Expert panel diagnoses why SL misses FDI, with economists, global investment specialists and trade experts pointing to structural weaknesses in both policy frameworks and private sector performance that continue to limit Sri Lanka’s ability to attract sustained foreign investment.
Expert panel diagnoses why SL misses FDI amid structural and policy concerns
Sri Lanka’s relatively weak foreign direct investment performance is not simply the result of policy gaps but also reflects deeper structural challenges within the corporate sector and the broader investment ecosystem, according to international finance and legal experts speaking at a recent symposium in Colombo.
The discussion took place at an event titled “Trade in turbulent times: Geopolitical challenges and opportunities from Sri Lanka’s perspective,” organised by law firm Sudath Perera Associates. The forum brought together economists, legal specialists and investment professionals from the United States, China, India and Sri Lanka to examine global trade shifts and their implications for the country’s economic trajectory.
One of the central messages emerging from the event was that improving Foreign Direct Investment Sri Lanka flows will require reforms that go far beyond tax incentives. Aditya Birla Sun Life AMC Ltd. Chief Investment Officer – International Sarath Sathkumara, who manages an investment portfolio worth around $50 billion, said Sri Lanka must address both investor confidence and corporate competitiveness.
Sathkumara argued that the private sector must accept a degree of responsibility for the country’s limited investment inflows. A recent analysis of Sri Lanka’s top companies revealed that only a small portion consistently generated returns exceeding their cost of capital, a key benchmark used by global investors when allocating funds.
According to Sathkumara, the study found that only about five of the country’s top 25 companies consistently produced returns above the cost of capital. Without such performance metrics, international investors are unlikely to allocate long-term capital to Sri Lanka.
He stressed that while policy discussions in the Sri Lanka economy often focus on tax concessions, such incentives alone rarely influence investment decisions. “Tax incentives are not a differentiator,” Sathkumara said, noting that nearly all competing economies offer similar benefits. Instead, investors tend to prioritise governance standards, operational efficiency, and consistent returns.
Sri Lanka has struggled to convert its geographic advantages and educated workforce into sustained inflows of international capital. Despite recent economic stabilisation efforts following the 2022 sovereign debt crisis, annual investment inflows remain just above $1 billion. In macroeconomic terms, this represents roughly 1% of gross domestic product, significantly below the 3% to 4% of GDP typically recorded in competing emerging economies.
Within this context, the discussion titled Expert panel diagnoses why SL misses FDI explored the structural gaps that continue to discourage investors from committing long-term capital to the country.
Deloitte Sri Lanka and Maldives Head of Financial Advisory Ruvini Fernando said the issue extends beyond financial incentives to the broader investment environment. She noted that countries competing for global investment have built entire ecosystems designed to support export-oriented industries.
In contrast, Sri Lanka still faces constraints in areas such as industrial land availability, logistics efficiency, skilled labour supply and trade facilitation. Without improvements across these areas, foreign investors may continue to favour alternative destinations in Asia.
Fernando emphasised that investors typically enter smaller economies with the intention of exporting to international markets rather than selling to domestic consumers. As a result, trade policy and market access agreements play a crucial role in determining investment flows.
Free trade agreements, she said, not only enable exports but also reduce the cost of importing raw materials and intermediate inputs used in production. Without competitive trade frameworks, export-oriented investment becomes less attractive.
Ceylon Chamber of Commerce Chief Economic Policy Adviser Shiran Fernando added that Sri Lanka’s institutional capacity to negotiate and implement trade agreements remains limited compared with several Southeast Asian economies.
Countries such as Thailand and Vietnam have expanded their trade networks significantly over the past two decades, giving exporters access to multiple markets and integrating local industries into global supply chains. Sri Lanka, by contrast, has progressed more slowly in building such trade partnerships.
Another factor discussed during the forum was the shifting nature of global production networks. Amundsen Davis LLC Partner Ngosong Fonkem explained that geopolitical tensions and tariff disputes are prompting multinational companies to restructure supply chains.
For smaller economies with stable legal systems and competitive labour costs, this restructuring can create opportunities to become intermediate manufacturing or services hubs within global value chains.
China’s evolving investment strategy could also present opportunities for Sri Lanka, according to QZ&WD Law Firm partner Mengni Romanee Luo. Chinese outbound investment reached approximately $174 billion in 2025, reflecting continued expansion into global markets despite geopolitical uncertainties.
Although Sri Lanka is not part of the Regional Comprehensive Economic Partnership trade bloc, Luo said Chinese companies continue to view the country positively as a potential business partner. Several firms see Sri Lanka as a credible and trustworthy environment for regional collaboration.
Sri Lanka’s strategic location along major maritime trade routes also remains a structural advantage. If supported by stronger policies, improved logistics and deeper integration into regional supply chains, the country could position itself as a logistics, manufacturing and services hub connected to global trade flows.
Opening the forum, Sudath Perera Associates founding partner Sudath Perera said the global economy is currently undergoing rapid structural changes, with geopolitical tensions, evolving trade rules and shifting supply chains reshaping international business.
These shifts create risks for smaller economies but can also generate opportunities for countries capable of adapting quickly.
The discussion titled Expert panel diagnoses why SL misses FDI therefore highlighted a broader challenge facing Sri Lanka: transforming its economic structure into one that consistently attracts international investment.
Experts concluded that credible policies, stronger institutions, competitive businesses and deeper integration with global markets will ultimately determine whether Sri Lanka can convert its potential into sustained capital inflows and long-term economic growth.