Sri Lanka debuts in biennial JLL Global Transparency Index 2016

JLL’s Global Real Estate Transparency Index (GRETI) 2016 is out and Sri Lanka has made its debut in this highly-credible and well-known index. 

Compared to similar market sized countries like Myanmar (ranked 95th) and Vietnam (ranked 68th), Sri Lanka (ranked 69th) is a stronger debutant and better placed to move up in the next (2018) assessment given the reforms being rolled out by the Government and increasing interest of international investors in the market. 

Sri Lanka and Vietnam are likely to compete for moving into the semi-transparent category – ahead of others in the pack – from their low-transparency status today. Both countries are reforming several sectors and attracting international investors. Myanmar too is off the block and is one of the fastest improvers but has a long journey to make through the cluster of countries with opaque real estate sectors.

Sri Lanka is currently in the midst of a promising period of rapid economic growth and social development, driven largely by investments in infrastructure across the country as well as continued growth in the services sector, which now amounts to 58% of the country’s GDP. Revival signs in the economy can be seen from the promising GDP growth expected over the next few years. 

According to the Asian Development Bank, the GDP growth rate is forecast to reach 5.3% in 2016 from 4.8% in 2015. Moreover, the World Bank recently listed Sri Lanka at 107 (out of 189 countries) in terms of its ‘ease of doing business’, as opposed to its 2015 listing of 113.Policy changes proposed in the Budget 2015-16 are expected to positively influence private and foreign investments.

Political stability coupled with a business-friendly environment facilitated by the current Government has helped restore investor confidence. The country is now focused on long-term strategic and policy development changes to ensure long-term economic growth. 

The Government’s infrastructure push has led to an expansion of the construction industry over the past few years. Expansion and modernisation of Colombo’s port along with the development of other ports, in addition to an improvement in the country’s road network, has helped the logistics industry.

Moreover, domestic companies have shown stable growth and the number of foreign companies entering the island has seen a surge compared to the 2009-10 period. Among the multinationals entering Sri Lanka, players in the food processing (see graph) and IT sectors too have shown interest in opening up offices, which bodes well for the economy.

The Government’s plans of turning Sri Lanka into the most competitive economy in South Asia is expected to result in an incremental demand for office space from BPOs, financial, accounting and outsourcing companies.

According to the Travel and Tourism Index 2015, Sri Lanka’s travel and tourism competitiveness jumped 18 ranks over the past four years, driven by the strong Government focus on the tourism sector, remarkable infrastructure growth as well as enhanced marketing and promotional efforts for the country as a whole. This sector is expected to grow further with the new budget of 2016 proposing promotion of the MICE (Meeting, Incentives, Conferencing and Exhibition) sector.

Outlook

Sri Lanka’s office and retail markets are seeing activity by reputed global names. This activity is reflected through the growth in office and retail space offtake in the last four quarters. With limitations of quality space available, the CBD submarket rents have increased by 7-10% y-o-y in almost all Grade-A office buildings. 

Respected establishments like HSBC, Standard Chartered, Pearson Group, IDP Education, Firstsource, GSK, Red Cross, Uber, VFS (visa services), Zebra Technologies and Keangnam among others have already set up their base in Sri Lanka. 

Information technology leaders like IBM, Microsoft and Cisco already have a base here. Renowned retail brands like The Body Shop, Tommy Hilfiger, Lacoste and others are doing business in Sri Lanka largely through the franchisee route and more brands of the same league are actively studying this market. H&M is already active for buying and sourcing. 

A diverse base of international companies is evident through established fast-moving consumer goods giants like Johnson & Johnson, Nestle and Unilever; service sector leaders like JLL, Tata Group, AIA, Allianz and industrial-technology-logistics companies like Siemens, Ericsson and Maersk along with the best hospitality brands of ITC, Taj, Hyatt, Hilton, Shangri-La and Marriot.

Sri Lanka’s concern could be boosting foreign direct investment (FDI) quickly, maintaining a sustainable growth of the private sector and exports as well as addressing the urgent need to realign public spending with the nation’s immediate needs. The change of Government has brought expectations of more transparency and more efficient utilisation of resources.

It is crucial now that the Government implements necessary reforms to provide an improved investment climate conducive to driving more FDI and ushering in growth of the private sector, with a structured framework to drive investment.