UK eclipses China to become top direct investor in Sri Lanka

• UK accounts for 24% of total FDI in Jan.-Sept. 2020 period
• China accounts for only 12% of total FDI of US $ 548mn

While almost everyone was immersed in the pandemic, the United Kingdom (UK) stumped China to become the top investor in Sri Lanka in 2020.

Based on the data by the Board of Investment (BOI), the agency tasked with promoting the country for long-term job-creating investments, the UK accounted for the lion’s share of total foreign direct investment (FDI) to Sri Lanka in 2020, accounting for 24 percent.

FDI to Sri Lanka slumped in 2020, as cross-border investments took a battering, due to the widespread disruptions to businesses caused by the pandemic. 

As a result, Sri Lanka reported US $ 548 million in total FDI in the nine months to September 2020, compared to US $ 793 million in the same period in 2019, the latest available data on direct investments by the Central Bank showed. 

British-born financier and a member of Rothschild family, Nathaniel Rothschild, took a visit to Sri Lanka in January this year to explore the country’s suitability as a manufacturing base for an electronics venture.

China, which led the bilateral lenders in 2020, however retreated to the second place, accounting for only 12 percent of total FDI to Sri Lanka in 2020.

China has been heavily criticised for pouring loans into developing countries like Sri Lanka on mega infrastructure projects until they reach a point of no return in terms of repayment, eventually compelling those countries to convert such loans into equity, where China will effectively become owners of those national assets. 

This scenario is popularly known as ‘China’s debt-trap diplomacy’, which the Chinese authorities vehemently deny.

Sri Lanka fell into this trap when it had to forgo a port built in Hambantota, although much of it was due to bad diplomacy by the government of that day. Meanwhile, India, Hong Kong and Singapore, respectively held the third, fourth and fifth spots as direct investors in Sri Lanka in 2020, with 11 percent and 8 percent each for the latter two.  Out of the total direct investments received in the nine months to September, the manufacturing sector accounted for US $ 157 million or Rs.30 billion in fresh investments. This is a significant pivot in investment flows from the non-tradable sector to the tradable sector, due to the conscious efforts by the policymakers to rebuild Sri Lanka’s industrial base. Services-oriented ventures attracted US $ 86 million in fresh investments in the same period in 2020.  Infrastructure attracted the largest amount of FDI of US $ 311 million during the nine months, triggered by the port-related developments that are ongoing.