Situated at the crossroads of major shipping routes to South Asia and the Far East, Sri Lanka remains one of the most attractive investment destinations in the Asia-Pacific region.
Pioneering South Asia’s economic liberalization, the island has followed free market policies and has evolved a business-friendly policy environment favorable to investment and economic growth. Over the years, successive governments of the country have continued to liberalize many areas of the economy to pave the way for international investment.
Besides countries in the Middle East, Sri Lanka has attracted investors from countries such as India, United Kingdom, United States of America, Germany, Australia, Singapore, Hong Kong, Japan, Malaysia, China, Italy, Korea, Switzerland, the Netherlands, Luxembourg, Seychelles, Norway Taiwan, France, Belgium and Canada.
It has attracted 55 projects from the Middle East with a total investment $52 million. Among the Middle East countries that have invested in Sri Lanka, the UAE has recorded the highest number of projects in commercial operation under Board of Investment, (BOI) Law.
In October 2007, Prince Faisal Al-Faisal Ibn Abdullah Al-Saud, grandson of King Faisal, prominent investment banker, invested Rs. 420 million in the Union Bank of Sri Lanka.
Sri Lanka has signed “Double Taxation Relief Agreements” with United Arab Emirates, Saudi Arabia, Kuwait, Oman, Jordan, Egypt and Iran. Further, they have signed “Investment Protection Agreements” with Egypt and Iran.
Strategic Location
In recent years the port of Colombo has become a major transshipment hub. Sri Lanka hopes to leverage on its location advantage by implementing a policy framework to position the country as a service hub to the subcontinent. Based on this concept, Sri Lanka is now poised to exploit its location.
Skilled Work Force
Sri Lanka’s work force is reputed for its precision, quality and productivity. English is both widely understood and spoken. Investors have discovered an intelligent, educated and energetic workforce that is comfortable with modern production techniques and has a level of trainability that is among the best in the region. In addition, according to recent World Bank Development Indicators, Sri Lanka has the lowest labor cost per worker in manufacturing.
The Indo-Lanka Free Trade Agreement creates multiple investment opportunities for local and multinational firms based in Sri Lanka seeking to enter the Indian market. The underlying premise of the agreement is to create a free trade area through the complete or phased elimination of tariffs, which will occur over defined phases. In addition Sri Lanka has entered into an agreement with Pakistan and many products made in Sri Lanka have duty free access to this important South Asian market.
Another important agreement is called the EU GSP+, which is an agreement under which Sri Lanka produced goods have access to the European Union, the world’s largest trading block.
Economic Freedom
The 2003 Index of Economic Freedom published by the Heritage Foundation ranked Sri Lanka 80th out of 156 developing countries, in terms of its “economic freedom” and quality of its overall policy environment. The economic variables used to measure the level of economic freedom are grouped into 10 broad categories viz: Fiscal burden of government; government intervention in the economy; monetary policy; capital flows and foreign investment; banking and finance; wages and prices; property rights; regulation; and, black market activity.
Transparent Investment Laws
The country’s investment laws are transparent and automatic across a wide range of sectors. When a qualifying investment project enters into an agreement with the Board of Investment (BOI), the incentives granted to the project economy are valid for the life of the enterprise. Successive governments cannot change the applicable incentives enshrined in the agreement. This is the fundamental strength of a BOI agreement, which few other countries can offer, or match.
Generous Tax Incentives
Certain projects, which the government of Sri Lanka encourages, qualify for incentives. The rationale for granting these incentives stems from the need top:
* Promote the diversification of Sri Lanka’s industry and services, focusing on advanced technology, and value addition.
* Promote investments in large-scale projects with special emphasis on infrastructure; and,
* Exploit regional opportunities and Sri Lanka’s comparative advantages.
Double Taxation Relief Agreements signed between Sri Lanka and other countries provide for reduced tax rates on dividends, interest and royalties. Recently concluded agreements include special provisions to ensure that foreign investors receive benefits arising from various tax incentives, many countries worldwide have entered into tax treaties with Sri Lanka.
Arbitration
An Arbitration Center has been established in Colombo for the settlement of commercial disputes expeditiously, economically and privately. A new law has already been enacted for this purpose. The center will be affiliated with the Arbitration Institute of the Stockholm Chamber of Commerce and will follow its standards and norms. The Arbitration Act gives recognition to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards. This means that arbitration awards made abroad are now enforceable in Sri Lanka. Similarly, awards made in Sri Lanka can be enforced abroad.
Remittance of Earnings and Capital
Sri Lanka has removed all foreign exchange restrictions on current account transactions. The monetary authorities are moving toward further liberalizing exchange controls. Within this liberal environment, foreign investors can freely remit dividends, capital or royalty payments through any commercial bank, as well as the sale proceeds of shares.
Investment Protection and Guarantees
Bilateral investment agreements supported by a constitutional guarantee provide strong protection to foreign investment in Sri Lanka. Under Article 157 of the constitution, the agreement enjoys the force of law and no legislative, executive nor administrative action can be taken to contravene it. Bilateral agreements are valid for 10 years. They are extended automatically unless terminated by either party.
Quality of Life
The country’s scenic beauty and biodiversity are ranked among the best in the world. Sri Lanka also has eight world heritage sites as classified by UNESCO an indication of the country’s rich cultural heritage. The quality of life is the highest in the South Asia region. A cosmopolitan living environment, abundant recreational facilities, a culture dating back 2500 years, unparalleled natural beauty and an equable climate throughout the year make Sri Lanka a pleasant place in which to live.
Sri Lankan peace talks have focused on economic recovery and quality of life. Along with the efforts to usher in more peace, the World Bank recently agreed to provide $31 million to improve lives and prospects of people living in Sri Lanka/various countries have strongly supported and applauded the progress of the peace initiative in Sri Lanka.
Sri Lanka offers abundant human and natural resources at a competitive cost. With a literacy rate of 92 percent and widespread use of English in business, Sri Lanka’s work force, which is considered the country’s greatest asset, is known for innovativeness, dexterity in precision work and diligence.
