Economic development and Sri Lankan industry participation policy

The UNP and the robber barons

When the UNP came to power in 1977, it had a massive mandate to implement economic policies at will, irrespective of whether it benefited the country or not. Its main objective was to open up the economic sluice gates which had been closed for years by the United Front Government.

The economy was stagnant and there were scarcity for goods and services. People too were expecting immediate solutions to the issues that had bedevilled the economy. The UNP had to resort to foreign aid for development.

The UNP unleashed an economic revolution and allowed unprecedented leverage for foreign companies to operate in Sri Lanka as an incentive, thus totally disregarding the local industry. Circumstances of that time demanded quick fixes so the UNP cannot be faulted for every problem owing to adopting an open economic policy. Even late President J.R. Jayewardene openly said, “Let the robber barons come.”

Sri Lanka has had massive construction projects implemented through overseas aid such as the Mahaweli development scheme and other infrastructure development projects. Some of this foreign assistance had specific clauses, stipulating that a certain percentage of the funds should be utilised for procuring goods and services from the donor countries.

Since these were development assistance on a country to country basis, nothing could be done to change the terms and conditions of these loans. Obtaining foreign loans and mobilising foreign companies for investments is still being pursued, but it is high time for regard to be had for local industry participation. The time is opportune for fresh insights from all stakeholders.

Industry participation policy

There has been a concern within the industry chambers over the tendency for major infrastructure and construction projects to source a significant proportion of manufactured components and capital equipment from overseas when local capability exists.

Competitive Sri Lankan entrepreneurs sometimes find it hard to attract the attention of project developers, who often have international supply chains firmly established.

As a result of these concerns, it is opportune that the Government should seriously consider implementing an ‘Industry Participation Policy,’ which should seek to maximise local participation in major infrastructure and construction projects.

The key initiatives of the Industry Participation Policy should be to give a commitment to local industry a full, fair and reasonable opportunity to tender for major project work, using Sri Lankan standards in project specifications whenever possible.

There should be a requirement for ‘Industry Participation’ for infrastructure and construction projects where the cost of acquisitions for the total life of the project meet the following thresholds viz. (a) public sector projects in excess of certain Rs. X million, (b) support for local industry through the promotion of innovation, flexibility and best practice to increase industry’s capacity to meet the needs of project proponents (c) integration of this approach with training and skill development programs.

A comprehensive industry participation policy should therefore be devised through participation of all concerned chambers of commerce. How will the industry participation policy be practically assessed?

At the initial stage the contractor must provide a statement as to how the industry participation will be achieved along with the bid which could be taken as criteria for project award. Once the projects gets off the ground then the authorities should audit how the commitment has been practically implemented.

There should be a mechanism to measure the overall performance of a project such as demanding contractors and suppliers to maintain records of their own commitments to local content specifically, the measurement framework that should address (a) the total capital value of the project scope of work (b) the value of work that could reasonably be sourced from local industry (c) the value of work that was actually bid by local industry and (d) the value of work actually sourced from local industry.

A legislative framework too would be required in this area so that foreign companies will have to comply with local laws. Exceptions too could be considered if the project is implemented as a ‘Strategic Development Project’ or if considered as a major economic boost for Sri Lanka.

Business chambers should come to the fore

Business chambers could provide profiled information on certain local business who could participate in overseas funded projects.

A comprehensive database providing details of the capabilities of local companies should be made available to foreign companies so that even at the initial bidding stage foreign bidders could make contacts with local industry. It could even add value to the project and make the bid more attractive.

According to the Strategic Development Projects Act, a ‘strategic development project’ has been defined as (a) the strategic importance attached to the proposed provision of goods and services, which will be of benefit to the public (b) the substantial inflow of foreign exchange to the country (c) the substantial employment which will be generated and the enhancement of the income earning opportunities and (d) the envisaged transformation in terms of technology.

The act could be amended to provide a local industry involvement plan for further tax incentives.

Another provision is to have a permanent advisory board with participation by chambers for further input at decision making process.

(The writer is a freelance journalist and a political lobbying and government relations consultant.)