Sri Lanka expands special economic zones to attract international investment

Sri Lanka has a long history of developing economic zones, including export processing zones (EPZs), industrial parks (IPs), industrial estates, and special economic zones (SEZs). These areas are considered vital for attracting investment and building industry. Sri Lanka currently has 10 EPZs and two IPs throughout the country. They offer a number of advantages. Tax exemptions are provided under the Inland Revenue Law, the Port & Airport Development Levy Act, the Value Added Tax Act and the Strategic Development Project Act. Companies in these zones receive special treatment in terms of Customs duties and are allowed to circumvent foreign exchange regulations. Six news SEZs have been proposed, including zones at Jaffna, Trincomalee and Kalpitiya.

BIG CHANGES 

Sri Lanka’s plan for attracting international investment and promoting overseas sales is set for a significant overhaul, with the Board of Investment (BOI) and the Export Development Board targeted for restructuring. The government has said that Harvard University will be helping with the transformation of the BOI and that $6m will be committed to the process.

Sri Lanka is looking critically at its modern economic history and seeking to correct apparent deficiencies in how it has structured industry and promoted itself. Sujeewa Senasinghe, minister of international trade, noted that poorly formulated policy has meant development has stalled. As other economies transitioned from textiles to higher-value manufacturing, Sri Lanka has been left behind. IPs are a particular area of focus, the government hoping to create 44 such zones serving 5000 companies by 2020, Senasinghe told local media sources. A total of 20,000 acres will be committed to the parks. Trincomalee and Kilinochchi have been identified as suitable places for the manufacturing of consumer goods, while Kandy, Galle and Jaffna have been earmarked for a range of IT goods.

Plans in the Works 

A number of major projects are under way or in the pipeline. Sri Lanka is establishing a 150-acre IP at Millaniya, in the Kalutara district. A total of LKR3.5bn ($22.9m) will be invested in the site, which is expected to attract 500 firms. Due for completion by end-2018, the site will be a 55:45 joint venture (JV) with Thailand’s Rojana Industrial Park, the majority partner.

In February 2017 Prime Minister Ranil Wickramasinghe announced plans for an 800-acre IP at Bingiriya, 76 km north of Colombo, a JV between an undisclosed local firm and India’s government-owned Andrapradesh Industrial Infrastructure Corporation. Meanwhile, in August of the same year details were announced of another 24-acre IP at Mannar. According to local media reports, the latter has been approved by the cabinet and will focus on garments, fish processing, fishing equipment, salt and chemicals. Lastly, in September 2017 Senasinghe told local media that an MoU was expected to be signed with Thailand’s Amata Corporation to build a 600-acre industrial park at Horana hosting 200 factories. The Achchuveli Industrial Estate is being reestablished as the country’s first green industrial zone. Located in the Northern Province, it has been out of service since 1991 due to the civil war. Eight companies have opted to set up operations in the zone, where the authorities expect direct and indirect employment opportunities for 10,000 people.

Sez or Not 

The Sri Lanka-China Logistics and Industrial Zone, in the Hambantota region, is being developed primarily by Chinese investors and is expected to involve $5bn in funding, committed over a three- to five-year period. It has been billed as a special economic zone and is expected to generate an estimated 100,000 jobs. However, Chinese efforts are facing some resistance as the Hambantota zone could be as large as 15,000 acres, and it is linked to the contentious deal to allow China a 99-year concession on Hambantota Port, seen by some as signifying undue Chinese influence over key trade and transport infrastructure. However, the Chinese zone is considered a special case complicated by strategic issues and Sri Lanka’s debt to China.