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Last update: March 2009

Sri Lanka 

Competitive Advantages

Business Environment

The 2003 Index of Economic Freedom published by the Heritage Foundation has ranked Sri Lanka 80th out of 156 developed & developing countries, in terms of its "economic freedom" & the quality of its overall policy environment.

Sri Lanka has several large ports such as Colombo, Galle, Trincomalee, and Kankasanthurai, as well as harbours. The Port of Colombo, the country's premier commercial port, is one of the better performing ports in Asia. It handles both conventional cargo as well as containers, and has been acknowledged as one of the most economical ports in the region.
Sri Lanka's strategic location at the crossroads of Asian trading routes has contributed to its growth as a regional trading hub. In 2003, the transport sector contributed 10 percent to the country's GDP and generated about 4 percent of employment. Nonetheless, potential exists to further develop this island nation's transport system.

Sri Lanka represents a strategic access to the Indian Market: the Indo Lanka Free Trade Agreement clearly demonstrates the political goodwill and commitment between India and Sri Lanka. The 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.

Cost competitive labour force: the Sri Lankan work force accounts for 35% of the total population. Sri Lanka boasts high levels of education. Sri Lanka has the highest literacy rate in South Asia (92%) and approximately 50% of the students who have completed their higher education are trained in technical and business disciplines. English is widely spoken in the country and is the main language used by the business community. In addition, according to the World Bank Development Indicators 2000, Sri Lanka has the lowest labour cost per worker in manufacturing..

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Economic Outlook

In the EIU's country forecast, Sri Lanka's overall score in the business environment rankings improves from 4.99 for the historical period (1997-2001) to 6.03 for the forecast period (2002-2006). The country's global ranking improves from 49th to 45th and its regional ranking moves from 14th to 13th in comparison to the historical period (Economist Intelligence Unit,
The higher rankings are indicative of the more attractive investment climate in the country, with Sri Lanka's score in most of the categories used to evaluate the business environment improving significantly. For instance, Sri Lanka is ranked highly for its liberal approach to foreign investment, with its global & regional rankings moving from 36th to 27th (out of 60 countries) and 8th to 4th (out of 16 countries) respectively. From a regional perspective, the country's main advantages centre on its open foreign investment regime, its commitment to private enterprise & competition & its liberalized trading environment (where it is ranked 5th).

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Investment Policies

Sri Lanka has an enviable record of political credibility in the international arena. All major political parties are committed to free enterprise and individual freedom. The government has never defaulted nor requested rescheduling of any of its international obligations. Significantly this protection extends to foreign investors.
Today, Sri Lanka is ranked as the most liberalized economy in South Asia. Investors are provided with preferential tax rates, constitutional guarantees on investment agreements, exemptions from exchange control and 100% repatriation of profits.

Bilateral investment agreements supported by a constitutional guarantee, provides strong protection for foreign investment for Sri Lanka.
Total foreign ownership is welcome in almost all areas of the economy, with only a few areas limited or restricted to foreigners.
The safety of foreign investment is guaranteed through the acceptance by two third majority of Parliament of the Constitutional Guarantee of Investment Protection Agreements. Under article 157 of the country's constitution, the agreement enjoys the force of law and no legislative, executive or administrative action can be taken to contravene it.

Bilateral investment agreements are valid for 10 years, and are extended automatically unless terminated by either party. If the agreement is terminated investments already made are protected for another 10 years.
A clause in the Sri Lankan constitution ensures the sanctity of the agreements. These agreements provide the following:
Protection against nationalisation, prompt and adequate compensation if required, free remittance of earnings, capital and business fees, settlement of disputes under the International Convention for the Settlement of Investment Disputes (ICSID).

Bilateral Investment Protection Agreements exist between Sri Lanka and the following countries: Belgium/ Luxembourg, Canada, China, Denmark, Egypt, Finland, France, Germany, Iran, India, Italy, Indonesia, Japan, Korea-South, Luxembourg, Malaysia, Netherlands, Norway, Pakistan, Romania, Singapore, Sweden, Switzerland, Thailand, the United Kingdom and the United States of America.

Sri Lanka is also a founding member of the Multilateral Investment Guarantee Agency (MIGA). This provides further safeguards against expropriation and non-commercial risk. Investors may also refer disputes for arbitration under the rules of the International Chamber of Commerce.

Property Insurance can be obtained in foreign currency through domestic or foreign insurers.


Source : Sri Lanka Board of Investment

 Last update: March 2009

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