The Sri Lankan Economy's Chance to Shine

After five years of peace, Sri Lanka is getting it all back together.

Despite the violence and the civil war, which are still so vivid in our memory, Sri Lanka is close to becoming an economic miracle.

In numbers terms, over ten years of high growth qualifies Sri Lanka as an emerging market star. The Colombo stock index reflects that growth. However, there is a list of problems that Sri Lanka still faces.

Just like there is a sense of fear in the Sri Lankan media, global investors don’t like instability. As a result, most investors missed a 700%+ return opportunity over the last 13 years.

And remember that the US index only returned 40% in the last 14 years.

Chinese Tourists keep their Lights on

When the civil war ended in May 2009, the Chinese keenly filled the economic void.

Colombo will soon get new trains, provided by CSR Corp [HKG:1766], a powerful state-owned enterprise (SOE) in China. Under the direct management of the Ministry of Transport, CSR Corp is the company that spearheads China’s transportation technology and research.

It supplies all the subways, speed trains/bullet trains, freight trains and locomotives in China.

Tourism is a key industry for Sri Lanka. It’s also the most sensitive industry to instability and violence. While the north of Sri Lanka has suffered decades of civil strife, it’s the south and west that are most at risk. Why? That’s where you’ll find the fancy hotels and resorts.

It’s true that Chinese tourists are resilient, such as in the case of travelling to Malaysia. Chinese tourists saw the disappearance of an entire plane and the kidnapping of Chinese citizens in Malaysia. But even that didn’t stop them going.

However, another explosive situation in Sri Lanka won’t be good news for tourism.

It’s low season in June. Yet thousands of Chinese visitors pour into the resorts and beaches of Sri Lanka. They’re helping to keep the hotels’ lights on at night.

Fundamentals

In terms of economic fundamentals, Sri Lanka has achieved a miracle. The country has lifted its GDP per capita three times in the last 20 years.

Sri Lanka is among the fastest growing nations in the world. It’s one of the few countries that has kept average growth above 5% over the last four to five decades. And for the rest of this decade, Sri Lanka will continue to grow at 6%. That’s on a par with India.

With a GDP per capita of US$6,530, Sri Lanka is fast approaching the middle income benchmark.

The growth mechanics of the country are straightforward. Increasing investments, a gradual urbanisation process, and expanding services have led to a growing economy.

Read the rest of this article at Money Morning