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Sri Lanka Economy and Business Opportunities
In the nineteenth and twentieth centuries, Sri Lanka became a plantation economy, famous for its production and export of cinnamon, rubber and Ceylon tea, which remains a trademark national export. The development of modern ports under British rule raised the strategic importance of the island as a centre of trade. During World War II, the island hosted important military installations and Allied forces. However, the plantation economy aggravated poverty and economic inequality. From 1948 to 1977 socialism strongly influenced the government's economic policies. Colonial plantations were dismantled, industries were nationalised and a welfare state established. While the standard of living and literacy improved significantly, the nation's economy suffered from inefficiency, slow growth and lack of foreign investment.
From 1977 the UNP government began incorporating privatisation, deregulation and promotion of private enterprise. While the production and export of tea, rubber, coffee, sugar and other agricultural commodities remains important, the nation has moved steadily towards an industrialised economy with the development of food processing, textiles, telecommunications and finance. By 1996 plantation crops made up only 20% of export, and further declined to 16.8% in 2005 (compared with 93% in 1970), while textiles and garments have reached 63%. The GDP grew at an average annual rate of 5.5% during the early 1990s, until a drought and a deteriorating security situation lowered growth to 3.8% in 1996. The economy rebounded in 1997-2000, with average growth of 5.3%. The year of 2001 saw the first recession in the country's history, as a result of power shortages, budgetary problems, the global slowdown, and continuing civil strife. Signs of recovery appeared after the 2002 ceasefire. The Colombo Stock Exchange reported the highest growth in the world for 2003, and today Sri Lanka has the highest per capita income in South Asia.
In April 2004, there was a sharp reversal in economic policy after the government headed by Ranil Wickremesinghe of the United National Party was defeated by a coalition made up of Sri Lanka Freedom Party and the leftist-nationalist Janatha Vimukthi Peramuna called the United People's Freedom Alliance. The new government stopped the privatization of state enterprises and reforms of state utilities such as power and petroleum, and embarked on a subsidy program called the Rata Perata economic program. Its main theme to support the rural and suburban SMEs and protect the domestic economy from external influences, such as oil prices, the World Bank and the International Monetary Fund.
Sri Lanka, with an income per head of $1,350, still lags behind some of its neighbors including Maldives and Mauritius but is ahead of its giant neighbor India. Its economy grew by an average of 5% during the 1990s during the 'War for Peace' era. According to the Sri Lankan central bank statistics, the economy was estimated to have grown by 7% last year, although inflation had reached 20%. It should be noted that Sri Lanka's central bank statistics have been called into question over allegations of political interference and institutional decay. Parts of Sri Lanka, particularly the South and East coast, were devastated by the 2004 Asian Tsunami. The economy was briefly buoyed by an influx of foreign aid and tourists, but this was disrupted with the reemergence of the civil war resulting in increased lawlessness in the country and a sharp decline in tourism.
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