In 2011, for the first time, foreign direct investment (FDI) into Sri Lanka broke the $1bn (£640m) mark. That might not seem a lot compared to its much larger Asian neighbours, but it is growing fast: FDI is on course to rise 70 per cent this year.

This is a testament to the island’s business-friendly ethos. In 2012, it climbed nine places in the World Bank’s Ease of Doing Business index, the highest jump by any country from 2011-2012. It fared better than all of the BRICs (Brazil, Russia, India and China) – commonly recognised as the world’s big 4 emerging markets – and in the “protecting investors” sub-category, ranked as high as 46th.

Under what is known as the Mahinda Chintana, Sri Lanka seeks to become a regional hub in five key areas: maritime, aviation, power and energy, commerce, and knowledge.

M.M.C. Ferdinando, chairman of the country’s Board of Investment, believes that FDI can inspire major economic transformation. “Investors gain commercial benefits while the country should enjoy new sources of foreign exchange, creation of employment opportunities and technology transfers,” he says. “It should be a win-win situation.”

Sri Lanka is the only country to have signed free trade agreements with both India and Pakistan, giving investors in more than 4,000 products duty-free access to around a fifth of the world’s population. Since the agreements came into force, bilateral trade with India has grown more than five-fold, while trade with Pakistan has trebled. The island also has bilateral investment protection agreements with 27 countries, including the UK.

Last July, when Sri Lanka looked to international markets to raise $1bn, its 10-year bond sale was over-subscribed by a factor of seven. Ajith Nivard Cabraal, governor of the Central Bank of Sri Lanka, cites this as evidence that the country’s growth story is being recognised. “Our bonds are trading at par or above, even in today’s context of the worst of times,” he points out.

Cabraal believes that Sri Lanka’s economy is “the most balanced and resilient” in south Asia, noting: “Our per capita income (currently around £1,800 per annum) is increasing at the fastest rate in the region, which proves that there is a new momentum in our economy”. Moreover, he argues, if that figure rises to £2,500 – targeted within 5 years – the economy will enter an “auto-pilot” which will propel it to a new level altogether.

3 reasons to invest in Sri Lanka

Globally competitive: ranked 52nd out of 142 countries in the World Economic Forum’s latest index
Educated workforce: literacy rate of nearly 95 per cent – one of the highest in the developing world
Location: just north of the shipping lanes connecting Asia to the West; and only 32km from India

Eye on Mackwoods

Nirmali Samaratunga | Co-Chairman of Mackwoods Limited

Mackwoods is Sri Lanka’s second-oldest mercantile organisation, established more than 170 years ago. Primarily known as a tea merchant, it operates in many industries, from healthcare to ICT and financial services, through its ‘Claridge’ brand. In May, the initial public offering of its energy arm was oversubscribed on its opening day. Co-chairman Nirmali Samaratunga says Mackwoods is specifically focussing on Sri Lanka’s north and east. “We believe that engaging with these communities and undertaking business activities will expedite economic development, ensuring a sustainable peace.”

Brand Sri Lanka

For all its economic growth and the breadth of its industry, Sri Lanka is perhaps still best known for cricket and tea. But that is changing.

Sri Lanka’s economic potential belies its size, particularly due to its desirable geography and proximity to emerging superpowers. Now, it must work to foster a national brand recognised across the globe.

“Sri Lanka needs to be branded as a nation which can offer attractive options to investors – such as an excellent business environment, a transparent legal system, adherence to all the important conventions and also as a gateway to India, one of the world’s largest trading areas and certainly one of the fastest growing, says M.M.C. Ferdinando, chairman of the BOI.

“On the export side we are making a concerted effort to brand our products,” adds Basil Rajapaksa, Minister for Economic Development. It’s not just about branding in the media, though. “We first have to ensure that anyone who comes to Sri Lanka has a good experience...over these past two years we have made a huge effort in educating people and keeping the country clean”.

How they view it

Basil Rajapaksa | Minister of Economic Development

‘98% of the world’s cinnamon is produced by Sri Lanka, but hardly anyone is aware of that. We want to build awareness about our products, from tea to rubber.’

Dawn Austin | Chairperson of the Exporters Association

‘The exporter community here is very resilient. A lot of companies are looking at vertical integration with India, because India is a very fast growing market. Sri Lankans are quite versatile, they will look at new markets, and there is a lot of encouragement from within the government.’

Ajith Nivard Cabraal | Governor of the Central Bank

‘We have shown that Sri Lanka is a powerhouse. We believe that as a comparatively small nation, we have the most balanced and resilient economy in the entire region. We also have the highest per-capita income after the Maldives and, notwithstanding the challenges we face, I am very optimistic about the next few years.’

Dr. Priyath Wickrama | Chairman of the Ports Authority

‘From Sri Lanka you can go to Africa, the Indian subcontinent and everywhere. We were gifted with our location. We have a lot of evidence to prove that we have been the largest trading partner in this part of the world 2,000 years ago. We were the best maritime nation at that time, so we want to close the circle and get back to where we were.’