Sri Lanka

In-depth country-focused analysis on Sri Lanka's economic, political and operational risk environment, complemented by detailed sector insight

Sri Lanka

Our comprehensive assessment of Sri Lanka's operating environment and the outlook for its leading sectors are formed by bringing together a wealth of data on global markets that affect Sri Lanka, as well as the latest industry developments that could impact Sri Lanka's industries. This unique integrated approach has given us an impeccable track-record for predicting important shifts in the markets, ensuring you’re aware of the latest market opportunities and risks in Sri Lanka before your competitors.

Country Risk

Sri Lanka Country Risk

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Core Views

  • While progress will be made towards the resolution of ethnic divisions in Sri Lanka, the path to reconciliation will be an arduous one. Moreover, it is unlikely that demilitarisation in the northern and eastern part of the island will happen anytime soon, given the possibility of a resurgence of the Tamil Tigers

  • Sri Lanka's real GDP growth will slow in the coming quarters as low agricultural commodity prices and a relatively strong rupee continue to weigh on exports. Moreover, policy and political uncertainty will also keep growth subdued as investors adopt a wait-and-see approach. As such, we have downgraded Sri Lanka's 2015 real GDP growth forecast to 6.5% from 7.5% previously.

  • The Central Bank of Sri Lanka's (CBSL) monetary easing cycle has further to run as a combination of low inflationary pressures...

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Sri Lanka Operational Risk Coverage (9)

Sri Lanka Operational Risk

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Particular risks related to investing in Sri Lanka include the security situation, a consequence of the country's recent civil war, which came to an end in 2009. Sri Lanka's exposure to international trade is also a factor that adds to the difficulties of investing in the country, as shown by disappointing levels of exports and foreign direct investment. That said, there are certainly benefits to investing in Sri Lanka. Chief among these are good-quality airports and seaports, the latter of which is receiving further heavy investment from the Chinese government. Another strength is a cheap workforce with a high literacy rate by South Asian standards of 91%. Sri Lanka achieves an overall score of 51.6 in our Operational Risk Index, ranking 14th in the region, reflecting its status as a medium-risk place to do business.

The internal security situation in Sri Lanka should be carefully considered by potential investors. A decisive...

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Sri Lanka Crime & Security

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Any assessment of the crime and security situation in Sri Lanka must take into full account the resolution of the recent civil war, with the conflict continuing to have a profound impact on the country's internal security, its foreign relations and the effectiveness of its security services. Since the end of the civil war in 2009 there have been no terrorist attacks, with the government victory over Tamil forces bringing a seemingly lasting and durable peace. Foreigners face risks of petty theft rather than major threats to personal safety. Overall, the country scores 45.2 out of 100 in BMI's Crime and Security Risk Index, ranking 20th out of 30 Asian states, in between Laos and Indonesia.

A relatively weak military puts Sri Lanka in a precarious international position, as it is much weaker than its bigger Asian neighbours. Nonetheless, the country's success at developing diplomatic links in the...

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Sri Lanka Labour Market

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Success in developing an increasingly productive and healthy workforce with good basic skills has played a key role in helping Sri Lanka to approach middle-income status. However, there are a number of human capital issues the country needs to address before it can offer a labour market competitive with leading Asian nations.

At 4.1%, unemployment is good by regional standards, with increasing investment creating better-paid opportunities in manufacturing and the service sector. Nonetheless, close to 50% of workers remain in agriculture, typically earning close to the low minimum wage of USD39 a month. Low numbers of people actively seeking work also belie poor rates of workforce participation, with only 35% of the potential female labour force in employment. Other issues include disappointing rates of secondary and university level education and generous legal protections for workers in some areas. We award Sri Lanka a score of 49.5 in our...

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Sri Lanka Logistics

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Supply chains in Sri Lanka must traverse an uneven transport network in terms of quality. There are solid growth prospects, and cheap but unreliable utilities availability. On the other hand, the export-driven manufacturing sector is boosted by relatively efficient trade procedures, which reduce costs and the risk of delays. Sri Lanka receives an overall score of 61.5 out of 100 in the  BMI Logistics Risk Index. This places the country in 12th position out of 29 Asian states, in between Vietnam and Brunei, and two places ahead of its neighbour India.

The relatively poor availability of key utilities such as electricity, water and internet, which together threaten to grind businesses to a halt and overshadow the competitive utilities costs, is a key threat to investors. In particular, the quality and reliability of internet connectivity in Sri Lanka pose risks to investors in the services and communications sectors....

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Sri Lanka Trade & Investment

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Sri Lanka's economy has grown strongly in recent years, averaging annual increases of 6.4% between 2003 and 2012. Prospects for the future look similarly good, with a rate of 7.2% recorded for 2013 and heavy investment by China set to sustain growth. Areas of the economy particularly attractive to the foreign investor include the country's manufacturing, real estate and infrastructure sectors, with the latter two set to grow strongly as the country continues to rebuild following its 25-year civil war. Investment in Sri Lanka is by no means risk-free, however, and against these opportunities stand a number of risks. These include poorly managed public finances, pervasive corruption and extensive weaknesses in the country's legal system, all of which contribute to the significant difficulties associated with investing. We have awarded Sri Lanka a score of 50.1 in our Trade and Investment Risk Index, putting the country 12th among 29 Asian nations, just above China....

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Sri Lanka Industry Coverage (6)

Commercial Banking

Sri Lanka Commercial Banking

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Commercial Banking Sector Indicators
Date Total assets Client loans Bond portfolio Other Liabilities and capital Capital Client deposits

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Information Technology

Sri Lanka Information Technology

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BMI View: Strong economic growth and a government supportive of digitalisation underpin our IT growth forecast, as this is also likely to filter through in the shape of increased government spending. We forecast a compound annual growth rate (CAGR) of 15.4% for IT market spending between 2015 and 2019, with the market expected to increase to a value of LRK188.8bn in 2019. We believe Sri Lanka will...

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Pharmaceuticals & Healthcare

Sri Lanka Pharmaceuticals & Healthcare

Power

Sri Lanka Power

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BMI View:  Sri Lanka will look to coal and renewables to meet its energy needs for the next three to five years, as alternatives offered by gas-fired power generation remain too costly and the necessary pipeline links, LNG facilities and distribution system are still lacking. More urgently, plans for coal and renewable generation, as well as the cross-border...

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Telecommunications

Sri Lanka Telecommunications

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BMI View : 4G LTE mobile broadband services are beginning to be rolled out across Sri Lanka, despite the modest uptake of 3G and value-added services to date. Predominance of pre-paid subscriptions on the Sri Lankan mobile market does not bode well for the uptake of data products. We expect to see periods of significant account eliminations over the next few years as operators consolidate and pursue higher quality post-paid subscriptions to sustain their expansion. In the short term, a one-off telecoms tax imposed by the government is likely to erode operators' revenues. The smallest operators will see their losses deepen and either cut planned network investments or exit the market in the short term.

Key Data

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Tourism

Sri Lanka Tourism

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BMI View: The Sri Lanka tourism report examines a range of key indicators in the emerging tourism market in the Asia Pacific region. Healthy domestic economic growth is boosting outbound tourism figures, while improving regional and global travel connections are facilitating growth in inbound arrivals. With visitor numbers increasing we are forecasting healthy growth in tourism related expenditure and industry value, and expect to see a range of developments in the market moving forward.

Maintaining the current stability is vital to the future of the Sri Lankan tourism industry, as any recurrence of civil conflict will likely deter visitors and undermine the recent gains made in terms of infrastructure development. At present however, President Mahinda Rajapaksa and his ruling coalition (the United People's Freedom Alliance) appear stable and able to formulate, enact and enforce their policy...

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