Sri Lanka needs more than serendipity to boost its economy

This tear-shaped tropical isle, known to Arab traders as Serendib, is discovering that economic recovery does not come by serendipity alone. Sri Lanka's traditional economic base - developed during years of British colonial rule - consists of tea, coconuts, and rubber. Even before violence flared across this nation of 16 million four years ago, economic planners understood that a shift away from that base was essential.

It was in November 1977 that the current government of President Junius Jayawardene liberalized many sectors of the economy. By 1981, over $300 million worth of foreign investments were channeled into textiles and light manufacturing, creating some 30,000 jobs. In the early 1980s, a pair of ``free trade'' zones adjacent to the capital, Colombo, spawned business, and today some 45,000 are employed at the two sites.

But along with the ethnic conflict that surfaced in 1983, the country has suffered a series of disastrous reversals. Commodity prices tumbled worldwide, and with tea providing 30 percent of export revenue, hard currency reserves decreased rapidly. Tea provides a livelihood for some 800,000 Sri Lankans.

Fighting between majority Sinhalese and ethnic Tamils - who make up 18 percent of the population - has caused tourism to plummet. While more than 400,000 tourists visited the pristine beaches and ancient Buddhist temples dotting the country in 1982, only 230,000 traveled to Sri Lanka last year.

Still, Sri Lanka's gross national product has achieved growth rates of more than 5 percent during the past two years, although per capita income remains low, at about $300. Upgrading of existing commodity-based products is the cornerstone of plans to increase growth in the near- and medium-term. Marketing plays a key role.

``There is not enough money in simply selling spices anymore,'' says S.S. Jayawickrama, manager of the National Chamber of Commerce. ``That was the old way. If the spice bags are packaged right and marketed differently, they will earn much more revenue for us.''

Spice producers are aiming for upscale shops in the West, east Asia, and Australia.

This strategy is also true in natural rubber. Only 15,000 tons of the total 125,000-ton crop were processed in 1986. But the rubber growers plan to convert more of their crop from latex strips into surgical gloves, tires, and other higher value goods.

Much more foreign investment is required, however. Government incentives include tax holidays, the right to repatriate capital to the home country, and absence of currency controls. But these are ``just considered bonuses,'' says D.Kumar Fernando, chief economist for the Foreign Investment Advisory Commission. Foreign companies are looking at ``how stable our government's policies are, whether we shift too far right or left,'' he says.

There is also worry about protectionism, since textiles rank second in exports after tea. But ``the issue is not textiles, per se,'' insists Lal de Alwis, director of the Export Development Board. ``It's the protectionist climate we may face in the future'' that is a source of concern.

Most of the economic hopes of Sri Lanka are still based on agriculture. The billion-dollar irrigation Mahaweli project will open vast tracts to agriculture and introduce hydroelectric power to much of the country.

``If the power grid and transportation links are in place,'' says Robert Goold, economic attache at the US Embassy in Colombo, ``and if there is a way to refrigerate the crops before shipment, farming can really succeed there.''

Among other industries that show promising growth: aquaculture, furniture building, and gemstones (the nation is laden with rubies and sapphires, yet sold only $34 million worth last year).

The government is still bedeviled by a bureaucratic style, which ``curbs entrepreneurship,'' says Mr. Jayawickrama. But privatization of some industries is proceeding. Tea, for example, is largely controlled by the government, and is a candidate for privatization after insurance, public transportation, and telecommunications.

One business leader makes an indirect reference to the island's most renowned resident. ``Like Arthur C. Clarke,'' says J.M. Blackler, chairman of John Keels, a large diversified corporation, ``we must look toward 2001.''