The Government of Sri Lanka's industrialization strategy calls for the expansion, diversification and upgrading of its industrial base, as well as promotion of foreign investment in virtually all sectors of the economy. Under this framework, the Board of Investment of Sri Lanka (BOI) is responsible for promoting investment in Sri Lanka. It granted a total of 276 investment approvals up to October 2000. The 171 agreements signed during that period represented a 4.9 per cent increase compared to the first 10 months of 1999. The estimated foreign investment committed by the contracted projects stood at Rs. 14,938 million ($ 192 million), whereas the local investment commitment amounted to Rs. 25,298 million. These projects have an estimated employment generating capacity of 35,800 persons.
An Ideal place for Investors
The business environment and positive investor friendly policies of the government offer attractive conditions for investors.
Infrastructure
Private and public investment programmes have been constantly focused on improving the country's basic infrastructure facilities, which today rank as the best available in South Asia.
Business Climate
Comparisons have shown that Sri Lanka offers one of the most liberal business environments in Asia. Total foreign ownership is welcome in most areas of the economy. While there are a few areas where foreign investment is restricted or limited, these are being minimized. There are no restrictions on the repatriation of earnings and capital.
The Sri Lankan government is business-friendly and actively pursuing a policy of economic liberalization with emphasis on private sector investment. The private sector plays a vital role in traditional areas of public investment such as telecommunication, energy and transport. So far, many government enterprises are in the process of being privatised.
The Location Advantage
Sri Lanka is the logical location for manufacturing and service organizations that wish to establish a presence in what is fast becoming an economic powerhouse in the region. The island is ideally located as the gateway to the vast Indian sub-continent, home to a quarter of the world's population.
In addition, trade barriers are falling throughout the region. The seven countries, which comprise the South Asian Association for Regional Cooperation (SAARC), have resolved to progress towards a South-Asia Free Trade Arrangement (SAFTA) over the next 5 years. In addition, Sri Lanka has agreed a free trade agreement with India covering 1000 tariff codes and is negotiating a similar agreement with Pakistan.
Investment Protection and Guarantees
Sri Lanka has developed an enviable record of "political credibility" in the international arena. All major political parties are committed to free enterprise and individual freedom.
Bilateral investment agreements, supported by a constitutional guarantee, provide strong protection to foreign investment in Sri Lanka. Under Article 157 of the country's constitution, investment protection agreements enjoy the force of law and no legislative, executive nor administrative action can be taken to contravene it.
Bilateral investment protection agreements are valid for 10 years. They are extended automatically unless terminated by either party. If the agreements are terminated, investments already made are protected for another 10 years. A clause in the Sri Lankan constitution ensures the sanctity of agreements.
These agreements provide for the following:
- Protection against nationalization.
- Prompt and adequate compensation, if required.
- Free remittance of earnings, capital and business fees.
- Settlement of disputes under the International Convention for the Settlement of Investment Disputes (ICSID)
Bilateral agreements exist between Sri Lanka and the following countries : Belgium, China, Denmark, Egypt, Finland, France, Germany, Indonesia, India, Iran, Italy, Japan, Korea, Luxembourg, Malaysia, Netherlands, Norway, Romania, Singapore, Sweden, Switzerland, Thailand, the United Kingdom and the United States of America.
Protection of Intellectual property
The laws relating to copyright, industrial designs, patents, trade marks, service marks, trade names and unfair competition are covered by the Code of Intellectual Property Act of 1978 and subsequent amendments.
Arbitration
An Arbitration Centre has been established in Colombo for the settlement of commercial disputes expeditiously, economically and privately. A new law has already been enacted for this purpose. The Centre will be affiliated with the Arbitration Institute of the Stockholm Chamber of Commerce and will follow its standards and norms.
The Arbitration Act gives recognition to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards. This means that arbitration awards made abroad are now enforceable in Sri Lanka. Similarly, awards made in Sri Lanka can be enforced abroad.
Remittance of Earnings and Capital
By mid 1994, Sri Lanka had removed all foreign exchange restrictions on current account transactions. The monetary authorities are moving towards further liberalizing exchange controls.
Within this liberal environment, foreign investors can freely remit dividends, capital or royalty payment through any commercial bank, as well as the sale proceeds of shares. (As stated earlier, for qualifying investments, the BOI is authorized to exempt companies from the provisions of the Exchange Control Act).
Human Development
According to data published by the World Bank, Sri Lanka has the highest life expectancy (an average of 71 years), highest literacy rate (92 per cent) and the lowest infant and child mortality rates among the designated low-income countries. Sri Lanka also has the lowest rate of population growth in the developing world (1.3 per cent) and the lowest urbanization rate within this group. This situation is the result of extensive investment in public education and welfare by successive post-independence governments.
Today, investors will find an intelligent, educated and energetic workforce that is comfortable with modern production techniques with a level of trainability that is among the best in the region.
Land Ownership
A foreign investor can either purchase or lease land for an enterprise. If land is purchased by a non-national, a tax payment of 100 per cent of the purchase price is required. However, if a foreign investor incorporates a company in Sri Lanka under the Companies Act and buys the land in the name of the company, a tax payment is not required even though the shareholders of the company are foreign nationals. This is because a company incorporated in Sri Lanka is deemed to be a citizen of Sri Lanka for the purpose of taxation.
The Role of the Board of Investment ( BOI) of Sri Lanka
The BOI is structured to function as a central facilitation point for investors in Sri Lanka. It operates as an autonomous statutory body that is directly responsible to the President of Sri Lanka. It has a Board of Directors drawn from the private and public sectors and is assisted by a Ministerial Committee on Investment Promotion.
Main statutory Provisions
The principal law applicable to foreign investment is BOI Law No.4 of 1978 and amendments introduced in 1980, 1983 and 1992 and Regulations made under the Act.
The BOI Act provides for two types of investment approvals:
(i) Under section 17 of the Act
Regulations have been framed under section 17 of the BOI Law to grant specific incentives to new and existing enterprises satisfying specific eligibility criteria. These incentives usually entail a combination of exemptions covering income tax, customs duty and foreign exchange controls, which are conferred on an eligible company by way of signing an Agreement with the BOI.
(ii). General Incentives under 'Normal Law's of the country
Local or foreign investors who do not qualify for incentives under section 17 of the BOI law can take advantage of incentives available under the normal laws of the country. These fall into the following broad categories:
* Incentives for industry and services using advanced technology.
* Incentives for direct and indirect exporters
Exemptions List
Articles given below can now be imported without customs duty after obtaining approval from the concerned line agencies.
Agriculture
Seeds, fruits, spores, plants and parts thereof imported for the purpose of planting. Green-houses, poly tunnels, drip irrigation systems and parts thereof.
Parts, components and accessories for the manufacture/assembly of machines for cleaning, sorting or grading seed, grain or dried leguminous vegetables, machinery used in the milling industry or for the working of cereals or dried leguminous vegetables.
Technical grade, separate chemically defined active ingredients used in formulation of pesticides and plant growth regulators for the agriculture industry.
Fisheries
Raw materials, components, parts and accessories for the manufacture of fishing boats.
Fish caught by fishing vessels, which are operating from a Sri Lanka port and which have been duly registered at a port or registry in Sri Lanka or issued with landing permit by the Ministry of Fisheries.
Ornamental fish imported for re-export.
Livestock
Ingredients for the manufacture of animal and poultry food.
Craft Industry
Import of brass in the form of sheets, ingots, nuggets and scrap and any other input required by the craft industry.
Health
Machinery, medical and surgical instruments, apparatus and accessories, including medical and dental equipment and ambulances for the provision of health services.
Raw materials imported for the manufacture of pharmaceuticals.
Traditional medicine (Ayurveda, Siddha and Unani) raw and prepared drugs and medicinal plants.
Homeopathic drugs recommended by the Homeopathic Council of Sri Lanka.
Education
Temporary import of professional and scientific equipment and pedagogic material.
Apparatus, drugs and chemicals imported for educational purposes or for research work.
Industries
Project related machinery, equipment, parts and inputs.
Priority Areas
The BOI has identified the following sectors as priority areas for attracting foreign and local investments:
- Infrastructure development in telecommunication services, power sector, port sector, housing & property development, hospitals, voice and data communication systems, public transport and environment.
- Electronic Industries
- Light engineering
- Textiles, garments and Fashion Accessories
- Computer software
- Rubber based industries
- Agriculture
- Mining and processing
- Gems and Jewellery
- Tourism, recreation and leisure projects
- Services in areas such as ship repairing, ship breaking and entrepot trading.