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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
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