Industrial Policy : Sri Lanka

The government envisages the following programme of action of respect of industrial policy. Our industrial policy is based on the experience of the high performing economies of Asia. The government will foster environmentally friendly and sustainable industrial growth through the establishment of macroeconomic stability which would lead to lower inflation and interest rates. This, together with a more open trade regime and flexible exchange rates, will lead to a dynamic, internationally competitive, export oriented, diversified industrial sector which will become increasingly more technologically sophisticated. While it is desirable to attract high technology industries which are non pollution, there is still room for Sri Lanka to develop similarly non pollutiong labour intensive industries in areas other than garments. Foreign investment will make a vital contribution to this process by providing capital and continuing access to technologies and export markets.

The government will provide an open and transparent legal framework and a market friendly investment climate to the private sector. Government interventions will be confined to areas where markets clearly fail. There will be an end to ad-hoc policy making. To ensure that sectoral policies in manufacturing, industry and services asre properly developed and co-ordinated a National Development Council with representatives from the state, private sector, professionals, the trade unions will be established. * Protecting inefficient industries will not assist rapid and sustaniable industrialisation and social equity

The present system of investment incentives is full of anomalies, discriminatory and arbitrary surcharges, exemptions, and waivers. The Government will make appropriate changes and move towards a simpler, transparent system of incentives which will eliminate the room for corruption and inefficiency, as part of its on-going program of trade liberalisation. The simplification already made of eliminating tax holidays and replacing them with a 15% tax on export profits for a twenty year period will be contined.

The Government will assist the establishment of efficient small and medium scale industries which can be a vehicle for broad based industrialisation and employment growth. Such assistance will be provided in a manner which does not result in a return to previous protectionist policies which wasted public funds and burdended consumers with low quality goods and high prices. The government is considering a mechanism such as an equity fund or a loan guarantee fund to assist small and medium entrepreneurs who have limited resources of their own and lack the collateral to borrow from commercial banks. This is expected to help establish 20000 small and medium industries with an employment potential of 250,000 over a five year period, equal to the employment generated by the entire textile sector. Small and medium scale industries will be strengthened by technology transfers through training and linkages with large scale and modern industrial enterprises.

Despite its high levels of literacy, the Sri Lankan work force lacks the requisite skills that are essential for industrial upgrading and diversification. The numerous state run skill development programmes and the general education system are essentially supply driven and therefore have a poor record of providing industry relevant skills. The vocational training system will be extensively restructured so as to be demand driven, in co-operation with the private sector who will be the eventual employers. A Skills Development Fund will be inaugurated to establish an effective system of skills training.

Similarly, with the active participation of the private sector, there will be extensive restructuring of the Government’s industrial research and development institutes to ensure that they would be geared to meet the technological needs of industries, and to assist them to attain the price, quality and delivery standards required in international markets.

Non-polluting large and small scale industries will be encouraged in the rural areas with a view to promoting regional development. Infrastructure would be developed to encourage private sector investment in these areas.

The promotion of agro- based industry and the manufacture of finished agricultural products would be given priority.