Overseas Business Risk: Sri Lanka

Back to News

Information on key security and political risks which UK businesses may face when operating in Sri Lanka.

Doing business in Sri Lanka is not without risks, but lots of companies successfully export to and invest and operate in Sri Lanka. Those companies that successfully navigate the risks below are usually well prepared and have strong company policies relating to their behaviour overseas.

1.Political and economic

The Sri Lanka Podujana Peramuna (SLPP) holds a two-thirds majority in parliament, led by President Gotabaya Rajapaksa, and Prime Minister Mahinda Rajapaksa since November 2019. The SLPP also controls a vast majority of local authorities. The next Presidential Election is scheduled to be held in 2024 and the current parliamentary term expires in 2025.

The government’s priorities which offer business opportunities for UK companies include:

• development of sustainable and renewable energy
• infrastructure development (including expressway development, rural bridges, water, etc.)
• developing a digital economy, including improving cyber security and technology in government
• improving education and healthcare

However the ability to participate in some of these opportunities rely on being able to deliver projects on BOT or PPP basis as UK Export Finance (UKEF) financing is restricted.

In the World Economic Forum’s Global Competitiveness Report 2019, Sri Lanka is ranked 84th, a notch higher compared to the 2018 rankings.

During the pandemic, Sri Lanka’s economy contracted by 3.6% in 2020, the worst performance on record. Prior to the pandemic, growth was constrained by a constitutional crisis in late 2018 and the Easter Sunday terrorist attacks in April 2019. The IMF expects growth to have picked up by 3.6% in 2021, remain around 3.3% in 2022, and then rise to 3.9% in 2023.

Sri Lanka’s credit ratings were downgraded in December 2021 by Fitch Ratings to ‘CC’ (from ‘CCC’), and in January 2022 by S&P to ‘CCC’ with a negative outlook (from ‘CCC+’).

Sri Lanka has a heavy debt burden as a result of government borrowing and high recurring expenditure levels. Servicing this is costly. Sri Lanka faces a challenging economic outlook marked with significant fiscal and debt challenges, inflationary pressures and constraints on export revenue generation and FDI inflows. The exchange rate has been fixed and there are severe forex shortages in the banking system. The ongoing foreign currency shortage has resulted in private sector firms being unable to obtain foreign currency to finance imports. Consequently, shortages of essential goods including cooking gas, milk powder and other food items are being reported. Imports restrictions, exchange rate caps and restrictions on outward investment, which have wide-ranging impacts on market access barriers, are likely to remain until export and FDI flows improve and forex reserves pick-up.

The Government of Sri Lanka hopes that key infrastructure developments such as the Colombo Port City, will attract further investment inflows and establish the country as a regional financial hub. Sri Lanka has signed free trade agreements (FTAs) with India, Pakistan, and Singapore. Sri Lanka is a member of the South Asian Free Trade Area (SAFTA) and the Asia-Pacific Trade Agreement (APTA). Sri Lanka was re-awarded GSP+ status by the EU in 2017. It is hoped that freer market access will enable Sri Lanka to make itself an attractive platform for trade with these markets.

2.Business and human rights

Sri Lanka has a predominately male work force despite an established framework of equality for women in the labour force. Legislation exists to protect the rights of women and children. While child labour occurs, it isn’t as wide-spread in Sri Lanka as it is in other countries in the region.

There is concern for minority rights including those of ethnic groups, LGBTQ+ and disabled groups.

The law allows workers to form and join unions of their choice without previous authorisation, with the exception of members of the armed forces and police officers. A union must represent 40 percent of workers at a given enterprise before the employer is legally obliged to consult with it. The Department of Labour is authorised to cancel a union’s registration if the union fails to submit an annual report for three years.

All workers, other than police, armed forces, prison service, and those in essential services, have the right to strike. The law prohibits retribution against strikers in non-essential sectors. In practice, however, employees sometimes are reportedly fired for striking. The law allows unions to conduct their activities without interference, but there are reports that union activists and officials remain subject to harassment, intimidation, and other retaliatory practices. There are also reports that employers arbitrarily transfer union members, and numerous reports of unfair dismissals of union members.

3.Bribery and corruption

Bribery is illegal. It is an offence for British nationals or someone who is ordinarily resident in the UK, a body incorporated in the UK or a Scottish partnership, to bribe anywhere in the world.

In addition, a commercial organisation carrying on a business in the UK can be liable for the conduct of a person who is neither a UK national or resident in the UK or a body incorporated or formed in the UK. In this case it does not matter whether the acts or omissions which form part of the offence take place in the UK or elsewhere.

Corruption in government procurement processes is a significant issue. Public officials are not routinely compelled to declare their assets and “conflict of interest” guidance is vague and essentially unenforceable.

Transparency International’s corruption perception index (CPI) measures the perceived levels of public-sector corruption in a given country. From 180 countries worldwide Sri Lanka was ranked 102 in 2021. In the South Asia Region, Sri Lanka ranks higher than Pakistan at 140 and Bangladesh at 147 but lags behind India ranked at 85.

We would encourage all UK companies preparing to do business in Sri Lanka to consider their strategy for dealing with bribery and corruption. Please consider taking the following steps:

• take advice from a wide range of sources including the British High Commission and local business chambers
• carry out due diligence checks on all potential partners
• have strong and defined anti-corruption corporate policies

A range of tools is available to businesses wanting to operate in markets where bribery and corruption is likely to take place.

4.Terrorism threat

Please refer to the latest Travel Advice for Sri Lanka from the Foreign, Commonwealth & Development Office.

5.Protective security advice

Read the information provided on our Protective security advice page.

6.Intellectual property

IP rights are territorial, that is they only give protection in the countries where they are granted or registered. If you are thinking about trading internationally, then you should consider registering your IP rights in your export markets.

The National Intellectual Property Office of Sri Lanka was established under the Intellectual Property Act No 36 of 2003 and is mandated with the administration of the Intellectual Property System in Sri Lanka. It was first established on January 1, 1982 with the same mandate under the provisions of Code of Intellectual Property Act no 52 of 1979.

The National Intellectual Property Office (NIPO) is mandated with the administration of intellectual property including the activities relating to registration and post registration of marks, patents, industrial designs, layout designs of integrated circuits and collective societies.

NIPO also has the remit of facilitating the enforcement of IP rights. However, infringement of IP Laws is prevalent extensively. Most DVD / CD shops sell pirated copies in the open market and counterfeiting of other consumer items such as clothing and accessories is rife. Enforcement of IP laws is not considered a priority by the authorities.

When entering into contracts businesses need to ensure that their IP rights are protected and written out in the contract. Big and foreign owned companies might find that the threat of legal action is enough to stop plagiarism.

gov.uk