Sri Lanka’s Productivity Push: Exploring Policy Pathways for the Proposed National Productivity Commission

By Tilani Jayawardhana

Why Does Productivity Matter for Sri Lanka?

Productivity is not just a technical measure of economic efficiency; it is fundamental to improving living standards, sustaining economic growth, and ensuring the long-term prosperity of society. Evaluating and enhancing the productive forces of the economy is crucial for informed policymaking, targeted investments, and achieving sustainable development. For Sri Lanka, focusing on productivity is key to overcoming economic challenges and realizing its potential in the global economy.

Sri Lanka should increase productivity across the economy if it wants to successfully compete in the global value chain. Improvement in productivity will reduce the costs and place the country in a better position to supply to the global markets at competitive prices. 

Productivity growth has to be a top priority of all the successive governments. Without productivity growth, the country’s production system, be it agriculture, industry, or services, will be displaced in the global system.  Therefore, the role of the NPC should be to ensure a data-driven approach to productivity in each sector, promote competition, and encourage international competitiveness. 

Sri Lanka’s productivity has to be built up through investments in physical capital stock, human capital and the diversity and dynamism of our industries. To ignite productivity growth, new business investment and workforce capabilities will need to improve in ways that respond to the changing shape and nature of the economy. Investments in physical capital are expected to continue to drive Sri Lanka’s productivity potential. International evidence shows that about two-thirds of labour productivity growth since the early 1970s has been due to capital deepening. This is because when the amount and quality of capital available to workers increases, they are generally able to produce more per hour worked. As the industrial mix changes, investment in growing industries and effective adoption of new technologies, including digital technologies, will be essential.

The productivity challenges and opportunities that we will face in the future will be different to what we have seen in the past. Improving productivity in the large and growing services sector will be increasingly important, as it will have an outsized impact on Sri Lanka’s overall productivity outcome. Country’s productivity agenda needs to respond to current economic circumstances and identify modern strategies to advance enduring policy goals.

Rationale in establishing the National Productivity Commission (NPC)

An economy’s ability to use labour, capital and other resources efficiently is the essence of productivity and it is when this efficiency increases a country’s economy would expand. In a bid to revive the country’s struggling economy, Sri Lanka has implemented a comprehensive economic reforms agenda. The government has initiated several key recovery strategies, with the establishment of a National Productivity Commission (NPC) being a flagship project under the Economic Transformation Bill. The proposed NPC is expected to help address the productivity enhancement needs of the domestic industrial sector as they are struggling to come out of the economic crisis and exposed to greater international competition. The government of Sri Lanka has taken this correct step forward and acknowledged that higher productivity growth has the advantage of raising average living standards by increasing GDP per capita. 

Productivity growth is an important aspect of economic and social development of a country. Moreover, increasing productivity enhances competitiveness, making it a crucial factor in attracting foreign investments and boosting international trade. Productivity drives economic growth and helps realize improved living standards. 

Though Sri Lanka’s output structure shows a shift to services (with an average share of 59.2% during 2016–2022) and away from agriculture (8.5%), a large share of the employed are still in agriculture (26.4%), where productivity is about 31% of the national average. Furthermore, its manufacturing sector—a sector widely regarded as one that can gainfully employ semiskilled workers—lags in labor productivity. Though Sri Lanka’s manufacturing labor productivity is one of South Asia’s highest, it is roughly half of that in the Philippines and Thailand, and about one-third of that in Malaysia and the People’s Republic of China (ADB Country Partnership Strategy: Sri Lanka, 2024–2028).

Sri Lanka's aging population presents a significant challenge to sustaining high economic growth, while boosting productivity is the key solution to overcoming this hurdle. Sri Lanka is “growing old” before becoming “rich” and thereby there is an urgent need in preparing for an aging society that will require increasing labor force participation and productivity of the workforce. Productivity improvements can offset the economic impacts of a shrinking workforce by enabling the remaining labor force to produce more. This is crucial for sustaining economic growth in the face of demographic challenges. Therefore, establishment of the NPC is a clear step forward in the correct direction. 

Overview of the Proposed NPC

The broad objective of the proposed NPC is to promote economic growth through increased productivity for the improvement of wellbeing of people in a sustainable manner. The NPC will be an independent body which is accountable to Parliament. 

The main duties and functions of the NPC shall be to: 

• Make recommendations to the relevant authorities based on evidence and comprehensive analysis in order to increase productivity and economic performance by; streamlining regulation of productivity, promoting healthy competition and contestable markets, catalysing structural transformation and encouraging international competitiveness

• Make recommendations to the Government on introducing a national competition policy and advise on subsequent revisions as needed from time to time

• Conduct public inquiries and evidence-based research on issues related to productivity, either in-house or contracted out, and disclose the methodologies used for such inquiry or research

• Carry out, performance, monitoring, evaluation and benchmarking on the productivity

• Report annually to Parliament on the productivity trends within the first four months of the following year

• Advocate on the need for productivity improvement 

Although the objectives of the NPC cover a wide range of responsibilities, from streamlining regulation to promoting competition and international competitiveness, this broad scope might dilute the focus and effectiveness of the NPC. It is important to narrow the focus to specific, high-impact areas initially, such as catalyzing structural transformation or enhancing international competitiveness. Clear prioritization of tasks could improve the efficiency and outcomes of the commission’s work. NPC’s work and policy orientation should address the country's on-going productivity issues, it also should carry a longer-term perspective in achieving the development goals of the country.

In addition, conducting inquiries and evidence-based research in-house might lead to biased outcomes, especially if the NPC faces political or administrative pressures. This issue can be resolved through the establishment of an independent research unit within the NPC with a clear mandate. 

NPC should Advocate for the development of standardized productivity metrics and benchmarks, perhaps aligned with international best practices to facilitate performance monitoring, evaluation and benchmarking. 

It is also important to have within the NPC mandate to promote public advocacy and engagement. The mandate to advocate for productivity improvement is broad, and without a clear strategy, these efforts might not reach the right audience or create the desired impact. Development of a targeted communication and advocacy strategy that includes specific campaigns for different sectors, public education initiatives, and collaboration with media and civil society to raise awareness should be taken into consideration.

Concerns on the proposed NPC and some policy recommendations

• The process of appointing the chairman and five members to the NPC is under presidential authority, which raises concerns about potential political interference and the practicality of the level of independence of the commission. Even if the commission operates under an independent entity, the inherent structure would not warrant it to operate at arm’s-length from politicians and other public agencies. 

• The two core features of the NPC has to be its transparency and its economy-wide perspective. The commission’s activities should encompass all levels of government and all sectors of the economy, with the core values of independence, transparency and community-wide perspective, including social and environmental aspects. 

• The NPC should have permanent staff that has the capacity to evaluate all aspects of the public sector operational activities with special emphasis on macroeconomics and competition policy. Their work should be overseen by independent commissioners appointed for a fixed term. 

• The NPC must be geared to contributing by providing quality, independent advice and information to the government, and on the communication of ideas and analysis. - The commission ideally should be an agency of the Government of Sri Lanka, located within the
  Treasury portfolio, covering all levels of government and encompass all sectors of the economy, as well as social and environmental issues 

• National performance monitoring system has to be based on the Total Factor Productivity (TFP). TFP is referred to as the productivity measure involving all factors of production. Most often productivity measurement is based on Partial Factor Productivity, where one or more outputs are measured relative to one particular input (eg. Labour productivity is a ratio of output to labour input). Therefore, unlike labour productivity (or capital productivity), which considers only the labour input (or capital input), TFP is a comprehensive measure of productivity. TFP is usually calculated as the ratio of the total output to the combined inputs of labor and capital. Partial productivity measures are widely used as they are simple to calculate. However, partial factor productivity should be interpreted with caution.  

Regulatory Power of the NPC.The NPC’s mandate to "streamline regulation" and "promote healthy competition" might be limited if the commission does not have sufficient authority to enforce its recommendations. Without enforcement powers, the NPC could become merely an advisory body, with its recommendations being ignored or delayed by the government.

Borders & the Budget

Originally appeared on the Daily FT, Daily Mirror

By Daniel Alphonsus

Visa reform will boost tourism and reverse brain drain

Three million tourists are set to visit our shores next year. We will issue nearly as many online visas - millions too many. ETAs are a tourist's bane: rather than dreamy sun, sea and sand, the weary salaryman’s getaway begins with the tedium of forms. 

The tourist’s ayubowan to Sri Lanka begins with ferreting for flight details and credit cards. Warm-up complete, the ordeal begins in earnest: 20 clicks to navigate through the ETA form and countless key strokes to fill out the 27 form fields. Each question brings forth its own miseries, and sometimes mind-reading feats: “They’re asking me for my address in Sri Lanka. Hmm, does this mean my first address, my last address…but I haven’t even booked my hotel..dear, dear maybe I should book the Maldives instead. They’ve got a visa-on-arrival.” Followed, naturally, by web-pages reloading with unsaved data and vindictive payment gateways rejecting credit cards for arcane and esoteric reasons. Rather than a Small Miracle, they experience So Sri Lanka. 

This charade costs us millions of dollars every year. We are losing tens of thousands of tourists to our competitors.

Based on the three scenarios below, switching from ETA to visa-on-arrival à la the Maldives or Singapore should generate between $24 million to $145 million in additional tourism revenue.

The precise number is not especially relevant. The point is that these roughly right numbers are substantial enough to generate a robust prima facie case for experimenting with opening up visa-on-arrival and optimising the ETA experience

For workings click here.

Visas-on-arrival

Sri Lanka already operates visa-on-arrival for Singapore, Maldives and Seychelles citizens. In light of the tens of millions of dollars we’re losing in the absence of visas-on-arrival, very compelling reasons must be provided for not opening-up visa-on-arrival for citizens of our main tourism markets (such as the EU, China, Russia and UK). Plus those who have passed extensive checks in the process of traveling to other countries. For example, travelers holding multiple entry visas to the US can visit about 51 countries visa free. 

The burden of proof is therefore on those who say we ought not have a visa-on-arrival regime. All the more so because it appears that, even though not advertised, in a pinch, obtaining a visa-on-arrival is possible at BIA. Also note that airlines share passenger records with governments 24 hours before arrival. It takes seconds for our border agencies to check the relevant blacklists as they already have API integrations in place. The response time of an Interpol database query is half a second.

In addition, immigration department annual reports show that almost all rejections and deportations are from a handful of countries, mainly India. Other than a German and an Australian, no UK, EU, ASEAN or Australian national was rejected or deported in 2022. This suggests a risk-based, optimized approach is very much possible, and prudent.

Many of us have experienced this personally. We are more likely to tour Singapore because Sri Lankans enjoy visa-on-arrival. In fact, on average it only takes us 10 minsto enter Singapore. As shown in the picture above, for passport holders of 50+ countries, the experience is even more smooth. Using automated immigration gates, they clear border control in less than two minutes.

Optimize the ETA process

Some tourists may still prefer to secure an ETA before arrival. Therefore, we should do our best to ensure the application is seamless. Currently it is not. Of the 27 fields requested on the ETA, about 20 can be found in passenger record details airlines share with immigration authorities. They are redundant. Questions on the ETA should be limited to around seven fields. The amount of information gathered should be commensurate with the risk: those from high risk countries could be subject to additional questions.

Eliminate the ETA fee

Credit card payments are often an even greater source of friction. Tourists need to pay $20 via credit card for an ETA. This deters potential tourists; it's another step in the journey and credit card payments often fail. So much so, the our embassy in Germany issued the following notice:

“On Arrival Visa at the Port of Entry to Sri Lanka: submit visa application and payment at Colombo International Airport. A fee of USD 60 will be charged for this service. Please observe that this option of obtaining a visa is available only for German passport holders, who have tried to obtain a visa via the ETA-system www.eta.gov.lk, but failed due to not being able to pay the fees with credit card.” 

It's not only card friction that is the problem. Many Chinese citizens no longer own cards and use Alipay instead.

Wiser countries like Singapore understand that reducing friction encourages more tourists to arrive, and thereby spend more. Which is why they don’t charge tourists a fee.

*Note the ETA fee is $20 for SAARC and $50 for other nationalities. $40 is a rough weighted average. For workings click here.

Based on the rough estimates above, if the ETA fee or friction puts off even three percent of tourists, then Sri Lanka stands to unequivocally benefit from eliminating the ETA fee. The exchequer will be worse off for now. But the Treasury still recoups some of the lost visa fees by higher VAT revenue directly, and indirectly via higher income tax from tourism sector firms and employees. (1)

Brain Gain

Since Independence Sri Lanka has lost or chased away lakhs of skilled workers. Many middle class families can proudly count at least one doctor, accountant and engineer (among many other species of the middle bourgeoisie) among their relations overseas. Between 2005 and 2015, the BOI estimated that around 20% of STEM graduates left the country every year. With COVID and the economic crisis, emigration was particularly acute the last few years. But it's not new. Skilled emigration is a chronic problem we’ve faced for decades.

(2 ) This report offers a rigorous treatment of the topic from the 1970s.

We desperately need to reverse brain drain. Of course, the central challenge is building a Sri Lanka in which Sri Lankans want to stay. But that is beyond the scope of this article. Here we shall only discuss how we can make it easier for skilled talents to come, and contribute. 

Some readers may be perplexed that even a handful of skilled non-Sri Lankans want to live and work on our island. But we live in a nomadic, connected and occasionally romantic age. These rare souls exist. 

We must do everything in our power to welcome and encourage them. Above all, by simply removing barriers to them legally working here. For the path to prosperity is paved by productivity growth. Therefore, it makes absolutely no sense for us to create barriers for skilled migration. It is the opposite of what smart countries do - especially via human capital theft aka points-based migration. There are three main ways foreign talent raises Sri Lanka’s productivity, growth and thereby prosperity. Foreign talent:

1. Adds human capital: whenever someone who has higher productivity than the average Sri lankan worker moves to Sri Lanka, they raise Sri Lanka’s average productivity directly. We already have huge talent shortages in key sectors like IT. 

2. Upgrades existing human capital: foreign talent, directly or by osmosis, teaches their skills to others.  

3. Increases existing human capital productivity: the whole is often greater than the sum of its parts. Skilled talent enables others to be more productive. For example, having access to a pediatric neurosurgeon makes all pediatricians more productive as knowledge is shared from expert to generalist. Alternatively, having a Japanese team-member makes the whole team more effective when working with Japanese clients. 

Per capita GDP is a good proxy for average worker productivity. Therefore, if someone from a richer country moves to a poorer country, then the average productivity of the poorer country will improve. How do we do this? The Harvard Centre for International Development has some ideas from which I borrow liberally. 

The fastest way for Sri Lanka to have brain gain to compensate for some of the brain drain is to:

Offer a two-year visa-on-arrival for those from countries that are 4x richer than Sri Lanka

1. Offer a two-year renewable visa-on-arrival for citizens or permanent residents of countries which have per capita incomes at least four times that of Sri Lanka. (3)

2. Amend the Citizenship Act such that any person who has at least two Sri Lankan grandparents is eligible for citizenship. ()4 

3. Regularize employment of all foreign spouses of Sri Lankan nationals, including a path to permanent residency and citizenship. (5) 

The first of these measures can be implemented by the stroke of the minister’s pen.(6) Sri Lanka’s immigration act provides for broad ministerial discretion. The minister is empowered to make entry regulations for visas upto five years in length. He or she can implement Point A above without requiring primary legislation.

We have little to lose, and all to gain. Try these measures for a year, try them for a few countries. Then roll-back or amend accordingly. Sri Lanka has a long history of policy-instability, but we should not confuse the many cases of foolish equivocation with genuine experimentation. That is what this budget should propose: bold measures to breakthrough our malaise and initiate the process of transitioning from stabilisation to recovery.

(1) As this article is solely on matters related to the immigration act, I’m not going to discuss this in detail. But it's worth noting that levying a flat (dis)embarkation levy is also a deterrent against short-haul traffic. Instead, the airports authority should price the levy based on the distance between Sri Lanka and the origin/destination airport.

 (2) Diaspora remittances do little to compensate: Sri Lankans remit more from the Maldives than Australia.

(3) For those that ask why a per capita GDP based criterion rather than points-based criteria, my answer is simple. A points-based system inherently involves discretion, and in the context of our state (in)capacity and corruption, will result in friction (countless people will not bother applying with all the documents that will be required), many false positives (as the assessors of points, e.g. a degree certificate’s legitimacy, will be corrupt) and false negatives (because those with skills we want may not have the right paper to demonstrate it). Considering this range of incentive problems and Type I/II errors, a very conservative threshold like the 4x per capita GDP one suggested is most optimal.

(4) For further details on this point and the next point, see page 14 of this study on Sri Lanka’s immigration framework.

(5) Reaching consensus in Parliament on this point should be easy. Sajith Premadasa’s manifesto promises dual citizenship after three years of residence for foreign spouses of Sri Lankans. See page 39.

 (6) Soon, one hopes, his or her digital signature. In fact, the President should announce that he will only sign documents via a digital signature from 31 December 2023 onward.

The opinions expressed are the author’s own views. They may not necessarily reflect the views of the Advocata Institute or anyone affiliated with the institute.

Why aren’t our millennials at work?

Originally published in Daily FT and Republic Next

By Nishtha Chadha

Today is International Youth Day; a day described as the United Nations as the “annual celebration of the role of young women and men as essential partners in change”. Everyday, we see young people across the globe emanating entrepreneurial drive and catalysing positive growth. ‘Millennials’ have become the symbol of a new world order, based on innovation and large-scale mutual exchange.

“How do we create jobs that young people feel dignified doing? ”

Yet, here in Sri Lanka, we see a very different story. Rather than catalysing growth, many of Sri Lanka’s talented youth languish in unemployment. Popular rhetoric often defines these young people as ‘lazy’ and ‘ungrateful’, unwilling to fill blue collar vacancies with low social repertoire and climb the ever-elusive career ‘ladder’. But with issues of unemployment pervading the youth demographic for over four decades now, despite having the highest literacy rate in the region, perhaps it is time for a new conversation. How do we create jobs that young people feel dignified doing?

Educated young people make up a third of Sri Lanka’s unemployed, while over 30% of the county’s total informal workers belong to the youth demographic. Often these numbers are attributed to the infamous ‘job-skill gap’, where tertiary-educated youth are left unequipped to acquire private sector vacancies, but over-educated to fill opportunities in labour-intensive industries. However, this hypothesis also ignores an entire socio-cultural dimension that underscores many young people’s unwillingness to settle for in-demand blue collar careers. 

According to the Department of Census and Statistics [DCS] (2017), the most difficult vacancies to fill in the job market were as follows:

1. Sewing Machine Operators

2. Security Guards

3. Commercial and Sales Representatives

4. Other Manufacturing Labourers

5. Cleaners and Helpers in Offices, Hotels and Other Establishments

When one reviews this data it is hardly surprising that after spending 16 years in education, young people are unwilling to forego their intellectual capital and fill these vacancies. Instead, many wait in line for public sector opportunities, characterised by high social status, lifetime employment and funded by taxpayer money. The government often uses this as a vote-securing scheme, having offered 16,000 graduate roles just last month in preparation for the forthcoming election. But with an already inflated public sector, slowing growth rates and a growing toll of non-contributory pensions, this strategy has become both unsustainable and unreliable. 

Closing the gap

“DCS data suggests that only 7.2% of private sector vacancies are in high-skill occupations.”

While the private sector does account for the majority share of youth employment, DCS data suggests that only 7.2% of private sector vacancies are in high-skill occupations. Slow job creation has become a persistent characteristic of the Sri Lankan economy, with highly restrictive employment protection legislation and skewed bargaining power of trade unions significantly raising labour costs and impeding job creation.

“Roughly 1.5 million Sri Lankans migrate internationally for work”

As a result, roughly 1.5 million Sri Lankans migrate internationally for work (approximately one fifth of the domestic workforce). Over 40% of these migrants belong to the “skilled” labour category, suggesting a worrying trend of missed opportunity. Certainly, the fact that home-grown skilled labour has no place in a growing upper-middle economy is a cause for serious concern in itself.

As Sri Lanka faces up to the growing challenge of an ageing population, the country needs to create more and better jobs to sustain growth and make optimal use of its working-age population. This suggests an urgent need for structural reforms to increase competitiveness and openness to FDI, which will create more productive and higher-paying jobs as foreign firms bring in new technology and better management practices to the Sri Lankan market. Trade liberalisation can also play a critical role in producing large-scale opportunities for educated workers, particularly by plugging into regional and global supply chains. Indeed, with the right reforms in place, active engagement with foreign economies could present unparalleled opportunity to kickstart high-quality job creation in Sri Lanka and give many unemployed skilled graduates the opportunity to pursue fulfilling careers that positively contribute to the national economy. 

Moreover, as the global economy shifts increasingly towards services, personal consumption and trade in digital goods, there needs to be a concerted effort towards promoting innovation and entrepreneurship amongst the youth population and moving people away from traditional public sector careers. Sri Lankan investment in research and development (R&D) only amounts 0.07 percent of total Government expenditure (2017). As such, there is a pressing need to improve public and private funding of R&D, whilst simultaneously addressing the current fragmentation of R&D institutions, in order to create tangible outcomes within the innovation space. Improving the intellectual property rights regime and creating an ecosystem of early-stage finance and incubation facilities will be instrumental in mobilising young people and facilitating entrepreneurial growth. 

Entrepreneurship and opening up

Growing entrepreneurship can not only transition Sri Lanka into a more innovative and complex economy, but simultaneously create a broad range of high-quality jobs in a variety of competitive industries across domestic and international markets. Small nations such as Israel and Singapore have shown the scale of returns that investment into innovation can provide, attracting Silicon Valley’s largest players to set up incubators and accelerators in their countries. Indeed, at the heart of both nations’ technological success has been the cultivation of a targeted public-private ecosystem for innovation, as well as an absolute openness to diverse participation.

If Sri Lanka is to make the most of its youth potential, it needs to reform the very fabric of its workforce. Promotion of unconventional career paths and greater cooperation between the public and private sectors are a must. Current barriers to foreign participation must also be removed. Diversity of thought and exchange of ideas have been proven as key drivers of innovation, and these need to be promoted through people-friendly policies and the removal of burdensome mobility and investment regulations. Sri Lanka’s youth need to be given opportunities to access foreign capital and learn from global leaders in entrepreneurship if they are to form the basis of a new Sri Lankan economy. 

Moreover, by opening up migration policies and flows of labour, Sri Lanka will be able to fill its wealth of low-skill vacancies that currently plague the private sector, without foregoing its local talent. India has been enjoying the fruits of an open border policy with Nepal for over half a century, producing a mutually beneficial arrangement for both parties. Resisting globalisation is merely slowing productivity and resigning educated Sri Lankan youth to careers that they do not feel dignified doing. Youth potential should be harnessed to translate into economic growth and productivity, not heavier burdens on an already struggling economy. 

So, this International Youth Day, let’s have a new conversation about young people. Let’s remove the weight of heavy expectations, and replace it with rigorous strategies for empowerment. Young people are the future of the Sri Lankan economy – so what are we doing to help them shape it?

Limitations in Prof. Hausmann’s policy recommendations

By Premachandra Athukorala

The article originally appeared on the Sunday times 24 January 2016.

The policy recommendations made by Professor Ricardo Hausmann in his presentation at the recent Colombo Economic Summit are based on the ‘product space’ analysis developed and popularised by him and his co-researchers at the Centre for International Development at Harvard University. This approach has a fundamental limitation as policy guidance in this era of economic globalisation, even though their ‘ pictures’ (product space diagrams) look very impressive and have a great appeal to policy makers who take them at face value.

Product space analysis is based on the conventional approach to analysing trade patterns, which treats international trade as an exchange of goods produced entirely from beginning to end within national boundaries. This approach is based on the assumption that factors of production are locked in within national boundaries (that is, it assumes away foreign direct investment, and cross border movement of labour and all inputs used in manufacturing). It completely overlooks the ongoing process of global production sharing (GPS), the breakup of the production processes into separate stages, with each country specialising in a particular stage of the production sequence, which opens up opportunities for countries to specialise in different tasks within vertically integrated global industries.

Parts and components, and final assembly traded within global production networks (‘network trade’) have been growing at a much faster rate compared to trade in goods wholly produced within countries (‘horizontal trade’, the focus of product space analysis). Global production has been the prime driver of export-oriented growth East Asian countries. According to my calculation network trade accounts for over 60 per cent of total manufacturing exports from China, Korea, Taiwan, Malaysia, Singapore, and Thailand. A number of countries in the region (Vietnam and Cambodia are the latest example) have successfully moved from primary product specialisation to exporting manufactured goods (parts and components and final assembly) by joining production networks. This certainly is not ‘Monkeys jumping from low trees to taller trees’ as depicted in product space diagrams.

Policy inferences based on the product space analysis is not consistent with the objective of reaping gains from joining global production networks. As Professor Gerald Helleiner has aptly stated in a best-known article, “The introduction of the possibility of component manufacture and middle-stage processing within international industries knocks the bottom out of any stage theory of the development through industrialisation and trade which focuses upon final products” (Helleiner, Gerald K. (1973), ‘Manufactured Exports from Less-Developed Countries and Multinational Firms’, Economic Journal, 83 (329), p 43) It seems that Prof. Hausmann’s policy advocacy of export promotion has basically been shaped by the Latin American experience.

Latin American countries’ lack-luster record of manufacturing export expansion can be explained to a greater extent by these countries’ failure to reap gains from the ongoing process of global production sharing. I was surprised to note that in the website posting on the Sri Lankan visit, Prof. Hausmann has used Venezuela as a comparator for justifying his policy advocacy for Sri Lanka! Sri Lanka needs to learn lessons from its own past and from the successful countries in our Asian neighbourhood, not from a failed state in Latin America. In the aftermaths of the 1977 liberalisation reforms, a number of electronics multinationals came to Sri Lanka to set up assembly plants. We sadly missed the opportunity to become an export hub based on global production sharing because these MNCs soon left the country in the early 1980s as political instability set in.

Among these lost investment projects was a large assembly plant (with a planned employment of 3000 workers), which made headlines in a Harvard Business Review article. Chet Singh, the founding chairman of the Penang Development Corporation, recently told me that Motorola’s decision to come to Sri Lanka was a big concern to him and the Penang state government at the time because Sri Lanka was a much better location for electronics assembly compared to Penang. Luckily for him (and for Penang) Motorola eventually gave up the Sri Lanka option and set up a plant in Penang. The Motorola plant in Penang currently employ 8500 workers and also acts as the regional R&D centre of that giant multinational enterprise. We need to strive to regain such lost opportunities.

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Premachandra Athukorala is an advisor to the Advocata Institute.  He is a Professor of Economics, at the Crawford School of Public Policy, Australia National University.