Sri Lanka: Its Development and Pitfalls: Industries
Posted on October 29th, 2019

Garvin Karunaratne

I am prompted to write about what was achieved in development since Sri Lanka achieved independence because some of our presidential aspirants have said that Sri Lanka had no development from the time we got independence 71 years ago.  It is sad to note that some of our presidential aspirants happen to be that ignorant.

Industrial Development began in the early Fifties. It was a two-pronged programme with the Ministry of Industries pursuing large scale industries like Cement, Paper, etc, while the newly established Department of Rural Development and Cottage Industries established  Handloom Training Centers in rural areas with the idea of training womenfolk in handlooms. With the appointment of  Demonstrators in Handlooms, this Programme took off with many women taking to have handlooms in their homes. Instructions were also provided in traditional crafts. This activity was supervised by the Rural Development Officers and by the Divisional Secretaries. As the Additional Government Agent at Kegalla and as the Government Agent at Matara I have been in charge of  the Department of Rural Development..

This industrial activity got a shot in the arm  when the small industry functions of the Department of Rural Development and Cottage Industries were taken over by a new Department of Small Industries. I worked as a Deputy Director of Small Industries in 1970. This Department provided foreign exchange allocations to small industrialists to import any requirement for their production. At that time imports were restricted and special allocations were required to import.. This Department also imported yarn and gave it to handloomers..  The handloomers made bespoke textiles like sarees as well as elegant textiles for general sales and these were sold by Cooperatives.. The establishment of  Lak Sala, a sales outlet run by the Department of Small Industries, with branches in many cities,  gave a boost to the sale of small industrial items made by small industrialists.

This effort to create incomes in rural areas got a boost with the establishment of  Powerlooms in the Sixties by the Department of Small Industries. These powerlooms were brought down from China and installed in many rural arreas. These functioned as cooperatives, managed by the Divisional Revenue Officers and these Powerlooms were helped in all technical matters by Velona a research and technical  institute based in Moratuwa. The Power looms produced all sorts of textiles. The textiles produced were of high quality. Sri Lankans who had settled down in Britain, when they came to Sri Lanka for holidays were searching to buy suiting material made at the Hakmana Powerloom.

The Department of Small Industry had a few wood work training centers where furniture was made while also training youths to handle machinery for wood work.. Similarly there were a few ceramic centers which made porcelainware., In fact the ceramic centers produced high quality items which made me when I was Deputy Director try to embark on making cups, saucers, plates etc. This was not approved because the kilns at these centers were not firing to the required high degree  to make tableware.

In large scale industry  the Ministry of Industries pursued the establishment of many industries. A Paper Factory was imported and established at Valachchenai in Batticaloa District, It was meant to use illuk grass as a basic raw material. However as illuk ran out, our scientists did find the method of using straw as a base and in its heyday the Valachenai Paper Mill was functioning making around half the amount of paper that Sri Lanka needed. It was so successful that a second factory was established at Embilipitiya.  Both Valachenai and Embilipitiya succumbed, the first due to the insurrection by the LTTE while Embilipitiya succumbed due to mismanagement. Industries were established to make high quality bricks and tiles. In Ceramics a Ceramic Corporation was established which initially made a host of ceramicware, like toilets and wash basins. However later on this Ceramic Corporation lost ground. In the private sector Noritaki came in and established a tableware factory, producing very high quality tableware that was sold worldwide. However in this case, it functioned on a tax holiday and paid no taxes to Sri Lanka but produced elegant ceramic items using our deposits. The country benefited only from the employment the industry created. Later the Government set up a Ceramic Factory at Dankotuwa which too turned out elegant tableware.

The Government also established a number of  Textile Factories making textiles out of imported yarn. The Textile Factory established in the Sixties at Tulhiriya was hailed as a State of the Art Industry, the best  in South Asia. By the Seventies Sri Lanka was making all its textiles..

 The State Hardware Corporation made many hardware goods like knives, forks etc.

 A Tyre Factory was installed with aid from Russia.  This made  tyres for local use.

Cement was made at the Kankesanturai Factory till it was taken over by the LTTE. A few other industries were established at Paranthan which too ceased after the LTTE took over the area.

In the rural areas the Department of Small Industries was able to encourage entrepreneurs to establish small scale  industries making traditional items. Many industrialists made items which enabled the country to reduce imports. Import substitution industries were a success.

In the Seventies the Divisional Development Councils Programme(DDCP) was established to provide employment for the youth.. Many small industrial units were established  under the DDCP  which enabled employment to youths.  Of significance were the Mechanized Boatyard making 40 foot seaworthy boats, a Paper Factory at Kotmale in the Nuwara Eliya District, a Crayon Factory at Morawaka in the Matara District. In addition there were many Smithys making tools, many small units like Batic and Sewing Centers. In detail, the Boatyard was established at Matara, making 40 foot inboard motor boats. This was the first attempt to establish a cooperative industry making seaworthy boats. Till then it was a stray carpenter making a boat and that happened all over the country.  This was a great success making around thirty boats per year. The boats were sold to Fishery Cooperatives and was instrumental in increasing the fishery boat fleet.

Special mention  is due of the Crayon Factory, established at Morawaka in the Matara District. This is important because of the sophisticated nature of the manufacture as well as its success. It was begun as a protest against the decision of the Ministry of Plan Implementation not to approve import substitutions type of industry. I instructed my Planning Officer a chemistry graduate to conduct experiments to unearth the art of making Crayons. The Science Laboratory at Rahula College the leading secondary school was obtained after hours. My Planning Officer aided by some of the science teachers at the Rahula College tried to find the art of making crayons every evening from six to around mid night. Even after attending to experiments for around five hours a day for two months we never got anywhere near making a good crayon. Then the Planning Officer decided to seek the assistance of the Department of Chemistry at the University of Colombo, from which he had graduated a year earlier. The Planning Officer beseeched his lecturers and professors for three days and was turned away, telling him that they had no time. We then sat down to continue our own experiments with greater zeal and finally found the art of making crayons of high quality. 

Then the question of establishing the industry cropped up. As the Government Agent though I had a number of Departments under me I had no authority in anyone of them to establish an industry. I finally selected the most efficient Cooperative Union in the District, the Morawaka Korale Cooperative Union to finance and establish the crayon industry as a cooperative. It so happened that this Cooperative Union was headed by Sumanapala Dahanayake, the member of parliament for Deniyaya who was  efficient  and could be trusted. The Crayon Factory was established at Morawaka in three weeks’ time working day and night. The Minister of Industries Mr TB Subasinghe was surprised at the quality of the crayons and readily agreed  to open sales. In a few months Coop Crayon was sold islandwide.

Currently Sri Lanka imports almost everything. Many doubt whether we can make import substitution type of industry. Making a  Crayon is a sophisticated  task and my Planning Officer succeed in it. It is a foregone conclusion therefore  that we can make almost everything we import.

Import substitution type of industries serves to save foreign exchange. To make crayons, dyes have to be used and dyes are imported. Our Crayon industry was denied an allocation of foreign exchange to import by the Ministry of Industry because ours was a cooperative. At that time, the Import Control Department allowed allocations of foreign exchange to import crayons for sale. Sumanapala Dahanayake and I decided to meet the Controller of Imports  Harry Guneratne. It did not take long for Harry to figure out  that by giving us an allocation of foreign exchange he could stop the import of crayons, saving valuable foreign exchange. He wanted us to get the approval of the Minister of Imports, Mr Illangaratne, who readily agreed. Harry was able to stop the import of crayons and Coop Crayon was sold islandwide.

In the late Fifties and Sixties paddy production was increasing and the Government had to attend to the milling of paddy. The Government then imported a few rice mills and established them in certain areas. I was in charge of the Ambalantota Rice Mill one of the three largest rice mills established. These were state of the art rice mills. Re the Rice milling industry I was in charge of rice milling for over five years working as an Assistant Commissioner for Development of Marketing.  A few of us Assistant Commissioners were trusted more than the Rice Milling Expert from Australia. By 1970 Rice Milling was a fully developed industry in the public sector-the Department of Agrarian Services and later the Paddy Marketing Board..

In addition, the Department drafted plans and specifications to establish rice mills  and invited applications from local investors. Many people submitted  applications and were given allocations of foreign exchange to import the machinery and the entrepreneurs had to construct the buildings  according to the specifications that were laid down by the Department. In the Southern Province which I covered there were some one hundred and ninety entrepreneurs who established rice mills under my supervision. This was done very quickly  and the rice mills established were very successful in milling  paddy.  This is in contrast to President Jayawardena handing over wheat milling to Prima, a foreign company. In the case of Prima, the full profit in wheat milling goes out of the country to Singapore, while in Rice Milling the full profit comes to local millers and they pay taxes while Prima works on a tax holiday. Many rice millers became industrial magnates. Harischandras is one of them.

Long ago in the late Forties and early Fifties, Sri Lanka was making all its lorries and bus bodies. Then we imported chasis of buses and lorries and thousands of carpenters were involved at the bus depots. At Ratmalana where the South Western Bus Company had its workshop the rattling and reverting noise could be heard for an easy quarter mile. At Moratuwa the Railway Workshop made all its coaches on imported chasis. There was a state of the art workshop at Werahera, Maharagama where buses were made.  Never were any buses, rail coaches  or lorries imported.

The Marketing Department established a Cannery that enabled Sri Lanka to become self sufficient in making fruit preparations like Jam and Juice. This will be dealt with later under Agricultural Marketing

Industries were pursued to the maximum and thousands were found employment.

Even though Governments changed hands, industries continued to be concentrated on.

The death knell of industrial development came to Sri Lanka with the IMF. When the government of President Jayawardena requested the IMF for financial assistance in 1978, the IMF insisted that Sri Lanka had to follow the Structural Adjustment Programme provisions.

The policies enforced under the Structural Adjustment Programme  included the provision that the Government should not attend to any commercial undertakings. This meant that all Government commercial undertakings had to be either abolished or privatized. With this decision out went most of the industries that had been established with great care at a tremendous cost. In detail, the functions of the Small Industries Department importing yarn and having a technical support service in the Department at Velona was axed. Out went the 98,000 handloomers and the Powerlooms. The country was flooded with textiles from imports.

. The Crayon Factory that was run by the Morawaka Cooperative Union was a pain in the neck of the UNP Government. It was the best industry established by the DDCP and had to be discredited. The Government sent a Deputy Director of Cooperatives, A.T. Ariyaratne on a special mission to find fault with the Crayon Factory and to discredit the MP Sumanapala Dahanayake who established and guided it. The Deputy Director after days of fact finding had to conclude that the industry was well run and all documents were found perfect.  Once in the Eighties when I went back to see the Ambalantota Rice Mill. I could not believe my eyes. I saw the five acre land in tatters, apportioned to a few Departments strewn with parts of the rice mill machinery which we had carefully maintained. It was a sorry sight that moved me. In its heyday it provided employment for over a hundred and milled 4000 bushels of paddy a day. That was also the fate of other Rice Mills at Anuradhapura and Amparai.  In making rail coaches the Railway Workshop Industry at Moratuwa was closed down and thousands lost their jobs. Thenceforth till today all rail coaches are imported. In  making buses and coaches, the Werahera Factory was shut  down and its precious machinery was sold for a song and thousands were laid off. Henceforth busses were imported.  The Hardware Corporation was closed down and I have seen knives and other metal products imported from as far as Mexico. The Weaving and Textiles Mills were privatized. The Tulhiriya Mill, once the best in South Asia was sold to Kabool a Pakistani firm that ran it to death and decamped leaving unpaid bank loans. The Tyre Factory donated to us by Russia, was privatized and now it is managed by CEAT an Indian multinational.  Hector Perera the  Chief Chemist who was trained in Russia, who established it once told me that the  Tyre factory had the capacity to make all the tyres Sri Lanka needed. It is sad that though we produce the best rubber in the world we do not yet make all our tyres.

Following the IMF’s advice thousands were laid off, their lives were ruined and the State of the Art Machinery was neglected and left to  be ruined. The full effort of administrators and technocrats to make Sri lanka self sufficient in industrial products and find employment for thousands achieved in three decades from 1947 to 1978 was totally sacrificed..

It is a sad story of losses and imports taking their place.  Being very conversant with rice milling machinery and having handled major construction work I can figure out that the lost industries can never  be replaced even if the funds are found. 

 I happened to have played a fairly major role in the planning and execution of a part of this great programme.  In every case the machinery was built up over decades in a most painstaking manner by our administrators and engineers.. I was   an essential part of the saga of industrial development  and can assure that the industries worked efficiently. I can state emphatically and with certainty that there is no one on earth who can re establish  the lost industries.

That is unfortunately the legacy of pillage and plunder President Jayawardena’s UNP Government left for our country. For the IMF and the Superpowers it was their victory to ruin our industries so that we have to import from them, become indebted so that we become ‘colonies’ once again.  It is a burden that a country cannot bear, a burden to which we have to succumb.

A comparative assessment  can be made with India and Bangladesh. I think that in Sri Lanka we did better in industry till the IMF came on the scene in 1978. But we totally succumbed to the IMF from 1978, while Bangladesh and India did not accept the Structural Adjustment Programme of the IMF. The IMF tried to get hold of Bangladesh to adopt the Structural Adjustment Programme in 1986 and again in 2007 but was totally rejected by the Government. In India some provisions of the Structural Adjustment Programme have been followed in 1991, but the full provisions have not been accepted as yet. In 1976, Sri Lanka was not an indebted country. Working on the IMF’s tutelage we have run up an international debt of around $ 56 to 60 billion due to curtailing local production, sacrificing our industries and getting in imports and liberalizing the use of foreign exchange which India and Bangladesh did not do. They continued to manage their economies with low interest rates-helping entrepreneurs, creating employment for their people with import controls and national planning. Sri lanka gave up its national planning in 1978. .  In the early 1970s before the IMF stepped into Sri Lanka our currency the Rupee was on a par with the Indian Rupee and the Bangladeshi Taka. Today after following the IMF’s prescriptions, the Sri Lankan Rupee  is devalued at Rs. 182 to the dollar while the Bagladeshi Taka is valued at  Taka 85 to the dollar and the Indian Rupee is valued at Rs. 71 to the dollar.

 It is a sad conclusion that the IMF ruined Sri lanka’s economy  with Sri Lanka’s Government under President JR Jayawardena playing poodle, as documented in my Book: How the IMF Ruined Sri Lanka and Alternative Programmes of Success. (Godages)


Garvin Karunaratne, former Government Agent Matara, Ph.D. Michigan State University Author of How the IMF Sabotaged Third World Development (Kindle/Godages, 2017)


2 Responses to “Sri Lanka: Its Development and Pitfalls: Industries”

  1. Hiranthe Says:

    I was wondering how stupid the Sri Lankan Society is !!

    No reactions or protests against the approval of the MCC Compact by the Yamapalanaya Cabinet!!

    Why the people do not see the danger of this agreement to the nation and Mother Lanka as a whole?

    Only Sarath Weerasekara seems to be worried.

    Are everyone else ready to sell their mothers for $$$?

  2. aloy Says:

    Industry today will not be a sustainable one tomorrow. Why are many industries in Katunayake Free Trade Zone closed and are storing garbage?. Perhaps they thought that would be a better proposition to the mind of the best businessman in SL- Dhammika P. who got an award for that this year. Digital Technology is the name of the game because it is the most fundamental way of using the logic “yes” and “no”. Whether it will be implemented with silicon or Graphene as they will do in the near future, it will remain the most sought after thing for the foreseeable future. So, lets get help from the devil.

    When ex CJ sent the wrong man to the Rajagedera we thought, match over. But he is the one who ended the war. So, lets get this one renegotiated and amended in the best possible way so that it will harm neither India nor China. If Kohana’s statement on TV last night is anything to go by, this is what would happen. May be the US prez who is trying to get re-elected (but about to get the impeachment process started) will clear himself if he agree for this with our blessing, in which case he himself can come and get it signed immediately after 16th November.

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