By: Staff Writer
May 19, Colombo (LNW): Sri Lanka’s foreign direct investment (FDI) framework is facing renewed scrutiny as economic analysts warn that the country continues to operate without a coherent strategy for attracting and directing capital into priority sectors. The Centre for a Smart Future (CSF) argues that FDI performance over the past decade has remained significantly below potential, particularly when measured against regional competitors that have successfully positioned themselves as investment hubs.
Recent parliamentary scrutiny of the Board of Investment (BOI) highlighted concerns over the absence of a clear rationale guiding how tax incentives are allocated to investors, raising questions over consistency, transparency, and strategic direction in investment promotion. The Committee on Public Finance (CoPF) reportedly questioned whether current incentive structures are aligned with a defined national development agenda or applied in an ad hoc manner, reinforcing long-standing criticism that Sri Lanka lacks a targeted approach to attracting quality FDI.
CSF warns that Sri Lanka still lacks a coherent strategic framework defining the types of investors it seeks, the sectors it wants to prioritise, and the long-term economic outcomes it expects from foreign capital inflows. Without this clarity, investment promotion agencies are left operating with limited direction, resulting in missed opportunities in emerging high-value industries. The think tank notes that institutional machinery responsible for FDI attraction has not evolved at the pace required to compete with more agile regional economies.
CSF reiterates the need to operationalise the Economic Commission envisaged under the Economic Transformation Act of 2024, arguing that such an institution is essential for coordinating investment facilitation, trade integration, and policy coherence across government agencies. The think tank proposes that, even if full implementation of the Act is delayed, key components such as the Economic Commission, Invest Sri Lanka, and the Zones Authority should be activated immediately as standalone mechanisms to improve efficiency and investor confidence.
Regional peers across Asia have increasingly adopted integrated investment promotion systems that align fiscal incentives, sector targeting, and trade diplomacy under unified national strategies. In contrast, Sri Lanka is described as operating with fragmented institutional responsibilities that reduce policy effectiveness and slow investor decision-making. CSF warns that this lack of coordination weakens the country’s ability to compete for high-quality, long-term investment in a global environment where capital is highly mobile and aggressively courted by competing destinations.
CSF urges immediate policy correction, warning that continued delays in establishing a clear FDI strategy will further erode Sri Lanka’s competitiveness and deepen its lag behind regional peers. It emphasises that attracting investment is no longer a passive process but one requiring targeted sector identification, proactive diplomacy, and strong institutional coordination. Without these reforms, the country risks remaining stuck in a low-investment equilibrium, unable to leverage global capital flows for sustainable growth and industrial upgrading.