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Sri Lanka

Industrial Policies

The enactment of the State Industrial Corporations Act of 1957 provided for the reconstitution of existing state enterprises as well as the establishment of new corporations to promote the development of large-scale and basic industries. The period 1958 to 1963 witnessed the first phase in the rapid growth of state industrial corporations. By 1963 fourteen such corporations were engaged in such fields as textiles, cement, sugar, paper, chemicals, edible oils and fats, ceramics, mineral sands, plywood, and leather. By 1974 there were twenty-five state corporations, including such major undertakings as a steel mill and an oil refinery.

Despite the 1977 policy shift in favor of the private sector, in early 1988 government-controlled enterprises continued to play a major role in industry. State-owned corporations accounted for nearly 60 percent of total industrial output. The most important public company was the Ceylon Petroleum Corporation, which accounted for about 55 percent of all public-sector production.

From the beginning, many industrial corporations in the state sector were troubled by such problems as management inefficiency, technical deficiencies in planning, overstaffing, and defective pricing policies. These difficulties contributed in many undertakings to poor economic results. Moreover, public sector enterprises were associated with objectives that reflected both growth and welfare considerations for the economy as a whole. They became the chief instruments furthering state ownership and social control in the economy, and they were expected to promote capital formation and long-term development. At times they were also looked upon chiefly as major sources of employment and enterprises providing goods and services to the public at relatively low prices. As a result, a number of the state industrial corporations have lost money. In 1987 the debts of state-owned corporations were Rs19 billion, of which Rs15 billion were owed to foreign sources and Rs4 billion to the two state-owned banks.

The liberalization of the economy in 1977 was largely prompted by the perceived inefficiency of the public sector, not by any ideological commitment to free enterprise. As a result, the government let private enterprise compete with the state corporations but took few steps to dismantle the state sector. Instead, it attempted to improve its efficiency. One major state venture, the National Milk Board, was dissolved in 1986, however. It had been established in 1953, but had never succeeded in developing the milk industry. In 1987 it was reported that consideration was being given to transferring to private control several state-run industrial enterprises. These included the four government textile mills, the State Distilleries Corporation, the National Paper Corporation, the Mineral Sands Corporation, Paranthan Chemicals, Sri Lanka Tyre, and Union Motors. In early 1988, however, doubts remained about the extent of the government's commitment to this program. Although the plan to sell the textile mills was expected to be implemented within two years, some of the government's economic advisers reportedly were urging the government to proceed cautiously in its privatization policy, in view of the limited capital markets, the concentration of private wealth, and the weak regulatory framework.

Data as of October 1988