ABSTRACT

Sri Lanka: from an agrarian economy to an industry economy Sri Lanka was once known as the "granary of the east". The agrarian heritage is still visible and many understand and yearn for our future to follow in the same direction. In the present situation the country is unable to feed its citizens in a satisfactory manner and hence we are dependent on imports for many of our food needs. The population is increasing, though the rate of increase is much below those observed in neighboring countries (i.e., 1.2% annual population growth). These challenges of sustaining a growing population plus their needs are intended to be met through industrialization of the economy. Various governments have focused and still do on developing the manufacturing as well as the service sectors, though the emphasis has changed from the former to the latter. An economic strategy based on agro-exports, free trade zone, cheap labor, and sun-and-sand tourism is a strategy for staying poor is a concept which could be supported with examples but perhaps would still not be fully understood by the decision-makers (www.competitiveness.lk). This fact was reiterated to the UK government by UK's Engineering Council in the 1990s when drastic declines in manufacturing capabilities were noted in the country. Sri Lanka epitomizes this statement as the present economy is based on labor and traditional exports etc. Basically, economic development of a country is achieved via success of Industrial, Agricultural and Service sectors. The Sri Lankan industrial sector is based on a number of "Labor-Intensive" and "Resource-Based" industries. As a result Sri Lanka is not in a strong position to face the growing global competition. Sri Lanka shifted to a market-oriented economy (even without a developed infrastructure) in 1977, and the national economy has shown a steady growth with GDP increasing from US $4.1 billion in 1977 to US $15.8

billion in 1998. Due to continuous adoptions of policies to create an open market, Sri Lanka is now reputed to be the most open economy in South Asia. Industry in Sri Lanka means factory industries and plantation industries (i.e., tea, rubber factories). The manufacturing subsector of the "Industrial sector" in GDP dropped from 23.1% to 16.5% from 1977 to 1998. (www.worldbank.org). The manufacturing sector, however, remains heavily dependent on a few labour-intensive industries. Over two-thirds of the manufacturing value added is derived from textile, apparel and leather and the food, beverage, and tobacco subsectors. Textile and apparel is the only sector which has increased percentage of value addition in industry from 14% to 37% since 1970-1998. With increasing liberalization of the economy and stimulating foreign direct investments, Sri Lanka hoped to be an emerging economy by the year 2000. However, due to absence of a clear strategy and an understanding of the implications of the goal, this failed to materialize. A manufacturing share in the industrial sector at the level of 20% can be taken as one prerequisite for NIC status. The share of manufacturing in the industrial sector was 16.5% in 1998 for Sri Lanka. At the end of 1999, Sri Lanka's status was "lower middle income" with US $810 per capita. These changes were brought about by income to the country from the Middle East workforce as well as from the service sector. For example, Sri Lankan migrant workers remitted a sum of Rs 87.6 billion to the government coffers in 2000. Though the GNP values indicate improvements the wealth divide is increasing. Thus Sri Lanka is in dire need of real development and only meaningful developments in the industry sector can bring about the change required.