Foreign Direct Investment to Sri Lanka during 2010 had fallen by 14 percent to US$ 516 million, as against the US$ 601 million in the year 2009.
According to the 2010 Central Bank Annual Report such a reduction may not entirely be unexpected given the adverse effects of the financial crisis on the global financial flow.The report pointed out that at the onset of global financial crisis which hindered economic activity in all major advanced economies, the increasing trend of FDI flows was reversed drastically.
According to UNCTAD statistics, global FDI flows have declined by 16 percent to US $ 1.8 trillion in 2008 and by some 37 percent to US $ 1.1 trillion in 2009.
Sri Lanka’s FDI data for 2010 reveals that about 59 percent of investments were pumped into infrastructure development projects, while manufacturing and services sectors attracted about 31 and 9 percent respectively.
The flows to agricultural sector were minimal.
In the backdrop of emerging and developing countries having a better chance to attract FDIs than the developed economies due to the increasing growth prospects, Central Bank annual report says that Sri Lanka has a substantial potential to improve FDI inflows particularly into the services and agricultural sectors.
“As Sri Lanka has already embarked on a programme to promote tourism in the post-conflict era, tourism related FDIs need to be strengthened further.
In the meantime, more FDIs needs to be attracted to areas such as education and research & development, in order to ensure sustainable economic growth over the medium and long-term,” the annual report noted.
The report further highlights that the agriculture sector seems to have been largely unexplored, as a potential investment area in Sri Lanka.
“There is growing interest among the international organizations in promoting investment opportunities in the agricultural sectors, as they have begun to foresee some likely threats, given the forecasts of the United Nations on world population growth”, the report said.
It also said that to realize the FDI potential of the Sri Lankan economy, the Sri Lankan government has taken several progressive measures in order to promote financial openness and to enhance the investment climate instead of ad-hoc and costly tax incentives practiced by earlier regimes.
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