India was the largest source of foreign direct investment to Sri Lanka in 2010 with 110 million US dollars followed by Malaysia with 72 million US dollars and the United Arab Emirates 66 million dollars, the Central Bank said.
Telecoms continued to lead FDI, the Central Bank said. Malaysia's Axiata, which owns Sri Lanka's Dialog Axiata, has been a top source of FDI to Sri Lanka. UAE's Etisalat has also bought into the telecom sector. India's Airtel also owns a mobile firm.
Sri Lanka's foreign direct investment in 2010 was 516 million US dollars, including 39 million US dollars in loans, down from 601 million US dollars a year earlier, the Central Bank said.There was also 43 million dollars of outward investment by Sri Lankan firms, up from 20 million dollars a year earlier.
This reduced the net FDI figure in Sri Lanka's balance of payments (without third party loans) to 435 million US dollars, which was higher than the 384 million US dollars recorded a year earlier.
"It is necessary for Sri Lanka to attract more non debt creating foreign investment flows if it is to increase the level of investment required to maintain the envisaged economic growth path, given the shortfall in domestic savings," the Central Bank said.
"Creating a business friendly environment is needed to improve investor confidence and attract foreign investments."
"While the recent relaxation of exchange control regulations, a strengthened macroeconomic environment as well as the re-establishment of peace in the country incentivise investment, further steps need to be taken to encourage foreign investments."
A working group was already identifying measures to improve Sri Lanka's 102nd place in the World Bank's 'Doing Business' ranking.
Analysts say Sri Lanka has also other problems including increasing problems with rule of law and governance which authorities will need to address.
Sri Lanka's foreign investment promotion agency, the Board of Investment is expecting a billion US dollars this year, partly helped by several high profile hotel projects on state land in Colombo.
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India factor is two-fold. Being Sri Lanka's closest neighbour, we cannot escape but embrace India. On the other hand, too much of Indian intervention also would not be good for us (Sri Lanka).
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