(Last updated: 30 Mar 2012)

Current business situation

The Department of Foreign Affairs and Trade (DFAT) provides advice for business travellers and tourists going to Sri Lanka. This is regularly updated, and should be checked before planning travel.

Country facts

(Source: Department of Foreign Affairs and Trade - Country economic fact sheet)

Economic climate

The Sri Lankan Government is the main policy maker when it comes to the formulation of Public Investment Programmes (PIP) to revitalise and develop the economy and accelerate structural reforms. The more recent PIP programs have concentrated on developing new infrastructure facilities, including information technology and improving the nation’s competitive advantage and productivity by encouraging diversification in its industrial and manufacturing base by promoting exports.

The private sector is considered the growth engine of the nation and since 1987 the government has embarked on a privatisation programme whereby 40-60 per cent equity in several government-owned entities has been sold off. Many more government companies are pegged for privatisation. The private sector has also been encouraged to play a lead role in infrastructure development and the provision of utilities particularly in the telecommunications, power generation, port development and distribution of liquefied petroleum gas sectors.

Other reforms include:

• the simplification of the tariff structure to a two-band system
• the cutting back of subsidies
• reductions in the cost of import licences
• introduction of tax incentives
• reduction of interest rates
• liberalising exchange controls

Agriculture (including forestry and fisheries) is an important part of the Sri Lankan economy. This sector, which basically comprises the cultivation of agricultural crops for domestic and export purposes, contributes approximately 23 per cent to the GDP and 20 per cent to the country’s export income. Over the past decade Sri Lanka’s agricultural sector has changed from the cultivation of subsistence crops to value added production using improved technology and modern techniques.

The privatisation of the plantation sector in 1992 has resulted in the introduction of better management techniques, technology and increased productivity that has yielded substantial dividends for the economy. Sri Lanka is one of the world’s largest producers of tea, nearly 90 per cent of which is exported. It’s also one of the world’s leading producers of natural rubber. Domestic use of rubber by the industrial sector accounts for nearly 56 per cent of total production and today Sri Lanka is considered to be a global producer of quality industrial rubber tyres and surgical gloves – the latter by Ansell (a large Australian multinational company).

Manufacturing is another dynamic sector. Successive governments have continued to promote the diversification of the economy through rapid industrialisation particularly in export-oriented industries. Medium and large-scale factories account for 84 per cent of Sri Lanka’s industrial output and over the years private sector ownership has also been actively encouraged.

The services sector accounts for more than 50 per cent of GDP and the main contributors are communications and tourism. The communications sector has grown by 40 per cent per annum of the past three years. Sri Lanka has valuable deposits of quality mineral sands, ceramic raw material, silica sand and precious and semi-precious stones even though it accounts for only two per cent of GDP.

For the latest key economic indicators and statistics, please see the Department of Foreign Affairs and Trade country economic fact sheet.

Political climate

In Sri Lanka the president is the official head of state. The unicameral National State Assembly (NSA) is the supreme and sole legislative body. The NSA comprises of 225 seats with 196 filled by direct election and the balance allocated to parties on proportional representation for a period of six years.

The two main parties are the United National Party and the Peoples Alliance (made up of the Sri Lanka Freedom Party, Communist Party. Other parties include the Sri Lanka Muslim Congress, Tamil United Liberated Front Janatha Vimukthi Party a leftist group and the Ceylon Workers Congress that represents plantation workers.

Sri Lanka has had a written constitution since gaining independence in 1948. A new constitution was adopted in 1977 where sovereignty, the executive, the fundamental rights of the people, and legislative and judicial powers were clearly outlined.

Trade relations and statistics

Sri Lanka has friendly relations with all countries and is an active member of regional groups such as the South Asia Association for Regional Cooperation, Indian Ocean Rim Association for Regional Cooperation, and the Bangkok Agreement.

Sri Lanka has a free trade agreement with India that came into effect in March 2000, whereby certain goods manufactured and traded between the two countries could either enter duty free or at substantially reduced duty rates provided there is 35 per cent value addition in the transformation process. A similar free trade agreement is on the cards between Pakistan and Sri Lanka.

Trade between Sri Lanka and Australia has been increasing steadily over the past decade.

Sri Lanka has an open trade policy and protective tariffs have been progressively dismantled. This, coupled with the nation’s industrialisation policies, has led to a gradual shift in the import structure in favour of intermediate goods (eg. textiles, petroleum) and investment goods as against consumer goods (eg. wheat, sugar, motor vehicles and electrical equipment).

Please see the Department of Foreign Affairs and Trade country economic fact sheet for key trade statistics.