According to a University of Colombo professor, Sri Lanka's struggle to attract foreign direct investment stems not from weak marketing but from bureaucratic complexity and policy unpredictability that deter investors despite the country's strategic advantages.
Sri Lanka possesses significant competitive advantages for attracting foreign investment: a strategic location along major Indian Ocean shipping routes, a relatively educated workforce, established commercial institutions, natural resources and direct access to over a billion consumers in South Asia. Yet these assets have not translated into substantial capital inflows, according to Emeritus Professor Ranjith Bandara of the University of Colombo, who argues the real obstacle is not the country's investment pitch but rather the difficulty of actually doing business here.
Recent data show modest improvement in foreign direct investment, which rose from approximately US$759 million in 2024 to US$1.04 billion in 2025, the strongest performance since 2022. However, this represents only about 1 per cent of Sri Lanka's GDP exceeding US$100 billion—far below what serious industrialisation and export expansion would require. Vietnam, often cited as a benchmark, attracted over US$20 billion in FDI during 2025 alone. Bandara emphasises that investors worldwide face multiple competing destinations, making Sri Lanka's relative performance crucial.
The professor identifies cumulative administrative friction as the primary barrier. Rather than a single critical flaw, multiple small inefficiencies across agencies with overlapping mandates, inconsistent rulings and unclear procedures create uncertainty that investors cannot reliably price into projects. Bandara argues that policy volatility—shifting tax incentives, import rules and foreign-exchange controls with each government change—embeds a hidden "policy-risk premium" into investment decisions. He proposes establishing a genuine digital single-window system with one application, unified digital files, designated case managers and fixed statutory deadlines, alongside reduced administrative discretion and transparent public procurement.
Bandara contends Sri Lanka's measurement of success should shift from approvals granted and memoranda signed to actual capital inflows, operational factories, genuine employment creation and sustained reinvestment. He recommends establishing clear post-approval responsibility to identify and remove obstacles preventing approved projects from becoming operational. Performance metrics for investment-promotion institutions should reflect realised investment rather than announced projects. The professor concludes that since Sri Lanka cannot match competitors' subsidies, it must "out-execute" them through speed, certainty and efficiency—reforms that would benefit both foreign and domestic entrepreneurs.
