Gross domestic production in Sri Lanka

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					               Gross Domestic capital formation (GDCF)
Is a macroeconomic concept used in official national accounts such as the UNSNA, NIPAs
and the European System of Accounts (ESA). The concept dates back to the NBER studies of
Simon Kuznets of capital formation in the 1930s, and standard measures for it were adopted
in the 1950s. Statistically it measures the value of acquisitions of new or existing fixed assets
by the business sector, governments and "pure" households (excluding their unincorporated
enterprises) less disposals of fixed assets.

GFCF is a component of the expenditure on GDP, and thus shows something about how
much of the new value added in the economy is invested rather than consumed.

GFCF is called "gross" because the measure does not make any adjustments to deduct the
consumption of fixed capital (depreciation of fixed assets) from the investment figures.
For the analysis of the development of the productive capital stock, it is important to measure
the value of the acquisitions less disposals of fixed assets beyond replacement for
obsolescence of existing assets due to normal wear and tear. "Net fixed investment" excludes
the depreciation of existing assets from the figures for new fixed investment, and is called net
fixed capital formation.

Obviously GFCF is not a measure of total investment, because only the value of net additions
to fixed assets is measured, and all kinds of financial assets are excluded, as well as stocks of
inventories and other operating costs. If, for example, one examines a company balance
sheet, it is easy to see that fixed assets are only one component of the total annual capital

The most important exclusion from GFCF is land sales and purchases. The original reason,
leaving aside complex valuation problems involved in estimating the value of land in a
standard way, was that if a piece of land is sold, the total amount of land already in existence,
is not regarded as being increased thereby; all that happens is that the ownership of the same
land changes. Therefore, only the value of land improvement is included in the GFCF
measure as a net addition to wealth. In special cases, such as land reclamation from the sea, a
river or a lake (e.g. a polder), new land can indeed be created and sold where it did not exist
before, adding to fixed assets. The GFCF measure always applies to the resident enterprises
of a national territory, and thus if e.g. oil exploration occurs in the open seas, the associated
new fixed investment is allocated to the national territory in which the relevant enterprises are
Reasons for changes gross domestic Capital Formation in 2006
Investment expenditure at current market prices was estimated at RS.803 Billion, an increase
of 28% over 2005.In real terms it grew by 13.4% and as a ratio of GDP investments further
improved to 28.7% (26.5% in 2005).

Growth private investments which include public corporation accelerated to 31.7% in 2006 as
business confidence strengthen with political stability.

The stronger growth was mainly due to

      High capacity utilization arising from improved external and domestic demand.
      Higher capital expenditure was evident in the economy with the factory industry,
      Construction and telecommunication sector.

The growth in private investment increased substantially by 110.3% to US Dollars 604
million in 2006 showing an increase trend in the recent past.

The growth was achieved through

      increase efforts of the BOI facilitated by preferential Tax rates and constitutions
       guarantees on investment agreements.
      Outward investment promotions, missions with business delegations and exhibitions
       were undertaken by BOI to increase foreign flows to the country.
      The services sector accounted for 99% of the contracted investment in 2006.
      2375 projects commenced commercial operations in 2006.
      1629 enterprises were registered under the ministry of Industrial development.
      Government investment expenditure was increased by 108 million.

Reasons for changes gross domestic Capital Formation in 2007
Expenditure on investment was estimated to have expanded from RS.822 Billion in 2006 to
RS. 997 Billion in 2007,recording a growth of 21.2% in nominal terms. However the
investment to GDP ratio marginally declined to 27.9% from that 28% in 2006 indicating a
lower growth in investment. The real growth in investment activities was estimated at 8.7%
for 2007.

Private investment which includes the contribution of public corporations and boards grew by
14.4% in 2007 reflecting the continued investor confidence amidst the security situation over
a growth of 27.9 % in the previous year. Private sector investment accounted for a share of
81% of total investment. Investor confidence was particularly evident in sectors such as,
Manufacturing, Telecommunications, Real estates, other personal services

The growth of investment in 2007 is achieved through,

      Foreign direct investment inflows increased by 21.6% to US Dollars 734.4 Million in
      BOI approved new projects in 2007 under section 17 and 16 of the BOI act with an
       investment commitment of RS.489.4 Billion compared to 364 projects approved in
       2006eith an investment commitment of RS.339.8 Billion.
      The service sector absorrbed154 projects with an investment commitment of RS.
       160.6 Billion of contracted investment in 2007.
      20.6 billion of investment was absorbed by the factory industry.
      Projects that commenced commercial operations under the section 17 and 16 of the
       BOI act declined marginally from2460 in 2006 to 2418 in 2007.
      Government sector investments expand at higher rate of 61% during 2007 when
       compared to a growth of 10% in 2006 which transformed to a real growth of 38.2%
       for 2007.

Reasons for changes in gross domestic Capital Formation in 2005
Investment expenditure at current market price was estimated at RS. 626 million and increase
of 23.5% over 2004.In real terms investment grew by 10.8%. This investment to GDP ratio
improved to 2605% from 25% in 2004. This was entirely on account of government
investment which rose by 119.4 % whereas private investment grew by 14.1%.

Meanwhile imports of investment goods rose moderately after two years of significantly high
growth. Private investment had risen significantly in areas such as,

       Telecommunications, Transportation and factory industries following the ceasefire
        Readiness for removal of MFA

In the aftermath of the Tsunami devastation public sector as well as Private sector investment
had been channeled into urgently required rehabilitation and reconstruction activities in
Tsunami affected areas. Private investment expenditure expanded by 14.1% in 2005 and
accounted for 84% of total investment.

       Foreign direct investment inflows to Sri Lanka increased by 22.6% US Dollars287
        Million in 2005 around 5% of total investment.
       The BOI act in 2005 150 were foreign owned and 119 were joint ventures while Sri
        Lankans owned the rest.
       The factory industry sector absorbed 17% while other sectors absorbed the balance of
        total contracted investment in 2005.
       The number of enterprises in commercial operation has declined marginally from
        2360 in 2004 to 2338 in 2005.
       1641 enterprise registered under the Ministry of Industrial development as at end
        2005 a large number of enterprises were in textiles, wearing apparel and leather
       Government expenditure increased significantly by 119.4% RS 99 billion in 2005.

               0                                                                2005
Reasons for changes in gross domestic Capital Formation in 2003
In 2003 Gross domestic Capital Formation or Investment expenditure, at current market price
was estimated at Rs:393 billion ,an increase of 16.3% over the previous year. In the previous
year ,the corresponding increase was 9.1%.In real terms Capital formation increased by
17.0% in 2003 while the corresponding growth in the previous year was 6.7%.In the year
2001 and 2002 investment expenditure was lower than 2000.This level was exceeded in
2003.These are the main reason for increase in Investment.

            The continuation of the ceasefire and peace process.
            Steady expansion of economic activities.
            Donor support for Government’s economic Programme.
            Lower interest rates.
            Improvement of macro economic Management.

The recovery of investment expenditure was led by private sector. Even though the overall
investment ratio dropped from 22.0% to 21.3% in 2002,the private investment ratio (Private
sector Investment/GDP)continued to grow in 2002 from 16.2% to 16.7%.This ratio improved
further to 17% in 2003.Private sector investment was mainly concentrated in,

Power Generation, Telecommunication, Transportation, Retail Trading etc.

Government investment was estimated at Rs:40.7 billion ,an increase of 28% over the level of
2002.In 2002 government investment declined by 25%.The increase in public investment in
2003 was coupled with the curtailment oh government current expenditure. Government
investment mainly focused on,

    Road Development(Colombo-Matara Highway Project)
    Regional Development(Small Scale power projects, Water Supply and road
    Rehabilitation work in the Northern and Eastern provinces.

                  0                                                         2003
Reasons for Changes in gross Domestic Capital Formation Of
    During the 2010, expenditure on Investment (Gross domestic formulation) recovered
    forma contraction of 2.8% in the pervious year to expand by 31.8% in nominal terms.
    Favorable economic environment supporter the higher growth in Investment activity
    witch slowed down in the previous year.
   2010 admits the conductive environment, which include higher involvement in
    Investment activities by the private sector which grew rapidly during the latter part of
    the year.
   Continuous growth in ongoing mega projects to enhance to physical infrastructure in
    the sector such as transport, irrigation power angry supply and water supply.
   A number of projects were implement in line with the rehabilitation programs in the
    Nor thern part of the country.
   Social infrastructure project also increased. Including project sector such as education,
    health and environment.

Investment              2009                   2010                    Chang %
                                                                       2009         2010
Private                 3967770                4557348                 1.4          14.9
Government              3116221                3684738                 1.0          18.2

 The massive infrastructure development drive currently progress in exceptive to
  support the country to maintain to high and sustainable grow.
 Private Investment Activates that suffered a considerable contraction of 7.1% in 2009
  recovered with a nominal growth of 40.1% in 2.0% private sector Investment
  expenditure which included public corporation accounted for a share of 77.7% of total
  Investment 2011. Private Investment which contract in 2009 duet to unfavorable
  condition both the domestic and International economy rebounded in 2010 amidst the
  conductive environment which include higher involvement in Investment activities by
  the private sector.

                1,000,000.00                                                     2010
   Reasons for Changes in gross Domestic Capital Formation Of
    The estimated share of expenditure of the resident abroad continued to decline from
     8.9 per cent in 2007 to 7.7 per cent with a growth of 10.5 per cent in 2008 compared
     to 17.2 per cent in 2007.
    Gross domestic capital formation or expenditure on Investment activities expanded by
     21.4 per cent in nominal terms during 2008 over a growth of 21.7 per cent in the
     previous year, from Rs. 1215 billion. Further,
    The BOI continued to play a major role in attracting FDIs to the country in 2008 the
     telecommunication sector accounted for around 62 per cent of total FDI inflows,
     while manufacturing and power generation sector absorbed around 21 per cent and 10
     per cent, respectively.
    Under sector 16 and 17 of the BOI Act, 462 new projects were approved with
     Investment commitments of Rs.460.5 billion in 2008 compared with 604 projects that
     were approved with Investments of Rs. 489.6 billion in 2007.
    The number of enterprises that commenced commercial operations during 2008 was
     2485 compeered with 2502 projects with commenced commercial operations.
    The increase of total number of enterprises registered under the ministry of industrial
     development as at 2008 was 1751.
    The increase of total recourse utilization in 2008 compared of Rs. 3877 billion of
     capital formulation and rs. 1098 billion of exports of goods and services.
    With the nominal 23.2 aggregate demand during 2008, the composition of
     consumption, investment changed in favor of consumption compared to the structure.

item                               2007 %                      2008%
A. Resources
         Gross Domestic product    71.1                        72.3
         Imports   of      Total   28.3                        27.7
B. Utilization
         Consumption               59.1                        62.1
         Gross Domestic fixed      35.4                        36.6
Change in stock                    2.3                         1.6
Export of Good And services        20.9                        18.0
                                                   Source: Department of Census and Statistics
                                                           Center Bank of Sri Lanka

                       -                                                        2008
Reasons for Changes in gross Domestic Capital Formation Of
 Investment Expenditure (gross Domestic Formulation) was estimated at Rs. 1184
  Billion a drop of 2.6% in nominal terms over that of 2008.
 The investment expenditure was grew only by 1.4% whereas the Corresponding
  Growth in 2008 was 4.2%.the slowdown in investment expenditure was partly due to
  the decline in investment with the World Economic down turn.
 In 2009 though the economy grew by 3.5%
 Investment ratio decline by 3.1% points to 24.5% signifying the slowdown in the
 Foreign direct inflows decline during 2009 by 32% compared with 2008 with an
 The main contribution to FDS in the manufacturing sector during 2009 was attracted
   by textile, weaving apparel and leather products sub sector.
 Hotel and restaurant information technology and computer software development
   ,power generation housing and property development , education and Training
   Institution development Trading House and Agriculture related Projects are developed
   it is the Major reason of this Development
 There were 1349 new projects which commenced Commercial operations were
   developed and developed Export Processing Zones and Industrial parks.
 The Government investment to GDP ratio showed Marginal growth from 6.6%.
   Government has Developed Mainly the infrastructure programs including “Uthuru
   wasanthaya” and Nagenahira Nawodaya”

   Reasons for Changes in gross Domestic Capital Formation Of
In 2004 investment even more than consumption provided the impetus for economic growth.
Investment expenditure at current market price was estimated at Rs. 507 billion an increase
of 30.5% over 2003. In real terms the investment expenditure rose by 11.7%. whereas the
corresponding growth in 2003 was 16%. The investment /GDP ratio further improved to 25%
from 22.1% in 2003. The increase in imports of investment goods by 18.4% in volume terms
clearly indicated that investment demand outperformed consumption demand and growth in

The recovery in investment expenditure was led by the private sector where private
investment expenditure accounted for 91%of the total investment and expenditure by 32.7%
in 2004. The private sector investment ratio continued to grow from 19.8% in 2003 to 22.7%
in 2004. Reasons for this growth can be listed as followed.

      Large investment flow into garment industry.
      Revival of tourist arrivals after the ceasefire agreement.
      Many hotels were refurbished, expanded.
      New boutique resorts opened.
      Development of telecommunication, transportation, information technology.

Foreign direct investment inflow to Sri Lanka rose by 13% US dollars during 2004. The BOI
the main investment promotion institution of the government also approved 524 projects
under section 16 & 17 of the BOI act. The decline was partly explained by the fall in
investment during the period o political uncertainty in the first half of the Year and more
stringent screening processes introduced by the BOI.

                0                                                                  2004
   Reasons for Changes in gross Domestic Capital Formation Of
Investment expenditure at current market prices is estimated at Rs 308 billion in
2001.reflecting a 12.5% decline over the previous year. The decline was solely due to the
decline in private sector, large scale investment projects on which work had started

However with the exception of the commencement of Katunayaka highway there were no
new large scale projects on which work commenced during the year.

On a sectoral basis, private sector investment in transportation decline by 71.2% in current
terms, followed by investment in planting, replanting and land development (20%) and plant
and machinery (8.7%) and other capital goods (5%).

Meanwhile Investment in building and other construction materials increased by 14.3% of the
total private sector investment, a considerable share was assigned to infrastructure
development in port services, telecommunication and energy.

Public investment expenditure however increased by 2.1%.Public investment was mainly
concentrated on road development, energy and water supply.

   Reasons for Changes in gross Domestic Capital Formation Of
Investment expenditure at current market prices, which had decline by 12.2% in 2001, is
estimated at 338 billion, an increase of 9.1% over the previous year.

The increase was solely due to the higher investment in by private sector and public
corporations, by 14.4%. Public investment contracted by 24.7%. In current terms on a
sectoral basis investment on transportation equipment increased by 26.7%.This was due to
the Greater demand for transport facilities during the year following the improved security

However investment in building and other construction and plant and machinery increased by
lower amount 10.1% and 13% respectively.

Meanwhile, investment in other capital was increased by 24.3%. Of the total private
investment, a considerable share was assigned to infrastructure development in port services,
telecommunication, information technology and energy.

Public investment was mainly concentrated on road development, energy and water supply.
Monthly import statistics showed that capital formation increased sharply at the very end of
the year. This increase in stocks at the end 2002 will impact positively on the real growth in

Reflecting the increase in stock accumulation, gross capital formation(investment
expenditure), which is inclusive of stocks, increased in 2002 by 9.1% in current terms, while
gross fixed capital formation, which is exclusive of stocks increased by 7.7%

              0                                                                2002

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