The Report: Sri Lanka 2017

Positioned between west and east Asia, Sri Lanka sits on a major maritime route between Europe and the Far East and its natural resources have made it a trading centre for millennia.

Country Profile

Sri Lanka has emerged from its long internal conflict, but with the post-war euphoria behind it, a number of structural challenges remain that will determine the country’s trajectory as it pushes forward. The state’s involvement in large parts of the economy could present stumbling blocks to a number of liberalising economic reforms that Sri Lanka is likely to need if it is to increase its competitiveness in international markets. While there has been a wait-and-see approach within Sri Lanka’s private sector, the long-term impact is expected to be positive. The reinstatement of GSP+ benefits should also see state-owned enterprises release more power to the private sector to reap all potential benefits, expand revenue streams and repay creditors more quickly.

This chapter contains interviews with President Maithripala Sirisena; and Prime Minister Ranil Wickremesinghe.

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Trade & Investment

As the country’s economy has liberalised and grown in recent decades, its trade volumes to developed markets and emerging ones have risen strongly. The country has established a name for itself as a leading exporter both of manufactured goods and traditional products such as tea and spices. A free trade agreement with India signed in 2000 has proved a major boon and is now being followed by a raft of other deals that should both boost export potential and open markets to foreign producers and investors.

This chapter contains interviews with Ban Ki-moon, Former Secretary-General, UN; Malik Samarawickrama, Minister of Development Strategies and International Trade; Lim Hng Kiang, Singapore Minister for Trade and Industry (Trade); Upul Jayasuriya, Chairman, Board of Investment; and Peter Wong, Deputy Chairman and Chief Executive, HSBC.

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With robust growth figures, improving infrastructure, an increasingly service-dominated economy and a new reform-minded government, Sri Lanka is an economic champion that has too often been overlooked. The island nation has seen continuous growth since a recession in 2001, even during the last years of the civil war, which ended in 2008. The rising tide has lifted all boats, and pockets of poverty are relatively rare, with more and more Sri Lankans able to participate in the country’s economic success.

This chapter contains interviews with Ravi Karunanayake, Former Minister of Finance; Samantha Ranatunga, Chairman, Ceylon Chamber of Commerce; and Tilak De Zoysa, Chairman, Carson Cumberbatch.

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With strong asset growth, reliable profitability and solid capital adequacy, the Sri Lankan banking sector stands in sound health these days as it looks forward to a period of continued economic stability. Like other sectors, the industry is moving in the direction of greater capital and technological requirements, and continues to undergo a period of consolidation – particularly among its smaller players. In addition, new legislation on microfinance holds promise in seeing banking services spread further beyond the Western Province, with major benefits for companies and individuals outside of the country’s metropolitan centre.

This chapter contains interviews with Indrajith Coomaraswamy, Governor, Central Bank of Sri Lanka; and Jim McCabe, CEO, Standard Chartered Sri Lanka.

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Capital Markets

A post-war boom has been followed by a mixed few years for Sri Lanka’s capital markets, with a strong performance in 2014 followed by two slower years. The outlook is now brightening again as the Colombo Stock Exchange, the Securities and Exchange Commission, and the Sri Lankan government look to build the bourse’s role in the economy. The bourse’s composition is not particularly representative of the economy as a whole, with financial services companies strongly represented in index weightings, for example. Thus the bourse’s indices do not invariably track that of Sri Lanka’s macroeconomic performance as a whole. Yet in recent years there has been a growing understanding that they can play a leading role in economic development, particularly as the country looks to boost private sector growth and foreign investment.

This chapter contains an interview with Dilshan Wirasekara, CEO, First Capital.

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These are changing times for Sri Lanka’s insurance sector. Major regulatory moves over the last two years have seen much strengthening and consolidation, with these processes set to continue in the year ahead. Profitability remains high, particularly in the life insurance segment, while in the non-life segment a fiercely competitive environment is driving companies to find ways to differentiate through more innovative and distinctive products and campaigns. Meanwhile, many eyes are focused on Sri Lanka’s macroeconomic conditions. Areas such as medical and health, real estate and project insurance are all tipped to be future growth areas, as the country’s economy cranks up and the middle class expands.

This chapter contains an interview with Hemaka Amarasuriya, Chairman, Sri Lanka Insurance.

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Industry & Retail

Sri Lanka’s commitment to being conducive to private-sector business development is reflected in its marked orientation towards trade and investor-friendly encouragement of foreign direct investment. Building on its strategic location at the gateway to India and between the Middle East, Africa and South-east Asia, the government of Sri Lanka is pushing an agenda of open and free-market economic policy to promote and expand trade and economic links, with the ultimate goal of becoming a regional trade centre. An up-and-coming middle class with disposable income and a preference for spending over saving, in addition to a strong economy with mounting tourism receipts and few restrictions on foreign investment, make Sri Lanka a favourable destination for retail investors of all stripes.

This chapter contains interviews with Indira Malwatte, Chairwoman, Sri Lanka Export Development Board; Ashok Pathirage, Chairman and Managing Director, Softlogic Group; and Dilith Jayaweera, Chairman, George Steuart Group.

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Transport & Logistics

Situated close to some of the world’s most important sea lanes, connecting the Asian, African and European continents, Sri Lanka has some major strategic advantages when it comes to global transport links. At the same time, this island of nearly 21m people lies just off the coast of one of the world’s largest and fastest-developing economies – India – while enjoying excellent relations with another global leader, China. Both have helped give Sri Lanka a strong foundation on which to further develop its transport and logistics infrastructure, with the goal of becoming an international hub for those countries now firmly in view.

This chapter contains interviews with Dammika Ranatunga, Chairman, Sri Lanka Ports Authority; and Kasturi Chellaraja, Managing Director for Pharmaceuticals, Logistics and Maritime, Hemas Holdings.

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Plantations & Agriculture

A long-time economic mainstay and the country’s primary employer, the agriculture sector makes up 9% of Sri Lanka’s GDP and is a significant source of foreign exchange. With the exception of rubber, all of the country’s major agricultural exports saw growth between 2010 and 2015. Export earnings increased during the same period, with agricultural exports comprising around one quarter of the total. The sector includes an established plantation segment, producing mainly tea, coconut and rubber, and a less-established food crop production segment, which produces fruits, vegetables and other crops, predominantly for domestic consumption.

This chapter contains interviews with Navin Dissanayake, Minister of Plantation Industries; and Jayantha Karunaratne, Chairman,Tea Exporters Association.

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Construction & Real Estate

Across the island, a wide-ranging infrastructure development campaign is unrolling to expand Sri Lanka’s production capacity, efficiency and productivity, with the added aim of reducing regional disparity. Building and infrastructure projects are expected to strengthen the country’s economy, with the ultimate aim of achieving high-income, sustainable economic growth for all Sri Lankans. Various programmes are set to span the entire spectrum of infrastructure assets, encompassing transport, housing and urban development, hospitals, water supply and sanitation, and industrial areas including warehouses and logistic centres. Although Colombo’s high-end luxury property such as hotels, condos and retail outlets comprise the main draw, other areas – such as Galle and Colombo’s suburbs – are also receiving increased attention and investment from both foreign and domestic sources, as well as from expats looking to return home after the cessation of a decades-long civil conflict in 2009.

This chapter contains interviews with Patali Champika Ranawaka, Minister of Megapolis and Western Development; Susantha Ratnayake, Chairman, John Keells; and Wong Heang Fine, Group CEO, Surbana Jurong.

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With sustained double-digit growth in visitor arrivals and burgeoning foreign exchange receipts, tourism is one of the most dynamic and robust sectors of the Sri Lankan economy. The country’s growing reputation is drawing visitors from an increasingly diverse range of markets to its pristine beaches, historical landmarks and adventure-packed outdoors. Building on this success, the government is now aiming to position Sri Lanka as Asia’s leading island destination, focusing on high-value segments such as cultural tourism and tour packages for visitors aged 60 and up. The government’s Tourism Vision 2025, under discussion at time of press, aims to improve management, investment in assets and infrastructure, and draw foreign direct investment into the industry.

This chapter contains interviews with John Amaratunga, Minister of Tourism Development and Christian Religious Affairs; and Hiran Cooray, Chairman, Jetwing.

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Energy & Utilities

With strong economic growth and an expanding population, Sri Lanka faces increasing demand for cost-efficient and clean energy. Similarly, the expansion and modernisation of the country’s cities, towns and villages is also placing higher demands on water and sewerage services, with investment in these vital utilities needed for successful future development. In a bid to meet these challenges, the current government has adopted a business-friendly approach to energy and utilities, with public-private partnerships and foreign investment seen as having a key part to play in upgrading these services. Therefore, the sector is one of the most promising for overseas interests, offering plenty of opportunities and a strong demand for action.

This chapter contains an interview with Anura Wijayapala, Chairman, Ceylon Electricity Board.

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After years of strong economic growth and population expansion, Sri Lanka’s telecoms and IT sectors face increasing demand for a wider range of services. At the same time, a more tech-savvy populace has increasing expectations of service standards and quality, as technological changes reach greater numbers of people. With a dedicated government ministry ensuring that the activities of the country’s ICT institutions under its purview are aligned with national objectives and connecting research and development with industry requirements, the country is on the right path in having a good pair of hands at the ICT helm. This is underscored by the digital economy’s growth, which is in turn enabled by Sri Lanka’s excellent access to undersea cables and a new cable system that is significantly speeding up the country’s connectivity.

This chapter contains interviews with Dileepa Wijesundera, Group CEO, Sri Lanka Telecom; and Madu Ratnayake, Executive Vice-President and General Manager, VirtusaPolaris.

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Education & Health

The administration of President Maithripala Sirisena has planned a series of reforms that it hopes will better equip Sri Lankans for the more competitive economic activities of the future. It aims not only to increase the number of years spent in school, but also to raise the standards of teaching, and emphasise a curriculum of critical thinking and problem solving. Sri Lanka is also keen to build on its success in public health, with the government also showing a willingness to cooperate with the private sector. Some of the improvements to government hospitals are being undertaken through public-private partnership agreements, while the most recent budget includes plans to establish paying wards within government hospitals in partnership with private operators.

This chapter contains an interview with Ananda Jayawardane, Vice-Chancellor, University of Moratuwa.

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This chapter examines Sri Lanka’s tax regime, focusing on business-friendly benefits for 2017, incentives for tourism operators, digitisation of VAT mechanism and other key areas.

It also features a viewpoint from Sujeewa Mudalige, Managing Partner, PwC.

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Legal Framework

This chapter examines Sri Lanka’s legal framework, focusing on reforms in several areas, changes in capital gains tax and employment law, updated legislation on zoning and land use issues and other key areas.

It also features a viewpoint from John Wilson, Managing Proprietor, John Wilson Partners.

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The Guide

This chapter contains details on leading hotels in Sri Lanka, information for business or leisure visitors, phone numbers for government offices and embassies, and helpful tips for new arrivals to the island.

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