Introduction

Strategically located in the Indian Ocean, Sri Lanka is an island state with an area about the same size as Tasmania’s and a population similar to Australia’s. It is near crucial sea lanes, and has close geographical, historical and ethnic links to India and growing commercial ties with China. Three years on from the end of the 26-year civil war, the Sri Lankan Government sees the country becoming a ‘dynamic global hub’ in shipping, aviation, knowledge industries, commerce and energy. But, as in any post-conflict country, Sri Lanka faces challenges in political reconciliation and economic development.

Economic growth has been steady since the end of the war in 2009. GDP growth of 7.5 per cent is forecast for 2012, and social indicator scores are high compared with the rest of South Asia. However, despite these gains there are severe regional disparities, especially in areas that were most affected by the civil war. About one-third of the population lives on less than US$2 a day. The International Monetary Fund has warned that further economic reforms are needed to ensure continued growth. Although imports have increased, export growth has not been as high as hoped. Foreign direct investment remains low. Overseas remittances from 800,000 Sri Lankans working overseas (most in the Middle East and Gulf states) are a major source of foreign exchange earnings.

Government, business and people-to-people links

Australia and Sri Lanka have a long standing strong bilateral relationship founded on cooperation in such areas as education, trade and development. Australia’s long-term interest is for Sri Lanka to become a prosperous and stable nation, contributing to economic prosperity and security in the strategically important Indian Ocean region. To that end, Australia has invested in Sri Lanka’s future through a significant Australian aid program (an estimated $47.1 million in 2012–13).

Australia’s current aid program builds on major contributions to Sri Lanka’s development over many years. Australia’s humanitarian assistance, channelled through the United Nations and other partners, has helped resettle people displaced by civil conflict by repairing and reconstructing houses and re-establishing livelihoods. Australian assistance to remove landmines has enabled many Sri Lankans to return to their homes and resume their occupations. Australian funding has helped clear 11 per cent of the total mined area, and 81 per cent of mine-affected areas have now been cleared.

As the situation in Sri Lanka improves, Australia is shifting focus from humanitarian support to long-term development assistance, including by rebuilding economic infrastructure and improving education, forest management, water supplies and sanitation. Australia will continue to provide around 30 development scholarships each year for Sri Lankan students to study at Australian universities, having provided 90 long-term and 112 short-term scholarships since 2007.

Two-way trade is growing steadily, increasing by 12.4 per cent in 2011 to $362 million. Australian companies have recently become involved in projects in the dairy industry, solar energy and water distribution sectors.

People-to-people links between Australia and Sri Lanka are strong, based on migration, education (since the Colombo Plan of the early 1950s), shared membership of the Commonwealth and sport. Sri Lanka and Australia compete robustly on the cricket field. Along with regular tours, Sri Lanka’s national team has been invited to play the Cricket Australia’s Chairman’s XI in December 2012.

Sri Lankans see Australia as an attractive option for permanent and temporary migration. The vast majority of permanent visas are granted through the skilled migration scheme. Links with family and the pursuit of skilled opportunities and higher education have produced an increase in Sri Lankan visitors to Australia of 8.4 per cent over the past five years. According to the 2011 Census, there were more than 86,000 Sri Lanka-born people in Australia.

Australia is the most popular tertiary study destination for Sri Lankan students, of whom 6,473 were enrolled in Australia in 2011. Strong family links to Australia, vibrant Sri Lankan communities in several of our cities, the quality of Australian education, post-study employment opportunities and our lifestyle are all drawcards.

Increasing numbers of Australians are also choosing to travel to Sri Lanka for holidays: 37,200 Australians visited Sri Lanka in 2010, rising to 44,600 in 2011. Over 28,000 Australians visited Sri Lanka in the six months to end June 2012.

Australia and Sri Lanka cooperate closely to combat people smuggling through common membership of the Bali Process. Australia makes a practical, targeted contribution to Sri Lanka’s efforts to stem irregular people movement through legal cooperation, capacity building, law enforcement, information sharing and other activities.

Law enforcement cooperation will remain important. As Sri Lanka continues its post-conflict development, law enforcement and legal cooperation is likely to increase. Australian capacity-building assistance will also be valuable in targeting skills gaps in police leadership and the management of transnational crime investigations.

Sri Lanka is a member of important regional organisations, showing strong interest in regional economic integration and maritime security issues. Australia and Sri Lanka cooperate on issues of mutual concern through their common membership of the Indian Ocean Rim Association for Regional Cooperation, the ASEAN Regional Forum and the Galle Dialogue (a forum for discussing maritime security in the Indian Ocean).

Towards 2025

Over the coming years, Australia’s development assistance program will continue to contribute to post-conflict stability, prosperity and reconciliation in Sri Lanka. Development assistance will focus on inclusive economic and social development, particularly in conflict-affected communities in the north and east, and infrastructure and policy development. The relationship is likely to include the sharing of Australian technical capabilities and knowledge transfer through institutional and people-to-people links.

Australian companies will have increasing scope for investment, but will need to compete with China, Japan, India, Russia and Iran, which are currently the main financers of large projects in Sri Lanka. Growth in the tourism sector is likely to lead to a spike in demand for hospitality training, which Australian training institutions could address, while tourist infrastructure also presents opportunities for Australian firms.

There is potential for investment in the mining sector. Australian entities have shown interest in mineral sands mining, but the Sri Lankan Government has yet to develop attractive foreign investment policies.

A number of Australian tertiary education providers operate distance education facilities in Sri Lanka. There is potential for joint ventures, as the Sri Lankan government aims to develop its knowledge-based industries and several tertiary and vocational education providers are interested in collaborative initiatives, such as joint research and corporate training.

The Sri Lankan Government plans to develop the IT sector over the next few years. While the sector will not approach the Indian IT industry in size or scope, it could include opportunities for Australian providers.