The Report: Sri Lanka 2018
As the government continues its expansive reform agenda with Vision 2025, Sri Lanka’s economy is expected to record moderate improvements in 2018.
Country Profile
Sri Lanka’s economy looks promising for the coming years, as major changes in the business environment are taking place in the short to medium term, such as free trade agreements with Singapore and China, the regaining of the EU Generalised System of Preferences Plus, development of human capital and further liberalisation of the economy. These, together with the involvement of the government, are supporting the objective of transitioning to a middle-income, knowledge-based economy. The country is continuing to use exports as a driver of economic growth, with a call for a focus on business process outsourcing and ICT-related services given their performance in 2017. This chapter contains an interview with President Maithripala Sirisena 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, access to the larger markets of India and Pakistan, abundant agricultural and industrial exports, and a young skilled workforce. Value-added textiles have joined tea, rubber and spices to become a major export earner in recent years, while foreign direct investment (FDI) inflows hit record highs in 2017. Still, both FDI and exports continue to miss government targets, and subdued export growth and rising fuel imports have pushed the trade deficit to new highs. With this in mind, the country is embarking on a bold reform programme that should offer substantial new support mechanisms for trade and investment. This chapter contains interviews with Greg Hands, UK Minister of State for Trade Policy; and Malik Samarawickrama, Minister of Development Strategies and International Trade; and a viewpoint from Stuart Tait, Regional Head of Commercial Banking, Asia Pacific, HSBC.
Explore chapterEconomy
As the government continues its expansive reform agenda with Vision 2025, Sri Lanka’s economy is expected to record moderate improvements in 2018. In January 2018 the IMF projected that real GDP growth would increase to 4.6% in 2018 – up from 3.1% in 2017 – as the agriculture sector recovers from drought and flood, and construction is anticipated to lead robust services sector growth. Inflation is forecast to ease to 5% in 2018, while the current account deficit should contract to 2.5% of GDP in 2018. Meanwhile, medium-term growth will average 5% over the years leading up to 2022, according to IMF estimates. This chapter contains interviews with Mangala Samaraweera, Minister of Finance and Media; Changyong Rhee, Director, IMF Asia and Pacific Department; and Rajendra Theagarajah, Chairman, Ceylon Chamber of Commerce.
Explore chapterBanking
Improving economic growth, an increasingly sophisticated domestic market and regulatory reform are the main factors shaping the Sri Lankan banking sector. Stability has become a watchword following a period of rapid credit growth, as a flourishing private sector boosted the development of a previously underbanked market. Although the sector has a healthy growth outlook, the central bank is keen to keep a lid on credit expansion, while higher regulatory standards may trigger long-awaited consolidation. Sound monetary policymaking has helped rein in credit growth to an extent, though respectable economic growth and increasing demand from small and medium-sized enterprises will ensure the rate remains in the double-digits for the coming years. This chapter contains an interview with Indrajit Coomaraswamy, Governor, Central Bank of Sri Lanka.
Explore chapterCapital Markets
After an uncertain period, the Colombo Stock Exchange (CSE) is back on an upward trajectory, supported by the improving economic climate. The market will see significant reforms in 2018 to strengthen regulation, increase the bourse’s independence and efficiency, and broaden the range of products available. While the CSE has had its ups and downs since the civil war ended, its overall trajectory has been positive. Turbulence in recent years led to improvements in regulation, much to the benefit of market stability and transparency. The implementation of long-awaited reforms is a sign that the authorities are putting an emphasis on capital market development. This suggests that there is the potential for new momentum behind the diversification of product offerings and investment platforms, which should draw more investors to the market. This chapter contains interviews with Ray Abeywardane, Chairman, Colombo Stock Exchange; and Dilshan Wirasekara, Director and CEO, First Capital.
Explore chapterInsurance
With the economy expected to pick up pace in 2018, and steady expansion forecast over the coming years, the insurance sector is well placed to benefit. Regulatory changes are creating challenges for weaker firms, and encouraging even healthy companies to reconsider their positions, particularly in the non-life segment. This should lead to further consolidation, with the stronger players looking to expand. Major international insurers are already playing a role in this process, and the scope for growing penetration from a low base may see new entrants in the medium term. This chapter contains an interview with Ajith Gunawardena, CEO, Ceylinco General Insurance.
Explore chapterEnergy
Sri Lanka’s energy sector has undergone a significant transformation in recent decades, as growth in the economy and population have eroded the country’s capacity to meet its energy needs via hydropower, strained the national grid and pushed thermal generation to dominate the industry. Although it benefits from an abundant supply of renewable energy, electricity shortages and rising fuel imports have become serious concerns, with the problem expected to intensify as the government advances its sizeable infrastructure development agenda. At the same time, financing shortfalls and rising electricity demand have presented new opportunities for private sector investors, with the government’s Vision 2025 – an economic development plan released in 2017 – emphasising public-private partnerships as a preferred finance mechanism for new projects, including power plants. This chapter contains an interview with Ranjith Siyambalapitiya, Minister of Power and Renewable Energy.
Explore chapterIndustry & Retail
Industry in Sri Lanka has developed over the years by taking the high road. In part driven by necessity, the country has tended to avoid low-margin, high-volume production in favour of value addition and customisation. The result has been solid demand for its goods and a strong international reputation. Meanwhile, investment in infrastructure has improved the operating environment, reforms are ongoing and efforts are being made to foster innovation and promote exports. Shopping is becoming increasingly convenient as modern outlets become more numerous, new malls are being built and an increasing number of global brands are arriving in the country. Most of all, local consumers are becoming more sophisticated and demanding better products as the middle class grows. This chapter contains an interview with Nandana Ekanayake, CEO, Siam City Cement (Lanka).
Explore chapterTransport & Logistics
Having a strategic location along one of the world’s busiest maritime trade routes, Sri Lanka is well positioned to capitalise on rising Indian Ocean trade volumes. Under the auspices of the economic development strategy Vision 2025, released in 2017, authorities are moving to transform the country into a leading global trans-shipment and logistics hub. Sri Lanka benefits from a deepwater coastline, giving it a competitive advantage over India. Cargo volumes at the country’s maritime hub, the Port of Colombo, have risen steadily in recent years, with the port recording double-digit growth in 2016. However, delays in building the East Container Terminal, the port’s next phase of expansion, weighed on operations in 2017. This chapter contains an interview with Julian Bevis, Senior Director, Group Relations, South Asia, Maersk Group.
Explore chapterPlantations & Agriculture
With a land area of more than 65,000 sq km, Sri Lanka’s agriculture sector is characterised by small-scale farming and a tropical climate that is highly variable. Agricultural output comprises rice, fruit, vegetables and livestock primarily for domestic consumption, and export-focused products such as tea, rubber and coconuts. Around 55% of land is used for agriculture. Traditionally the backbone of the economy, agriculture’s share of GDP has steadily declined over the decades, from 30.4% in 1975 to around 8% in 2015. While Sri Lanka is moving towards an urbanised manufacturing and services economy, the rural agriculture, forestry and fisheries industries are the source of income for more than 2.1m Sri Lankans, the 2016 Labour Force Survey reported. This chapter contains an interview with Navin Dissanayake, Minister of Plantation Industries.
Explore chapterConstruction & Real Estate
Renewed growth in Sri Lanka’s construction industry is being supported by a combination of megaprojects with international partners, strong domestic demand and public investments in infrastructure. Following a slowdown in 2015, the sector is once again enjoying double-digit growth, possessing a strong order book with international investors increasingly present. Still, costs are high and rising, and there are risks to the outlook. Additionally, consistent income growth, urbanisation, the expansion of both domestic and foreign businesses, and the burgeoning appeal of property as an asset class among local investors have all contributed to the dynamism of Sri Lanka’s real estate sector. The real estate sector’s contribution to GDP grew by 2.7% year-on-year in the first half of 2017, according to the Central Bank of Sri Lanka. This chapter contains interviews with Qitao Liu, Chairman, China Communications Construction Company; Anthony Couse, CEO, JLL Asia Pacific; and Sumedha Ratnayake, Director-General, Urban Development Authority.
Explore chapterTourism
As Sri Lanka’s second-largest industry after textiles and garments, tourism represents an opportunity to generate revenue and create jobs. The country is fast becoming a popular destination for international travellers, as well as for expatriates returning home to visit friends and family, suggesting that Sri Lanka is in the process of moving from the margins of global tourism to becoming a primary destination in its own right. The World Travel & Tourism Council put the sector’s overall contribution at LKR1.4trn ($9.1bn), or 11.4% of GDP in 2016, with an estimated increase of 5.5% in 2017. This chapter contains an interview with Sutheash Balasubramaniam, Managing Director, Sri Lanka Tourism Promotion Bureau.
Explore chapterICT
Sri Lanka was the first country in South Asia to roll out a nationwide 4G network, its mobile market is highly competitive and it is home to a number of major tech companies. Connectivity is improving quickly, the environment for innovation is undergoing a positive transformation and the government is starting to make significant investments in e-governance. While Sri Lanka may not have the critical mass of places like India and China, it has – as with manufacturing – been able to establish a strong regional position and lay the groundwork for future development. This chapter contains an interview with Jeevan Gnanam, CEO, Orion City.
Explore chapterHealth & Education
The government has signaled its determination to reform Sri Lanka’s health sector with region-leading stances on tobacco, while also showing a willingness to engage with private health care providers looking to tap into the country’s potential. Private health care in Sri Lanka is starting from a low base, but a number of factors will provide distinct opportunities for those looking to invest in the market. In a concerted effort to boost the country’s overall economy, development of the education sector has become a government priority. In recent years it has initiated plans to increase the capacity of institutions, improve the standards of teaching and embrace the technology revolution that is happening globally. This chapter contains an interview with Lakshman Dissanayake, Vice-Chancellor, University of Colombo.
Explore chapterTax
This chapter examines Sri Lanka’s tax regime, explaining obligations outlined for businesses and individuals, deductions offered for trading of a company’s stocks, and other important information for investors. It also contains a tax viewpoint from Sujeewa Mudalige, CEO, PwC Sri Lanka.
Explore chapterLegal Framework
This chapter examines Sri Lanka’s legal system, focusing on the updated Inland Revenue Act, the establishment of a new public-private partnership agency, the Foreign Exchange Act and other key areas. It also contains a legal framework viewpoint from John Wilson, Managing Proprietor, John Wilson Partners.
Explore chapterThe Guide
This chapter offers a selection of hotels for business and leisure, facts for travelers, and contacts for state agencies, foreign embassies and other important listings.
Explore chapterTable of Contents
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