Country Report #1 – Sri Lanka

The plantation sector turned Sri Lanka's feudal relations of production into market relations, laying an enduring foundation for developing more complex capacities today. The plantation sector dominated economic activities in the country until the early post-independence period. Tea plantations, started in the 1870s in the central highlands, were followed by rubber and coconut plantations at lower altitudes. Large expanses of land were subject to mono-crops, and tended by wage laborers, producing low-value added commodities for export, such as tea, sheet rubber, desiccated coconut, coconut oil and husks, with the help of simple machinery. This plantation economy led to the growth of village, regional and national markets linking a host of services and ancillary industries: transport, processing, packaging, marketing, the provision of legal and health services and trade in consumer goods. Exports from the tea, rubber and coconut plantations accounted for over 90% of the country's export earnings in 1948, the year Sri Lanka gained its independence from British rule. In the shadow of the plantations toiled thousands of small farmers. Agriculture, both for commercial and subsistence purposes continued to be the occupation of the majority well into the late 1980s. Sri Lanka's ancient civilizations nurtured rice cultivation by constructing and maintaining an impressive network of irrigation works, demonstrating high levels of engineering acumen. Royal patronage for agriculture was succeeded by strong and steady government support for small farmers through the expansion of irrigation facilities, extension services and generous subsidies. Achieving self-sufficiency in rice and other food items is a national political imperative. In the 21st century, the Wewa (irrigation tank) and Dagaba (Buddhist temple) continue to symbolize a uniquely Sri Lankan legacy. Sri Lanka has demonstrated remarkable resilience in the face of drastic economic policy changes. From 1956 to 1976, chronic shortfalls in foreign exchange led to stringent government cut-backs in imports, resulting in local import substitution industries. While some of the export substitution products were of questionable quality, the emphasis on national self-sufficiency led to the emergence of important home-grown industries, such as industries producing paper, cement, ceramics, tires and handloom materials. In a dramatic reversal, the "closed" economy was swept away and replaced by an economy thrown open to imports and foreign investors by a new, popularly elected government led by the United National Party (UNP) in 1977. The face of Sri Lanka's economy is changing today as the service and manufacture sectors diversify, rapidly fueled by both domestic and foreign investment. It is estimated that one in ten Sri Lankans lives overseas, drawn by better economic opportunities or driven away by the war in Sri Lanka. Expatriate Sri Lankans are local capacity catalysts and facilitators of technology transfer. Apart from investing their earnings in enterprises and properties in Sri Lanka, expatriate Sri Lankans also play a critical role in introducing new concepts, products and services in Sri Lanka. The plantation sector is being eclipsed by other sources of earnings, such as the remittances of Sri Lankans working overseas. These remittances were the "foremost foreign exchange earner in 2011, surpassing export earnings from textiles and garments for the third consecutive year" (Sri Lanka Central Bank, 2011 Annual Report). Financial and information technology services are expanding. The tourist industry is booming. The landscape is dotted with factories producing a range of export goods, particularly garments, textiles, light electronic items and value-added commodities from plantation produce. Sri Lanka's economy continues to place premium value on foreign investment, although attracting and retaining foreign investors is challenging in an environment where all countries are competing for scarce capital in the midst of global economic crises.