By Rohan Parikh

From the COVID-19 pandemic to its current economic turmoil, Sri Lanka has faced many challenges thrown at it with resilience. Today however, Sri Lanka is under tremendous turmoil and pressure and faces a difficult macroeconomic situation today. There are a bunch of conflicting factors that need to be mitigated – and that will require tough decisions. One of the things that can change the fortunes of Sri Lanka is foreign investment.

The role of foreign real estate investment

By its nature, the construction industry opens many opportunities for a foreign investor to consider a country as the ideal place for his investment. Real estate is an infrastructure asset that adds to the nation’s wealth and asset base. It allows the creation of a stable middle class and a secure working class.

Nearly 3/4 of the construction sites in Sri Lanka are currently stopped for various reasons: ever increasing cost of raw materials, unavailability of essential goods due to import restrictions, ongoing currency crisis, etc. This has dealt a severe blow to the labor market, as construction sites employ a large number of workers. It also impacted many local suppliers of the hundreds of items needed to build doors, windows, steel, locks, tiles, glass, wood, etc. It is therefore essential to revive the real estate sector. To achieve this, it will be essential to make Sri Lanka an attractive destination for foreign investment.

Tools of change that the nation’s leaders have in their belts

Financial motivations:

Now, more than ever, it is essential that foreign investments in real estate are exempt from taxation. This exemption was mistakenly removed several years ago, at a time when taxes on domestic industries were cut disastrously. The lack of tax benefits for foreign investors has slowed future foreign exchange-funded projects and impacted foreign exchange inflows.

At the same time, the reduction in taxes on local businesses led to a drying up of the State budget. This has left the country extremely vulnerable to a shock like COVID. Today, we hope that strong financial incentives will be put in place to attract foreign investors to Lanka. Without it, markets like India, Pakistan, Thailand and Dubai will always appear as better avenues for investment.

Policy Clarity:

It is important that foreign investors perceive the country as having a stable regulatory environment. The period from 2016 to 2018 saw many sudden changes in policies and processes which led to great uncertainty and concern among foreign investors. This should be avoided during any change of administration as it damages the country’s reputation with investors in the long run. For example, the rule on VAT and NBT was modified 3 times in the space of a year during this period.

Investor protection: A foreign investor should feel welcome and safe. Despite the efforts of an overwhelming majority of forward-thinking leaders and bureaucrats, a small minority can do a lot of damage.

In my own case, we were stalked and harassed by some politicians for no reason, and slandered in an extremely unfair and false attack by the local media. We were attacked because we were a foreign company and we lost a lot of business because of this defamation. This scared off our staff and caused many of our investors to stop investing in Sri Lanka. In the same breath, I am also happy to report that in the end, the legal system in Sri Lanka came to our rescue and the courts issued an order protecting us. We survived, shaken but still resolute in our commitment to Sri Lanka. Unfortunately, not all foreign investors have this kind of resolve, especially when there are other markets that offer more welcoming access. The need here is to provide the Board of Investment with real powers to tackle these obstacles and protect foreign investors.

I have been investing in Sri Lanka for over 15 years now. We were the first company to invest in Sri Lanka after the war ended. I have seen the determination and the strength of the nation and I am convinced that this crisis will pass. I hope we can learn from the crisis and come back better and stronger.


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