Strong economic growth, low production costs, and considerable inflows of foreign investment have made Sri Lanka an increasingly competitive hub for manufacturing and apparel, according to Maplecroft’s Country Risk Report for Sri Lanka which aims to highlight areas of opportunity, as well as potential challenges, for investors and foreign companies looking to enter or expand their operations.
The end of the civil war in 2009 has brought stability to Sri Lanka and set a solid foundation for socio-economic development throughout the country.
The pro-business policies of the Rajapaksa government have been broadly successful in driving infrastructure development, attracting foreign investment. Establishment of Export Processing Zones (EPZs) helped Sri Lanka to develop an export-led economy. Although corruption and bureaucratic inefficiencies remain challenges, the overall business environment is encouraging for investors.
As the most important industry, the apparel sector will continue to benefit from tax incentives and low import tariffs, designed to attract investment and boost revenues. Economic recovery in main export destinations such as the EU and the US is likely to fuel growth in garment exports, which in turn will support Sri Lanka’s broader economic development.
Foreign companies closely affiliated with government officials are likely to be exposed to reputational risks associated with Sri Lanka’s war-time human rights record. Additionally, high-pollution industrial activities are likely to be met with domestic and international criticism, while industries looking to establish in the EPZs will be required to comply with certain environmental criteria.