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When considering the Sri Lankan context, the manufacturing sector accounts for around 60% of the total industry sector [/caption]
By Chamoda Halambaarachchi, Sustainable Development Council of Sri Lanka
The 2030 Agenda for Sustainable Development is a universal action plan aiming to transform our world for the better and to create the future we all like to see. In 2015, all United Nations member states including Sri Lanka, adopted 17 goals committed to “achieve sustainable development in its three dimensions – economic, social, and environmental – in a balanced and integrated manner” (1).
The outbreak of Covid-19 has pushed the world into a new normal, imposing both challenges and opportunities in achieving the 2030 Agenda and the Sustainable Development Goals (SDGs). In addition to the health impacts, the pandemic has imposed several challenges to the global economy.
One of the most crucial economic sectors that has been hard hit is the manufacturing sector, which plays a vital role in the economic development of a country. According to experts, manufacturing industries all over the world have been adversely affected by the pandemic due to disruptions caused in global value chains and the supply of products. As a consequence, the importance of promoting and fostering a resilient and sustainable manufacturing sector has again come to the forefront of discussions.
When considering the Sri Lankan context, the manufacturing sector accounts for around 60% of the total industry sector according to the Index of Industrial Production (IIP) (2). However, research findings show that the manufacturing sector has taken a backseat in Sri Lanka’s recent economic performance (3). According to Central Bank data, manufacturing reported a 17.5% contribution to Gross Domestic Product in 2008 whereas it was reduced to 15.6% in 2019 (4). The Annual Industry Survey (2018) conducted by the Department of Census and Statistics, provides evidence to the fact that low-technology industries such as manufacturing food products and wearing apparels are the highest contributing industries in the manufacturing sector while the contribution from high-tech manufacturing industries is inadequate to fuel industrial development (5).
According to the Organisation for Economic Co-operation and Development (OECD), manufacturing industries are classified as low-technology, medium-low-technology, medium-high-technology, and high-technology industries based on the level of research and development intensity (6). Medium-high-technology and high-technology (MHT) industries such as electrical equipment, transport equipment, pharmaceuticals, and motor vehicles are considered to be the high value-addition industries of manufacturing.
These industries are associated with high value-added production by creating a higher customer perceived value and lower production cost through the application of leading-edge technical knowledge, higher labour productivity, and higher production efficiency. Since innovation and technology are the central focus in MHT industries, a significant amount of investment is made in research and development. The high-tech industry is considered to be the decisive force in future industrial development and contributes towards fostering a high value-added manufacturing industry with resilience. It also has strong potential to bring sustainable growth and high economic value while improving Sri Lanka’s competitiveness in international markets by promoting high-tech exports.
According to World Bank data, Sri Lanka’s high-technology exports, as a percentage of manufactured exports, were around 1% during the 2009-2017 period, whereas other South Asian countries on average reported around 7% in 2016 and 2017 (7).
In the article “Can Sri Lanka build a prosperous post-war future?”, the author has noted that, in relation to international trade, Sri Lanka can no longer compete at the lower end of the spectrum with rising wage and other input costs. The author has also mentioned that the country is struggling to move higher up the spectrum, with limited capacity for innovation and upgrading technology due to continued low investment in research and development (R&D) and a very narrow talent pool of knowledge workers (8).
Thus, it’s a timely requirement for Sri Lanka to focus on restructuring the manufacturing sector by promoting MHT industries as a main solution. The biggest challenge in this regard is to ensure a smooth transition from low to high value-added industries. According to the Central Bank Report 2019, the Government has initiated several policy measures and provided institutional support aiming to cater to the above requirement (9).
The “Shilpa Sena” exhibition is one such initiative aiming at promoting innovations and inventions and paving the path to develop technological and scientific thinking. The Government has also commenced programmes focusing on popularising science, technology, engineering, and mathematics (STEM) education and modern technologies and to support research commercialisation.
Steps have been taken to formulate a national industrial policy in line with the SDGs and to update the existing national science and technology policy incorporating aspects of innovation and commercialisation.
In order to empower micro, small, and medium enterprises (MSMEs), “Vidatha” programmes have also been introduced to support the transfer of scientific knowledge and research innovations of scientists to MSMEs.
Further, effective measures have been taken to incentivise the mechatronics sector through providing long-term loan facilities for companies to commence mechatronics-based product development and implementing the “Mechatronics-enabled Economic Development” initiative aiming to accelerate economic growth through high-tech exports. The Government also expects to attract foreign direct investments in developing the domestic electrical and electronics manufacturing industry whilst connecting to the global supply chains. Facilitating higher tier industries to successfully shift to the industry 4.0 level (Fourth Industrial Revolution) where manufacturing automation is a key factor, also has been identified as a priority in upgrading domestic industries.
Though the Government has given utmost importance and support towards fostering a sustainable and reliable high value-added manufacturing sector, the Covid-19 pandemic has disrupted the status quo, imposing great challenges in the transition process. Hence, it is vital to review, validate, and make appropriate adjustments to the aforementioned initiatives while developing innovative strategies in addressing new challenges to ensure that Sri Lanka will achieve sustainable industrialisation and consequently progress towards achieving the SDGs.
(1) United Nations, 70/1.Transforming Our World: the 2030 Agenda for Sustainable Development, 3
(2) Central Bank of Sri Lanka, Annual Report 2019, 76
(3) Anushka Wijesinha, “Can Sri Lanka build a prosperous post-war future?”, East Asia Forum Quarterly, “On The Edge in Asia”
(4) Central Bank of Sri Lanka, Annual Report 2008, Chapter 2, 30
Central Bank of Sri Lanka, Annual Report 2019, Chapter 2, 56
(5) Department of Census and Statistics of Sri Lanka, Annual Survey of Industries 2018, Table 4.7, 12
(6) OECD, ISIC Rev. 3 Technology Intensity Definition
(7) The World Bank, https://data.worldbank.org/indicator/TX.VAL.TECH.MF.ZS?locations=LK-8S
(8) Anushka Wijesinha, “Can Sri Lanka build a prosperous post-war future?”, East Asia Forum Quarterly, “On The Edge in Asia”
(9) Central Bank of Sri Lanka, Annual Report 2019, Chapter 2, 80-81.
When considering the Sri Lankan context, the manufacturing sector accounts for around 60% of the total industry sector [/caption]
By Chamoda Halambaarachchi, Sustainable Development Council of Sri Lanka
The 2030 Agenda for Sustainable Development is a universal action plan aiming to transform our world for the better and to create the future we all like to see. In 2015, all United Nations member states including Sri Lanka, adopted 17 goals committed to “achieve sustainable development in its three dimensions – economic, social, and environmental – in a balanced and integrated manner” (1).
The outbreak of Covid-19 has pushed the world into a new normal, imposing both challenges and opportunities in achieving the 2030 Agenda and the Sustainable Development Goals (SDGs). In addition to the health impacts, the pandemic has imposed several challenges to the global economy.
One of the most crucial economic sectors that has been hard hit is the manufacturing sector, which plays a vital role in the economic development of a country. According to experts, manufacturing industries all over the world have been adversely affected by the pandemic due to disruptions caused in global value chains and the supply of products. As a consequence, the importance of promoting and fostering a resilient and sustainable manufacturing sector has again come to the forefront of discussions.
When considering the Sri Lankan context, the manufacturing sector accounts for around 60% of the total industry sector according to the Index of Industrial Production (IIP) (2). However, research findings show that the manufacturing sector has taken a backseat in Sri Lanka’s recent economic performance (3). According to Central Bank data, manufacturing reported a 17.5% contribution to Gross Domestic Product in 2008 whereas it was reduced to 15.6% in 2019 (4). The Annual Industry Survey (2018) conducted by the Department of Census and Statistics, provides evidence to the fact that low-technology industries such as manufacturing food products and wearing apparels are the highest contributing industries in the manufacturing sector while the contribution from high-tech manufacturing industries is inadequate to fuel industrial development (5).
According to the Organisation for Economic Co-operation and Development (OECD), manufacturing industries are classified as low-technology, medium-low-technology, medium-high-technology, and high-technology industries based on the level of research and development intensity (6). Medium-high-technology and high-technology (MHT) industries such as electrical equipment, transport equipment, pharmaceuticals, and motor vehicles are considered to be the high value-addition industries of manufacturing.
These industries are associated with high value-added production by creating a higher customer perceived value and lower production cost through the application of leading-edge technical knowledge, higher labour productivity, and higher production efficiency. Since innovation and technology are the central focus in MHT industries, a significant amount of investment is made in research and development. The high-tech industry is considered to be the decisive force in future industrial development and contributes towards fostering a high value-added manufacturing industry with resilience. It also has strong potential to bring sustainable growth and high economic value while improving Sri Lanka’s competitiveness in international markets by promoting high-tech exports.
According to World Bank data, Sri Lanka’s high-technology exports, as a percentage of manufactured exports, were around 1% during the 2009-2017 period, whereas other South Asian countries on average reported around 7% in 2016 and 2017 (7).
In the article “Can Sri Lanka build a prosperous post-war future?”, the author has noted that, in relation to international trade, Sri Lanka can no longer compete at the lower end of the spectrum with rising wage and other input costs. The author has also mentioned that the country is struggling to move higher up the spectrum, with limited capacity for innovation and upgrading technology due to continued low investment in research and development (R&D) and a very narrow talent pool of knowledge workers (8).
Thus, it’s a timely requirement for Sri Lanka to focus on restructuring the manufacturing sector by promoting MHT industries as a main solution. The biggest challenge in this regard is to ensure a smooth transition from low to high value-added industries. According to the Central Bank Report 2019, the Government has initiated several policy measures and provided institutional support aiming to cater to the above requirement (9).
The “Shilpa Sena” exhibition is one such initiative aiming at promoting innovations and inventions and paving the path to develop technological and scientific thinking. The Government has also commenced programmes focusing on popularising science, technology, engineering, and mathematics (STEM) education and modern technologies and to support research commercialisation.
Steps have been taken to formulate a national industrial policy in line with the SDGs and to update the existing national science and technology policy incorporating aspects of innovation and commercialisation.
In order to empower micro, small, and medium enterprises (MSMEs), “Vidatha” programmes have also been introduced to support the transfer of scientific knowledge and research innovations of scientists to MSMEs.
Further, effective measures have been taken to incentivise the mechatronics sector through providing long-term loan facilities for companies to commence mechatronics-based product development and implementing the “Mechatronics-enabled Economic Development” initiative aiming to accelerate economic growth through high-tech exports. The Government also expects to attract foreign direct investments in developing the domestic electrical and electronics manufacturing industry whilst connecting to the global supply chains. Facilitating higher tier industries to successfully shift to the industry 4.0 level (Fourth Industrial Revolution) where manufacturing automation is a key factor, also has been identified as a priority in upgrading domestic industries.
Though the Government has given utmost importance and support towards fostering a sustainable and reliable high value-added manufacturing sector, the Covid-19 pandemic has disrupted the status quo, imposing great challenges in the transition process. Hence, it is vital to review, validate, and make appropriate adjustments to the aforementioned initiatives while developing innovative strategies in addressing new challenges to ensure that Sri Lanka will achieve sustainable industrialisation and consequently progress towards achieving the SDGs.
(1) United Nations, 70/1.Transforming Our World: the 2030 Agenda for Sustainable Development, 3
(2) Central Bank of Sri Lanka, Annual Report 2019, 76
(3) Anushka Wijesinha, “Can Sri Lanka build a prosperous post-war future?”, East Asia Forum Quarterly, “On The Edge in Asia”
(4) Central Bank of Sri Lanka, Annual Report 2008, Chapter 2, 30
Central Bank of Sri Lanka, Annual Report 2019, Chapter 2, 56
(5) Department of Census and Statistics of Sri Lanka, Annual Survey of Industries 2018, Table 4.7, 12
(6) OECD, ISIC Rev. 3 Technology Intensity Definition
(7) The World Bank, https://data.worldbank.org/indicator/TX.VAL.TECH.MF.ZS?locations=LK-8S
(8) Anushka Wijesinha, “Can Sri Lanka build a prosperous post-war future?”, East Asia Forum Quarterly, “On The Edge in Asia”
(9) Central Bank of Sri Lanka, Annual Report 2019, Chapter 2, 80-81.