Connect with us

Features

Can Sri Lanka’s premature deindustrialisation be reversed?

Published

on

As politicians and economists continue to proclaim that the Sri Lankan economy has achieved ‘stability’ since the 2022 economic crisis, the country’s manufacturing sector seems to have not got the memo.

A few salient points need to be made in this context.

First, Sri Lankan manufacturing output has been experiencing a secular stagnation that predates external shocks, such as the pandemic and the Easter Attacks. According to national accounts data from UNIDO, manufacturing output in dollar terms has basically flatlined since 2012. Without a manufacturing engine at its core, it is no surprise that Sri Lanka has seen some of the lowest rates of economic growth during this period. (See graph)

Second, factory capacity utilisation still remains below pre-pandemic levels. Total capacity utilisation stood at 62% in 2024, compared to 81% in 2019. For wearing apparel, the country’s main manufactured export, capacity utilisation was at a meagre 58% in 2024, compared to 83% in 2019. Given the uncertainty Trump’s tariffs have cast on global trade, combined with the diminished consumer sentiment across the Global North, it is hard to imagine capacity utilisation recovering to pre-pandemic levels in the near future.

Third, new investment in manufacturing has been muted. From 2019 to 2024, only 26% of realised foreign investments in Board of Investment enterprises were in manufacturing. This indicates that foreign capital does not view the country as a desirable location for manufacturing investment. It also reflects a global trend – according to UNCTAD, 81% of new foreign investment projects, between 2020 and 2023, were in services.

Taken together, these features paint an alarming picture of the state of Sri Lankan manufacturing and prospects for longer-term growth.

What makes manufacturing so special?

A critical reader may ask at this point, “So what? Why is manufacturing so special?”

Political economists have long analysed the transformative nature of manufacturing and its unique ability to drive economic growth, generate technical innovation, and provide positive spillovers to other sectors. In the 1960s, Keynesian economist Nicholas Kaldor posited his famous three ‘growth laws, which argued for the ‘special place’ of manufacturing in economic development. More recently, research by UNIDO has found that 64% of growth episodes in the last 50 years were fuelled by the rapid development of the manufacturing sector.

Manufacturing profits provide the basis on which modern services thrive. London and New York could not have emerged as financial centres without the profits generated by industrial firms in Manchester and Detroit, respectively. Complex and high-end services, ranging from banking and insurance to legal advisory to logistics and transport, rely on institutional clients in industrial sectors. Meanwhile, consumer-facing services, such as retail and hospitality, depend on the middle-class wage base that an industrial economy provides.

Similarly, technologies generated in the manufacturing process can have massive impacts on raising the productivity of other sectors, such as agriculture and services. Indeed, in most OECD countries, manufacturing-oriented private firms are the biggest contributors to R&D spending – in the United States, 57% of business enterprise R&D spending is done by manufacturing firms; in China it is 80%.

It has become increasingly clear to both scholars and policymakers that national possession of industrial capacity is needed to retain advantages in higher value-added capabilities, such as design. This is because some of the most critical aspects of innovation are the ‘process innovations’ that are endemic to the production process itself. R&D cannot always be done in the comfort of an isolated lab, and even when it can, there are positive spillovers to having geographic proximity between scientists, skilled workers, and industrialists.

Produce or perish?

Sri Lanka exhibits the telltale signs of ‘premature deindustrialisation’. The term refers to the trend of underdeveloped countries experiencing a decline in manufacturing at levels of income much lower than what was experienced by countries that managed to break into high-income status.

Premature deindustrialisation afflicts a range of middle-income countries, including India, Brazil, and South Africa. It is generally associated with the inability of domestic manufacturing firms to diversify their activities, climb up the value chain, and compete internationally. Major bottlenecks include the lack of patient capital and skilled personnel to technologically upgrade and the difficulties of overcoming the market power of incumbents.

Reversing the trend of premature deindustrialisation requires selective industrial policy. This means direct intervention in the national division of labour in order to divert resources towards strategic sectors with positive spillovers. Good industrial policy requires a carrot-and-stick approach. Strategic manufacturing sectors must be made profitable, but incentives need to be conditional and based on strict performance criteria. Industrial can choose winners, but it has to be willing to let go of losers.

During the era of neoliberal globalisation, the importance of manufacturing was underplayed (or perhaps deliberately hidden). To some extent, knowledge of its importance was lost to policymakers. Karl Marx may have predicted this when, in Volume 2 of Das Kapital, he wrote that “All nations with a capitalist mode of production are, therefore, seized periodically by a feverish attempt to make money without the intervention of the process of production.”

Since the long depression brought about by the 2008 financial crisis, emphasis on manufacturing is making a comeback. This is most evident in the US ruling class’s panic over China’s rapid industrialisation, which has shifted the centre of gravity of the world economy towards Asia and threatened unipolar dominance by the US. In the Sri Lankan context, however, emphasis on manufacturing remains muted, especially among establishment academics and policy advisors who remain fixated on services.

Interestingly, between the Gotabaya Rajapaksa-led SLPP and the Anura Kumara Dissanayake-led NPP, there is continuity in terms of the emphasis on the slogan of a ‘production economy’ (nishpadana arthiakaya in Sinhala). Perhaps more populist than strictly academic, the continued resonance of the slogan reflects a deep-seated societal anxiety about Sri Lanka’s ability to survive as a sovereign entity in a world characterised by rapid technological change and the centralisation of capital.

Nationalist writer Kumaratunga Munidasa once said that “a country that does not innovate will not rise”. Amid the economic crises of the 1970s, former Prime Minister Sirimavo Bandaranaike popularised a pithier exhortation: “produce or perish”. Aside from their economic benefits, manufacturing capabilities are the pride of a nation, as they demonstrate skill and scientific knowledge, a command over nature, and the ability to mobilise and coordinate people towards the construction of modern wonders. In short, it is hard to speak of real sovereignty without modern industry.

(Shiran Illanperuma is a researcher at Tricontinental: Institute for Social Research and a co-Editor of Wenhua Zongheng: A Journal of Contemporary Chinese Thought. He is also a co-Convenor of the Asia Progress Forum, which can be contacted at asiaprogressforum@gmail.com).

By Shiran Illanperuma



Continue Reading
Click to comment

Leave a Reply

Your email address will not be published. Required fields are marked *

Features

The Trade Game’s New Rules: Sri Lanka’s Shot at Winning

Published

on

The global trading system, once a beacon of predictability and cooperation, is in tatters. For decades, the World Trade Organisation (WTO) upheld a rules-based order grounded in principles like the Most Favoured Nation (MFN) clause, ensuring equitable treatment among trading partners. This framework fostered an era of unprecedented economic integration, lifting nations—large and small—through the tide of globalisation. Yet, that era is fading fast. The United States, long a champion of this system when it suited its interests, has detonated its foundations with escalating tariffs and unilateral protectionism. These measures, often targeting economic rivals like China, flout the WTO’s core tenets, replacing multilateral consensus with a power-driven free-for-all. The US’s selective tariffs—disregarding MFN principles—signal a retreat from cooperative trade norms, fragmenting the global economy into blocs shaped by political expediency rather than economic logic. For smaller nations like Sri Lanka, this shift is both a peril and a puzzle: the rules we relied upon are gone, and the future is being forged around us, whether we act or not.

This upheaval is not merely a bilateral spat between superpowers; it’s a seismic reconfiguration of global trade. The US, despite trumpeting its goods trade deficits, quietly maintains a surplus in services—a complexity drowned out by the rhetoric of protectionism. Its push to resurrect domestic manufacturing, especially in critical industries like semiconductors and steel, hints at a broader strategy to insulate itself from foreign competition. Historical parallels loom large: the Smoot-Hawley Tariff Act of 1930, which raised US duties on hundreds of imports, deepened the Great Depression by choking global trade. Today’s interconnected supply chains amplify that risk, where a single tariff can ripple across continents, slashing demand and destabilising markets. The likelihood of a full-blown trade war grows, with tit-for-tat retaliations threatening to redraw economic alliances. Growth forecasts for 2025 are already tilting downwards, and for Sri Lanka—just emerging from the bruising IMF-prescribed reforms—this instability could snuff out nascent recovery. Yet, amidst this chaos, the future is taking shape. Regional blocs are coalescing, new trade routes are emerging, and nimble nations are seizing opportunities. Sri Lanka cannot afford to stand still as the world moves forward.

Opportunities and Strategies for Sri Lanka:

Exploiting Trade Diversions and Gaps

The fracturing of traditional trade flows offers Sri Lanka a chance to step into the breach. As US buyers grapple with higher costs from tariff-hit countries like China, Sri Lanka could position itself as a viable substitute. Our apparel sector, already a global player, could capture market share lost by pricier competitors, while rubber products and electronics components—where we have latent capacity—could find new buyers. Beyond substitution, we could embed ourselves as a cost-effective link in supply chains shifting away from China, offering stability to multinationals wary of volatility. The actionable path is clear: identify tariff-affected goods where Sri Lanka holds competitive edges, then aggressively market these through international trade fairs, digital B2B platforms, and targeted outreach to US importers. This requires swift coordination between the Export Development Board and the private sector to seize the moment.

Strengthening Bilateral Trade Negotiations

While the WTO weakens, bilateral deals gain prominence. Sri Lanka must negotiate preferential trade agreements or tariff concessions with the US, focusing on key exports like tea, garments, and spices. Our status as a developing nation, potentially via the Generalised System of Preferences (GSP), offers leverage—though its reinstatement has been erratic since its lapse in 2020. Diplomatic and economic lobbying in Washington, backed by a clear case of mutual benefit, could restore or expand this access. Beyond the US, forging similar pacts with other major markets—such as the UK post-Brexit or Japan—would bolster our position. This demands a dedicated trade negotiation team, armed with data and a compelling narrative of Sri Lanka as a reliable partner in a turbulent world.

Diversifying Export Markets

Over-reliance on any single market, particularly the US, is a liability in this volatile landscape. Sri Lanka must pivot towards emerging economies and regional players—India, ASEAN, the Middle East, and Africa—where tariff structures are less prone to sudden shocks. India’s growing consumer base, for instance, could absorb more of our tea and apparel, while the Gulf’s demand for construction materials aligns with our rubber and coir strengths. Supporting small and medium enterprises (SMEs) to tap these markets is vital, through trade facilitation hubs, subsidised market research, and digital tools like e-commerce platforms. The Ceylon Chamber of Commerce could lead here, bridging SMEs with opportunities abroad.

Investing in Value Addition and Branding

Exporting raw materials confines us to low-profit cycles. Shifting to high-value, branded goods—think premium Ceylon teas with traceable origins, eco-friendly packaging, or artisanal spices—could transform our economic profile. Take tea: instead of bulk exports, we could market single-estate blends to affluent consumers in Europe or North America, commanding triple the price. Government support is key—tax incentives for innovation, grants for sustainable packaging, and training for entrepreneurs to build global brands. The success of Dilmah, a homegrown name, proves this model works; scaling it across sectors could redefine Sri Lanka’s export identity.

Attracting Foreign Direct Investment (FDI)

As multinationals flee US-China trade tensions, Sri Lanka can pitch itself as a neutral, cost-effective production hub. Our strategic location, skilled workforce, and existing Export Processing Zones (EPZs) are assets—if we market them right. Streamlining FDI approvals, cutting red tape, and offering tax holidays could lure firms in textiles, electronics, or even renewable energy components. Look at Vietnam, which has soaked up billions in FDI by positioning itself as a China alternative; Sri Lanka could emulate this with a fraction of the scale but equal ambition. The Board of Investment must prioritise this, showcasing our stability amid global upheaval.

Cushioning Vulnerable Sectors and Building Resilience

Not all sectors will thrive in this shift. Those hit by reduced global demand—say, gemstone exporters reliant on Western jewellers—need a lifeline: subsidies, credit guarantees, or export insurance to weather the storm. More broadly, Sri Lanka’s lack of a coherent industrial policy is a glaring weakness. Selling off state development banks like DFCC and NDB was a strategic blunder; we need a new institution tied to a long-term industrial vision, fostering manufacturing and innovation. Education, too, is underfunded—government spending is at historic lows, leaving us unprepared for a skills-driven economy. Job support programmes and a task force to tackle immediate business and worker uncertainties are urgent steps to shore up resilience.

Partnering with Regional Blocs

Isolation is not an option. The South Asian Association for Regional Cooperation (SAARC) is moribund, crippled by India-Pakistan tensions, but alternatives beckon. The Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation (BIMSTEC) offers a platform to deepen ties with India, Bangladesh, and Thailand, prioritising collaborative growth. More ambitiously, the Regional Comprehensive Economic Partnership (RCEP)—the world’s largest trade bloc, spanning ASEAN, China, Japan, and Australia—looms as a game-changer. Could Sri Lanka join? It’s not a member yet, but observer status or a phased accession isn’t implausible. Our proximity to India, an RCEP signatory, and our trade complementarities (e.g., tea for China’s market, apparel for Southeast Asia) make a case. Joining would require aligning regulations, boosting competitiveness, and lobbying through diplomatic channels—perhaps via ASEAN ties. Even short of full membership, negotiating parallel deals with RCEP nations could integrate us into their supply chains, amplifying our reach. Regionalism, not nationalism, is our shield against global fragmentation.

The way forward

The rise of protectionism tests Sri Lanka, but it need not break us. History warns of downturns, yet today’s stakes—jobs, wages, stability—are too high for inaction. The government must act boldly: unite resources, strengthen resilience, and prioritise citizens over short-term politics. Economic openness and social cohesion remain our north stars. As the world reshapes itself, Sri Lanka must carve its place—not just to survive, but to thrive.

(The writer is Professor of Marketing University of Surrey. Views expressed in this article are personal)

by Prof. Chanaka Jayawardhena
Chanaka.j@gmail.com

Continue Reading

Features

David Attenborough and Sri Lanka – a tribute for celebration of 99 years on the planet!

Published

on

Sir David Attenborough

BBC Earth recently launched a seven-part documentary series titled ‘Asia’, showcasing the region’s diverse wildlife. The Guardian referred this documentary as a masterclass in television, in which every element is cooked to perfection. The narration was done by Attenborough, and it also featured Sri Lanka’s wild elephants. Series producer Matthew Wright told The Daily Telegraph that “every recording session includes a pronunciation guide, no matter who the narrator is. But David politely said he doesn’t need it because he’s been to most places and met most of the animals we cover – so you hear his great voice pronouncing all these words correctly straight off the bat.”

by Tharindu Muthukumarana
tharinduele@gmail.com

(Author of the award-winning book “The Life of Last Proboscideans: Elephants”)

Sir David Attenborough has been an internationally recognised household name. On May 8, 2025, he did celebrate 99 years on this planet, and he remains as dynamic as ever. Fans of his span multiple generations, from the Silent Generation and Baby Boomers to Gen X, Millennials, Gen Z, and even Gen Alpha. On that account, it’s no surprise that Time magazine named him one of the 100 most influential people in the world. As a nature documentary narrator, he had touched on many natural subjects. Attenborough’s voice is distinguishable, and it’s remarkable that, despite his age, it remains in high demand. Having said that, something special for us Sri Lankans is that he had narrated various documentaries related to Sri Lanka as well. This article features a glimpse of it.

Attenborough’s dream to visit Sri Lanka and how it got shattered

In the year 1945, Attenborough won a scholarship from the University of Cambridge to study zoology and geology. He completed his degree in natural sciences in 1947 and was anticipating a career that would ultimately take him to remote and exciting parts of the world. This was during an era when World War II had just ended. Soon after, he was called for National Service and enrolled in the Royal Navy. But as he joined, his main interest was not fighting in a war but to travel somewhere romantic where natural beauty is concerned. During his training period at Gosport, he met old naval hands who talked a lot about Trincomalee. As you may know, at that time Trinco was the home port of the Eastern Fleet of the Royal Navy. Young Attenborough was captivated by Sri Lanka’s natural beauty and hoped to be posted to Trinco after completing his training. But, unfortunately, his dreams got shattered when he was sent to join an aircraft carrier that was being mothballed as part of the Reserve Fleet in the Firth of Forth. He served in the Navy for two years but was not involved in any war during his service.

Having said that, there is lingering doubt: ‘What if Attenborough got the chance to come to Sri Lanka during his naval days?’ Would he have made Sri Lanka his home like Sir Arthur C. Clarke did? I will leave it to you to decide!

Narration on sperm whales in Blue Planet II

Blue Planet II is a 2017 marine life documentary series created by the BBC and narrated by Attenborough. The filming process spanned over four years, encompassing 125 expeditions across 39 countries. This series featured sperm whales found in Trincomalee waters. A superpod is a vast assembly of whales, where they interact through physical contact, socialising, and communication. Sri Lanka provided an incredible opportunity to witness this phenomenon. The documentary showcasing it became the most-watched television programme in the UK in 2017. In China, its popularity was so immense that it reportedly impacted the nation’s internet speed due to the sheer number of viewers. Additionally, British universities, including the University of Southampton, saw a significant rise in applications for marine biology degrees after the documentary aired.

In April 2018, spurred by the rising public awareness generated by Blue Planet II, the British government revealed it was contemplating a nationwide ban on single-use plastic items. Reports also indicated that Queen Elizabeth II’s move to prohibit plastic bottles and straws within the royal estates was partially influenced by the documentary. A study conducted in 2020 further suggested that the programme had a lasting impact, significantly heightening political, media, and public engagement with plastic pollution in the UK—an issue that had previously struggled to gain momentum. According to Sri Lankan tourism experts, this documentary had a positive impact on whale-watching tourism in the country.

Narration for Sri Lanka’s mangrove conservation project

A few years ago, a non-profit environmental conservation organisation, called Seacology, did an important project to help Sri Lanka to preserve and replant all of its mangrove forests. For this project a mini documentary was made, and the narration was done by Attenborough. This project conserved about 21,782 acres (8,815 hectares) of mangrove forests on the island. Furthermore, it offered alternative career training and microloans to 12,000 underprivileged women living in 1,500 hamlets near the country’s mangrove forests. This initiative also replanted 9,600 acres (3,885 hectares) of mangrove forests that had been cleared, using seedlings cultivated in three Seacology-funded mangrove nurseries.

Narration on mugger crocodile in Planet Earth III

In 2023, the BBC launched a wildlife documentary series titled Planet Earth III, narrated by Attenborough. In it, a scene that was shot in Yala National Park was included, and The Daily Mail regarded this as “stunning shots of a crocodile surprising a group of deer”. This involves, during the dry season, how a mugger crocodile waits for the opportunity to grab its prey. As time passes by, a herd of spotted deer arrive at the waterhole to quench their thirst. However, the crocodile was successful. Attenborough says in the documentary that “These crocodiles have learnt to exploit the deer’s desperate need for fresh water.” According to the cameraman Abdullah Khan, to take that shot, it took about five weeks of filming.

Narration on Sri Lankan elephants

BBC Earth recently launched a seven-part documentary series, titled ‘Asia’, showcasing the region’s diverse wildlife. The Guardian referred this documentary as a masterclass in television, in which every element is cooked to perfection. The narration was done by Attenborough, and it also featured Sri Lanka’s wild elephants. Series producer Matthew Wright told The Daily Telegraph that “every recording session includes a pronunciation guide, no matter who the narrator is. But David politely said he doesn’t need it because he’s been to most places and met most of the animals we cover – so you hear his great voice pronouncing all these words correctly straight off the bat.”

It gave special attention to cheeky elephants on the Buttala-Kataragama road, which have a behaviour of staying in the middle of the road and soliciting food from motorists. The elephant named ‘Buttala Raja’ stole the show. In the documentary, Attenborough says, “Raja’s persuasive charm has earned him a reputation. He knows which vehicles aren’t worth bothering with and which have the potential to deliver a feast. Raja’s gentle nature has won many hearts.” A cropped video clip from that documentary, which shows those elephants, went viral on social media sites recently.

In conclusion, as Attenborough celebrates 99 years, I wish him a joyful year filled with exciting adventures and remarkable discoveries. Also, not to mention what we Sri Lankans always say: “Ayubowewa! (May you live long)”.

Continue Reading

Features

A wake- up call

Published

on

President Dissanayake

I have not, for many months, written about the current political situation, not least because I had really no idea where we were heading. I thought the President elected last September was the best alternative we had, but that was no great recommendation given the other candidates. Sajith Premadasa was the best of the rest, to my mind, but he did seem to carry a lot of old Ranil Wickremesinghe baggage, and he did not develop the vision of his father, by far the most productive President we have had.

Premadasa adjusted the opening of the economy which, to give him his due, J R Jayewardene had initiated, to introduce a healthy dose of social recalibration, with enormous emphasis on rural development which had been ignored in the first 11 years of UNP rule. I was sorry that Sajith seemed instead to go along with the Westernised model his principal economic advisers trumpeted. Given how Donald Trump has now upended the gospel of free trade which the West imposed on us for years, it is a good thing that the extremists did not have a free hand for the three months before Trump turned everything upside down.

The current government however was not as independent in its approach as I would have liked, and perhaps under the influence of the most effective of American ambassadors in recent years has seemed to go along with many of the remedies that the previous government has put forward. But there was one area in which they did shift from the lethargy of Ranil Wickremesinghe. This was with regard to the most important, to my mind, of World Bank recommendations—pursuing the plundered money. Obviously Ranil, given his own record and that of those who made him President, was not likely to act, though I was deeply ashamed that more decent folk such as Indrajith Coomaraswamy remained mealy-mouthed and allowed the rot to carry on.

Indeed, the evidence that is emerging about the role of the Presidential Secretariat in continuing corruption suggests that things got worse in the two years of Ranil’s Presidency. Though I may be more indulgent to Gotabaya Rajapaksa than he deserves, it is worth noting that there are no allegations of his office being the fountainhead of corruption while he was President, though he seems to have given a free hand to the most monstrous of the hangers on of the Rajapaksa clan, let alone its members. But Ranil’s antics with his friend Lord Francis Maude suggest that he was no better than those characters, though obviously he worked in more subtle ways.

But though the NPP seemed to present a sea change as far as dealing with corruption is concerned, they are painfully slow. It is disappointment about this that was the most important reason for its loss of support at the local government election. Efforts to convince itself with specious arguments that it in fact won the election are pitiful. Worse, they may become a substitute for analysis of what went wrong.

It is useless to complain that governments have to proceed slowly. This is what we have been told for years, and while there are traces of some efforts being made, the general impression is that this government will fail miserably to check corruption. If not corrupt itself, for the moment, unless it acts some of its members will begin to think there is nothing wrong with corruption. For one still remembers how swiftly members of Chandrika Kumaratunga’s cabinet lost their ideals – I recall my brother-in-law telling me with surprise that Srimani Athulathmudali was pretty bad, though that may have been due to those who controlled her then – and I recall too how the promise of Yahapalanaya was destroyed, with the President soon enough following Ranil Wickremesinghe in paving the way for his near and dear to make money.

There are enough mechanisms in place to act, and the government also has a majority to introduce new mechanisms. The argument one hears from those who probably did not vote for this government but were happy to give it a chance is that they have no experience, and there is no professional capacity to innovate. But they do have enough experts with goodwill towards them who could advise productively.

I cannot understand for instance why they have not made use of Nigel Hatch, who did yeoman service for them in cases before the courts to highlight the double dealing of the government with regard to postponement of elections. Perhaps, the problem was that he was approached to represent the party through the Prime Minister, and she has less authority than her position would imply. But surely those who do have authority must understand the need to make sure that the capable are entrusted with responsibilities commensurate to the problems before us.

If they are diffident about their capacity to communicate, they should once again make use of the Prime Minister and her staff. Her Secretary is a capable man, but he seems unable to assert himself, and will not take decisions. To move from corruption to diffidence about productive action, it is worrying for instance that he seems to have shelved the admirable project about mangrove restoration that has been presented to him. That had been initiated by Ruwan Wijewardene before the big wind came and blew him away. But surely Pradeep Saputantri can understand English as well as Ruwan, and he should be able on his own to get the Prime Minister’s approval to take things forward. Sending things up and down for comments takes ages and is no way to give the country the action it so urgently wants.

The President must realise that, though the honeymoon is not yet over, it soon will be. Premadasa was up and running as soon as he was elected; so were J R and Mahinda with regard to their most productive activities. Nothing can be done about natural disasters, but a combination of strikes and what seems incompetence in vital areas will make unpopularity increase in leaps and bounds. I hope the President will not be carried away by the pleasures of travel and forget the hopes the country had in him six months ago.

by Prof. Rajiva Wijesinha

Continue Reading

Trending