Sri Lanka - Country Commercial Guide
Investment Climate Statement (ICS)

The Investment Climate Statement Chapter of the CCG is provided by the State Department.

Last published date: 2021-09-28

The U.S. Department of State’s Investment Climate Statements, prepared annually by U.S. embassies and diplomatic missions abroad, provide country-specific information and assessments of the investment climate in foreign markets.  Topics include: Market barriers, business risk, legal and regulatory system, dispute resolution, corruption, political violence, labor issues, and intellectual property rights.  The statements are available in two ways.  

Sri Lanka is a lower middle-income country with a Gross Domestic Product (GDP) per capita of $3,853 and a population of approximately 22 million.  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.

After 30 years of civil war, Sri Lanka is transitioning from a predominantly rural-based economy to a more urbanized economy focused on manufacturing and services.  Sri Lanka’s export economy is dominated by apparel and cash-crop exports, mainly tea, but technology services exports are a significant growth sector.  Prior to the April 21, 2019 Easter Sunday attacks, the tourism industry was rapidly expanding, with Lonely Planet naming Sri Lanka its top travel destination in 2019.  However, the attacks led to a significant decline in tourism that continued into 2020 due to COVID-19 and the government’s related decision to close the airport for commercial passenger arrivals in March 2020.  The global impact of COVID-19 on tourism and apparel exports is resulting in severe contractions to both sectors in Sri Lanka, with potential follow-on impacts in related sectors including services, construction, and agriculture.  Migrant labor remittances, another significant source of foreign exchange, were approximately $6.7 billion in 2019.

President Gotabaya Rajapaksa, who came to power in December 2019, has largely promoted pro-business positions, including announcing tax benefits for new investments to attract foreign direct investment (FDI).  The new government’s economic goals, outlined in an election  manifesto, include positioning Sri Lanka as an export-oriented economic hub at the center of the Indian Ocean (with government control of strategic assets such as Sri Lankan Airlines), improving trade logistics, attracting export-oriented FDI, and boosting firms’ abilities to compete in global markets.  FDI in Sri Lanka has largely been concentrated in tourism, real estate, mixed development projects, ports, and telecommunications in recent years.  With a growing middle class, investors also see opportunities in franchising, retail, information technology services, and light manufacturing for the domestic market.

The Board of Investment (BOI) is the primary government authority responsible for investment, particularly foreign investment, aiming to provide “one-stop” services for foreign investors.  The BOI is committed to facilitating FDI and can offer project incentives, arrange utility services, assist in obtaining resident visas for expatriate personnel, and facilitate import and export clearances.  However, Sri Lanka’s import regime is one of the most complex and protectionist in the world.  Sri Lanka ranks very poorly on the World Bank’s Doing Business Indicators in a number of areas, including contract enforcement (164 out of 190); paying taxes (142/190); registering property (138/190) and obtaining credit (132/190).  Sri Lanka ranks well in protecting minority investors, coming in at 28/190.

GDP fell to $84 billion in 2019.  The Easter Sunday attacks, together with external shocks and political uncertainty, led to a growth of only 2.3 percent in 2019 with inflation hitting 6.2 percent.  FDI, including loans, into Sri Lanka fell to approximately $1.2 billion in 2019, significantly less than the $2.3 billion in 2018, and 2020 is expected to see even lower levels of investment due to concern over Sri Lanka’s worsening financial situation and increased reliance on the People’s Republic of China (PRC).

Visit the U.S. Department of Department of State’s Investment Climate Statement website.