Western businesses wake up to investment opportunities

Andrew Mourant

A British university has chosen CHOGM host Sri Lanka to open its first overseas campus, offering science, engineering and technology courses in a country that has struggled to provide sufficient higher education places for school leavers. Other sectors are starting to look at business opportunities in Sri Lanka too

Opportunities abound to do business in Sri Lanka. The fruits of peace after a bloody civil war have been a sustained bounce. Everywhere there seems to be fertile ground: in construction, clothing, IT, telecoms, education, agriculture – the list is almost endless. China and Japan are among the big investors in roads, ports and airports. New expressways are opening up the country, linking once-remote regions. Connectivity is crucial when you’re undertaking an economic leap forward. 

Look at any map and Sri Lanka’s attraction as a logistical hub for South Asia and India becomes obvious. There are signs of the country becoming more in tune with what the world looks for in a place to invest – it’s risen from 96th to 81st in the Ease of Doing Business Index, according to the World Bank. One area singled out for praise was “measures taken to make starting up a business easier”. 

With long-standing cultural links and English as the language of business, UK investors should have a head start. Sri Lanka, with a population of around 21 million, is already home to more than 100 UK companies, among them Marks & Spencer, HSBC, De La Rue Currency, Standard Chartered Bank and Rolls Royce. The country’s Board of Investment (BOI) has various priorities. These include ‘knowledge services’, covering such things as IT software development, services and training, as well as business process outsourcing, for example call centres. The BOI wants this sector to employ 100,000 by 2015. HSBC Global Resourcing (UK) is among the major British investors. 

The need to expand education ranks highly. UCLan (University of Central Lancashire) is setting up the UK’s first overseas campus in Sri Lanka, near Colombo. Ian Robertson, chief executive of UCLan Lanka, and the driving force behind the initiative, is delighted with the local response. “I’ve never encountered such good support from government officials as in Sri Lanka,” he says. “They helped develop the whole package. It can be very difficult for foreign investors to navigate regulations. The BOI acted as a one-stop shop, helping with planning regulations, tax – everything.” 

Robertson says the project represents an investment of US$120 150 million, with the money being raised from local and outside investors. “September 2015 will see our first cohort of students,” he says. “We’ve done extensive research – it will be very much focused on engineering, science and technology.” 

Sri Lanka’s higher education system is limited, with university places for only 17 per cent of the 120,000 students eligible to go. The government wants to prevent a brain drain and, eventually, attract 50,000 foreign students through private universities. The UK is its major Western partner for higher education and professional training. Other UK business successes noted recently by John Rankin, High Commissioner to Sri Lanka, include big contracts in construction and the airline sector – for airframes and aero engines. These deals are said to be worth more than $3 billion, yet Rankin feels Sri Lanka could do more to attract further foreign direct investment (FDI). 

“We urge increased transparency, simpler regulations and faster procedures, good governance and respect for the rule of law,” he says. “These factors can provide the… assurances companies require if they are to invest here.” 

Despite Sri Lanka’s promotion in the World Bank Ease of Doing Business Index, areas where it lags behind – paying taxes, enforcing contracts and, despite improvement, registering property – could still be off-putting, some commentators feel. Paying taxes and registering property remain notoriously complex and time-consuming. “Starting a business is not a primary consideration affecting foreign investors,” says one critic. “Investor protection, enforcing contracts and paying taxes are much more important.” UKTI, the government body helping British companies do business abroad, says Sri Lanka “is not without challenges that include bureaucracy, nepotism and lack of transparency”. 

Nevertheless Sri Lanka will, as Ian Robertson discovered, bend over backwards to help the right project. It also offers tax reductions and concessions for businesses and banks, particularly to exporters and local investors. Partners and investors scrambled for a slice of the infrastructure pie after the government declared its intention to renew and expand from top to bottom three years ago. This embraces roads; water supply and sanitation; ports (Colombo south harbour is a $500 million development, with much of the funding Chinese); aviation; transport; housing; and urban development. There was also a commitment to set up industrial zones, warehousing and logistic centres. 

As demand for power in Sri Lanka is forecast to more than double by 2020, the Ceylon Electricity Board intends to generate 20 per cent of the supply from renewable energy sources, opening up investment opportunities in wind, dendro (biomass), solar and mini hydro plants. In telecoms, already a leading FDI generator, Sri Lanka is encouraging the private sector to set up ICT institutions, as well as to help restructure the mobile telecoms industry through mergers and acquisitions. Perhaps less well known is the scope within agriculture, which in 2011 contributed around 24 per cent of export earnings. In particular, Sri Lanka has high ambitions for horticulture. Cut flower production offers openings for investors to import new hybrids that can be used as mother plants and to apply tissue culture technology. Similar opportunities exist to produce fruit and vegetables for export. The BOI is keen to promote the investment potential within fisheries – offshore/deep sea, inland and aquaculture. With special zones for agro-based industry and access to a large fishing area, there could be much here to play for. 

In fact there are very few restrictions on foreign investment, and skilled, inexpensive labour is widely available. But it’s crucial to prepare the ground thoroughly, and view Sri Lanka as a long-term market. Investors will probably need a local agent or distributor, and anyone planning to incorporate a company should consult a lawyer and an accountant on costs and timelines – laws and courts are modelled on the English legal system. 

Prepare to visit more than once – the value of meeting face-to-face should never be underestimated. Developing a personal relationship with a Sri Lankan partner can, says UKTI, be at least as significant as the product or service you hope to market.

About the author:

Andrew Mourant is a freelance journalist whose specialisms include international business and renewable energy


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