TOPIC

PROMOTING AND
ATTRACTING FDI TOWARDS
“SRI LANKA”
Submitted to
Aditi Mansoor Ahmed

NAME ID

Aniruddha Islam Khan Desh 1632242630

Musarrat Saba 1631200630

Zunaid Rahman Akash 1531311630

 Suhayel Hossain 1631833030

Submitted by:

Table of Contents
INTRODUCTION...........................................................................................................................................3
Political Situation of Sri Lanka.....................................................................................................................5
Economical HDI and other economic indicators..........................................................................................7
There are other economic Indicators as well...........................................................................................7
Income and Wages..............................................................................................................................7

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 Inflation...............................................................................................................................................8
GDP as an economic Indicator.............................................................................................................8
Language in Sri Lanka..................................................................................................................................8
Sri Lankan Culture and society.....................................................................................................................9
Hierarchy.................................................................................................................................................9
Sri Lanka’s Business courtesy and Protocols............................................................................................9
Business card Courtesy............................................................................................................................9
Communication.......................................................................................................................................9
Business Meetings.................................................................................................................................10
Hofstede’s Dimension...............................................................................................................................10
Individualism.........................................................................................................................................10
Feminity.................................................................................................................................................11
Uncertainty Avoidance..........................................................................................................................11
Geographical Location of Sri Lanka............................................................................................................12
Key Resources........................................................................................................................................13
Sri Lanka’s Trade Relation With Other Countries......................................................................................14
Cost, Benefit And Risk................................................................................................................................15
Cost........................................................................................................................................................15
Benefit...................................................................................................................................................15
Risk........................................................................................................................................................15
Overall Attractiveness of Sri Lanka...........................................................................................................16

INTRODUCTION

From an investor’s point of view, the case for Sri Lanka is getting strong. In the rear-view
mirror, yet still lurking and causing hesitation for some, are the Sri Lankan Civil War that
ended in 2009 and the market bubbles that followed the war’s end through 2011. While
there are risks to investing anywhere, Sri Lanka has one of the best cases for an economy
with the stars aligned in its favor.

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 Some reasons to Invest in Sri Lanka
 Government stability
 High performance stock market with room to run
 Annual tourism records
 Port and Chinese investment
 Internal infrastructure
 Becoming middle income
 Counter-cycle like Vietnam

What is foreign direct investment and why does Sri Lanka need it?

Foreign direct investment (or FDI) is an investment made by a company or an individual in a

foreign country. Such investments can take the form of establishing a business in Sri Lanka,
building a new facility, reinvesting profits earned from Sri Lanka operations or intra-company
loans to subsidiaries in Sri Lanka.

The hope is that these investment inflows will bring good jobs and higher wages for Sri Lankan
workers, increase productivity, and make the economy more competitive and also improve the
living standard of the people.

Sri Lanka’s government has recognized the need to foster private-sector and boosten up exports
to attain the overarching objective of becoming an upper-middle-income economy.

Attracting more FDI can help achieve that goal and fulfill the promise of better jobs.

Here are five reasons why:

1. FDI and domestic investment are at the heart of economic growth:

FDI could help accelerate Sri Lanka’s arrival at upper middle-income country status.

2. FDI can boost economic growth:

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In many developing countries, FDI has overtaken aid, remittances, and portfolio investment as
the largest source of external finance. In 2017, public sector investment in Sri Lanka was at an
all-time high. However, Sri Lanka’s public investment is still low when compared to its peers.
3. FDI can drive technology exchange and innovation:
In terms of foreign direct investments, investors usually come up with new technologies. From
that, domestic firms can replicate and as a result, also improve their production.

4. FDI can diversify and increase exports

Greater FDI would enhance the access of Sri Lanka’s producers to global production networks
and facilitate the development of new activities within existing value chains.

5. New investments can help with government revenue and foreign exchange reserves

FDI also helps governments boost tax revenues, providing the space for reduced borrowing —
Sri Lanka’s borrowing is high — or for further budget spending on social benefits such as health
and education. Since FDI comes in foreign-denominated currency, it is always useful in a
country with external borrowing.
For now, FDI into Sri Lanka has been lower than in peer countries despite its location and
access to major markets - hovering at less than 2% of GDP, as compared with Malaysia and
Vietnam, for example.
To keep and increase FDI flows, Sri Lanka will need to make concerted and ambitious efforts to
address gaps and play to its strengths.

Political Situation of Sri Lanka

To do business in any country political situation is one of the most major factors.
Different countries have different political systems. Sri Lanka is a Democratic Republic
and a Unitary State which is governed by a semi-presidential system, with a mixture of a

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 presidential system and a parliamentary system. Most provisions of the constitution can
be amended by a two-thirds majority in parliament. In common with many democracies,
Sri Lankan government has three branches and they are 1. Executive 2. Legislative 3.
Judicial. So, to do business in Sri Lanka we need to focus on their political system, how
is their political situation now, when a country should invest, which sector to invest, all
these things rely on the Sri Lankan political situation. Sri Lanka’s political situation is
now stable but it wasn’t before 2009. The reason behind this is Liberation Tigers of
Tamil Eelam (LTTE), also known as Tamil Guerrilla or Tamil Tigers. The guerilla army
has been fighting for a separate Tamil state in Sri Lanka's north and east, arguing that
they have been victims of discrimination under successive majority Buddhist Sinhalese
governments. For over 25 years, the war caused significant hardships for the population,
environment and the economy of the country, with an initial estimated 80,000–100,000
people killed during its course. to create an independent state of Tamil Eelam in the north
and east of Sri Lanka for Tamil people. This campaign led to the Sri Lankan Civil War,
which ran from 1983 until 2009, when the LTTE was eventually defeated during the
presidency of Mahinda Rajapaksa. A million people have been displaced and tens of
thousands of people have died in the conflict, in which the rebels have employed suicide
bombings, assassinations, and massacres that have deepened ethnic tensions. Many
countries consider LTTE a terrorist organization, but both sides in the conflict have been
accused by human rights groups of causing large-scale civilian casualties. The rebel
group has been banned by 30 countries, including the United States, Canada, India and
the 27 member nations of the European Union.

In order to conduct business in a particular country there are some sectors we need to
look at and most important thing among them is Corruption Perception Index (CPI). CPI
shows how much corruption is there in a country. CPI is very important as international business
depends on it. Sri Lanka has failed to show significant improvement in the Corruption
Perceptions Index (CPI) 2017, Sri Lanka has moved up 4 places from 95th to 91st, far more
importantly its CPI score has only risen by two points from 36 to 38, representing the slow rate
of progress. Sri Lanka faces many trade barriers in attracting FDI because of their position in the
CPI. Foreign country’s companies and individuals remain confuse whether to invest in Sri Lanka
or not. If they invest in Sri Lanka then they will gain profit or not, the company and individual
will be benefited or not. Sri Lanka faces trade barriers in import and export tariff which reduces
Foreign Direct Investment. Sri Lanka faces more problem in exporting rather than importing.

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 Sri Lanka has generally adequate laws and regulations to combat corruption, enforcement
is considered weak and inconsistent.  U.S. firms identify corruption as a constraint on foreign
investment but generally not a major threat to operating in Sri Lanka once contracts have been
established. So this information also tells us that doing business in Sri Lanka will not be a bad
decision despite their position in the CPI.

FDI (Foreign Direct Investment) is an investment made by a company or an individual in

a foreign country. Such investments can take the form of establishing a business in Sri Lanka,
building a new facility, reinvesting profits earned from Sri Lanka operations or intra-company
loans to subsidiaries in Sri Lanka. Sri Lanka needs to attract FDI towards their country because
FDI can boosts economic growth, FDI can diversify and increase exports, New investments can
help with government revenue and foreign exchange reserves, FDI can drive technology
exchange and innovation.

Economical HDI and other economic indicators

HDI (Human Development Index) an economic indicator

HDI is basically an index which measures the total standard of living of countries and based on
the points, it ranks the countries. It takes some basic indicators such as life expectancy, health
facilities, achievement in social and economical cultures.
If we look at Sri Lanka, they are doing well in maintaining their HDI. According to Nanayakara,
for the last 4 to 5 decades Sri Lanka have been providing various welfare activities which
includes free education, healthcare, providing electricity, water and sanitation facilities which
helped the Sri Lankans to lead a healthier life. [ CITATION Wim17 \l 1033 ]
In 2015, Sri Lanka was ranked, 76 out of 188 countries with a index value of 0.766 which was
classified under High Human Development category unlike other Asian countries such as India,
Bangladesh, Nepal, Bhutan and Pakistan was ranked Middle Human Development Category. In
this way the life expectancy also improved to 75years.[ CITATION Wim17 \l 1033 ]
Sri Lanka is facing an inward FDI which has various positives in Human Development.
According to ceicdata.com, Sri Lanka faced an inward FDI of 352.8 USD mn higher FDI in

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march 2018 than previous quarter. So, when FDI increases, the government develops the
infrastructure like roads, water supply, power supply to support FDI for which the locals also get
benefited and also FDI firms have a lot of demands which creates work facilities for the people
and improve their standard of living.

There are other economic Indicators as well:

Income and Wages
Another most important economic indicator is Income and wages, the rise in wages or income in
the economy indicates whether the purchasing power of the people has improved or not, when
income increases it gives extra capacity to the people to buy and consume more goods and
services and thus, increase the living standard. According to tradingeconomics.com, the average
income went up from 1040 to 1147 from 2017 to march 2018.
Due to increase in FDI, more industries are being set up, demanding thousands of employments,
which creates jobs and increases the demand for labour as well as wages, for which the people
now can afford more expensive products compared to before and lead a better standard healthier
life.[ CITATION Tra18 \l 1033 ]

Inflation
Inflation is the % change in general price level in an economy of a period of time especially one
year, when inflation occurs the price of all the goods and services increases, which makes it hard
for the people as their purchasing power falls as inflation rises.
According to the stats, Sri Lanka faces around 4.10 percent and expected to be 6 % around 2020.
But inflation doesn’t mean that the purchasing power of people falling as wages and income also
keeps rising with inflation and also inflation occurs when the Aggregate Demand curve shifts
rightwards which means more demand of goods and services.
FDI can cause inflation as it creates jobs and for which the aggregate demand also rises pushing
price level upwards, and also inflation is necessary as higher price level encourages suppliers to
suppy more and to invest more.

GDP as an economic Indicator

GDP measures the amount of goods and services produced in the economy of a period of time,
which is one year. Sri Lanka’s GDP was 56 billion USD in 2010, which increased to 87billion
USD in 2017, which shows Sri Lanka’s economy I s growing day by day.

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FDI is a key factor which influences GDP as, increases in FDI leads to more production of goods
and services and also increases employment which also helps to force demands, and increase in
taxation leads to more social works , which overall improves the GDP as well as the economy.

Language in Sri Lanka

Sinhala (also referred to as Sinhalese or Singhalese) is the mother tongue of the largest Sri
Lankan ethnic group. It belongs to the Indo - Aryan language branch in Indo-European
languages.

About 16 million people speaks in Sinhale language and among them 13 million people are
natural speakers. Along with Tamil, Sinhale is one of the official languages of Sri Lanka. Tamil
is the oldest of the Dravidian language family and the Tamil population in Sri Lanka speaks in
this language. With over 74 million speakers worldwide, it was the eighteenth most spoken
language in the year 1996.

Sri Lankan Culture and society

Hierarchy
Buddhism and Hinduism impacts and as well as the influences of the caste system have created a
culture which operates in a hierarchical system. Social status and order are the sides in which Sri
Lankans are concerned about. Hierarchies are involved to some limit in all relationships, if it be
office or at home. The Father or the eldest member of the family is regarded as the leader of the
family. In workplaces, the owner is considered as the person with highest responsibilities in the
business. All relationships are based on people's hierarchical position.

Sri Lanka’s Business courtesy and Protocols

Sri Lanka’s business courtesy can be rather formal. As a guest, everyone will be given some
space to appreciate all the cultural distinction. However, to obey some local customs would be a
kind gesture that can be shown. The handshakes are firm. Upon arrival and departure of clients
greetings are given. As many Sri Lankan women do not want to shake hands with men it would
be wise for men to wait until she extends her hands. Sri Lankans use a like “Sir “or “Madam”
with the persons’ name or surname as a part of their hierarchical culture.

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Business card Courtesy
Business cards are exchanged after an initial handshake and greeting. It is important to mention
titles and qualifications to the card. It is not important but would be a kind gesture to show if one
side of the business card is translated into Sinhala or Tamil language. Presenting business cards
with two hands is also one of the important factors. Do not disrespect the peoples’ business cards
by putting them in pockets or using it in any other disrespectful ways.

Communication
For all communication maintaining face is important. Sri Lankans are not opposing in their style
and it is important to listen to every word carefully as they say one thing but meant the different
thing. It is up to the listener to find out the message. Avoiding eye contact and waiting for long
pauses is necessary when dealing with Sri Lankan Businessmen.

Business Meetings
At the start of each meeting it is always wise to invest time in relationship-building
conversations as relationships are so important for business. The Sri Lankans would at least have
a small bit of background about the foreign clients before they feel comfortable doing business
or discussing about business with the foreign clients. In fact, the first meeting should be
conducted for exercising relationship building. Before the meeting it would wise for the clients
to send background data of the company and the reason for the meeting. The middle-ranked
people conduct the initial meeting who gathers information and present it to people of higher
ranks in the company. The foreign clients can reach the company’s high rank people by
establishing solid report. So foreign clients have to wait with patience until their report reaches to
the higher authorities and gets to meet them face-to-face.

Hofstede’s Dimension

Power Distance

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This deals with the fact that that all individuals in the society are not treated equally. It expresses
attitude of the culture towards these inequalities amongst people.

Sri Lanka is a relatively hierarchical society. This means that people accept a hierarchical order
in which everybody has a place and which needs no further justification. Hierarchy in an
organization is seen as reflecting essential inequalities, centralization is popular, subordinates
expect to be told what to do and the ideal boss is a generous autocrat.

Individualism
The main issue dimension is the length of interdependence a society maintains among its
members. It has to do with if self-image of people is defined in terms of “I” or “We”. In
Individualist societies people are supposed to look after themselves and their family only.

Sri-Lanka is considered a collective society. Loyalty in a collective culture is preferable and

ignores most of the rules and regulation of the society. The society is involved in strong
relationships where one takes responsibility of fellow members of their group. In collective
society often leads to shame, employers/employees’ relationships are perceived in moral terms.

Feminity
Feminine on the dimension means that the important values in society are caring for others and
quality of life. A Feminine society is one where quality of life is the sign of success and standing
out from the crowd is not admirable. Sri Lanka is considered a Feminine society. In Feminine
countries the focus is on “working in order to live”, managers strive for unity, people value
equality, solidarity and quality in their working lives. Conflicts are resolved by compromise and
negotiation. Incentives such as free time and flexibility are supported. Focus is on well-being and
status is not shown.

Uncertainty Avoidance
Sri Lankans are tolerant to uncertainty. According to Hofstede model Sri Lankan is “Uncertainty
accepting”. This means Sri Lankans like new ideas, have an eagerness to try out products which
are produced using new and innovative ideas, latest technologies and business ideas. Sri Lanka
allows news ideas and suggestions from everyone as they are tolerant of new ideas and opinions.
At the same time, Sri Lanka do not need a lot of rules to be followed and less emotionally
expressive than strong uncertainty avoidance countries. It is a nature of Sri Lankan people to take
risks. That is why Sri Lanka has a low value in uncertainty avoidance index.

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 90

80

70

60

50

40 Column2
Column4
30

20

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The above diagram shows the Hofstede’s cultural model of Sri Lanka.

Geographical Location of Sri Lanka

Located in the Indian Ocean, separated from India by Palk strait Sri Lanka is an island country to
the south of India. Sri Lanka is settled in an area of 432 km length and and width of 224 km. It is
located between latitudes 5°55′ and 9°51′ N and longitudes 79°41′ and 81°53′ E. Its diverse
landscapes have got rainforest and arid plains to highlands and sandy beaches. It is famous for
its ancient Buddhist remains which includes citadel Sigiriya from 5 th century with its palace and
paintings. Sri Lanka became independent in 1948 after becoming victorious in achieving
sovereignty from United Kingdom. It was called Taprobane by ancient Greek geographers .
Arabs referred to it as Serendib. Later, European mapmakers called it Ceylon. The name Sri
Lanka became official in 1972.

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Key Resources:
Sri Lanka is enriched with industrial minerals which including Graphite, Ilmenite, Rutile, Zircon,
Quartz, Feldspar, Clay, Kaolin, Apatite (Phosphate Rock), Silica Sand, Garnet sand, Mica,
Calcite and Dolomite. One of the most important non-ferrous (Metals that do not contain Iron,
are not magnetic and are usually more resistant to corrosion) mineral reserve in Sri Lanka is
Pulmoddai beach sand deposit. It contains “Titanium” which is one of the most expensive metal
in the world. Ilmenite (FeTiO2) and rutile (TiO2) are found in the Pulmoddai beach sand deposit
area in large amounts. There are other minerals like Monazite, Zircon, garnet and Ilmanite which
are found in this island. These minerals are currently in export. The Sri Lankan graphite has also
gained popularity around the world for its high purity and offers many forms like graphite
lubricants, flake graphite, carbon brushes, Fire bricks (used in lining furnaces, kilns, fireboxes,
and fireplaces.) bricks. Kaolinite, ball clay and brick clay are used for export business sector.
Yellow, red and blue color ball clay is found in Sri Lanka’s hills. Sri Lanka’s porcelain is ranked
one of the best in the world. Natural resources of Sri Lanka include another valuable mineral
reserve known as apatite rock phosphate. It is estimated that the reserve has apatite rock in 60
million tons in quantity which is generally used to produce phosphate fertilizer.

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 Sri Lanka’s Trade Relation With Other Countries

Sri Lanka is the 81st largest export economy in the world and 71st importer in the world.
Besides exporting-importing, Sri Lanka has good trade relation with other courtries by doing franchising
and joint ventures. It also falls under some specific economically integrated groups. For those groups Sri
Lanka is getting more opportunities to do business with different countries around the whole world.
Mainly they do business with Asian countries and export garments to the United States.

Sri Lanka mainly export their products in the United states, United states is the largest singel buyer
of Sri Lanka’s export. The next important export destination of Sri Lanka is the United Kingdom and
other countries are India ,Germany and Italy. The top import origins of Sri Lanka are
India, China, Singapore, the uniyed Arab emirates, Japan, Hong Kong, Malaysia, Iran, Belgium,
Indonesia, South Korea, and the United States. In 2016, Sri Lanka exported $11.5B and imported
$19.7B, resulting in a negative trade balance of $8.22B.
The top exports of Sri Lanka are Tea, Other Women's Undergarments, Knit Women's
Undergarments, Knit Women's Suits and Non-Knit Women's Suits. Its top imports are Refined
Petroleum, Planes, Helicopters, and/or Spacecraft, Cars, Light Rubberized Knitted Fabric and
Cement. Sri Lanka is aslo good at making handmade products. Sri Lanka is making a very good
relation with many other countries and that’s why many people go to Sri Lanka as a tourist.

The Free trade zones in Sri Lanka are one of the pillars of economic development and source
of the foreign direct investment (FDI). Malaysia is the largest investor of Sri Lanka. Other
notable investors in Sri Lanka are the United Kingdom, Singapore, Japan and Hong Kong. 50%
of all the Indian investments in the South Asian Association for Regional Cooperation countries
are invested in Sri Lanka. Sri Lanka has signed Free Trade Agreements (FTA’s) with India,
Pakistan and Singapore, and is negotiating a FTA with China. Sri Lanka has preferential access

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to several markets and they are India-Sri Lanka Free Trade Agreement (FTA), Pakistan-Sri
Lanka Free Trade Agreement (FTA), and South Asian Association for Regional Cooperation
(SAARC).
Sri Lanka consider those countries as their allies. Sri Lanka doing business very well with
those countries and their relation with Sri Lanka is very good. To do business with Sri Lanka is
profitable for other country and also for Sri Lanka.

Cost, Benefit And Risk

We live in Bangladesh and the capital of our country is dhaka. In our country threre are many
investors who want to do business with Sri Lanka. If we want to do business with Sri Lanka , we
will have to know about the cost, benefit and risk of the business. We know that Sri Lanka is an
island country. The country is located in the area of the Indian Ocean. The capital of the country
is Colombo.

Cost:
Frist of all we need to decide in which sector we want to invest and what type of business we want to
start. After deciding the sector we can assume how much money we have to invest. Then we need to
decide how will we present our product infort of the Sri Lanka’s people. Now a days many countries are
investing in Sri Lanka and many countries are willing to do business with sri lanka. There are many
opportunities in sri lanka for starting a new business as a foreigners. so we can invest in any sector but
we need know from where we can get much profit. now sri lanka improving their FDI ( Foreign Direct
Investment) flows to make it more attractive for the foreigners. so we can invest to do business with sri
lanka. The overall cost will not hamber our business because of their market environment. we will get
profit from our business if we can handel our customes properly in sri lanka.

Benefit:
To do business with sri lanka from Bangladesh is very beneficial. Sri Lanka is a democratic country and
the political situation of sri lanka is beneficial for Bangladesh. Most of the people are litarate and many
of them know English. So it will be helpfull of our country to communicate with them. the economical
situation of this country is improving. The business environment is very friendly and they won’t want to
hamper your business. most of the people are educated so they know about ethical system. So they do
not cheat with you. But we have to be careful and have to handle them carefully.

Risk:
In every country there will be some risk for foreign investors. if the businessman can takecare
of those risks carefully then he/she will not face any problem.In sri lanka Violent crimes against
foreigners are infrequent, although there have been an increasing number of reports of sexual
offences including on minors. Credit card fraud is a risk. Sri Lankan justice system can be very
slow. bribery and corruption is take place in sri lanka and it is risker for us. but many other

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country get success by doing business in sri lanka. so , if we become aware about this type of
risk we will be successful.

Overall Attractiveness of Sri Lanka

Sri Lanka is a very smart country. Despite the ravages of a 27-year civil war that began in
1983 and ended in 2009, the country maintains some of the highest literacy rates in South Asia.
It also performs well on other educational indicators, for instance elementary school enrollment,
and mean years of schooling. Public secondary and higher education studies are free to all
citizens, though those living in regions still in recovery from the civil war may have less access
to quality education than those living in other regions. Regardless, Sri Lanka has the highest
reported youth literacy rate in South Asia at 98.77 percent, as compared to 89.66 percent in
India, and 83.2 percent in Bangladesh. Along with the Maldives, Sri Lanka is one of only two
countries in South Asia recognized by the UN as achieving “high human development.” Sri
Lanka’s government promotes this interest in study abroad: The country’s Ministry of Higher
Education supports outbound mobility via program- and country-specific study abroad
scholarship opportunities at the undergraduate and postgraduate level. Many Sri Lankan youth
reportedly view migration or international schooling as an opportunity to enhance
their employment prospects.

Most of them speak English. They are well educated. The government of Sri Lanka
promotes ICT innovations and development and has taken measures to transform Sri Lanka into
a digital economy. In Mercer’s Quality of Life survey (2017), Colombo ranked Number 1 in the
South Asian Region. Sri Lanka leads the South Asian region in terms of high human
development indicators - high literacy and national health rates. There is a wide selection of
comfortable housing options in Sri Lanka.

A.T. Kearney, a leading consulting firm, regularly surveys countries based on financial
attractiveness, labor quality and business environment. The firm also conducts an annual survey
on the best outsourcing centers in the world, where Sri Lanka has regularly been featured in the
top 20 destinations for outsourcing. This is largely due to the improvement in labor costs, work
quality and friendly business environment. 

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 Sri Lanka is classified as a lower, middle-income country with a transitional economy.
the country has focused on the manufacturing and service sectors. To expand the Sri Lankan
economy, the government is now restructuring in order to promote a stable economy, which is
reflected in the recent growth rates of all key sectors, including tourism. Sri Lanka intends to
improve its business climate ranking in the World Bank’s Ease of Doing Business Index, to be
amongst the top 70 countries in the world.

So, yes Sri Lanka is good for investment in manufacturing and service sectors. The government
has prioritized an economic model driven by the private sector, trade, and Foreign Direct
Investment. The latest budget also makes way for listed companies with foreign ownership to
have fewer restrictions on land ownership rights.

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