Prior to economic liberalization, Sri Lanka has followed inward looking economic policies, which had limitations for foreign investors and free flow of FDI. With the market oriented economic policy accepted as being the most effective engine of growth, political entities have made it their top priority to create an investment friendly economic climate.
Investment policies in Sri Lanka have been restructured to attract foreign investment. In addition, Sri Lanka was one of the longest democratic traditions in the region and over the past 20 years, successive governments have followed free market policies and continued to liberalize the economy. There are no restrictions on the repatriation of earnings, profits, and capital proceeds.
Sri Lanka offers an attractive package of fiscal incentives to foreign and local investment. Foreign investment is encouraged in enterprises, which involve extensive use of foreign capital or sophisticated technology, in export-oriented manufacturing, and in large- scale infrastructure projects.
Apart from this, privatization and deregulation of the various sector in the country has led to the presence of global giants and attract FDI. Up to now, Sri Lanka has six free trade zones, also called export processing or investment promotion zones located in Katunayake (1978), Biyagama (1986) Koggala (1991) Pallekelle (1996) Mirigama (1997) and Malwatte (1997). There are over 155 foreign export processing enterprises operating in the six zones.
Foreign investment inflows to Sri Lanka continued to increase over the last decade as a result of investment favorable policies adopted by the successive government. The downturn in world economic activities, slowing down in capital inflows to developing countries, deterioration of investor confidence due to the civil war and politics related uncertainty and the stagnation of the Japanese economy adversely affected the investment inflows to Sri Lanka in the past few years.
Sri Lanka's foreign direct investment (FDI) flows in the first six months of 2008 reached 425 million US dollars. According to Board of Investment estimates, in 2008, the services sector attracted 362.3 million dollars worth of investments, with telecom leading with 290.7 million dollars followed by power generation with 46 million dollars. Property development had brought in 7.2 million dollars, hotels 2.07 million, other services 7.5 million and business process outsourcing (BPO) and information technology 9.05 million dollars. Sri Lanka expects foreign direct investment to more than quadruple to $4 billion by 2012.
Last Updated on: 17-05-2010