Sri Lanka is not a poor country
Posted on January 3rd, 2023

Sugath Kulatunga

Sri Lanka is not a poor country but a poorly managed country. According to the list by Credit Suisse published in 2022 pertaining to Total Wealth of Countries and reported by Wikipedia the value of total assets of Sri Laka was 400 Billion US dollars and the country is placed 57 out of 158 countries reporting. Countries like Kenya, Argentina, Ghana, and Nepal are placed below SL.

https://en.wikipedia.org/wiki/List_of_countries_by_total_wealth.

This is the proven wealth and not the full potential of the resources of the country. If the wealth of our marine resources of the 200-mile economic zone, the hydrocarbon, and mineral resources are added it would be much more. Port City could add another 15 billion US dollars. Total external debt of 51 billion US dollars is only a fraction of this. According to the Minister of Justice, the amount of foreign exchange not repatriated by exporters to the country is 53 billion US dollars. The total loss from 2009 to 2021 on trade mis-invoicing is estimated at $ 50.833 billion. If the country was well managed SL would be enjoying a net foreign exchange reserve of around US dollars 50 billion. Deprivation of this is the crime of the economic assassins of the Ministry of Finance, the Central Bank, the Department of Customs, and the banking community.

Even if we saved 100 billion US dollars on total export income and mis-invoicing, we would not have still attained the full potential of the country. Our obvious economic fragility is in the balance of trade. Our imports have been hovering around double the value of exports. There too the bulk of our exports are in the three major commodities and in low technology garments. For some time the balance of payments gap was compensated with increased remittances from foreign employment and income from tourism. However, the vulnerability of these sources was realized with both these sources drying up due to the Corvid 19 pandemic. That demonstrated that we need to develop more sustainable sources to maintain a healthy trade and payments balance.

At the time of independence, Sri Lanka had a well-established political system with a universal franchise, reasonable infrastructure, and a sound public administration. Our per capita was one of the best in Asia and was only lower than that of Japan. So much so that sociologist Snodgrass queried what more could a newly independent nation want?’. Our economy was able to maintain a free health service and free education.

In 1944, the State Council resolved to launch a State Project of Industrialization in Ceylon. In the same year, there was the – Industrial Corporation Bill. The concept of socialist industrialization was keenly advocated by the Marxist parties which believed that full employment could be achieved only through industrialization. In the same year, J.R. Jayawardene (JR) moved a motion in the State Council for the preparation of a complete plan for industrialization. There was a firm bipartisan consensus on industrialization with a different emphasis on ownership. D.S. Senanayake (DS) was a prime mover of the plan for industrialization. The interest in industrialization changed with the failure of the UNP to get a majority at the 1947 General Election and being forced to form a coalition government with the Tamil Congress of Ponnambalam. The left movement though divided had become a threat to the UNP. No doubt DS as an astute politician apprehended that industrialization which would result in organized labor would strengthen the left movement. Instead of industrialization, he opted to build a peasant community which would be the mainstay of the UNP. In addition, self-sufficiency in rice and restoration of the ancient irrigation works were popular platforms.

The abandonment of the industrialization policy of the State Council was also the result of a lacuna in the system of a lack of a clear process of national development. Even as early as 1938 India had a mechanism of a National Planning Committee which blossomed into a National Planning Commission after independence. India since then has had 10 rounds of five-year plans. The main task of the Commission was to formulate a plan for the most effective and balanced utilization of the country’s resources. In contrast, the then UNP government did not adhere to a balanced utilization of resources but focused on a narrow trajectory of development. But for the political bias, DS could have steered a two-pronged strategy for the development of the country leading to food security and full employment through industrialization. SL had the funds, physical and human resources, and infrastructure to venture into manufacturing. But politics prevailed and we missed the most important opportunity for an early start of a manufacture-based economy with an export orientation.

Shifting people out of subsistence farming into formal manufacturing jobs would have made the agriculture sector more efficient and improved productivity in agriculture.

A strong manufacturing sector with increased productivity would have enhanced economic growth. Most innovation and technological advances originate in the manufacturing sector.

Manufacturing creates demand for skills, inputs, manufacturing components, transportation, and storage. Growth in manufacturing boosts growth throughout a broader set of activities, including in the service sector. The then UNP government did not fully appreciate the importance of manufacturing in the development of the economy particularly in creating productive employment and earning foreign exchange.

DS denied SWRD Bandaranayake (SWRD), who was at the time the leader of the House, his due place, and maneuvered to get his son Dudley Senanayake to succeed him as Prime Minister. This resulted in SWRD creating a new party resulting in both positive and negative consequences. The split created divisive politics based on ideology and ethnicity. This was the dawn of the era of chauvinistic and emotional politics.

This maneuver also kept JR, the best brain in the party, out in the cold. If JR succeeded DS, he who believed in planned industrialization could have introduced industries with modern technology with the help of the Japanese who were under obligation to him for his open support to Japan, at the war reparation conference in San Francisco in 1951, where he rejected reparations and quoted the Buddhist saying Nahi Verena Verani.

 An irony of the development scenario during that time was while agriculture was the exclusive priority in the Sinhalese dominant areas there were a few projects in the industry like Kankesanthurai Cement Factory, Paranthan Caustic Soda Chemical Factory, and Valaichchenai Paper Mill established in the Tamil majority areas by the Minister of industries G.G.Ponnambalam of the Senanayake Cabinet.

With the Korean Boom’” in 1949 Sri Lanka had a trade surplus and the plantation sector was strong and bringing in sufficient foreign exchange. This background may have made the policymakers of the time complacent about the performance of the economy and other than a few import substitution industries, industrialization on a larger scale was not contemplated.

Without industrialization, we have lagged behind most Asian countries. Even after 1977, we did not learn from the experience of export-oriented industrial development of the Far Eastern Tiger Economies. Instead, we preferred to follow the prescriptions of the IMF and World Bank. Not only did we not believe in national planning we did not even have national policies on any major sector of the economy. We need to have not only an industrial policy but also a technology policy backed by an enlightened education policy. Our policymakers and professionals have not shown either the capability or the inclination to change the prevailing systems.

Sugath Kulatunga

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