Manufacturing critical for Sri Lanka growth spurt, new study says

ECONOMYNEXT – Industrial development, particularly manufacturing, is critical for countries like Sri Lanka, if they are to grow fast, a new Asian Development Bank (ADB) study said.

Although services are important, most advanced economies are successful because of manufacturing capability, said the study on lessons for South Asia from the industrial cluster development experience of South Korea.

Sri Lanka is relatively better off economically that other south Asian countries despite its long civil war, it said.

But the island has failed to take advantage of the opportunities following the end of the military conflict and has “moved away from trade liberalization and back toward nationalist–populist state-centered economic policies,” the study, an ADB working paper, said.

“For South Asia as a region to grow at continuously high rates, industrial development, particularly the growth of manufacturing in countries with a population of more than 20 million, such as India, Bangladesh, Pakistan, Nepal, and Sri Lanka, is critical,” it said.

“Services can spur economic growth, as evidenced by India’s information technology industry and tourism in Nepal, but most developed countries became advanced economies largely because of manufacturing and industrial development.”

The ADB study noted that industrial development accompanies continuous industrial transformation toward higher-value-added production.

In South Korea, exports of labour-intensive industries, such as textiles, plywood, and wigs gave rise to the country’s initial spurt of industrial growth.

It then shifted toward more capital-intensive and technologically sophisticated industries, such as electronics, shipbuilding, and chemical products.

Now, the major industries are research and development intensive such as semiconductors, mobile phones, and automobiles.

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Improvement of domestic industrial capacity for long-term industrial development still takes time as well as experience to achieve.

Sri Lanka has potential for higher growth and to increase the contribution of manufacturing to economic output given its low share of manufactured exports compared with a country like China where it is 94 percent. (Colombo/September 1 2015)
 

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