Sri Lanka developed little industry under British rule, relying instead on the proceeds from agricultural exports to buy manufactured goods from other countries. Most industry during the colonial period involved processing the principal export commodities: tea, rubber, and coconut. Although these sectors remained important, in the 1980s there was a much greater variety of industrial establishments, including a steel mill, an oil refinery, and textile factories.

Industrial diversification began in the 1960s with the production of consumer goods for the domestic market. This trend was a consequence of government measures aimed at saving foreign exchange, which made it difficult to import many items that had previously been obtained from overseas. Heavy industries were established in the late 1960s, mostly in the state sector. During the 1970-77 period the state assumed an even greater role in manufacturing, but after the economic reforms of 1977 the government attempted to improve prospects for the private sector. The fastest growing individual sector in the 1980s was textiles, which made up approximately 29 percent of industrial production in 1986. The textiles, clothing, and leather products sector became the largest foreign exchange earner in 1986. Over 80 percent of the manufacturing capacity was concentrated in Western Province, particularly in and around Colombo.

Data as of October 1988