Cablegate: Sri Lanka: Investment Opportunities Abound

DE RUEHLM #0817/01 2311101
P 191101Z AUG 09




E.O. 12958: N/A

1. (SBU) Summary. With the end of the war in May, the Sri
Lankan economy has enormous potential for growth and foreign
investments are increasing rapidly. The Sri Lankan
Government,s Board of Investment (BOI) is actively promoting
foreign direct investment (FDI) in Sri Lanka to advance the
country,s post-war reconstruction and development efforts,
and it seeks to achieve USD 1 billion in FDI in 2009.
Large-scale investment opportunities throughout Sri Lanka
generally lie in the infrastructure, tourism, agriculture,
and manufacturing sectors and many projects need
international financial support. The BOI provides added
incentives for companies that invest in difficult, rural
locations, and the government is promoting investment in the
north and east. A BOI delegation recently visited several
U.S. cities to promote American investment in Sri Lanka. Sri
Lanka is also a destination for portfolio investment, as its
stock market has significantly improved since the end of the
war. End summary.

--------------------------------------------- ----
Increasing Investment Opportunities in Sri Lanka
--------------------------------------------- --

2. (U) The end of the war has brought many commercial and
investment opportunities in previously neglected areas. Sri
Lanka,s infrastructure is outdated and in need of expansion,
and many roads, highways, ports, and airport development
projects require funding partners. There is also room for
investment in cold storage facilities, railway terminals,
central freight stations, and logistics centers for packing,
unpacking, labeling, tagging, and storage, as well as
refrigerated transport. Opportunities are also available for
foreign investors to set up plants for the manufacture of
pharmaceuticals, medical devices, electronics, glass bottles,
plastic containers, aluminum products, corrugated cartons,
etc. The BOI is promoting fisheries, agriculture,
boat-building, housing, and tourism projects. The tourism
sector will provide significant opportunities for foreign
direct investment, particularly in the South and East, but
also eventually in the North of the country.

3. (U) The Government of Sri Lanka created the Randora
National Infrastructure Development Programme under its
ten-year (2006-2016) Mahinda Chinthana development strategy.
The following is a list of some of the large-scale Randora
investment projects in need of foreign funding:

--Colombo-Kandy Expressway: A Rs. 65,000 million (USD 566
million) project for a 100km, four-lane expressway between
Colombo and Kandy with Rs. 52,000 million (USD 450 million)
in foreign investment potential. A feasibility study and the
Environmental Impact Assessment have been completed.

--National Highway Network Road Improvement: A Rs. 19,000
million (USD 165 million) project to rehabilitate 303km of
national highway network, with Rs. 13,300 million (USD 116
million) foreign investment potential.

--Construction of Flyovers: A Rs. 20,000 million (USD 174
million) project with Rs. 14,000 million (USD 122 million) in
foreign investment potential.

--Upgrading the Colombo-Matara Railway Line: A Rs. 19,000
million (USD 166 million) project with Rs. 15,200 million
(USD 132 million) in foreign investment potential.

--Kurunegala/Dambulla/Habarana New Railway Line Development:
A Rs. 24,000 million (USD 209 million) 80km new railway line
with Rs. 19,200 million (USD 167 million) in foreign
investment potential.

--Light Rapid Transit (LRT) System: Rs. 30,500 (USD 265
million) in foreign investment is needed to construct an LRT
System for the Colombo Metropolitan Area.

--Weerawila International Airport: A domestically-funded Rs.
19,250 million (USD 168 million) project to construct a
second international airport with a 4km runway, aircraft
parking, taxiway, terminal building, cargo storage, fuel
farm, and services building. The feasibility report has been

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completed, and land acquisition is in progress. Currently,
the BOI is looking for a partner for implementation of the

--Bandaranaike International Airport (BIA) Phase 2: A Rs.
30,184 million (USD 263 million) project to enhance the
capacity of airport facilities at BIA and accommodate
increasing air traffic demand, with Rs. 25,656 million (USD
233 million) in foreign investment potential.

--Development and Improvement of Electricity Transmission
Systems: Over Rs. 26,000 (USD 226 million) in foreign
investment potential.

--------------------------------------------- --
Investment Opportunities in the North and East
--------------------------------------------- --

4. (U) There are significant investment opportunities
available in the Northern and Eastern Provinces. While
post-conflict complications such as the resettlement of
internally displaced persons and humanitarian demining still
feature prominently in the North and East, particularly in
the Northern Province, the government plans to promote
investment and development to speed economic recovery. The
government is planning two economic zones in the North and
East, as well as a 100 acre export processing zone (EPZ) in
the North in Killinochchi and a possible industrial zone in
Parathan. The government has identified several commodities
such as sugar, maize, dairy products, soya, etc. for
production in the north and east, especially in the Eastern
Province, which has significant agricultural potential.
Emphasis is placed on locally-produced agricultural
commodities to substitute for expensive imports.
Additionally, several small and medium enterprises have been
identified to set up manufacturing plants in the east, with
special concessions for the garment industry.

5. (U) The Randora program does not include many projects
specific to the North and East of the island; however, the
BOI expects to have a more specific investment agenda for
those areas in the coming months. The following is a list of
some of the Randora investment projects in the Northern and
Eastern Provinces that are in need of foreign funding:

--Northern Expressway: Rehabilitation and development of the
213km Northern Expressway from Anuradhapura to Jaffna via
Vavuniya, with Rs. 90,000 million (USD 784 million) in
foreign investment potential.

--Trincomalee Export Processing Zone (EPZ): A Rs. 10,080
million (USD 88 million) project to build a 675 sq. km. EPZ
and transform Trincomalee into a vibrant industrial base,
with Rs. 7,056 million (USD 62 million) in foreign investment

--Rural Electrification: Rs. 10,800 million (USD 94 million)
project to provide electricity to rural villages,
particularly in the Northern and Eastern Provinces, with Rs.
8,162 million (USD 71 million) in foreign investment

Sri Lanka Board of Investment Incentives

6. (U) The Sri Lankan Board of Investment (BOI) is actively
promoting foreign direct investment (FDI) in Sri Lanka to
advance the country,s post-war reconstruction and
development efforts. The BOI seeks to achieve USD 1 billion
in FDI in 2009. Thus far it has attained well over half of
that amount, which is a significant feat considering the
state of the global economy. FDI for 2008 was a record USD
889 million. The BOI offers three to five year tax holidays,
depending on the level of investment, the number of employees
hired, the location of the project, and the sector.
Additionally, imports of both capital goods and raw materials
are duty-free for export-oriented industries and services.
Only capital goods can be imported duty-free for
infrastructure projects, IT and IT enabled services, regional

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operating headquarters, agriculture, and research and
development projects.

7. (U) The BOI does not yet have a specific set of
incentives for investments made in the North and East of Sri
Lanka, but it does provide extra incentives for companies
that invest in rural areas outside the Colombo and Gampaha
districts. The Government of Sri Lanka launched a new scheme
called Nipayum Sri Lanka, (commonly referred to as the 300
Enterprises Program) under its Mahinda Chinthana development
program. The Nipayum Sri Lanka program is designed to bring
development and employment opportunities to rural areas by
providing incentives for companies that invest in these
areas. Rural areas outside Colombo and Gampaha districts are
classified as Non-Difficult Areas, Difficult Areas, and Most
Difficult Areas, and incentives increase according to the
level of difficulty for investment. Most areas in the
Northern and Eastern Provinces fall under the Most Difficult
category; thus, companies investing in these areas are
eligible for significant tax holidays and other incentives.

--------------------------------------------- ------
BOI Investment Promotion Trip to the United States
--------------------------------------------- ------
8. (U) The Minister of Enterprise Development and Investment
Promotion, Anura Priyadarshana Yapa, along with the director
of investment promotion and other BOI staff recently traveled
to the United States to promote U.S. investment in Sri Lanka.
The delegation visited Los Angeles, San Jose, New York and
Washington, DC and met with chambers of commerce, potential
investors, and U.S.-based Sri Lankan entrepreneurs, as well
as senior officials in the U.S. Department of Commerce and
USTR. They also sought to leverage contacts within the Sri
Lankan diaspora and publicize Sri Lanka as a safe place for
forward-thinking U.S. investors to invest. The BOI targets
U.S. investment in the following sectors: information
technology and business process outsourcing, infrastructure,
tourism, agriculture and food processing, electrical and
electronic products, as well as the manufacture of garments,
fabrics and accessories.

9. (U) Local media report that the BOI,s investment
promotion trip to the U.S. leveraged an expected $25 million
in FDI from companies in the West Coast of the U.S. for 2009.
As a result of numerous promotional meetings, the Sri Lankan
delegation identified several investment projects, including:
shrimp farming, manufacture/distribution of spare parts for
Japanese cars, 100 acre eco-park for organic herb cultivation
and health resort, television assembly plant, residential
development project with 25 luxury homes, call center and
manufacturing facility for telephone equipment, and
operational systems for the global hospitality industry.
Local media did not mention the names of U.S. companies that
would be involved in these projects, nor did it mention any
details or specific dollar figures for the proposed projects.
The BOI does not have country-specific goals for FDI, so it
is unclear how much direct investment Sri Lanka hopes to
obtain from the United States in 2009.

--------------------------------------------- -------
Sri Lanka Is a Destination for Portfolio Investment
--------------------------------------------- -------

10. (U) Sri Lanka is also a haven for portfolio investment,
as its stock market has seen significant improvement since
the end of the war in May. Colombo,s war-torn stock market
fell 40% in 2008, but the Sri Lankan All-Share index has
jumped 25% since May, and it is up 60% for this year. U.S.
investors can seek mutual funds that invest in exotic markets
to take advantage of Sri Lanka,s potential. Powerhouse
conglomerate John Keells Holdings is at the heart of
Colombo,s peace portfolio,, and the company is worth
about 10% of the $7 billion Colombo stock market. Another
avenue for investors is the large, well-managed plantation
houses such as Ceylon Tea Services, whose shares have gained
about 20% in the last year. Additionally, Singapore-based
Calamander Capital, the first private-equity fund focused
solely on Sri Lanka, emerged this year and is taking stakes
in tea, timber, rubber, property and banking.

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13. (SBU) Comment. Sri Lanka has significant potential for
growth, particularly if infrastructure improvements provide
increased efficiency and facilitate Sri Lanka,s growth as a
logistical hub. Nevertheless, Sri Lanka,s long term success
will also depend on political reconciliation between the
country,s ethnic communities. Post will continue to follow
how post-war economic plans are affecting the battle-scarred
North and East and whether the people in those areas are able
to benefit from new economic opportunities. End Comment.

© Scoop Media

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