Expert panel diagnoses why SL misses FDI

SRI Lanka's weak foreign direct investment (FDI) performance reflects not only policy shortcomings but also the failure of parts of the private sector to generate competitive returns, according to Aditya Birla Sun Life AMC Ltd., Chief Investment Officer International Sarath Sathkumara, who oversees a $ 50 billion investment portfolio.

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Speaking at a symposium titled "Trade in turbulent times: Geopolitical challenges and opportunities from Sri Lanka's perspective," organised in Colombo on Tuesday by law firm Sudath Perera Associates, Sathkumara said Sri Lanka's corporate sector must accept part of the responsibility for the country's limited success in attracting sustained international investment.

"After reviewing the top 25 companies, we found that only about five Sri Lankan firms were consistently generating returns above their cost of capital," he said. "In fact, only those few companies were truly attractive from an investment standpoint. Many other companies have not delivered meaningful returns to shareholders for nearly two decades."

Unless businesses generate returns above their cost of capital, international investors will deploy funds elsewhere, he said.

"One thing I often hear when people discuss Sri Lanka's economic future is the need for tax breaks. But tax incentives are not a differentiator. Every country offers them. They do not make an economy competitive," he said. "What really matters is responsibility, discipline, and performance. In that respect, Sri Lanka's private sector must also accept part of the responsibility for where the country is today!" Despite economic stabilisation efforts following the 2022 sovereign default, Sri Lanka continues to attract modest levels of foreign investment. Annual inflows remain just over $1 billion, roughly 1% of GDP. This is significantly below the 3% to 4% of GDP commonly seen in competing emerging economies.

The combination of post-default credit ratings, structural policy weaknesses, and weak corporate returns has prevented Sri Lanka from converting its strategic location and skilled workforce into sustained capital inflows.