Sri Lanka’s FDI woes: A one-stop shop is the most urgent priority

When Sri Lanka got $ 1 billion as FDIs in 2025, India had got $ 28 billion, Vietnam $ 38 billion, Indonesia $ 53 billion, and Thailand $ 42 billion. Though Sri Lanka had increased its FDI flows from $ 760 million in the previous year to $ 1 billion in 2025 by an impressive 31%, its current performance is not that impressive compared with the achievements of its peers 

Elites with a begging bowl

A new generation Sinhala song, written for defending those who had participated in the Aragalaya of 2022 and now going viral on YouTube [1], has two lines which offer stark advice to Sri Lankan leaders. A rough English rendering of these two lines goes as follows: “What a pity, it’s hilarious that those educated elite, clad in ties and coats, standing in a queue with a begging bowl in the scorching heat of the Sun”.  

Two other lines in the same song mocking those who had been in power since independence tell us another story: “People voted for different colours in different periods; but those who came to power were those who cried frenziedly before them with snorty noses” 

This song is a metaphorical indictment of those who have ruled the country in the past. To fill the country’s Balance of Payments deficits and the consequential savings-investment gaps, Sri Lanka’s leadership, supported by the top bureaucracy, is noted for hanging around international lending banks and donor countries with a begging bowl. 

It was the former Minister of Finance, the late Ronnie de Mel, who coined this ‘begging bowl’ analogy when he was tasked to fill this gap in 1977. He is noted to have admitted in public that he hated it, but he did not have a choice in that regard. This analogy was used by Sri Lanka’s leading writer cum university don cum dramatist, Ediriweera Sarachchandra, to capture life in Sri Lanka Foreign Affairs Ministry and its overseas diplomatic missions realistically and humorously when he penned his literary work under the title ‘With the Begging Bowl’ [2]. 

Vindication of the disdain for borrowing

Historically, Sri Lankans have been contemptuously critical of the country’s dependence on loans for meeting its saving-investment gap in the post-independence era. Their criticism was vindicated when the country had to honourably default its foreign debt in 2022. The advice given to the Government of Sri Lanka, instead of seeking to fill the gap by increasing its indebtedness to the rest of the world, was to attract foreign funds through non-debt sources. Foreign direct investment, or FDIs, is one such source. 

Though those who participated in the Aragalaya had not overtly proposed it, in the back of their mind, FDIs may have rested comfortably when they criticised borrowing with a begging bowl and eating up such borrowing through spending. 

Sri Lanka has everything which other better performers possess to attract FDIs like a developed human capital stock that can be mobilised at a low cost, beneficial tax incentives, and easy market access due to being in a convenient naval route. However, it is Sri Lanka’s structural issues which have gone against it

Poor track record of FDIs

Since Sri Lanka is not yet comfortably out of its foreign debt crisis, FDIs are important to the county today more than any other time. Despite many measures Sri Lanka had adopted to attract FDIs since 1977, its performance record has been woefully low. 

For instance, when Sri Lanka got $ 1 billion as FDIs in 2025, India had got $ 28 billion, Vietnam $ 38 billion, Indonesia $ 53 billion, and Thailand $ 42 billion. Though Sri Lanka had increased its FDI flows from $ 760 million in the previous year to $ 1 billion in 2025 by an impressive 31%, its current performance is not that impressive compared with the achievements of its peers. 

Case for one-stop shop

Sri Lanka has everything which other better performers possess to attract FDIs like a developed human capital stock that can be mobilised at a low cost, beneficial tax incentives, and easy market access due to being in a convenient naval route. However, it is Sri Lanka’s structural issues which have gone against it. It cannot speed up the approval process which investors love to have because it is staunchly guarded by a nasty bureaucratic setup. The solution is, and has always been, to establish a one-stop shop for approving and managing FDIs.

Japanese Ambassador’s advice to Sri Lanka

Sri Lanka had known the need for such a one-stop shop for decades. One of the objectives of setting up the Greater Colombo Economic Commission, forerunner to the present Board of Investment, was to simplify administration of FDI inflows by streamlining regulations and licensing to improve “ease of doing business” for investors. But even after five decades, this goal is yet to be attained as observed by many interested investors. 

In May 2025 emphasising on the need for a single-window approval system for foreign investments, Japanese Ambassador to Sri Lanka Akio Isomata is reported to have highlighted that weak institutional coordination and bureaucratic inefficiencies as major deterrents to new Japanese investments in Sri Lanka [3], while addressing the ‘Ambassadors’ Roundtable’ sponsored by the economics-thinktank pathfinder Foundation. He had compared the Japanese system with that of Sri Lanka. In Japan, Government agencies have been sharing information in real time to speed up project implementation. Admitting that the Japanese system may not be perfect, he had opined that it is worthwhile for Sri Lanka to examine it and consider implementing a similar system. 

He also mentioned that in Sri Lanka, Japanese investors are required to go from one Ministry to another without success. Later in August 2025, he had once again emphasised the need for the maintenance of transparency, predictability, and non-discriminatory treatment of investors when approving investment proposals at a kick-off meeting of the Japan-Sri Lanka Committee on Business Environment at the Board of Investment [4]. It seems that Sri Lanka has not taken this wise counsel seriously since nearly after one year, he had to offer the same advice to Sri Lanka [5]. 

He had reiterated Japan’s desire to see Sri Lanka move forward with the long-awaited single-window system for investment approval, highlighting that establishing the system is only the first step, and its effective implementation will be essential. It is pathetic that a foreign diplomat who has had frustrating experiences with the country’s unyielding bureaucracy had to pinpoint Sri Lanka’s deficiencies and make a plea for urgent reforms. Without doing what is needed, it is, therefore, hilarious, as the Aragalaya song referred to above had mockingly told us, that Sri Lanka’s educated elite would rather go to the world with a begging bowl. 

It is unwise to vest broad discretionary powers in a single official, even if such authority has been granted through legislation approved by Parliament. Decisions of this nature should be subject to the scrutiny of an advisory body comprising experts in the relevant field, which can review proposals before approval is granted

Ordeal of a BOI company

In this context, the eight-year ordeal of a BOI company intending to commission a mini-hydro project reinvesting the retained profits for generating 1MW of hydropower is a perfect example of Sri Lanka’s bureaucratic inefficiencies and lack of coordination among the Government agencies involved as highlighted by the Japanese Ambassador to Sri Lanka. 

The company concerned is an Indian investor previously approved by the Board of Investment for another mini-hydro project. As the company’s local representative related to me, the investor had refrained from taking the profits out and reinvested in several other projects in Sri Lanka, including a 1000 room hotel in the Eastern Province. Out of these retained profits, the company had decided to reinvest Rs. 400 million in the proposed mini-hydro project in Ginigathhena.

Need for getting approvals from many  

The Land Reform Commission which had owned the land had leased it to the Indian investor for 30 years and the land had been handed to the company in 2023. The investor had paid five years’ lease rental in advance to the Land Reform Commission. Earlier, the Central Environmental Authority had granted approval for the project after completing the due process in 2018. That due process had involved conducting consultations with 17 State stakeholders including the Forest Department. After that, all the necessary approvals from the other Governmental authorities had also been obtained. 

A formal agreement had been signed with the Mahaweli Authority which has power over the use of river water and the associated lands. Then, the Sustainable Energy Authority had declared the entire area, including the project land, as a dedicated renewable energy development zone. A power purchase agreement was also signed with the Ceylon Electricity Board in 2023. Following these approvals, the investor had signed contracts with the overseas suppliers of machinery, engaged local consultants and civil work contractors, and commenced construction work on the land concerned. In addition, as directed by the Divisional Secretary of the area, the approval of the Urban Development Authority, Nuwara Eliya had also been obtained in November 2025. The National Building Research Organisation also had granted its approval after assessing the geological, hydrological, and environmental risks involved. As it is, the investor had obtained the clearance of all the Governmental agencies involved not by visiting a single office as recommended by the Japanese Ambassador but by going from one office to another which did not have any coordinated work, at a severe cost to the investor. 

The investor involved had proceeded with the work with confidence. But an initial objection made by three local citizens to the police that the project had affected their lives has led to the courts to issue an injunction to halt the commencement of work. After, a lengthy court inquiry in which the approving Governmental agencies had been summoned and heard, the court had dismissed the case and permitted the project to proceed its work in June 2024. 

It is pathetic that a foreign diplomat who has had frustrating experiences with the country’s unyielding bureaucracy had to pinpoint Sri Lanka’s deficiencies and make a plea for urgent reforms. Without doing what is needed, it is, therefore, hilarious, as the Aragalaya song referred to above had mockingly told us, that Sri Lanka’s educated elite would rather go to the world with a begging bowl

Forest Department throwing a spanner

Then, according to the investor, all hell broke loose with the Forest Department, which had earlier concurred with the project when the Central Environmental Authority made its consultations with the Governmental authorities concerned, taking a 180º turn. The Central Environmental Authority had summoned a meeting after the dismissal of the court case to re-examine the issue. 

The local agent of the Indian investor says: “At this meeting, we pointed out that the Forest Department had failed to remove the pinus trees in the project area to which it had earlier agreed despite our repeated requests, and this is preventing us from proceeding with the construction. The Forest Department representatives from Nuwara Eliya District Office confirmed that his officers had inspected the site in December 2023, marked the trees to be removed, and forwarded the list to the Head Office in Colombo. He said that he is still awaiting the clearance of the Head Office to do the job. He did not make any other objection at this meeting. Thus, except this administrative delay of the Forest Department, there were no other impediments for the implementation of the project”

New objection by Forest Department

Since this clearance had not been issued by the Head Office of the Forest Department, the investor had formally appealed to the Conservator of the Forest in January 2025. He had also copied his appeal to the President’s Office too. Despite the reminders sent by the President’s Office, no reply had been sent by the Forest Department. At this point, the validity of the approval of the project had to be extended and for this purpose, the Central Environmental Authority had summoned another meeting of the Technical Committee of the Project at the Ambagamuwa Divisional Secretariat Office, Ginigathhena. At this meeting, the representative from the Head Office of the Forest Department had raised a new objection that the area marked for the project had been identified as a sensitive environmental zone by the Department as far back as 1992 and work was proceeding to acquire the land for the cultivation of pinus trees in the place. This is where the project stands now. 

It is not only Japanese investors who had undergone ordeals when it came to getting approval from a multitude of agencies to start a project in Sri Lanka. There are others who has had the same frustrating experiences. 

Disastrous fallouts

This episode carries several adverse implications for the country’s ability to attract foreign direct investment.

First, the relevant Government authorities do not appear to conduct a sufficiently comprehensive review when a project proposal is submitted by a prospective investor. If such an assessment were properly undertaken at the outset, there would be little reason for the same authority to subsequently reverse its own approval.

Second, it is unwise to vest broad discretionary powers in a single official, even if such authority has been granted through legislation approved by Parliament. Decisions of this nature should be subject to the scrutiny of an advisory body comprising experts in the relevant field, which can review proposals before approval is granted.

Third, the Sustainable Energy Authority, which is mandated to issue such approvals, must be in a position to grant them only after completing all necessary consultations with other Government agencies. Once that approval has been granted, it should stand as the final authorisation for the project concerned.

Fourth, there is a clear need to ensure that Government officials are fully informed of the Government’s policy objectives and are guided to carry out their responsibilities in a manner consistent with achieving those goals.

A Parliamentary Select Committee as final adjudicator 

These are some of the measures to be taken under the present setup. However, the more important measure is the establishment of a single-window approving agency or a one-stop shop for the approval of the project proposals being submitted by prospective investors and equipping that agency with the necessary technical know-how to do its job expeditiously. If there is an undue delay in the approval, there should be a select Parliamentary Committee, like the Committee on Public Finance, to review the cases and grant its approval to the projects concerned.

The relevant Government authorities do not appear to conduct a sufficiently comprehensive review when a project proposal is submitted by a prospective investor. If such an assessment were properly undertaken at the outset, there would be little reason for the same authority to subsequently reverse its own approval

Risk of mounting indebtedness 

Unless these issues are settled on a priority basis, Sri Lanka will be a laggard in attracting FDIs compared to its peers. It will force the country to go for debt-financing to bridge the saving-investment gap and continue to compel the educated elite to visit foreign countries with a begging bowl, as the Aragalaya song had mockingly presented. 

(The writer, a former Deputy Governor of the Central Bank of Sri Lanka, can be reached at [email protected] )

1 https://youtu.be/stQGO227U7Y?si=rsNAuaCzugE7cqZD 

2 Sarachchandra, E R, 1986, With the Begging Bowl, BR Pub Corporation, New Delhi. 

3 https://ceylontoday.lk/2025/05/08/japanese-envoy-urges-sri-lanka-to-fix-bureaucratic-barriers/ 

4 https://www.lk.emb-japan.go.jp/itpr_en/11_000001_00671.html#:~:text=On%2014th%20August%2C%20the,discussion%20at%20the%20working%20level. 

5https://english.newsfirst.lk/2026/02/17/tokyo-pushes-colombo-for-effective-single-window-investment-system