In many experts’ opinion, it is high time for Sri Lanka to re-consider land use patterns and the product mix. Moving to commercial agriculture and shifting unproductive labour to other sectors where labour is already scarce, are two things which government could consider
Recent GDP statistics bring to light a clear picture of the structural transformation of the Sri Lankan economy over the years. The share of Agriculture in the GDP has been declining over the years and the Services sector shows a higher growth potential than the Industrial sector.
Sri Lanka has achieved a growth rate of 3.9 per cent in the first half of 2016. This is lower than the 5.3 per cent growth achieved during the first half of last year. The 5.5 per cent growth during the first quarter of 2016 has fallen to just 2.6 per cent during the second quarter. There spective growth rates of the three major sectors: Agriculture, Industries and Services, show where policy priorities should be to achieve higher growth.
In spite of the large amount of production subsidies provided by the state, the large extents of land used and the large amount of labour employed, the contribution of agriculture to Sri Lanka’s GDP has been relatively small. During the first half of 2016, the contribution of agriculture declined to 2.5 per cent from an 8.1 per cent growth recorded during the first half of 2015. In the second quarter of 2016,the growth of agriculture in GDP has declined to just 5.6 per cent from 10.4 per cent in the same quarter of 2015.In Agriculture, positive growth rates are recorded by oleaginous fruits like coconut, animal production,forestry and logging while rice, tea, rubber and marine fishing recorded negative growth rates.
Being the second highest contributor to Sri Lanka’s GDP, the industrial sector recorded a growth rate of 5.2 per cent in the second half of 2016. It had grown by 2.2 per cent in the second quarter. Construction recorded the highest growth with a rise of 6.9 per cent compared to the same quarter in 2015. However, the performance of Industries during the second quarter of 2016 has not been satisfactory, especially due to adverse weather conditions affecting both Agriculture and Industries.
Positive growth in Industries was recorded by Electricity, gas, steam and air conditioning supply and Manufacture of furniture. Increases in performance were also attained by Manufacture of food, beverages & tobacco, Manufacture of textile and wearing apparel as well as Mining & quarrying.
The contribution of Services to Sri Lanka’s GDP is the highest. Services grew by 4.9 per cent during the second quarter of 2016. The main contributors to this increase are Telecommunication, which has grown by 21.2 per cent, Insurance activities, Financial service activities, Education service activities’ and Wholesale and retail trade which have achieved growth rates of 15.1 per cent, 14.5 per cent, 10.5 per cent and 3.5 per cent respectively. Domestic non-tradable sector is the source of growth behind the Services sector performance this year.
Traditional to modern
The above driving sectors are considered by some experts as traditional, and that Sri Lanka’s economic growth is still dependent on traditional services. According to them, Sri Lanka should shift from traditional to modern services such as ICT/ BPO, maritime and aviation services, tourism, and financial and accounting services, on some which Sri Lanka has already begun to rely upon.
The primary agricultural commodities we have been exporting over the years do not bring us a large benefit, as their export prices are low in the world market when compared to manufactures, and we cannot reduce prices as the cost structure involved is relatively high. Doesn’t this mean that we are allocating the limited resources in our country to a sector which anyway ends up in low productivity with the same old agricultural practices continued? In many experts’ opinion, it is high time for Sri Lanka to re-consider land use patterns and the product mix. Moving to commercial agriculture and shifting unproductive labour to other sectors where labour is already scarce, are two things which government could consider.
Sri Lanka’s GDP is basically driven by Services and Industries to a certain extent. The non-tradable sector which shows promise could be strengthened by giving more opportunities for private investments. The present government’s approach to service sector led development is commendable. In any case, the conventional view that Sri Lanka is an agricultural country does not seem to be valid anymore.