The World Bank has warned that the amount of foreign direct investment (FDI), which is essential for achieving the desired goals of economic development in Sri Lanka, is far below the expected level.
Accordingly, they emphasize that it is imperative for Sri Lanka to implement a series of urgent structural reforms to achieve the desired economic goals.
According to the World Bank, although the country should have FDI at a level of 1.5 percent of gross domestic product (GDP), the current figure is a meager 0.5 percent. Richard Walker, World Bank Country Director for Maldives and Sri Lanka, said that he was of the opinion that this figure is not at all sufficient for the country’s development aspirations.
Even before, FDI flows were about 1 percent of GDP, but it has further declined, World Bank representatives pointed out. They also say that regional countries such as Vietnam and Malaysia are reporting high FDI values of 3 percent of GDP, while Sri Lanka is in a bad position in comparison.
Sri Lanka will have to make a number of major changes to reach the government’s target of attracting US$36 billion in FDI by 2030. Accordingly, they point out that Sri Lanka should be more interested in increasing foreign investment.
The main obstacle in attracting investors is the difficulty of accessing land. Foreign investors are discouraged by the fact that 80% of the country’s land is owned by the government and is under bureaucratic and ministerial control. This situation has particularly adversely affected investment in the agricultural sector.
In addition, the limited flexibility of business operations due to labor laws that are more than six decades old is another problem. Walker pointed out that these laws also limit employment opportunities for women in some sectors, which is an obstacle to economic growth.
During the administration of President Ranil Wickremesinghe, the Ministry of Labor and Foreign Employment attempted to modernize Sri Lanka’s labor laws, but it was thwarted by trade union opposition.