ECONOMYNEXT – Both local and foreign investments in Sri Lanka are likely to face shifts that reflect new priorities in economic and social reforms under President Anura Dissanayake and his Marxist-leaning National People’s Power (NPP) government after the November 14 parliament polls. Here are five likely key impacts on investments:
1. Increased State Oversight and Regulatory Changes:
The NPP is expected to introduce stricter regulations for sectors deemed strategic or essential, which could increase the complexity of doing business for both local and foreign investors, analysts say. Such moves are likely to help in curbing deep rooted corruption at the expense of some delays, they say. This could affect investment in sectors such as energy, infrastructure, and utilities, where state influence may increase to ensure alignment with public needs and national priorities.
2. Focus on Domestic Industrialization and Local Content:
Requirements: Policies to promote self-sufficiency and reduce dependence on imports may lead to increased support for local industries. This could involve mandates on local sourcing for major projects or restrictions that sometimes make it difficult for foreign companies to compete unless they partner with local entities. While this might stimulate domestic production and employment, it could create possible entry barriers for foreign investors, analysts say.
3. Public-Private Partnerships (PPPs) and Incentive Realignments:
The NPP government may leverage public-private partnerships to foster investment in areas like housing, infrastructure, and healthcare. However, the terms for such collaborations could reflect stronger state control or conditions aimed at maximizing public welfare, potentially leading to longer negotiation periods for new investments.
4. Potential Taxation Reforms and Revenue Generation Efforts:
In efforts to bolster government revenues, Dissanayake’s administration could introduce new taxes or levies on some profitable sectors. Such taxation policies may likely impact large corporations and multinational companies. While this may provide revenue for social programs, it could lead to concerns over investment returns and profit repatriation, unless there is a win-win deal.
5. Mixed Signals on Foreign Direct Investment (FDI):
While the NPP has softened its traditional rhetoric opposing global capitalism, its policies may still reflect caution toward foreign investments that could undermine local sovereignty or concentrate control in foreign hands. Scrutiny of large-scale FDI projects, particularly those involving land and resources, could affect confidence, although the government is expected to encourage investment aligned with its broader social and environmental goals. Dissanayake’s government, however, has not revealed any concrete plans on investments so far. (Colombo/November 13/2024)