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.
Sri Lanka maintains very good relations with India; however, the relationship was tested several 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 more on political stability, and reforms.
Corruption is a pervasive issue that affects multiple sectors of Sri Lankan society. The lack of transparency, accountability, and effective regulatory frameworks has allowed corrupt practices to flourish within the public and private sectors.
Likewise, Sri Lanka needs to work more on ensuring communal harmony and upholding human rights of journalists, minorities, and others (Amnesty International, 2023).
Economic factors affecting Sri Lanka
Economic discussion is a key part of this PESTEL analysis of Sri Lanka. According to Trading Economics (2023), the GDP of Sri Lanka was worth around $88.93 billion in 2021. The economy is not big as the country is small. In addition, Sri Lanka faces an unmanageable debt and severe balance of payments crisis.
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, 2022). The country is drawing good 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, 2023).
Agriculture has traditionally been a crucial industry in Sri Lanka, with tea, rubber, and coconut being the main crops. Sri Lankan tea, known as Ceylon tea, is highly sought after for its unique flavour and aroma, and is exported to many countries worldwide.
Sri Lanka is renowned for its high-quality garments and textiles, which are exported to various countries around the world. The apparel and textile industry has grown to become its leading export sector and plays an essential role in its economic development.
Sri Lanka’s pristine beaches, ancient cities, lush forests, and diverse wildlife have made it a popular tourist destination. The tourism sector is a significant contributor to its GDP and provides employment opportunities for many Sri Lankans.
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, 2022).
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, 2023). It has very close cultural interactions with India as well.
The current population of Sri Lanka is just over 21.6 million (Worldometer, 2023). 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 73 years for men, and 80 years for women (BBC, 2023). 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.
Poverty is expected to remain high in coming years. Poorer households have been hit badly by food inflation, job losses, limited fertilizer supply, and drop in remittances (World Bank, 2022).
Access to quality education is essential for sustainable development and social progress. Although Sri Lanka has achieved impressive literacy rates, there is still a need to improve the overall quality of education and address the disparities in access to education, especially in rural areas.
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 successive governments have taken a number of initiatives to digitalise different sectors of the economy.
However, more needs to be done to accelerate the digitalisation process and improve the computer literacy rate. Likewise, more automation and use of technology can improve the productivity of organisations such as tea factories, and garment factories where almost the whole manufacturing process is conducted manually by using electricity-powered devices.
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, according to some news reports, 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. Sri Lanka has a mixed legal system and its employment laws do not distinguish between foreign or local employees. The National Minimum Wage Act ensures that employees are paid a national minimum monthly wage.
Sri Lanka’s judicial system has been characterised by delays, backlogs, and an inadequate number of judges, which has led to a lack of access to justice for many citizens. Furthermore, concerns have been raised about the independence and impartiality of the judiciary, particularly in relation to political interference.
Land disputes also represent a significant legal issue in Sri Lanka. The country’s history of colonialism, coupled with the aftermath of the civil conflict, has resulted in numerous unresolved land disputes involving both private parties and the government.
Issues related to land ownership, land use, and land registration have created tensions and contributed to social instability. Addressing these disputes through appropriate legal frameworks and dispute resolution mechanisms is essential to fostering social harmony and equitable development.
Summary of PESTEL analysis of Sri Lanka
Sri Lanka is a beautiful country. It has made some good progress in different areas over the last several years. However, it has recently run short of fuel for essential services such as buses, trains, and medical vehicles due to its shortages of foreign currency reserves to import any more (BBC, 2023). Therefore, a lot needs to be done to turn things around.
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Last update: 20 April 2023
Amnesty International (2023) Sri Lanka Human rights, available at: https://www.amnestyusa.org/countries/sri-lanka/ (accessed 08 20 April 2023)
BBC (2023) Sri Lanka country profile, available at: https://www.bbc.co.uk/news/world-south-asia-11999611 (accessed 30 March 2023)
OEC (2023) Sri Lanka, available at: https://oec.world/en/profile/country/lka (accessed 10 April 2023)
Peiris, G. (2023) Sri Lanka, available at: https://www.britannica.com/place/Sri-Lanka (accessed 18 April 2023)
Trading Economics (2023) Sri Lanka GDP, available at: https://tradingeconomics.com/sri-lanka/gdp (accessed 09 April 2023)
World Bank (2022) Sri Lanka Overview, available at: https://www.worldbank.org/en/country/srilanka/overview (accessed 09 April 2023)
Worldometer (2023) Sri Lanka population, available at: https://www.worldometers.info/world-population/sri-lanka-population/ (accessed 18 April 2023)
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.