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) 20132014201520162017US $ (Millions)1,715.502,431.102,980.
004,500.00Official Tourist ReceiptsUS $ (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 TeaSahan 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 ForeignSahan 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) 201220132014201520162017GDP (% change)9.
1Agriculture (% change)126.96.36.199.7-3.
8-0.8-6-4-20246810Agricultural Sector DevelopmentGDP (% 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 Aneez, S., 2017.
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Board of Investment, 2018. Sri Lanka Achieves Highest Ever FDI in 2017. Online Available at: http://www.investsrilanka.com/news/story/4212/Sri-Lanka-Achieves-Highest-Ever-FDI-in-2017 Accessed 12th June 2018. Central Bank of Sri Lanka, 2017.
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, 2015. The Pros And Cons Of Globalization. Online Available at: https://www.forbes.com/sites/mikecollins/2015/05/06/the-pros-and-cons-of-globalization/#6ed2ea7eccce Accessed 30th May 2018. Daily FT, 2012.
Is globalisation the way forward for Sri Lanka?. Online Available at: http://www.ft.lk/article/98853/Is-globalisation-the-way-forward-for-Sri-Lanka Accessed 6th June 2018. Daily FT, 2018. Sri Lanka achieves record exports in 2017.
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Europien Commission, 2018. Countries and regions. Online Available at: http://ec.europa.eu/trade/policy/countries-and-regions/countries/sri-lanka/ Accessed 31st May 2018.
Sahan Peiris 8 Student ID – xxxxxx Economic Environment for Business BAIBF08001 explainity, 2013. Globalization easily explained. Online Available at: https://www.youtube.com/watch?v=JJ0nFD19eT8&t=4s Accessed 29th May 2018. Fernando, R.
, 2017. Escalation of the world drug problem. Online Available at: http://www.sundaytimes.lk/170917/sunday-times-2/escalation-of-the-world-drug-problem-259672.
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lk/article/Sri-Lanka-records-highest-tourist-arrivals-in–143449.html Accessed 7th June 2018. Sri Lanka Export Development Board, 2018.
Apparel. Online Available at: http://www.srilankabusiness.
com/apparel/ Accessed 30th May 2018. Sri Lanka Export Development Board, 2018. Apparel Exporters in Sri Lanka.. Online Available at: http://www.
srilankabusiness.com/exporters-directory/apparel-exporters-in-sri-lanka.html Accessed 7th June 2018.
Sri Lanka Export Development Board, 2018. Pure Ceylon Tea. Online Available at: http://www.srilankabusiness.com/tea/ Accessed 30th May 2018.
Sri Lanka Export Development Board, 2018. Tea Exporters in Sri Lanka..
Online Available at: http://www.srilankabusiness.com/exporters-directory/tea-exporters-in-sri-lanka.html Accessed 7th June 2018. Sri Lanka Tourism Development Authority, 2018. Geographic Location and Climate. Online Available at: http://www.sltda.lk/geography Accessed 29th May 2018.Sahan Peiris 9 Student ID – xxxxxx Economic Environment for Business BAIBF08001 Sri Lanka Tourism Development Authority, 2018. Tourism Growth Trends 1970 to 2017, Colombo: Sri Lanka Tourism Development Authority. The Sunday Times, 2017. Sri Lanka’s massive foreign debt generates a debt trap. Online Available at: http://www.sundaytimes.lk/170423/columns/sri-lankas-massive-foreign-debt-generates-a-debt-trap-238010.html Accessed 11th June 2018. Trading Economics, 2018. Sri Lanka – Economic Forecasts – 2018-2020 Outlook. Online Available at: https://tradingeconomics.com/sri-lanka/forecast Accessed 30th May 2018. UNESCO, 2018. Globalisation. Online Available at: http://www.unesco.org/education/tlsf/mods/theme_c/mod18.html?panel=3#top Accessed 9th June 2018.