Foreign Direct Investment

FDI inflows to Sri Lanka have increased steadily in recent years driven by the end of the civil conflict and economic recovery. According to UNCTAD’s World Investment Report 2023, FDI inflows increased by 51.7% y-o-y in 2022, totaling USD 898 million. At the end of the same period, the total stock of FDI stood at USD 13.87 billion, representing around 18.4% of the country’s GDP. Between 2010 and 2019, according to the Board of Investment of Sri Lanka, the top ten investing countries in Sri Lanka were China, Hong Kong, India, the UK, Malaysia, the Netherlands, Singapore, the United Arab Emirates, Mauritius and the U.S. China has invested ever-increasing sums into the country, notably through the Exim Bank of China. In 2023, the Board of Investment saw a remarkable 122% surge in registered and approved FDI Investment projects. This substantial rise can be attributed to the considerable investment value in the energy sector. Companies like Adani Corporation, Sinopec, RM Parks in collaboration with Shell, alongside various other sectors including ITC, BPO, Tourism, and Manufacturing, are witnessing increased investment. Throughout 2023, countries such as China, India, the US, Hong Kong, UAE, France, Korea, Germany, and Singapore emerged as prime investment destinations.

The island’s strategic location off the southern coast of India along the main east-west Indian Ocean shipping lanes gives Sri Lanka a regional logistical advantage. In 2021, the Colombo Port City Special Economic Zone (SEZ) and the Colombo Port City Economic Commission (CPCEC) were established. CPCEC is the one-stop-shop (Single Window Investment Facilitator) that registers and issues licenses, authorizations and approvals to engage in business within, and invest in, the SEZ. CPCEC is encouraging and promoting global and regional investments in international trade, shipping, logistics operations, offshore banking and finance, IT and business process outsourcing, the establishment of corporate headquarters, regional distribution operations and tourism. Among the reasons to invest in Sri Lanka, there are the measures taken by the government to attract FDI (the creation of free zones, reduction of food subsidies and other consumer goods), the country’s geographically strategic location near two high-growth regions (India and Southeast Asia), and its tourist potential (which is yet to be fully developed). However, Sri Lanka needs to address transportation shortfalls, which have seen inequitable development in some regions, increasing issues of congestion, and safety for women. Different areas face transportation gaps in roads, air travel, and marine transportation infrastructure while rail infrastructure is outdated and limited, especially for the transport of goods. Moreover, investment in several sectors of the economy remains restricted, and state-owned enterprises distort the economy. Additionally, political uncertainty may undermine investment and overall investor confidence, same as for the country’s current economic situation in light of the country’s debt default in 2022. In 2022, Sri Lanka introduced a new Ministry of Technology and Investment Promotion, which will promote FDI and private sector investment. While the country generally has adequate laws and regulations to combat corruption, enforcement is weak, inconsistent, and selective. As a result, the country ranks 115th out of 180 in the Transparency International's latest Corruption Perception Index. According to the 2024 Index of Economic Freedom, Sri Lanka's score remains below the world and regional averages, and is classified 149th out of 184 countries.