Lalith’s economic vision for Lanka: Export or perish – The Sunday Times Sri Lanka

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Lalith Athulathmudali was assassinated on a political platform 30 years ago on April 23, 1993. He was the Minister of Trade and Shipping in the J.R. Jayewardene government of 1977-1988 during which period he was in charge of the export drive. The article below would give an insight into his vision and strategy on the subject. The article was Based on the Export development concepts by Lalith Athulathmudali as Minister in charge of the subjects of Trade, Export Development, & Agriculture 1978-1989 and many of his policy documents and writings:

Export trade has always played a key role in shaping the destiny of our nation. It is because others wanted our goods that traders and imperialists came to our country. A unique combination of resource endowments of Sri Lanka and a strategic location straddling the major trade routes between the East and the West had made this island a focal point for international trade from historic times.

During our early history, the countrys precious stones, pearls, ivory, and spices were traded in the far-flung kingdoms from China to Persia. The trade brought us good wealth and prosperity. In more recent times, Western trading nations such as Portugal, Holland, and Britain fought each other for the monopoly of our export trade: invaded our shores, and left their impact on our economy and our way of life. During the last chapter of Western colonialism, the British not only traded our existing products but also geared the whole country for the production of new products for the international market, tea and rubber being the foremost among them.

The countrys economic framework and administrative system were restructured to support the colonialists export efforts. In fact, if one looks at the railroad map of Sri Lanka, one will see that it is structured for the purpose of helping the British to develop the export trade.

Post-independence Sri Lanka followed a policy of import substitution until 1977, when an open-market economy was introduced, liberalising imports. The main objective of the open-market policy was to remove barriers to trade locally and create an export-oriented economy with the aim of developing non-traditional products and services from Sri Lanka to the huge global market. Everybody was happy that imports have been liberalised and there were no more shortages of goods, but very few understood and appreciated the need to give importance to the fact that any import programme could only be sustained and supported in full by an equally rigorous export drive.

With the introduction of the open-economic policy, Sri Lanka realised the necessity of a complete institutional framework and infrastructure in achieving this goal. The introduction of Free Trade Zones, the creation of the Export Development Board, the Sri Lanka Export Credit Insurance Corporation, the Board of Investment, the Sri Lanka Ports Authority, and the introduction of transshipment and containerisation were pivotal steps taken in the promotion of exports.

The need to revolutionise the export trade and explore unique areas for the development of the trade was paramount. Until the introduction of the open market system, mainly tea, rubber and coconut were exported in bulk form. For instance, only 5% of the tea was exported in packets and a similar percentage of rubber production went out in the form of rubber goods.

Although the export trade has been a dominant activity in this country for many decades, it was only after the opening of the economy that entrepreneurs and export organisations participated in meaningful export trading.

Trading activity in this country was for a long time in the hands of foreign buyers. Sri Lankans did not get actively involved in export marketing functions. What really happened is that while Sri Lanka received the profit from the merchandise, the profits from the merchandising went into foreign hands. Even the major commodities had not developed any industrial marketing capabilities. For example, Sri Lanka itself was marketing its tea on a very small scale. There was an inherent need to develop a marketing arm for Sri Lankas exports.

Athulathmudali's export promotion zone concept became an engine of growth for Lanka's economy

Sri Lanka has a rich potential for both agro and mineral-based resources. However, industrial exports based on these resources, although most promising from the point of view of value addition and future growth, need to be encouraged.

The Sri Lanka Export Development Board Act no 40 of 1979 was enacted to initiate an aggressive export promotion drive. The EDB has done some remarkable work in the development of non-traditional exports, and value-added exports and in introducing new export products.

While tea, rubber and coconuts and spices remain traditional exports, the value addition has enhanced the markets considerably. It also opens windows to new entrants to the business by providing financial assistance schemes, marketing opportunities, organising buyer-seller meetings, exporters forums, presidential export awards, training, branding, and marketing strategies, etc.

With the introduction of the Free Trade Zones, new export-oriented industries came into the country. They can be classified into three categories:

1. Semi-industrial products, i.e. garments, electronic components, toys, wood crafts, reed ware packaging, artificial flowers, umbrellas, paper-based products, handloom material, etc.

2. Agricultural produce, i.e. vegetables, fruits, yams, black gram, sesame seeds, orchids and cut flowers, ornamental fish, etc. Palmyra products, Passion fruit, Cashew kernels, spices, etc.

3. Value-added agro-based products: white fibre, white coir, coco peat bricks, papain ekel, tawashi (domestic brushes) medicinal herbs, etc. During the past four decades, the export portfolio grew to more than 4,500 products mainly small and medium-scale industrial and agricultural produce and products.

While introducing the Export Development Board Act No 40 of 1979, Lalith Athulathmudali said in Parliament (Quote- Hansard 25th May 1979- vide col.487): I have paid special attention to two groups of people one, the small man, the one who starts up a small industry in the village with 10, 15, or 20 people. I want to give him a helping hand to go into the export industry. That is how Japan started. I am also concerned with the small agricultural producer. We are going to form small joint export groups, create Trading Houses to look after their things and export for them.

The Export Production Village (EPV) and Agricultural Export Village (APV) programme as an innovative development strategy was introduced in 1980, giving export-led development activities a prominent place in the economic policies with the intention of solving some major economic issues facing the country, i.e. balance of payments, unemployment, low-income levels, etc. Thus, the EPV/APV programme is a result of the changed policy environment of the country.

The basis of the EPV/APV concept is organisation of production at the village level directly aiming at the export market. Its objectives are;

1. Bringing returns from exports back to the village

2. Increased employment opportunities

3. Higher living standards

4. The overall growth of economic activity in rural areas

5. Pre-assurance of the export market will remove the reluctance on the part of farmers to produce crops which are more remunerative but risky in terms of marketing.

6. The direct contact of the producer with the exporter. It was intended to remove the intermediary, preventing the siphoning off of a part of the profit in export marketing.

7. Improvement in entrepreneurship and organisation at the village level to meet the greater demand for products

8. Higher level of productivity

9. Return on investment

The EPV/APV strategy is based on a number of key factors;

1. The EPV/APVs operate on the free play of market forces, with production as a direct response to market demand and production for profit.

2. The pre-existing agrarian structures and distribution of resources and power within village communities are not significant obstacles to attaining the needed efficiencies, EPV benefit distribution, and their subsequent productive use. Upward development would ensue with the investment pattern and production orientation of village producers incorporated by the EPV strategy. That is from a pre-existing mode of production based on subsistence; they would move up to a more diversified surplus-producing mode.

3. The benefit of the EPV would trickle down to the surrounding areas by way of an increase in demand for goods and services and an increase in commerce.

The operational unit of the EPV/APV programme is the EPV/APV Peoples Company formed under the Companys Act, which organises the supply of products to established exporters on the island.

There are three categories of EPVs, according to the nature of the products supplied by them.

1. Agricultural products vegetables, fruits, yams, black gram, sesame seed, spices, cut flowers, medicinal herbs, etc.

2. Agro-based industries or processed agricultural products white fibre, yarn, ekels, palmyrah products, cashew, papain, etc.

3. Manufactured and/or assembled goods Handloom textiles, electronic components, umbrellas, toys, woodcraft, packaging materials, etc.

The Export Development Board (EDB) played a key role in the journey of the EPV. Its role is:

1. Identifying the products that could be exported

2. Assessing the villagers potential of supplying the produce to the market

3. Be the mediator and encourage the rural producer to become an exporter

4. Identifying the exporter who markets the products,

5. Organising and helping the establishment of the EPV by coordinating the officials, producers/beneficiaries to assemble into one forum

6. Linking up the EPV company with exporters

7. Providing incentives to both the exporter and the EPV to encourage the export drive

8. Organising workshop training to improve management skills, quality control, creative marketing, etc.

This initiative was launched in 1981 in Dambadeniya, where a Peoples Company was established to produce packaging materials using reed ware. These packages were used by leading tea exporter to introduce value-added tea to foreign markets. This innovative exercise was expanded to other areas and goods, and by 1990 there were 36 such EPVs spread throughout the country producing various items for the export market.

With the establishment of the SLEDB, several measures were taken to encourage exports.

The Exporters Forum was one of the major steps taken in this respect where the exporters were provided with the opportunity of bringing their problems to the notice of the government hierarchy for solutions. The Forum was chaired by the Minister and attended by all the representatives of the government institutions involved in the export drive, i.e. the Ministry of Trade, Finance, Agriculture, the Department of Commerce, Communications, Ports, the Central Bank, banks, etc. A single window operation to facilitate the exporters needs worked well during this period. This forum was held once a month and worked well towards developing export trade.

The introduction of the annual Presidential Export Awards was another step in the right direction where exporters were encouraged to perform in competition.

Participation at international trade fairs by Sri Lankan exporters was expanded and encouraged resulting in harnessing new markets for our products.

The introduction of the Sri Lanka Export Credit Insurance Guarantee Corporation No.15 of 1978 was another milestone in the export drive where exporters were able to obtain assistance and relief in export trade.

This article was sent by the Lalith Athulathmudali Trust

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Lalith's economic vision for Lanka: Export or perish - The Sunday Times Sri Lanka