Sri Lanka remains one of the most attractive destinations for investors in the Asia-Pacific region. The island’s strategic Indian Ocean location on major air and sea routes between Europe and the Far East gives it an advantage as a global logistics hub.

Sri Lanka is separated from India by the Palk Straits and the Indo-Lanka Free Trade Agreement demonstrates the political goodwill and commitment between the two countries. The agreement creates multiple investment opportunities for local and multinational firms based in Sri Lanka which want to enter the Indian market. The underlying premise of the agreement is to create a free trade area through the complete elimination of tariffs under a phased program. Today, Sri Lanka is ranked as the most liberal economy in South Asia. Investors are provided with preferential tax rates, constitutional guarantees on investment agreements, exemptions from exchange control and 100 percent repatriation of profits. Total foreign ownership is welcome in almost all areas of the economy, with only a few areas limited or restricted. Sri Lanka leads the South Asian region in terms of human development indicators, with its high literacy rate of 91 percent placing it way ahead of other South Asian nations and on a par with those of Southeast Asia. Its national health indicators are comparable with those of the developed world.

This is underscored by the relatively high ranking the country has received in terms of GDP which at $3,530 is higher than that of India ($2,358), Pakistan ($1,928) and Bangladesh ($1,602). Sri Lanka was placed 89th (Medium Human Development Category) out of 173 countries in the Human Development Indicators constructed in 2002, ahead of China (96th), Vietnam (109th), Indonesia (110th), India (124th), Pakistan (138th) and Bangladesh (145th).

The Human Development Index (HDI) measures a country’s achievements in three areas of human development: longevity, knowledge and standard of living. Longevity is measured by life expectancy at birth. A combination of adult literacy and the combined primary, secondary and tertiary gross enrolment ratio is used as a measure of knowledge while GDP per capita (PPP) is used to measure the standard of living. Sri Lanka’s overall score in the business environment rankings improves from 4.99 for the historical period 1997-2001 to 6.03 for the forecast period 2002-2006.

The country’s global ranking has improved from 49th to 45th and its regional ranking moved up from 14th to 13th slot. The higher rankings are indicative of the more attractive investment climate in the country with Sri Lanka’s score in most of the categories used to evaluate the business environment.

For instance, Sri Lanka is ranked highly for its liberal approach to foreign investment, with its global and regional rankings moving from 36th to 27th (out of 60 countries) and 8th to 4th (out of 16 countries) respectively. From a regional perspective, the country’s main advantages center on its open foreign investments, its commitment to private enterprise and competition and its liberalized trading environment (where it is ranked 5th).

When you sign an agreement with the BOI, the specific incentives granted to an eligible company, which may include tax holidays or preferential tax rates, exemptions from customs duty and foreign exchange controls, remain valid for the entire life of the enterprise.

Sri Lanka has an enviable record of political credibility in the international arena. All major political parties are committed to free enterprise and individual freedom.

The government has never defaulted nor requested rescheduling of any of its international obligations.

Significantly, this protection extends to foreign investors. Bilateral investment agreements, supported by a constitutional guarantee, provides strong protection for foreign investment in Sri Lanka.

The safety of foreign investment is guaranteed through the acceptance by a two-thirds majority of Parliament of the Constitutional Guarantee of Investment Protection Agreements.

Under article 157 of the country’s constitution, the agreement enjoys the force of law and no legislative, executive or administrative action can be taken to contravene it. Bilateral investment agreements are valid for 10 years and are extended automatically unless terminated by either party. If the agreement is terminated, investments already made are protected for another 10 years.

A clause in the Sri Lankan constitution ensures the sanctity of the agreements.