Sahan Peiris 1 Student ID – xxxxxx Economic Environment for Business BAIBF08001 Discuss whether globalization will always bring benefits to the Sri Lankan Economy The rapid development in technology has enabled individuals as well as countries as a whole

Sahan Peiris 1

Student ID – xxxxxx Economic Environment for Business BAIBF08001
Discuss whether globalization will always bring benefits to the Sri Lankan Economy

The rapid development in technology has enabled individuals as well as countries as a whole,
to communicate ideas and exchange goods beyond their geographical boundaries. Internet
facilities, mobile phones, revolution in transportation methods etc can be identified as main
factors that have contributed to make an impact on this rapid development. In other words,
these factors have influenced in creating Globalisation (explainity, 2013). To arrive at a clear
picture about globalisation, it is important to identify the framework of the concept.

Globalisation is known as a continuous procedure where individuals, urban communities,
districts and nations are facilitated to connect more significantly than they have ever been
previously (UNESCO, 2018). Reduction of policies in terms of investment, trade barriers,
communication and transportation can be identified as main contributing factors behind
globalisation. Cost reduction in communication and transportation has been resulted through
innovation and progressing in technology (Frankel, 2006). However, it is important to identify
the favourable and unfavourable consequences as a contradiction arises between globalisation
and economic development. To demonstrate the impacts caused due to globalisation, the author
has selected to analyse the economy of Sri Lanka.

Democratic Socialist Republic of Sri Lanka is an island located in the Indian Ocean. The
country acts as a coordination centre point between Fae East and Europe (Sri Lanka Tourism
Development Authority, 2018). According to the Central Bank Report, the country recorded a
population of 21.4 million and a GDP of US$ 87.2 billion in the year 2017. Country’s Exports
and Imports amounted to US$ 11,360 million and US$ 20,980 million respectively creating a
Trade Balance of US$ -9,619 million (Central Bank of Sri Lanka, 2017). The following
statistical date represents the country’s economic forecasts relating to the year 2020.

Sahan Peiris 2

Student ID – xxxxxx Economic Environment for Business BAIBF08001
Economic Indicators Forecasted data for 2020
Population 22.02 million
GDP US$ 72.3 billion
Exports US$ 955 million
Imports US$ 1,809 million
Trade Balance US$ -854 million
Source: (Trading Economics, 2018)

Through the economic conditions explained above, it is clearly seen that the country’s economy
has been influenced by globalisation. When analysing the impact on economic development
caused due to globalisation the following facts can be presented as arguments in favour.

Globalisation has contributed towards the evolution of transportation methods thus creating an
opportunity for people to travel across different geographical boundaries. The Sri Lankan
tourism industry has experienced a remarkable improvement due to this. In 2017 the
industry accomplished an all-time high of US$ 3,924.9 million which totalled to 2,116,407
tourist arrivals. It can also be stated as a growth of 3.2%. In other words, 65,595 more tourist
arrivals have been recorded than in 2016 (Mirror Business, 2018).
Source: (Sri Lanka Tourism Development Authority, 2018)
20132014201520162017
US $ (Millions)1,715.502,431.102,980.603,518.503,924.90
0.00
500.00
1,000.00
1,500.00
2,000.00
2,500.00
3,000.00
3,500.00
4,000.00
4,500.00
Official Tourist Receipts
US $ (Millions)

Sahan Peiris 3

Student ID – xxxxxx Economic Environment for Business BAIBF08001
Globalisation facilitates Sri Lanka to reap the benefits in terms of international trade. The
2017 Annual Report of the Central Bank states that the country has accomplished a total
amount of US$ 11,360 million in terms of exports (Central Bank of Sri Lanka, 2017) and
achieved a milestone by outperforming the past best of US$ 11,130 million which was obtained
in 2014. The total of exports in 2017 can also be identified as a 10% increase when compared
with the figure in 2016. (Daily FT, 2018). Furthermore, the country has been granted with
GSP+ (Generalised Scheme of Preferences Plus) by the European Union (EU). The EU states
that an economic development is expected due to the expansion in the export capacity
(Europien Commission, 2018).

An environment has been created through globalisation where consumers around the world are
able to purchase products which are manufactured in different countries (Collins , 2015). the
economy of Sri Lanka is gaining a massive advantage due to this as it widens the opportunity
for local companies to compete with the world market. Sri Lanka is the world’s third largest
Tea exporter (Sri Lanka Export Development Board, 2018) while on the other hand, the
Apparel industry dominates in terms of foreign exchange earnings by contributing 40% out of
the country’s total exports (Sri Lanka Export Development Board, 2018).

Tea – Source: (Sri Lanka Export Development Board, 2018)
Apparel – Source: (Sri Lanka Export Development Board, 2018)

Local Companies exporting to the
World Market
Apparel
• Ceylon Tea
Services PLC

• Expolanka Teas
Pvt Ltd
• MAS Holdings Pvt
Ltd

• Brandix Lanka Ltd
Tea

Sahan Peiris 4

Student ID – xxxxxx Economic Environment for Business BAIBF08001
Growth in Foreign Direct Investment (FDI) can be presented as another favourable impact.
Globalisation has enabled other countries to move their capital and invest in different countries.
Sri Lanka is clearly gaining the benefits of it, as FDI in 2017 outperformed the previous best
of US$ 1.61 billion which was achieved in 2014. The country also managed to double the
amount of FDI remarkably in 2017 than in 2016.
Year FDI
2016 US$ 802 million
2017 US$ 1.63 billion
Source: (Board of Investment, 2018)
Furthermore, it is estimated that Sri Lanka will gain an inflow of US$ 2.5 billion by the end
of 2018 (Board of Investment, 2018).

A clear understanding about the favourable impacts of globalisation towards the Sri Lankan
economy can be gained through the facts which were elaborated above. However, globalisation
creates negative impacts as well. To gain awareness on the negative impacts, the below
mentioned arguments can be presented.

Although advancement in transportation methods caused by globalisation brings favourable
impacts to the country in terms of tourism, adverse effects are caused as well. Sri Lanka has
turned out to be a popular destination for international drug cartels to distribute drugs
such as cocaine, hashish, heroine etc. In the context of economics, drugs are categorized under
demerit goods. An aggregate of 388,722 kilograms of narcotic drugs were captured in 2016
contrasted with 13,548 kilograms in 2015 (Fernando, 2017). In 2017, US$ 140 million worth
of cocaine were sized which includes Asia’s largest cocaine cargo of 928 kilograms (Aneez,
2017). Due to the inflow of demerit goods such as drugs, a risk is created upon the social and
cultural environment constructing a negative impact towards the economy.

Interdependency between nations have been resulted through globalisation creating a platform
for countries to borrow funds from different countries. These are known as Foreign

Sahan Peiris 5

Student ID – xxxxxx Economic Environment for Business BAIBF08001
Borrowings. It acts as a helping hand to reduce the deficiency in domestic savings for
investment. It contributes to the economic development of Sri Lanka by being able to undertake
massive infrastructure projects. However, the Sri Lankan economy is facing a severe issue
due to accumulation of Foreign Debt. Country’s foreign debt has accumulated largely over
the last decade. In 2000 the foreign debt stood at US$ 9 billion and by the end of January 2017
it accumulated up to US$ 46.6 billion. To repay this debt trap a large percentage of the GDP is
sacrificed which also undermines economic development of the country. (The Sunday Times,
2017).

Although international trade increases the export capacity, it expands the flow of import in to
the country as well. Trade agreements have allowed member countries to import products to
the Sri Lankan market as they gain the advantage of tariff exemptions. Due to this, agricultural
products which are imported tend to be cheaper than domestic products, influencing the local
agricultural sector to experience a contraction (Daily FT, 2012). Unfavourable weather
conditions can be another factor for this contraction but however low import prices of
agricultural products have also contributed significantly. The below illustration can be
presented to show the contraction in the country’s agricultural sector.
Source: (Central Bank of Sri Lanka, 2017)
201220132014201520162017
GDP (% change)9.13.4554.53.1
Agriculture (% change)3.93.24.64.7-3.8-0.8
-6
-4
-2
0
2
4
6
8
10
Agricultural Sector Development
GDP (% change)Agriculture (% change)

Sahan Peiris 6

Student ID – xxxxxx Economic Environment for Business BAIBF08001
Facts elaborated above provides a better platform to identify the contradiction between
globalisation and economic development. International trade increases export capacity and
provides the opportunity for local companies to compete with the world marked while on the
other hand it increases the pressure on widening the trade deficit. The government needs to
provide tax exemptions to encourage export-based industries and should also provide research
and development facilities for emerging businesses to widen their base of operations. Complete
prohibition of imports of agricultural products will not be suitable. If domestic producers are
provided with subsidy schemes, competition between international producers and domestic
producers will be created influencing domestic producers to increase the quality.

Furthermore, the Board of Investment and Sri Lanka Tourism Development Authority should
implement combined projects to attarct FDI and also to increase the amount of tourist receipts.
By this, it will reduce the pressure on the accumulated foreign borrowings as there would be
foreign exchange to settle debts. FDI would act as an leading factor in improving infrastructure
of the country and there by improve the living standard of the population. Sri Lanka acts as a
logistic hub for drugs and it is necessary actions shoould be taken to completely ban the inflow
of demerit goods. The general public should be notified with regart to the externalities caused
and serious penalties should be charged to regulate this issue.

In conclusion, Sri Lanka is a country which experienced favourable as well as unfavourable
impacts of globalisation. International trade, FDI etc have increased the living standard of the
country. If globalisation is monitored well, the pressure on foreign borrowings and trade deficit
can be addressed positively in the long run. Sri Lanka can experience an advancement in
economic development if necessary actions are taken to control the harmful impacts of
globalisation. The author views globalisation as the way forward for Sri Lanka as it empowers
the country to perform well in the developing era.

Sahan Peiris 7

Student ID – xxxxxx Economic Environment for Business BAIBF08001
Referencing
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Accessed 31st May 2018.

Sahan Peiris 8

Student ID – xxxxxx Economic Environment for Business BAIBF08001
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Sahan Peiris 9

Student ID – xxxxxx Economic Environment for Business BAIBF08001
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