate strategies that would not be a failure and would be successful to achieve objectives.  There may be a range of impediments to establishing an industrial development bank.  Government politicians must critically evaluate such views because many people in Sri Lanka tend to criticize this type of proposal without knowing positive impacts on the economy and without studying the proposal.

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