Sri Lanka

2 0 14

& b e y o n d .

Asia: Still in the Lead

Asia continues to outpace other regions, buoyed by resilient exports
and strong domestic demand
- World Economic Outlook, April 2013 IMF

Sri Lanka best place to invest in South Asia

- Jim Rogers

Sri Lanka has what it takes to be the

Wonder of Asia
- Dr. Ngozi Okonjo - Iweala, Managing Director of the World Bank

Sri Lanka : The Wonder of Asia

B y

2 0 1 6

USD 4,000 per capita income

GDP growth above 8.5% on average

2.5 million tourist arrivals per annum

Over 10 sectors contributing USD 1 billion each in export earnings

Private investment around 22-24% of GDP (now 18-20% of GDP)

FDI to be around 5% of GDP (2011-2% of GDP)

ICT literacy rate to increase to 75% from 35% at present

What the end of the internal war offered to Sri

Lanka?

An undivided focus on growth and development

The biggest obstacle for attracting FDI to the country (internal war) has been removed

A surge in tourist arrivals and enhanced prospects for travel industry and related industries.

War risk premium on reinsurance removed better prospects for trade and exports

A larger workforce (including military personnel) who can now be deployed for the development
drive.

Opening up of serene coastlines and enhanced prospects for the natural harbour (Trincomalee)

More land to develop and cultivate

Unencumbered connectivity of people

Surge in capital market (ASPI = 8007.08), (S&P SL 20 = 4354.13, Base 2004 = 1000)
(MPI has been discontinued from January 2013 and replaced by S&P SL 20)

Why invest in Sri Lanka

"If you were smart in the 1800s you moved to London, if you were smart
in the 1900s you moved to New York City, and if you are smart now
you move to Asia" - Jim Rogers

Political Stability
Rapid infrastructure development Sea Ports, Air Port, Power Plants, Roads etc
Sri Lankas social indicators are among the best in the South Asian region. The country has
achieved near universal literacy (92%) & perhaps more remarkably, the gender gap is narrow, and
Sri Lanka is among the top 20 countries, ranked on gender equality by the World Economic Forum.
Excellent health facilities with ample availability of UK qualified specialist doctors.
Per capita GDP reached USD 2,923 in 2012 & the IMF recognized Sri Lanka as a middle income
emerging country (2011 - USD 2,836 & 2010 USD 2,400).
Easily trainable and versatile workforce. Sri Lanka has the second largest pool of UK qualified
accountants which helps to compete in the financial and accounting BPO market
English is widely spoken and understood
Greater emphasis on education with particular emphasis on ICT, technical education and English
language proficiency

Why invest in Sri Lanka

It is important to note that even during its darkest moments Sri Lankas GDP growth fluctuated
between 4%-5% over a period of 20 years, signaling the economys substantial resilience to
shocks & adverse conditions.
Free Trade Agreement (FTA) with India clearly demonstrates the goodwill & commitment
between the two nations. The agreement creates investment opportunities for local &
multinational firms based in Sri Lanka seeking business opportunities in India.

Sri Lanka has climbed eight positions from 2009 to be ranked 60th among 142 nations, in the
World Prosperity Index 2013, by the Legatum Institute, a UK based independent research
institute. Sri Lanka is also the highest ranked country among South Asian nations. In the
overall rankings Sri Lanka is just behind Mexico, ranked 59. Among other South Asian nations
India has been ranked at 106, Nepal 102, Bangladesh 103 and Pakistan 132.

Outlook on Sri Lanka

Standard & Poors
B + Stable

HSBC
BB- Stable

Sri Lanka Poised for

Rapid Growth:
GDP Growth Rate (%)

Fitch Ratings
BB - Stable

Moodys
B 1 Stable

S&P
India
Bangladesh
Pakistan

Moodys
India
Bangladesh
Pakistan

BBBBBB-

Fitch Ratings
India
BBB-

Fitch & S&P Grading

AAA, AA, A
BBB, BB, B
CCC, CC, C
D
(+)/(-)

Moodys Grading
Aaa, Aa, A,
Baa, Ba, B
Caa, Ca, C
(1)/(2)/(3)

Baa3
Ba3
Caa1

2010 4Q

2010

2011

8.2

2012

6.4

2013

7.3

2014(e)

7.2

Per Capita GDP (USD)

2009

2057

2010

2400

2011

2836

2012

2923

2013

3280

2014(e)

4190

Sri Lanka Key Indicators

GDP (YOY - %)

Per Capita GDP

(USD)

9
8

3500

3000

2500

2000

1500

3
2

1000

500
0

0
06

07

08

09

10

11

12 e

08

13

Share Market

09

10

11

12 e

13

Market Cap % of GDP

8,000.00

45%

7,000.00

40%

6,000.00

35%

5,000.00

ASPI

4,000.00

MPI

30%
25%

3,000.00

20%
15%

2,000.00

10%

1,000.00

5%

0.00

0%
08

09

10

11

12 e

13

2008

2009

2010

2011

2012

2013

Sri Lanka Key Indicators (contd.)

Sri Lanka Key Indicators (contd.)

External Trade
(USD Mn)
25,000

FDI (USD Mn)

LKR/USD
1000

135

900

130

800
125

20,000

700
120

600

15,000
115

500

10,000

400

110

300

5,000

105
200
100

0
2008 2009 2010 2011 2012 2013
exports
imports
invest goods imports

100

95

0
2008

2009

2010

2011

2012

2013

2008 2009 2010 2011 2012 2013

Medium Term Macroeconomic Framework

2010-2014
Projections
Indicators

Units

2012

2013 (a)

2014

2015

2016

Real GDP Growth

6.3

7.3

8.0

8.3

8.5

GDP Deflator

8.9

6.7

6.0

5.0

5.0

Per Capita GDP

US $ Mn

2,922

3,280

Total Investment

% of GDP

30.6

29.6

24.0

25.7

Real Sector

National Savings

% of GDP

4,470
32.0

32.5

33.0

External Sector
Current Account Balance

% of GDP

-6.7

-3.9

-1.8

-0.5

1.3

Overall Balance

US $ Mn

151

985

2,063

3,235

6,110

19.7

25.3

Current Account Balance

% of GDP

-1.4

-0.9

0.8

1.4

1.7

Overall Budget Deficit

% of GDP

-6.5

-5.9

-5.2

-4.7

-4.6

Reserve Money Growth

10.2

0.9

Broad Money Growth (M2b)

17.6

16.7

15.0

14.0

14.0

Growth in Credit to Private Sector

17.6

7.5

16.0

17.0

17.0

Debt Service Ratio (b)

Fiscal Sector

Financial Sector

(a) Revised, (b) Total debt service payments as a

percentage of earnings from exports of goods and services
Sources: Ministry of Finance and Planning, Department of
Census and Statistics, Central Bank of Sri Lanka

Towards enhanced macroeconomic stability

Lower tax regime
Overall, taxes have been cut and a complicated system smoothed out. Tax incentives for large investments and tax
concessions on profits from listed debentures and equity for foreign investors

Lower interest rates

Higher liquidity from reduced taxes is expected to keep interest rates in check and encourage more economic growth. This
will also soften the impact of government domestic borrowing

Relaxation of strict foreign exchange controls and BOI Reforms

The new measures are expected to boost dollar liquidity while the rising trend of the rupee may also attract off shore interest,
as has happened in the treasury securities market. Restrictions on inflows to open up new business offices also have been
eased. Reforms at the Board of Investment of Sri Lanka are expected to further reduce red tape

Fiscal prudence
A clear focus on cutting the budget deficit and other prudent public finance measures in the budget should boost state
revenue and hopefully curb the budget deficit to 5.9 % in 2013

Infrastructure development
Infrastructure projects worth over USD 6 Bn have been given priority with a public investment figure of Rs.594.4 Bn (USD 4.6
Bn) budgeted for 2014

Wonder of Asia
Dr. Ngozi Okonjo-Iweala, Managing Director of the World Bank, during
her two day official visit to Sri Lanka had stated that Sri Lanka has

what it takes to be the Wonder of Asia through inclusive

growth acceleration
To get there, raising investments, improving productivity of

those investments through innovation policies, skills

development and macroeconomic stability will be important.
Above all, implementing policies that promote the inclusion of all segments of society in the growth process, as envisaged in
the Mahinda Chintana, will be crucial.
Dr. Ngozi Okonjo-Iweala also announced Sri Lankas eligibility for IBRD financing funding from the Banks non-concessional
window.
IDA resources will continue as it is important that Sri Lanka benefit from these highly concessional resources to support its
post conflict reconstruction and rehabilitation needs. Together, these financing sources have the potential to significantly
increase the amount of resources available on an annual basis.
This is an important recognition of the middle income country status of Sri Lanka and signals a different sort of relationship
going forward a relationship that is founded on knowledge sharing that complements the available financing.

Ease of doing business in Sri Lanka

According to the World Banks Doing Business 2014 report, Sri Lankas
Ease of Doing Business ranking is 85 out of 189 other economies.
Doing
busine
ss
2014
Rank

Doing
busine
ss
2013
Rank

India

134

131

Bangladesh

130

132

Maldives

95

81

Pakistan

110

106

Central Bank of Sri Lanka (CBSL) together with the Ministry of Economic Development is
coordinating the strategy to achieve the goal articulated by the President. The Budget for 2014
has already made significant strides to simplify taxation, and thereby improve the ranking in
the area of Paying Taxes.
There is also ample scope for eliminating a large number of procedures involved in various
areas by establishing one stop shops where an entrepreneur needs to submit required
documents at one point only and all the necessary formalities and clearances are undertaken
by the agency concerned. This could be effectively done in the area of Dealing with
Construction Permits and Trading Across Borders.
In the area of land registration, introduction of title registration could reduce time involved
substantially. Court procedure also has to be closely studied in order to devise a method to
reduce the delay and improve the ranking in Enforcement of Contracts.
CBSL will be looking at other aspects also to facilitate business. In particular, to reduce the
time and effort spent on searching for information, CBSL has already produced a booklet A
Step by Step Guide to Doing Business, which contains necessary information needed by an
entrepreneur during each stage of operating a business.
(For more info - web: www.cbsl.gov.lk , Tel: +94 11 2477377)

Singapore

Sri Lanka moves up in the Economic Freedom

Index
Sri Lanka has moved up considerably in the 2014 Index of Economic Freedom released by The
World Heritage Foundation and the Wall Street Journal. Sri Lanka has been ranked as the worlds
90th (from 183 economies) freest economy in 2014.
Hong Kong and
Singapore finished first
and second in the
rankings for the 20th
straight year.

The countrys overall economic freedom score was 60

which is an improvement of 1.7 from the 2012 figure
of 58.3, reflecting major gains in trade, monetary, and
investment freedom.

Sri Lanka is ranked 16th out of 41 countries in the

AsiaPacific region.

Australia, despite a drop

in its score, held on to
third place, while
Switzerland improved
enough to leap-frog fifthplace New Zealand and
nab the number-four slot.
Canada finished sixth
again, with nearly fullpoint gain in its score that
put it just behind New
Zealand.

Areas for further improvement and some

concerns
1

The Sri Lankan economy continues to make progress under the fund-supported program and overall macroeconomic
developments remain favorable. Growth is strong, inflation remains in single digits, and reserves are at a comfortable
level. Recent heavy rains and flooding have negatively affected various crops, as well as rural infrastructure. However,
given the size and strength of the economy, the overall impact on output growth is expected to be limited.

Budget Deficit declined significantly to 5.9 per cent of GDP in 2013 from 6.5 per cent in 2012, although marginally
higher than the budget estimate. The governments plan to handle the flood-related expenses by reallocating and
reprioritizing expenditure within the existing budget will help maintain the IMF-SBA programs deficit target for 2013.

CEB revised the tariffs resulted in the overall average tariff increasing by around 20% to mitigate the substantial losses
incurred by the institution in 2013. To this end, it will be important to allow adjustment of domestic prices to reflect
fluctuations in international fuel prices.

Steps to expand the liquidity management tools at the CBSLs disposal will help maintain its control over monetary
conditions. Going forward, monetary policy will need to be vigilant about the possible second-round effects from
higher prices on core inflation and strike the right balance between supporting economic growth and preventing
excess liquidity from fueling inflationary pressures.

Allowing sufficient two-way flexibility of the exchange rate will help support the external position and meet the
reserves target.

Financial sector reforms will continue to focus on strengthening the resilience of this sector, and expand the scope of
financing options available to the private sector by increasing the depth of the corporate bond market and improving
the functioning of the stock market.

Knowledge
Hub

The Knowledge Hub initiative will help to

develop Sri Lanka as a destination for
investments in higher education and position
the nation as a centre of excellence and
regional hub for learning and
innovation.

Knowledge Hub
Jaffna to develop as a knowledge hub
IT sector delegation led by the Board of Investment recently took several important steps in
strengthening coordination and facilitating investments to develop Jaffna as a knowledge hub. The
objective was to encourage IT companies to start operations in Jaffna by tapping into the
peninsula's educated workforce

75% ICT literacy by 2016 and IT sector as a great export earner

Telecommunications and Information Technology ministry is aiming to increase the IT literacy rate
to 75% while optimising IT as a foreign exchange earner by 2016.

Plans afoot for 15 International Universities

Sri Lanka is becoming an attractive location that could provide higher education for the growing
middle class in Asia. Therefore, the Ministry of Higher Education is planning to establish about 1015 private international universities in Sri Lanka.

Knowledge Hub (contd.)

Providing Necessary Infrastructure and Cutting-edge Technology

Over 110 infrastructure development projects are being implemented in state universities at a
total cost of over Rs. 10 billion to provide necessary facilities such as lecture halls, hostels, health
facilities, administrative infrastructure etc.

Designate and establish a Knowledge City

The government will designate a specific area for the proposed knowledge city and provide
improved facilities for international research and education institutions to setup their affiliated
institutions. (e.g. Gampaha, Jaffna, etc)

Telecommunications
Industry
Sri Lankas mobile industry is one of the most
competitive markets in the region with five
operators competing for a total addressable
population of 22 million .

Telecommunications Industry
Competition among the five operators, Dialog, Mobitel, Etisalat, Airtel and Hutch is
expected to remain high in years ahead
Dialog Axiata PLC is Sri Lankas largest telecommunications provider with the countrys
largest mobile phone network of 8.7 million subscribers. Dialog is a subsidiary of Axiata
Group Berhad a leading telecommunications company in Malaysia.
Etisalat, a UAE based telecommunications service provider, entered the Sri Lankan market
in 2010 and has over 4.2 million subscribers currently. Etisalat is ranked as the 12th largest
mobile network operator in the world.
The newest entrant to the market is Airtel, Indias largest cellular provider.

Telecommunications Industry

Priority Area
The governments Public Investment Strategy for 2016 has highlighted the telecommunications and
ICT sectors as priority areas of development. The plan includes facilitating the private sector to
upgrade ICT and telecommunications infrastructure facilities

Telecom Sector Targets for 2016

Telecommunication Indicator

2014

2015

2016

Fixed phones penetration (No. millions)

3.79

3.86

3.93

Mobile phones penetration (No. millions)

22.63

24.02

25.36

Teledensity (Fixed phones per 100 inhabitants)

18.5

18.8

19.1

Teledensity (Mobile per 100 inhabitants)

117.3

131.2

141.2

IT/BPO
Industry
The industry prides itself for providing
companies access to a high quality talent pool
and focuses on servicing niche areas which is
becoming an increasing challenge is
destinations such as India and China

IT/BPO Industry
Offshoring Destination of the Year 2013
Sri Lanka bagged the prestigious Offshoring Destination of the Year 2013 award at the National
Outsourcing Association Awards (NOAA) in UK

High Export Income Earner

The IT/BPO industry became the 5th largest foreign exchange earner in the country in 2012. As of
2013, export revenues from IT/BPO services over USD 500m, growing at approximately 22% per
annum

Employment Opportunities
Direct employment in the ICT workforce exceeded 75,000 high paying jobs IT/BPO sector, with
indirect employment at 180,000

Promoting the IT/BPO Industry

The government to provide attractive tax incentives and tax holidays for investors to boost export
revenue target of USD 1 billion 2016

IT/BPO Industry
Sri Lanka is emerging as a global IT/BPO destination in several key areas and is now ranked among the Top 50
Global Outsourcing destinations by AT Kearney and ranked among Top 20 Emerging Cities by Global Services
Magazine
The software services sector focuses on telecommunication, banking financial services and insurance and
software testing. The BPO sector focuses on financial and accounting services, investment research, engineering
services and legal services
As of now, there are over 300 IT and BPO companies that operate in Sri Lanka, mostly small and medium
companies and a few large global players
Low attrition rate, low-cost and highly adaptable workforce and the Sri Lankan government to fast-track the
industry provides fiscal incentives and concessions

SOURCES
www.treasury.gov.lk
www.cbsl.gov.lk

www.boi.lk
www.neweast.lk
www.treasury.gov.lk
www.news.lk
www.englishandit.lk
www.nenasala.lk
www.srilankatourism.org
www.sltda.gov.lk
Road Development
Authority

www.worldbank.lk
www.imf.org
www.lankabusinessonline.lk
Bloomberg
Reuters
The information contained in this presentation has been drawn from sources that we believe to be reliable. However, while we have taken
reasonable care to maintain accuracy/completeness of the information, it should be noted that BPO Connect and/or its employees should
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information for whatever purpose.

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