June 12, Colombo: Sri Lanka has ranked first Island Economy of the Future for 2017/18 in fDi's inaugural study of island economies with Cyprus and the Dominican Republic ranking second and third.
According to Greenfield investment monitor fDi Markets, the Sri Lanka attracted 172 inward investment projects between 2012 and 2016, the highest of all countries included in the analysis.
Data shows that 2016 was a bumper year for Sri Lanka's FDI, which increased nearly 147% from 2015, to reach more than $2.8 billion in estimated totals for announced projects, though some plans have been scaled back
The food and tobacco sector has become a more prominent FDI sector in Sri Lanka, accounting for 6.5% of total FDI in 2012, rising to 16% in 2016. According to a report by the Sri Lanka Export Development Board published in 2016, it is estimated that more than 2 million people are employed in the sector. Major investments have been made by companies such as Nestlé and Fonterra, and span a range of functions including manufacturing, logistics and training.
Sri Lanka is heavily in debt, requiring an IMF bailout in 2016, and this is a hot topic of conversation in the public debate regarding the future of the national economy. But the country enjoys a high GDP, the highest of all economies analyzed (more than $82bn at purchase parity rate), and a relatively low unemployment rate of 4.4% - well below the average of all 27 locations included (which stood at 11.6%).
Costs for potential investors are attractive, with minimum wages among the lowest of all island economies studied and hotel prices are much lower than other island destinations such as Barbados and Saint Kitts and Nevis.
The country boasts a unique geographical position, located on shipping routes between Singapore and India, and performs well on the World Bank's Liner Connectivity Shipping Index, ranking highest of all locations, and contributing to Sri Lanka's appearance in the top 10 locations in the Connectivity category.
In addition to placing number one overall in the first ever island Economies of the Future rankings, Sri Lanka also came top for the second year in a row in fDi's Diversification Index of island economies.
Sri Lanka has retained the title of fDi's most diversified island economy for 2017, with a score of 0.290. Between 2003 and 2016, the country attracted FDI projects across 35 sectors, according to data from Greenfield investment monitor fDi Markets.
Financial services was the biggest sector for investment in Sri Lanka in the period analyzed, attracting 75 projects, or just over one-fifth of Sri Lanka's total investment. Germany-based insurance and asset management company Allianz invested 29 times in the country, as part of an expansion strategy for the company's branch network.
The country received 30 projects in each of the business services and transportation sectors in that time. In May 2016, Japan-based logistics company Nippon Express opened an office in the capital, Colombo, to serve the local market, and attributed its investment decision to the increased level of investment in infrastructure.
This comes on the back of a deal agreed in 2004, when Sri Lankan authorities partnered with the World Bank to develop the national and rural network of roads as part of the bank's Road Sector Assistance Project, aiming to increase connectivity, improve social integration and further economic development. The resulting infrastructure improvements not only attracted investors across a variety of sectors and reduced transportation costs, but also increased the percentage of families with access to an 'all weather' road from 48.3% to 70.9% in 2016.