Financial Times

Focus on SMEs, productivity

Recent comments made by key government figures indicate a welcome emphasis on improving domestic industry and productivity without which the country has no hope of accelerating economic growth to the levels required to make a significant dent in poverty levels. While certain firms in the corporate sector have been highly successful in selling products and services in international markets, even being trail blazers in niche markets, as we have reported in recent issues, there still is a need for marked improvement in the rest of the private sector as well as in the government sector.

Successive governments in recent years have made an effort to remove the red tape and other obstacles that prevent private enterprise from realising its full potential. These efforts have largely been driven by pressure from international lending agencies and foreign donor countries which wish to see their funds being used more effectively.

Remarks made by the government's plantations and small industries ministers indicate that much-needed attention will be given to reviving domestic industry, particularly small and medium industries, and improving the performance of companies in the key plantations sector.

While there certainly is no case for subsidising the inefficient, some degree of support in definitely necessary to help local industries to compete, especially in overseas markets where they are usually up against foreign competitors subsidised by their own governments. A good case in point is the example given of China providing subsidised electricity to its SMEs. India is also believed to do the same in areas such as drip irrigation of coconut fields. This is particularly relevant in Sri Lanka's case where drip irrigation of coconut is being talked about.

The intention of reducing import taxes on raw material imports in order to protect and encourage domestic industries is also welcome. In the past, we have had the ridiculous policy of imposing high taxes on raw material imports for key industries while allowing finished products in at much lower levels of duty. There was no way the domestic industry could survive, let alone thrive, in such a situation.

Another area that needs attention is the fishing industry where it has been pointed out that we consume imported canned fish and allow foreign trawlers to exploit our catch while not doing enough to make use of the abundant ocean resources found around the island.

In the plantations industry, the key issues are improving quality and productivity. While we may have the world's best tea, if the quality of the leaf produced on the estate is not up to the mark or worker productivity is much below international norms, we would find it difficult to compete against teas of lesser quality.

The Central Bank has stressed the need to improve productivity in the industrial sector for it to remain competitive. Apart from research and development and the use of better technology, increased productivity comes from good management. This is the key - not so much the ownership of property, according to the policy of the new government.

It said that continuous improvement in productivity is essential for Sri Lanka to survive in the 'globalised' economic world - to compete successfully against lower cost countries such as China and India. Competing on price alone, owing to low wages, just won't do in future. Governments cannot keep suppressing labour wages. Wages would have to rise eventually if the quality of life of the people is to improve. Hence the emphasis on productivity.

The previous government maintained that it was not the business of government to do business. The new government has a different take on things but the bottom line is efficient management.

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