Sri Lanka prepares for investment boost

Sri Lanka expects foreign direct investment to more than quadruple to US$4 billion ($6.2 billion) by 2012 as the end of a 26-year-old civil war leads to political stability.

"Interest in Sri Lanka is tremendous now," Dhammika Perera, chairman of the Board of Investment of Sri Lanka, said yesterday. "The end of the war has put the country on the radar of global companies."

Clothing manufacturers and hotel operators are scouting the nation for investment opportunities after the military defeated rebel Tamil Tigers last month, Perera said.

President Mahinda Rajapaksa may still have to find a settlement to the separatist demands of the ethnic Tamils to secure lasting peace and build investor confidence.

"We think there are great untapped opportunities, however many challenges remain," said Prakriti Sofat, a Singapore-based economist at HSBC Holdings.

"The Government needs to create the right post-conflict environment by not only ensuring law and order for the broader civilian population but most importantly finding a political solution to the ethnic problem."

The President said his Government would implement a power-sharing plan for the north based on a 1987 constitutional amendment that arose from a peace accord with India. The plan will establish a provincial council to assume some of the central government's role.

Sri Lanka, without war, is an attractive investment proposition as the country improves its power, ports and other infrastructure and streamlines procedures for business, said Perera.

Sri Lanka moved up to 29th position in 2008 from 47th place in 2007 for ease with which to start a business in the country, according to the World Bank. The island allows 100 per cent ownership to foreign investors in all businesses and places no restriction on repatriation of earnings.

Malaysian companies invested US$150 million in 2008, making the country the biggest foreign direct investor in Sri Lanka during the year, according to the Board of Investment. India ranked second with US$126 million as Bharti Airtel, the nation's largest mobile-phone company, started operations in Sri Lanka.

The Colombo All-Share Index has climbed 16 per cent since the government overran the Tamil Tigers, taking its gains this year to 47 per cent. The central bank last month raised its growth forecast for the nation's US$32 billion economy to between 4 per cent and 5 per cent, compared with an April estimate of 2.5 per cent.

- BLOOMBERG