Sri Lanka, being a developing country, has a long history. However, there are many who question why it is still a developing country, and not a developed one. Yet, the most important thing is how this island became a developing country from being an under-developing country. The only factor that can relate to both of these questions is the constantly changing economic status of Sri Lanka. Despite not being able to fall under the zone of developed countries, the country’s economy holds it in the zone of developing countries without letting it drop down to the under-developing zone once again. However, in order to analyze the progress of the current status of the economy in the country, it is necessary to look back at the history of the economy in Sri Lanka.
History of the Sri Lankan Economy
Sri Lanka has been a popular trade hub throughout its history. That has been the main factor that has helped the country have a stable economy even up until now. In earlier times, the invaders, starting with Prince Vijaya, approached this small island, eyeing the rare resources hidden in it. All of them saw this country as not just a small Asian island, but as a land full of fortune. Indeed, the country was then a land full of rare minerals, rare crops, and rare herbal plants.
However, in ancient times, it was agriculture and irrigation systems that contributed to stabilizing the economy of the country. Kings of ancient Sri Lanka focused more on prosperity through these two particular sectors. These irrigation reservoirs still act as a helping hand to preserve the agriculture sector which is going towards deterioration with modern technology coming in.
After the colonization of all three nations—Portuguese, Dutch, and British, Sri Lanka started to become more economically strong. That is simply because more industries came up within the island. People started to become more literal and logical. As a result, they opened up new ventures to bring down monetary benefits to the country.
With all these evolutions, Sri Lanka has become a country with dozens of industries that can make the country economically strong even if it encounters a dire crisis.
The Main Industries that Drive the Economy of Sri Lanka
Among the many industries in Sri Lanka, we believe that the following industries have a high impact on the country’s economy.
- Fishing industry
- Tourism Industry
- Tea industry
- Agriculture industry
- Rubber industry
- Coconut industry
- Gem industry
- Apparel industry
- Software industry
Continue reading to know more about each of these industries, along with their impact on the economy of Sri Lanka.
Fishing Industry
Being an island, Sri Lanka has an open space for fishery opportunities. The coastal community is taking full advantage of these opportunities and engaging in the fishing industry. At the same time, Sri Lanka is a country rich with inland water bodies like lakes, reservoirs, and rivers. Hence, the country has the opportunity to bring in some revenue through inland fishing as well. Therefore, the fishing industry indeed plays a significant role in the economy of Sri Lanka.
The fishing industry contributes to the economy in a few different ways as follows.
- Coastal Fishing or Inshore Fishing
- Offshore Fishing
- Deep-sea Fishing
- Inland Fishing or Aquaculture
These subsectors provide employment to around 250,000 active fishermen and another 100,000 support services.
However, the coastal and offshore fishery is limited to a particular period of the year as follows.
- Western and southern coasts from November to April
- Eastern coast in April
- East coast from May to September
Yet the inland fishery in freshwater and brackish water is available at any time throughout the year, making the fishery industry a stable sector of the economy of Sri Lanka. Moreover, the climatic condition of the island allows the fishery industry to stand straight and be a frontrunner in the economy of Sri Lanka throughout the year.
Tourism Industry
Simply, Sri Lanka’s tourism industry has a significant impact on the country’s economy. In fact, the tourism sector is the primary source of foreign currency earnings for the nation, in addition to exports and employment abroad. In fact, tiny enterprises were able to make a living after tourists began to flock to Sri Lanka in large numbers. Successful hoteliers may emerge in the industry. In general, the government might aid the nation’s economic difficulty thanks to the industry’s profits.
The abundance of tourist attractions in Sri Lanka is the primary factor driving the growth of the country’s tourism sector. It might be for a historical place or a natural attraction. There was no specific investment required for the tourism business to grow in such locations. To keep tourists coming, all the government needed to do was improve the local infrastructure and support local business owners and hoteliers. As a result, as you can see, the government can make a respectable profit from the tourism business with a minimal outlay of resources. Yet, it helped to some extent diversify Sri Lanka’s economy.
Tea Industry
If one says the tea industry is one of the main revenue arms of Sri Lanka, there is nothing wrong with that statement. Being one of the unique crops in Sri Lanka, the tea industry plays a vital role in the development and economy of the country.
According to the statistics, tea production is 2% of the GDP and contributes over US$ 1.3 billion to the economy in Sri Lanka. In fact, it is one of the main revenue models that fall under foreign income. Not only that, but directly or indirectly, the industry also secures the livelihood of over one million people in Sri Lanka by providing job opportunities. These opportunities range from low-income to high-income categories being a huge helping hand to unemployment. Considering all these facts, Sri Lanka has become the fourth-largest tea producer in the whole world.
The main reason for the tea industry being one of the highest-performing industries in the economy of Sri Lanka is the environmental factors in favor. For instance, climate, humidity, cool temperatures, and rainfall throughout the year impact the production of quality orthodox black tea, which is the favorite among most nations all over the world. This was also one of the reasons that made several European nations invade Sri Lanka. So, it is clear that the tea industry has been a basic industry that has aided in straightening the economy in Sri Lanka from the beginning up until now.
Agriculture Industry
The agriculture sector is one of the main industries that keep the Sri Lankan economy running. It is not something that is valid only in the present scenario; it has been the same since back in the days of monarchies.
In fact, this industry is solely responsible for 7% of the GDP in Sri Lanka. The Sri Lankan land – the fertile tropical land, is in favor of the growth of this industry, and it allows very rare crops to grow on earth and let them contribute to the economy of Sri Lanka.
Rice, being the primary crop in Sri Lanka, provides a firm income to the economy of the country throughout the year. As mentioned earlier, tea provides its contribution by being a major source of income in the sector of foreign exchange. Similarly, rubber and coconut crops play their roles during the seasons to stabilize the economy of the country.
Apart from these four main crops, fruits, vegetables, herbs, and flowers have their own particular places within this industry. However, the scope of the agriculture industry and its contribution to the economy of the country are visible in the number of employment opportunities it has given to the population. Approximately, around 30% of the population secures their livelihood in grace to the agriculture field. Although it is a wavy revenue method, Sri Lankans rely their lives on this industry. Hence, this industry is one of the high-performing industries in the export-import division of the country.
Rubber Industry
Rubber is one of the three main crops in Sri Lanka. As a result, it has been an important resource-based industry in the country. Besides, Sri Lanka is a leading country in the rubber industry and has been completely established and rewarded in many ways through the industry.
In fact, this splendid island has been a global sourcing destination for natural rubber and rubber-based products for 150 years. It plays a revolutionary role in the economy of Sri Lanka since this island is globally famous for the production of quality rubber latex products. Further, it increases the cash flow into the country by sustainably producing niche rubber products targeting the global market. For instance, products such as solid tires, crepe soles for shoes, and high-quality gloves play a major role in regard.
The rubber industry is widely spread in the wet zone of the island, including districts such as Colombo, Gampaha, Kalutara, Kandy, Matale, Galle, Matara, Rathnapura, and Kegalle. Currently, rubber cultivation is grown over 127,500 hectares of land. Therefore, the industry secures the livelihood of thousands and tens of thousands of people in the country. These employment opportunities range from cultivating rubber to extracting rubber to producing various rubber products.
After all, the income that comes from exporting rubber products contributes more towards the stability of the economy of Sri Lanka. However, according to the stats annually the rubber industry adds around US$ 1.1 million to the income of Sri Lanka solely through exports.
Coconut Industry
Apart from tea and rubber, coconut is the other main crop in Sri Lanka. Just like rubber, coconut also contributes largely to the economy of Sri Lanka, not only through the crop but also through its subsidiary products.
The culture entwines the coconut tree. Besides, the climate is in favor of coconut cultivation in Sri Lanka, letting the industry grow fast and huge. As a result, this wonderful island is recognized as the fourth largest coconut product exporter in the world. Indeed, it deserves that recognition as it accounts for 12% of all agricultural products in Sri Lanka. Coconut cultivation covers over 410K hectares of fertile land. As a result, the cultivation delivers around 2,500-3,000 million nuts per year. The authorities are taking action to improve the cultivation and increase the production of up to 3,600 million nuts.
The industry does not only include coconut nuts. It also includes:
- Desiccated coconut
- Coconut water (but it is made with subsidiary products of coconut too)
- Virgin oil
- Coconut trunk
- Coconut leaves
- Fiber
These subsidiary products are responsible for the majority of the income that flows through the coconut industry. All these affect bringing in high income through exporting as well.
Gem Industry
Apart from the fertile land, which does good for any kind of cultivating the crop, the island is rich with other resources that play a vital role in the economy of Sri Lanka. Mineral resources are one such field that has played this role for a long time back.
The gem and jewelry trade was in fact a tradition back then. According to the historical records the art of jewelry and gem industry runs back to 2500 B.C. Due to this effect, the gem industry has had an impact on the economy of Sri Lanka from the olden days.
Besides, Sri Lanka is currently recognized as a center of high-quality gems. At the same time, Sri Lanka is reputed as the most quality cutting and finishing center in producing stone meeting the high-quality standard.
It is possible to find over 70 varieties of colored stones among the 200 found worldwide. Sri Lanka’s mineral-rich soils have produced a seemingly endless supply of high-quality precious and semi-precious gemstones as follows.
- Sapphires in blue
- Pink, yellow, and green hues
- Star sapphires,
- Rubies
- Star rubies
- Alexandrites
- Cat’s eyes
- Garnets
- Zircons
- Tourmalines
- Aquamarine topaz
- Spinel
- Moonstones,
- Quartz, and a plethora of rare gemstones.
As a result, Sri Lanka has become one of the five most important gem-bearing nations in the world.
For this same reason, it is possible to identify a gemstone as having a Sri Lankan origin by looking for inclusions that are native to that country. It says that the primitive mining techniques that are used to extract the majority of the gem-quality material from alluvial deposits spread across the island make that happen. However, this quality lets the gem industry account for the majority of income and the economy in Sri Lanka.
Apparel Industry
Apart from the above-mentioned industries, the apparel industry also makes a huge contribution to the economy of Sri Lanka. The main reason for this is that Sri Lanka produces high-quality ethical products in a way that the strong brands trust. This very factor makes it the most significant and dynamic contributor to the economy in Sri Lanka.
Sri Lankan apparel and textile manufacturers have successfully capitalized on global market opportunities. to provide sophisticated and original solutions. Instead of moving forward with traditional exports and tailoring designs, for instance, through fashion BPO services, research, development, and innovation centers. Due to this evolving nature of the Sri Lankan apparel industry, it has the highest per-capita apparel exports when comparing exporting nations in the region.
Sportswear, lingerie, loungewear, bridalwear, workwear, swimwear, and children’s wear are some of the Sri Lankan apparel categories. These goods are produced and exported with the flexibility to accommodate different seasons in a number of countries.
According to the statistics, the biggest markets for Sri Lankan clothing have been the United States and the United Kingdom. However, the most important factor to make this industry stabilize on the island is its sustainable way of moving forward. This sustainability incorporates its entire production, human resources, and supply chain. In fact, today Sri Lanka has the capability to meet global needs with fast, high-quality, ethical fashion products due to this sustainable behavior.
Software Industry
Technology has become a trend in the world nowadays. While following in the footsteps of the world, Sri Lanka has also made quite a mark in this worldwide trend. The island has made the post by entering the software world. In fact, in recent years, Sri Lanka has seen growth in the software industry. It has become a huge part of the economy in Sri Lanka by widening its scope within the market.
For instance, it brings in more foreign currency to Sri Lanka and offers university graduates more employment opportunities. Even the workforce that the country owns with regard to this particular field is highly talented. Because of this very reason, Sri Lankan software companies would even be able to compete with international software companies. This talent pool is an expert in providing sophisticated software products required for the global market.
Sri Lanka undoubtedly possesses the tools necessary to compete with global masters in developing software, including talent, capacity, and mentality. Due to this impeccable potential, the Sri Lankan economy would gain more from the growth of the software sector.
According to the statistics, the software industry in Sri Lanka generates just over USD 1.5 billion in revenue at present. This is equivalent to almost 2% of our GDP. This vast and consistent development is a result of the steps taken by the government of Sri Lanka. Hence, the Sri Lankan government is a key player in increasing foreign exchange earnings through the software industry.
Also, this support system helps the field remain within the country for a long time. However, if a downfall happens in the industry, this stakeholder can take steps to connect the dots with the global market in no time.
Main Indicators of the Economy of Sri Lanka
The main indicators of the economy of Sri Lanka range among four types of indicators as follows.
- Key Economic Indicators
- Key Social Indicators
- Weekly Economic Indicators.
- Key Daily Economic Indicators
These indicators are made based on factors such as:
- Inflation
- Land area
- Economic growth
- Rupee per dollar
- Policy rates
- Interest rates
- Unemployment
- Population
- Per capita income of the country
Present Status of the Country’s Economy
At the moment, Sri Lanka is not in a good economic condition but is in a disturbed, deteriorating decline. The main reason for this is the pandemic condition that prevailed for nearly three years and the inflation that occurred due to that. Also, there are some socio-political incidents that took place within the country recently to put it in this condition. In fact, Sri Lanka is dealing with unsustainable debt and a severe balance of payments crisis. Both these factors are having a negative impact on growth and poverty. This condition is expected to last at least another 5 years. This means that future generations will have to suffer as a result of this condition by foregoing luxury and wellness.
The financing gap exists at the moment, where the expenses and debts overpower the income by more than ten times. The country barely has a solution, but only the constantly growing negativity in society. This condition can be turned into a positive dimension by slowly mitigating the economic issues of society by starting from the smallest units. Necessarily there is a need for microeconomic needs to even see a distant hope of again being a strong South Asian nation. The best thing to start with is sweeping out the unusual unemployment and reliable international relationships. These two dimensions can once again transform this island into a livable place.
The Bottom Line
After all, Sri Lanka’s economic future depends on the production level and the growth of the industries that contributed highly towards the GDP. Especially the manufacturing sector, agricultural sector, and tourism sector. Since the island is a paradise made for the above-mentioned sectors, the more these industries thrive, the more the country becomes economically stable and sound.
There are two most important factors that need to be handled properly in order to see the end of the prevailing dark era. They are promoting reconciliation, rehabilitation, and reconstruction where needed and boosting the democracy of Sri Lanka by mitigating the unnecessary bottlenecks in the system. This will indeed provide the necessary conditions for economic progress.
However, in order to meet the rising demands of the educated population of Sri Lanka, it is necessary to accelerate reform and quicken our growth.
