Imports substitution: The way forward
File picture of a garments’ factory.
I read with interest Prof. Sirimal Abeyratne (SA)’s articles related to export oriented economies, which appeared in the Business Times of September 26 and October 10. As indicated by SA, during 1956-77, the import substitution eras of Sri Lanka, there were shortages of many essential items, and queues at cooperatives shops. Most of the local products were of low quality. This was the reality of import substitution mostly due to inadequate foreign exchange. Prof. SA’s articles took me back to the time when I had to wait in queues to buy a loaf of bread and two measures of rice.
This was mainly due to supply shortages. I had to bring boxes of matches (because of low quality of the local matches) whenever I returned from abroad. There was local sugarcane jaggery, a very good substitute for sugar. If this state of affairs continued even after 1977, we would have developed our local industries, saved sufficient foreign exchange and there would not have been the need for our people to stand in queues for milk powder, sugar etc which we now see in the country.
When I was a post-doctoral fellow at the International Rice Research Institute, colleagues from India and China told me that they will buy items such as motor cars, television sets, fridges etc produced in their own countries when they go back. They took the money they saved and bought those items produced in their own countries. Such attitudes paved the way to improve the economies of their countries. Now these countries have billions of foreign exchange in their reserves. In India, until recently even the Prime Minister used to travel in a locally manufactured Hindustani motor car enabling saving of foreign exchange. Here in Sri Lanka, the authorities spent lavishly the dollars taken on loan and continued to import even things that could have been locally produced (eg. food items) / manufactured resulting in annual trade deficits amounting to around US$ 10,000 million over a long period.
Import substitution
There is no country which has absolute export economies. Even countries such as Singapore, Japan etc need to import items which are not locally available. Singapore used to import water from Malaysia but now they purify waste water and use it for domestic purposes indicating the value of import substitution. In 2020 Singapore exported 515 billion of S$ dollars’ worth of merchandise and imported items valued at 450 SS$. If there was no import substitution this export value would be more. Items to be exported or imported have to be decided case by case. Several examples could be given of such situations. Even in Sri Lanka we export garments but we need to import all the items related to the garment industry. If at least some of these items are manufactured locally our import expenditure can be reduced and more dollars would be available for the import of essential items such as medicine. In fact, the State Pharmaceuticals Corporation of Sri Lanka manufactures some medicines substituting imports.
If we continue to resort to import substitution we could be self-sufficient in many food items such as milk, sugar, cereals, lentils etc which we now spend around Rs. 300 billion every year. When I was at the Sugarcane Research Institute, we manufactured sugarcane jaggery, for which there was a good demand. It was a good substitute for sugar during the import substitution era of 1956-77. This practice was not continued and the governments imported sugar spending nearly Rs. 40 billion a year. Now we have come to a stage where we do not have adequate foreign exchange even to import medicine, fuel and some other items which are critically important. In such situations should not we go for import substitution?
We do not appear to have policies appropriate to the situation. The Ministry of Agriculture (MOA) has banned import of agrochemicals without proper substitutes. Organic fertilisers which the MOA tried to promote and failed are not appropriate substitutes for inorganic fertilisers such as urea which has to be imported. The same applies to synthetic pesticides. However, there are good substitutes for imported milk powder and sugar, the prices of which were increased a few days ago. The Government appears to have not taken adequate measures to promote the production of these substitutes locally. Kantale sugar factory which started to operate in 1991 remains closed for nearly 20 years, instead of making sugar. The same thing is applicable to fuel. A few years ago I was a member of a committee appointed by Dr. Tissa Vitharana who was the then minister of Science and Technology, to look into the possibility of using substitutes for fuel. We recommended the use of ethyl alcohol and Jatropha oil as bio-fuels. There are countries which use these as partial substitutes for petrol and diesel respectively. No follow-up action was taken by the subsequent governments to promote these substitutes as bio-fuels.
Begging for dollars
Sri Lanka, a country begging for dollars to import medicine, fuel etc which are critically important, needs to have a flexible policy on exports and imports. Wherever possible we need to produce/manufacture our requirements which will enable us to save foreign exchange and reduce poverty. With an increase in demand for such locally produced items, the producers will be able to improve the quality of their products eventually leading to exports. There are many local industries the products of which are exported. These industries started from scratch but developed to obtain foreign orders.
Sri Lanka has a wide variation in soil and climate with 46 agro-ecological zones, each characterised by specific climate and soils making it possible for the cultivation of a number of different types of crops which have considerable potential to earn foreign exchange. A programme to diversify our exports instead of sticking to our traditional exports such as tea, cinnamon etc is essential. Such exports have a high demand in many countries.
(The writer can be reached at csweera@sltnet.lk).