PESTEL analysis of Sri Lanka
This detailed PESTEL analysis of Sri Lanka aims to explore some of the powerful macro factors that impact on Sri Lanka today and may continue doing so in the future. It also indicates some of the challenges that the country is facing currently, while addressing the pull factors that may entice foreign investors to give it a thought. Sri Lanka is a South Asian country that has a rich cultural heritage. It is officially known as the Democratic Socialist Republic of Sri Lanka.
Political factors affecting Sri Lanka
Sri Lanka is a democratic republic with a semi-presidential system where elections are held regularly. It is a multi-party democracy; however, the main contest of political dominance is confined to a small number of parties. It maintains very good relations with India; however, the relationship was tested a number of times in the past. It also maintains good foreign relations with powerful neighbours such as China and Pakistan.
Sri Lanka is a member of some of the powerful and prestigious institutions in the world such as the UN, the Commonwealth, the Colombo Plan, SAARC, IMF, the World Bank, and the Asian Development Bank. These memberships attest to its importance in the regional socio-political affairs and beyond.
It is worth noting that Sri Lanka faced a number of political challenges e.g. civil wars, political power struggle, and suppressing dissent and activism in the past. Surely, it needs to work on political stability, and reforms. Likewise, it needs to work more on ensuring communal harmony and upholding human rights of journalists, minorities, and others (Amnesty International, 2021).
Economic factors affecting Sri Lanka
According to the World Bank (cited in Trading Economics, 2021), the GDP of Sri Lanka was worth around $84 billion in 2019. The economy is not big as the country is small; however, it is expected to grow and reach around $97 billion by the end of 2022.
The Sri Lankan economy is going through a massive transition. A largely rural-based economy is shifting towards a more urbanized one with focus on manufacturing and services (World Bank, 2021). The country is drawing a lot of foreign investments every year. Particularly, Chinese investment has been massive. In fact, Sri Lanka is one of the biggest receivers of Chinese FDI.
Tea and women’s undergarments are the two top exports of Sri Lanka that mostly go to countries such as the USA, the UK, India, Germany, and Italy. Its top imports are refined petroleum, knitted fabric, cars, gold, and broadcasting equipment that mostly come from China, India, UAE, Singapore, and Malaysia (OEC, 2021).
However, there are some challenges facing the Sri Lankan economy. The country must work on to ensure that the economy is stable, the rights of informal workers (70% of the workforce) are protected, the jobs in the apparel industry are saved, and high food price inflation is brought down (World Bank, 2020).
Social factors affecting Sri Lanka
Sri Lanka has been exposed to different cultures throughout the history as evidenced from the fact that it was called ‘Taprobane’ by ancient Greek geographers, ‘Serendib’ by Arabs, and ‘Ceylon’ by European mapmakers (Peiris, 2021). It has very close cultural interactions with India as well.
The current population of Sri Lanka is just over 21 million (Worldometer, 2021). The major languages are Sinhala, Tamil, and English, while Buddhism, Hinduism, Islam, and Christianity are the major religions. Life expectancy is very good as evidenced from the fact that it is 72 years for men, and 78 years for women (BBC, 2019). Likewise, the literacy rate (over 92%) is very high as well.
However, there are some social issues challenging Sri Lanka today. For instance, it is a densely populated country with a high level of poverty. Majority of the people live in rural areas and rely significantly on agriculture for their livelihood. Unemployment is particularly high for women and youth. Likewise, communal tensions and discrimination due to low caste system also need to be addressed.
Technological factors affecting Sri Lanka
Technological environment is the next element to discuss in the PESTEL analysis of Sri Lanka. Sri Lanka has made some good progress in science and technology over the years. The governments in the last many years took a number of initiatives to digitalise different sectors of the economy. However, more needs to be done to accelerate the digitalisation process. Likewise, the computer literacy rate needs improvement as it was only 27.5% in 2019 (Hewage and Munasinghe, 2019).
Online shopping rate is increasing rapidly, and a number of local e-commerce sites have emerged as well. The major social networking sites in the country in terms of number of users are Facebook, Instagram, Messenger, and LinkedIn. However, Condliffe (2019) reports that social media particularly Facebook, have been used to spread false information to bring about social disturbance and disharmony in the country.
Environmental factors affecting Sri Lanka
Sri Lanka is a beautiful country with fascinating attractions such as beautiful beaches, UNESCO sites, national parks, tea gardens, islands, scenic landscape, unending bird chirping, trumpeting animals, and seafood to name but a few. Consequently, a huge number of tourists flock to the country every year.
However, Sri Lanka also faces some environment challenges e.g. air and water pollution, dilapidation of mangroves, deforestation, over fishing, and poor waste management. Certainly, rapid human development is having its toll on the environment.
Legal factors affecting Sri Lanka
Legal environment is the last issue to discuss in the PESTEL analysis of Sri Lanka. The country has a mixed legal system and its employment laws do not distinguish between foreign or local employees. The National Minimum Wage Act, No. 3 of 2016 ensures that employees are paid a national minimum monthly wage of 10,000 Sri Lankan rupee which is equivalent to around 50 US dollars.
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Last update: 10 March 2021
Amnesty International (2021) Sri Lanka Human rights, available at: https://www.amnestyusa.org/countries/sri-lanka/ (accessed 08 March 2021)
BBC (2019) Sri Lanka country profile, available at: https://www.bbc.co.uk/news/world-south-asia-11999611 (accessed 01 March 2021)
Condiliffe, J. (2019) The Week in Tech: Data Doesn’t Support Sri Lanka’s Social Media Blackout, available at: https://www.nytimes.com/2019/04/26/technology/sri-lanka-social-media.html (accessed 01 March 2021)
Hewage, K. and Munasinghe, D. (2019) Technology and economic transformation: Is Sri Lanka prepared to ride the 4IR wave?, available at: http://www.ft.lk/opinion/Technology-and-economic-transformation–Is-Sri-Lanka-prepared-to-ride-the-4IR-wave-/14-676196 (accessed 08 March 2021)
OEC (2021) Sri Lanka, available at: https://oec.world/en/profile/country/lka (accessed 07 March 2021)
Peiris, G. (2021) Sri Lanka, available at: https://www.britannica.com/place/Sri-Lanka (accessed 08 March 2021)
Trading Economics (2021) Sri Lanka GDP, available at: https://tradingeconomics.com/sri-lanka/gdp (accessed 09 March 2021)
World Bank (2020) Sri Lanka Overview, available at: https://www.worldbank.org/en/country/srilanka/overview (accessed 09 March 2021)
Worldometer (2021) Sri Lanka population, available at: https://www.worldometers.info/world-population/sri-lanka-population/ (accessed 09 March 2021)
Author: M Rahman
M Rahman writes extensively online and offline with an emphasis on business management, marketing, and tourism. He is a lecturer in Management and Marketing. He holds an MSc in Tourism & Hospitality from the University of Sunderland. Also, graduated from Leeds Metropolitan University with a BA in Business & Management Studies and completed a DTLLS (Diploma in Teaching in the Life-Long Learning Sector) from London South Bank University.