The Report: Sri Lanka 2019
Sri Lanka’s progress with free trade agreements, finance reforms, and growth strategies for manufacturing and ICT should encourage increased foreign direct investment. Sri Lanka was named the top travel destination for 2019, and the government’s 2025 development strategy aims to increase public-private partnerships, nurture innovation and increase investment in special economic zones.
Country Profile
Sri Lanka has long served as an important strategic destination in the Indian Ocean, catering to merchants and travellers from South-east Asia, India, the Middle East and East Africa. While much of the country’s recent history has been tainted by a decades-long civil war, post-conflict euphoria brought with it a sense of renewal and optimism. A coalition administration elected in 2015 pledged its commitment to inclusive governance and economic reform, a rebalancing of foreign policy, and reconciliation with its ethnic minorities. However, the coalition has diverged on several key policy issues, leading to delays in the legislative agenda and culminating in a constitutional crisis that saw the prime minister removed from office by the president in October 2018, only to be reinstated two months later following a ruling by the country’s highest court. This chapter contains interviews with President Maithripala Sirisena; and Ganeshan Wignaraja, Executive Director, Lakshman Kadirgamar Institute; and a viewpoint from Prime Minister Ranil Wickremesinghe.
Explore chapterTrade & Investment
Trade and investment activities in Sri Lanka benefit from the country’s location along busy Indian Ocean trade routes, abundant agricultural and industrial exports, and a young, skilled workforce. Just 19 km separate its southern-most port from a global shipping lane carrying two-thirds of the world’s oil and half of its container shipments. This makes local ports a natural staging post for cargo destined for India and Pakistan, with some 30% of the former’s container traffic currently trans-shipped through Sri Lanka. The country has also been making strides in attracting international stakeholders to develop trade, transport and logistics infrastructure, becoming a major destination for foreign direct investment (FDI) in the process. Higher inflows have benefitted the broader economy; 2018 was the highest year on record for FDI, with $2.3bn worth of investments made. This chapter contains interviews with Parag Khanna, Founder and Managing Partner, FutureMap; Champika Malalgoda, Director-General, Board of Investments; and Thilan Wijesinghe, Chairman, National Agency for Public-Private Partnership.
Explore chapterEconomy
Sri Lanka’s economy has been making progress in recent years, which should stand it in good stead during the potentially difficult times ahead. Major efforts have been made to instil greater fiscal discipline, and modernise monetary and exchange rate policy, while steps have also been taken in the management of government expenditure and the maximising of public sector revenue. Meanwhile, trade and foreign direct investment have continued to rise, and infrastructure development is gradually moving Sri Lanka towards realising its long-term goal of becoming an essential transportation and trans-shipment centre for the Indian Ocean and South Asia. There has also been positive progress in establishing the island as a tourism destination and in mobilising the population to help cultivate a more entrepreneurial, gender-balanced and inclusive economy. This chapter contains interviews with Rajendra Theagarajah, Chairman, Ceylon Chamber of Commerce; and Krishan Balendra, Chairman, John Keells Holdings.
Explore chapterBanking
Sri Lanka’s banks are currently experiencing considerable change. Regulatory matters are a prominent concern, alongside the ups and downs of loan growth and economic policy. A careful balancing act is being performed as a result, with those able to tread the narrow path recording healthy bottom lines and continued service expansion in 2018. The year ahead will likely see this trend continue. There is an expectation that an election year may see some fiscal loosening overall, to the benefit of credit growth – particularly in the consumer segment. Meanwhile, meeting the new regulatory standards accompanying the rollout of Basel III and International Financial Reporting Standard 9 requires some significant changes in the way lenders do business. Following a global trend, digitalisation and financial technology are changing the industry, and the next few years look set to be transformative. This chapter contains an interview with Indrajit Coomaraswamy, Governor, Central Bank of Sri Lanka.
Explore chapterCapital Markets
After a positive second half of 2017 Sri Lanka’s capital markets experienced considerable headwinds in 2018, with a variety of external and internal factors behind the buffeting. The impacts of macroeconomic issues, increasing competition in terms of investment options, political uncertainty, turbulence in global energy prices and moves by the US Federal Reserve could be seen in both equity and bond markets. As 2019 got under way foreign outflows continued, while bond spreads widened – both signs of challenges ahead. This left many key companies undervalued and demand for long-term bonds high, as investors looked for more secure havens in the country’s debt market. As the year progresses, many see prospects for a turnaround, particularly if moves to expand and deepen the market begin to take hold, and the overall economy grows within the government’s structural reform agenda. This chapter contains an interview with Dilshan Wirasekara, CEO, First Capital Holdings.
Explore chapterInsurance
Major changes are on the horizon in the Sri Lankan insurance industry, with much of the groundwork laid for future growth in recent years. A government focus on regulatory improvements, the modernisation of processes, consolidation and further investment in human resources point to continued opportunities for expansion in the sector. While the performance of the life insurance segment has been bumpy, the sector as a whole continues to thrive. Double-digit growth is expected for both general and life insurance in the short term as many lines of business expand in a market known for its low penetration rates. Campaigns to promote insurance and build awareness of the benefits of coverage have been rolled out, contributing to the sector’s improved performance. This chapter contains an interview with R Renganathan, Chairman, Ceylinco Life Insurance.
Explore chapterEnergy
The energy sector has made noteworthy progress in a number of respects in recent years. Despite political turbulence in Sri Lanka, key strategic measures were enacted in 2018 to encourage growth, including increasing renewable energy generation capacity; opening the hydrocarbons sector to greater overseas investment; and forming joint working groups to expedite the construction of liquefied natural gas power plants following a string of agreements with foreign governments. Given Sri Lanka’s expanding fiscal and trade deficits, developing an efficient energy market has been cited as one of the key factors that could facilitate a stable macroeconomic environment. However, while recent developments signal the intent of policymakers to promote energy security, disagreements between technocrats regarding a long-term generation expansion plan have hindered development. Aside from a collection of small renewable energy initiatives, the country has not commissioned a major power plant since 2014. This chapter contains interviews with Damitha Kumarasinghe, Director-General, Public Utilities Commission of Sri Lanka; and Allard Nooy, CEO, InfraCo Asia.
Explore chapterIndustry & Retail
Industrial exports have long played a crucial role in Sri Lanka’s economic output, even during periods of civil strife and macroeconomic instability. Over the years, an emphasis on export orientation has led to greater productivity and employment generation. However, a new wave of instability – characterised by political uncertainty, currency depreciation and rising interest rates – affected productivity towards the end of 2018, adversely affecting investment confidence and nullifying some of the nation’s competitive advantages. Sri Lanka’s retail sector has evolved into a powerful driver of growth and opportunity. Over the last decade, fast-paced urbanisation has enticed significant investment in commercial real estate. As such, modern outlets are gradually replacing small informal merchants. While traditional vendors still play an important role in the market, modern convenience stores, hypermarkets and malls are poised to occupy an even greater share of retail space. This chapter contains an interview with Prabhash Subasinghe, Managing Director, Global Rubber Industries; and Carl Cruz, Chairman, Unilever Sri Lanka.
Explore chapterTransport
Sri Lanka has a total of 12,290 km of national highways, 1561 km of rail tracks, two international airports and four seaports. In order to boost the local economy and quality of life, the cultivation of an effective, reliable and cost-efficient transport system has been a priority for successive governments, albeit with varying degrees of success. Improvement plans in the pipeline include light rail transit and bus rapid transit systems in Colombo; the new transport system and port within Port City Colombo; the expansion of the Port of Colombo through the East Container Terminal; an overhaul of road and railway infrastructure; and improved airport infrastructure and technology. Sri Lanka is encouraging more public-private partnerships (PPPs) and created a new PPP Unit within the Ministry of Finance in order to facilitate more private sector involvement in infrastructure development. This chapter contains an interview with Bai Jingtao, Managing Director, China Merchants Port Holdings Company.
Explore chapterPlantations & Agriculture
Sri Lanka’s economy has traditionally been agriculture-based, but several centuries of international trade – and the introduction of tea, rubber, and coffee cultivation by the UK – have altered the sector’s makeup significantly. After independence in 1948, the economy remained highly dependent on trade, with tea, rubber and coconut making up the bulk of exports, even while many Sri Lankans continued rice cultivation for domestic consumption using ancient reservoirs and paddy irrigation systems. Despite its generally strong economic growth since the end of the civil conflict in 2009, challenges still face the industry. Indeed, cultivation methods and post-harvest losses often result in low yields, productivity and profitability, which threaten to undermine growth and long-term potential. This chapter contains an interview with Mufaddal Jafferjee, Director, Jafferjee Brothers.
Explore chapterConstruction & Real Estate
While the construction sector witnessed substantial growth in the 24 months leading up to 2018, domestic market forces including a falling rupee, warnings of an asset bubble and political instability have stymied growth of late. However, despite market disruptions, a number of key projects forged ahead in 2018, including Port City Colombo and the Hambantota Industrial Zone. Impressive economic growth since 2009 has bolstered Sri Lanka’s property market. More employment opportunities, rising salaries and rapid rural-urban migration have all played a part in the expansion of housing and commercial properties. In recent years, increased investor appetite and a maturing economy have transformed Colombo into a dynamic modern city that still retains a sense of its past. This chapter contains an interview with Arun Pathak, Managing Director, WelcomHotels Lanka.
Explore chapterTourism
The spotlight is very much on Sri Lanka’s tourism sector in 2019, after globally recognised company Lonely Planet named it as the number-one travel destination for the year. As the country embarks on a year of ambitious goals to attract more visitors, the sector is also at a critical juncture. Successful, sustainable growth will rely on a delicate rebranding of the destination’s reputation, from budget beach trips to a place where visitors are willing to pay all price points, including at the luxury level, and are well served. It is also important that growth is not achieved to the detriment of the island’s natural assets, both environmental and human. This chapter contains an interview with Hiran Cooray, Chairman, Jetwing Hotels.
Explore chapterICT
Following years of steady growth, the ICT sector is embracing a period of fast-paced innovation. While the telecoms and business process outsourcing industries in Sri Lanka are reaching maturity, efforts are being focused on developing more innovative and high-end products. The sector’s organic growth is benefitting other industries, such as agriculture, manufacturing and tourism, and supporting the emergence of technology-focused small and medium-sized enterprises and start-ups, which in turn are creating jobs and value in the economy. At the same time, government and private sector stakeholders are trying to promote the country as a technology hub for international firms and investors. However, despite the progress made, recent political uncertainty and ongoing regional disparities in ICT infrastructure need to be addressed to ensure the sector’s momentum does not stall. This chapter contains an interview with Lakmini Wijesundera, CEO, IronOne Technologies.
Explore chapterHealth & Education
Sri Lanka’s free, universal public health care system dates back to the 1930s. While the system is rooted in urban centres, public service provision has long since expanded into rural areas and is available island-wide, though concerns persist about the relative quality of these services beyond the major towns and cities. The Sri Lankan government has made a concerted effort to develop the education sector in recent years, seeing this as fundamental to its overall push to become an upper-middle-income country. This effort includes increased public spending, institutional and curricular reform and expansion, and the redevelopment of the foundations of the education system. At the same time the government is stepping up outreach efforts to encourage more students to pursue degrees in science, technology, engineering and mathematics and to develop forward-looking IT skills. This chapter contains an interview with Shyam Sathasivam, President, Sri Lanka Chamber of Pharmaceutical Industry.
Explore chapterLegal Framework
This chapter examines the legal system of Sri Lanka, focusing on raising loans via the Active Liability Management Act No. 8 of 2018; liberalising foreign land ownership through the Land Restriction on Alienation Act No. 21 of 2018; the Nation Building Tax (Amendment) Act No. 20 of 2018, which covers tax exemptions and exemption periods; the Value-added Tax (Amendment) Act No. 25 of 2018; and the investigations and impositions included under the Anti-dumping and Countervailing Duties Act No. 2 of 2018. This chapter contains a viewpoint from John Wilson, Managing Proprietor, John Wilson Partners.
Explore chapterThe Guide
This chapter contains selected listings of some of the country’s top hotels, contact details for embassies, ministries and organisations, helpful tips for business and leisure travellers and other useful suggestions for travel to Sri Lanka.
Explore chapterTable of Contents
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