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Sri Lanka Structure of the Economy
Agriculture, both subsistence and commercial, has played a
dominant role in Sri Lanka's economy for many centuries. The
Portuguese and Dutch, who ruled the coastal regions of the island
from the sixteenth through the eighteenth centuries, were
primarily interested in profiting from cinnamon and other spices
(see Sri Lanka - European Encroachment and Dominance, 1500-1948;
Sri Lanka - The Dutch
, ch. 1). Trade with India, Sri Lanka's nearest neighbor, was also
important during this period. Sri Lanka exported pearls, areca
nuts, shells, elephants, and coconuts, and in return received
rice and textiles.
The island's economy began to assume its modern form in the
1830s and 1840s, when coffee plantations were established in the
Central Highlands. Coffee soon became the dominant force in the
economy, its proceeds paying for increasingly large imports of
food, especially rice. When coffee fell victim to a leaf disease
in the 1870s, it was quickly replaced by tea, which soon covered
more land than had coffee at its height. Coconut plantations also
expanded rapidly in the late nineteenth century, followed by
rubber, another cash crop introduced in the 1890s. Stimulated by
demand generated by the development of the automobile industry in
Western Europe and North America, rubber soon passed coconuts in
importance. These three products--tea, coconuts, and rubber--
provided the export earnings that enabled Sri Lanka to import
food, textiles, and other consumer goods in the first half of the
twentieth century. At independence in 1948, they generated over
90 percent of export proceeds.
Wet rice was grown extensively as a subsistence crop
throughout the colonial period. In the nineteenth century, most
of it was consumed in the villages where it was grown, but in the
final decades of British rule the internal market in rice
expanded. Nonetheless, more than half of the rice consumed was
imported, and the island depended on the proceeds of plantation
crops for its food supply.
The economy gradually became more diverse after the late
1950s, partly as a result of government policies that encouraged
this trend. The main reason successive administrations tried to
reduce the country's dependence on tea, rubber, and coconuts was
the long-term decline in their value relative to the cost of
imports. Even when Sri Lanka increased the production of its
major cash crops, the amount of imports that could be bought with
their proceeds declined.
Much of the diversification of the economy, especially in the
1960s and the early 1970s, took the form of import substitution,
producing for the local market goods that the island could no
longer afford to import. Sri Lanka also had some success in
diversifying exports after 1970. The proportion of exports linked
to the three traditional cash crops fell from over 90 percent in
the late 1960s to 71 percent in 1974 and 42 percent in 1986.
Textiles, which made up only 0.7 percent of exports in 1974,
accounted for over 28 percent in 1986 (see
table 5, Appendix A).
In 1986 agriculture, forestry, and fishing made up 27.7
percent of the gross national product
(GNP--see Glossary), down
from 39.4 percent in 1975 (see
table 6, Appendix A). In 1956
wholesale and retail trade accounted for 19.9 percent of GNP, and
manufacturing for 15.6 percent. Transport, storage, and
communications stood at 11.2 percent of GNP, and construction at
7.7 percent. The relative importance of the various sectors of
the economy was fairly stable during the 1980s.
Data as of October 1988
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