FDI in first half hits US$ 350mn; govt. eyes US$ 750 mn for full year

Sri Lanka has received foreign direct investment (FDI) worth US$ 345 million for the first six months of 2020 compared to US$ 535 million received in the same period last year.

The better than expected receipts amid COVID crisis has prompted authorities to revise the full year FDI target upwards to US$ 750 million with some positive developments on the horizon.

“The expected finalisation of new legislation for the Port City within a month will result in the realisation of investment by those who have already completed due diligence on such investment,” State Minister of Finance Ajith Nivard Cabraal told a recent media briefing.

“Other expected investments include import alternative industries as well as investments by international financial institutions,” he added. 

Sri Lanka lowered its expectations for FDI in 2020 as prospects turned gloomy with the outlook for cross border investments and business expansion turning sour due to the global spread of COVID-19. 

Initially, Sri Lanka expected no more than US$ 300 million as FDI for the full year.

The revised FDI target in 2020, if met, would only be about US$ 400 million less than what the country attracted in 2019. 

Sri Lanka’s Fdi include foreign loans raised by investing companies. 

Sri Lanka’s past record in attracting FDI remains poor compared to its peers in the Asian region. 

Sri Lanka’s actual FDI is usually less than what is reported as FDI ventures have increased their profit repatriation or dividend outflows, which should be decoupled from the FDI inflows when reporting 
the numbers.

The situation becomes even bleaker when funds to repay foreign debt by FDI ventures and their interest payments are taken out, said Indika Hettiarachchi, a private equity professional, who facilitates foreign investments into Sri Lankan companies and various sectors.   

For instance, Sri Lanka had received US$ 5.3 billion FDI during last five years. “Out of this, the actual cash inflow into the country was US$ 3.5 billion (in the form of new equity or debt investment). However, during this period, over US$ 2.5 billion worth cash has been repatriated back to foreign countries as dividends,” Hettiarachchi said in a recent opinion piece published in Mirror Business.

“When we sum all above, it is likely that the actual FDI inflow into the country could have been less than half a billion dollars for the entire five-year period. This picture becomes very bleak, if we exclude (over a billion dollars) receipts from the sale of Hambantota Port (which were accounted in 2017 and 2018),” he added. 

Stability, clear property ownership laws and lack of red tape could create a conducive environment in Sri Lanka for foreign investors, who are looking to re-locate their investments in other parts of Asia due to crosscurrents in the current trade and geo-politics among global powers.