Growth paths

Finding ways to improve Sri Lanka’s economic growth is an all-encompassing task for the Government, private sector, academia, civil society and other stakeholders. But, this can be best done by understanding which sectors would best promote growth and tailoring policies to support those segments. Even though policies are usually divided between agriculture, industry and services, there is increasing evidence to suggest that concentration on services is the best way to get the most out of Sri Lanka’s inherent advantages. 

Many pundits have pointed out over the years that Sri Lanka’s workforce is the best investment for growth, but where labour would be best utilised remains part of an ongoing discourse. A recent report by the World Bank shows that Sri Lanka’s industrial production barely grew in the second quarter of 2018 with exports contributing little to growth and recent import tariff hikes counter-productive to increasing competitiveness. This is also largely true of South Asia as a whole with domestic consumption being the main contributor to growth. 

It is not clear what contribution the export of services is doing to the economy. Services which includes, information technology, tourism and even exports of labour. Capital will generally flow to where returns are high, and access to resources including workers is easier. 

Industrial production in South Asia is holding well, but it grows slower than GDP in most countries. South Asia’s industrial production grew by only 5.4% in the second quarter of 2018, slightly lower than a quarter before. In India it grew by 5%, in Pakistan by 4.5%, and in Sri Lanka by only 0.6%, the report said. 

In the case of Sri Lanka, given the aging population and higher education dynamics, people of working age have shown decreasing interest in manufacturing jobs. 

The first Labour Demand Survey (LDS) conducted by the Census and Statistics Department (CSD) earlier this year showed nearly half a million vacancies in the private sector. A large portion of these jobs were found to be in the routine and non-routine manual jobs, but most of Sri Lanka’s jobseekers prefer white-collar or professional jobs. This situation has given rise to a sectoral mismatch between labour demand and supply.  The LDS found that of 497,302 vacancies in the first half of 2017, the highest job availability was for sewing machine operators, security guards, and shop assistants. These vacancies showed a demand for middle- and low-skilled jobs involving manual tasks that are perceived as unattractive by the general public as they usually combine long hours with limited salaries. Competing sectors, such as tourism and IT, offer more competitive wages, better working conditions, and social recognition. Workers in Sri Lanka are also increasingly focused on career progress and non-financial rewards. Unfortunately, only 7.2% of private sector vacancies are in high-skilled occupations, according to LDS data. This is compounded by a shortage of critical soft skills such as English and IT knowledge that hamper recruitments to high-skilled jobs. This desire for aspirational services sector jobs could also be a driver for demand of public sector jobs. 

Policies clearly need to look at automation for low-skilled, labour-intensive work in factories with the possibility of migration for these kinds of jobs allowing labour to move up the value chain. A third need is to provide soft skills training so seekers of high-skilled jobs can, in fact, secure them. Lastly, Sri Lanka needs to concentrate much more on R&D to drive innovation-based job creation.