February 13, Colombo (LNW): Japanese businesses operating in Sri Lanka are experiencing a robust rebound, with rising optimism for the country’s post-economic crisis landscape in 2025, according to the latest survey by the Japan External Trade Organisation (JETRO).
The survey, conducted in August and September 2024, reveals that nearly half of the Japanese companies in Sri Lanka are expecting to turn a profit in 2024, a significant leap forward from the previous year.
This marks a clear recovery trend for Japanese firms, whose prospects have brightened following Sri Lanka’s economic downturn.
In total, 31 companies in Sri Lanka participated in the survey, which gathered insights from over 5,000 Japanese companies across the Asia-Oceania region.
Encouragingly, 75 per cent of the respondents based in Sri Lanka foresee an improvement in their operating profits for 2025.
This optimistic forecast places Sri Lanka ahead of many other high-growth markets in the region, such as India, the Philippines, Vietnam, and Bangladesh.
Factors driving this positive outlook include increased domestic demand, the streamlining of local sales systems, enhancements in production efficiency, and favourable policy changes such as the lifting of the vehicle import ban and reductions in container freight rates.
These developments are helping Japanese businesses strengthen their position in Sri Lanka, with 46.4 per cent expecting to be profitable in 2024, an 11.9 per cent increase compared to 2023.
The survey also reveals that the economic recovery, coupled with a resurgence in the tourism sector, has provided a significant boost to Japanese businesses. Many companies are benefiting from new customer acquisitions and increased business activity.
The upturn in the business climate has encouraged over a third (36.7 per cent) of Japanese firms to consider expanding their operations in Sri Lanka over the next two years, marking an 8.6 per cent rise from the previous year. This expansion focus largely revolves around enlarging sales networks and introducing new products to the market.
However, not all companies share the same level of optimism. Around 13.3 per cent of respondents are contemplating downsizing, relocating to another region, or even withdrawing from the Sri Lankan market.
Despite this, the general sentiment towards investment in Sri Lanka remains strong, with the country’s relatively low labour costs — cited by 54.8 per cent of respondents — continuing to be a major attraction.
Sri Lanka competes closely with other countries in the region, such as Myanmar and Bangladesh, in terms of cost-effectiveness.
Additionally, Sri Lanka’s strategic location, market potential, and tax incentives were highlighted as other key advantages by Japanese firms.
Many also noted the ease of recruiting local staff, the good living environment for expatriates, and the availability of affordable land and office space as factors that contribute to Sri Lanka’s appeal.
However, challenges remain. Political and social instability (83.9 per cent) emerged as the top concern, followed by unpredictable government policies (71.0 per cent), currency fluctuations (45.2 per cent), rising labour costs (41.9 per cent), and high employee turnover (35.5 per cent).
Firms also flagged issues such as sudden import restrictions, tax rate fluctuations, rising operational costs, and disruptions in supply chains due to import restrictions as barriers to doing business.
Despite these concerns, the long-term investment appeal of Sri Lanka remains robust, with the majority of Japanese companies indicating that they are poised to navigate the country’s challenges.
Since its establishment in 1964, JETRO Colombo has played a crucial role in facilitating trade and investment between Japan and Sri Lanka, and this year’s survey is the 38th edition of its annual report on the business conditions of Japanese companies overseas.
