DUBAI: Sri Lanka will allow foreigners full ownership of businesses if they invest more than $ 10 million, a minister said, and the measure will likely be introduced within two months.
The proposed change comes as the $ 59 billion economy is struggling to attract foreign direct investments (FDI) into the island nation despite gradually stabilizing macroeconomic economic conditions since the end of a three-decade war in 2009.
Sri Lanka achieved only half of its FDI target of $ 2 billion last year, and has lowered its target to $ 1.5 billion in 2013.
At present, foreign investors can own up to 40 percent of a Sri Lankan business, with the remainder held by local partners.
“It is almost finalized and in one or two months it will come (into force),” Deputy Economic Development Minister Muhammad Hisbullah said on the sidelines of a tourism exhibition in Dubai.
Since the end of the war, Sri Lanka has seen a surge in tourism investment, but investments into other sectors have been far below expectations and economists have attributed some of the government’s inconsistent economic and investment policies for the shortfall in FDI.
Also yesterday, Sri Lankan shares rose for the sixth straight session to hit a new 1-1/2 year high, led by banking shares as expectations of a rate cut at the central bank’s policy meeting boosted local investor appetite for stocks.
The main stock index edged up 0.46 percent, or 28.61 points, to 6,238.71, the highest close since Nov. 14, 2011.
“The market is up on positive sentiment as investors expect a rate cut from the tomorrow’s policy rate decision,” a stockbroker said.
Analysts said they also expect a rate cut at the central bank’s May monetary policy announcement. But a Reuters poll showed it will hold rates steady and expects a rate cut in June.
Shares have been on a rising trend on expectations of a fall in interest rates after Treasury Secretary P.B. Jayasundera and the central bank said interest rates could ease in May-June.
The market has gained 8 percent since the treasury secretary’s comments on April 9.
The International Monetary Fund, however, last week said Sri Lanka must not loosen monetary conditions as inflation remains a concern, even though prices rose at a slower pace in April than in the previous month.
Turnover was 2.14 billion rupees ($ 16.97 million), well above than this year’s daily average of 1.02 billion rupees.
Foreign investors were net buyers of 194.1 million rupees of shares, extending the net foreign inflow so far this year to 9.31 billion rupees. Last year, the bourse saw a net inflow of $ 303 million.
The rupee edged up to 126.00/10 per dollar, firmer from Thursday’s close of 126.05/08, on bank dollar sales amid tight rupee liquidity in the market ahead of the policy announcement, currency dealers said.
