Opinion: Sri Lanka’s FDI dilemma as profit repatriations surge

By Indika Hettiarachchi

indika.h@jupitercapitalpartners.com

Recently the head of the Board of Investment (BOI), the apex body in charge of promoting FDI in the country reportedly resigned. It was also reported the outgoing head of BOI saying “Without concessions, Sri Lanka needs hard reforms to attract FDI”. These developments suggest emerging challenges in attracting FDI as the country emerges out of the economic crisis. 

Many analysts point out that IMF conditions are acting as an impediment to attract as IMF conditions have limited government’s ability to offer generous tax concessions. Sri Lanka’s poor FDI track record in attracting FDIs are often linked to bureaucratic hurdles, unpredictable rules and regulations as well as inefficiency of BOI.   

Sri Lanka received USD 0.4 billion FDI inflows during the last quarter?

According to BOI, Sri Lanka secured USD 1,057 million FDI during 2025 which is an increased of increase of 72% compared to 2024. According to BOI Sri Lanka received USD 134 million for 24 greenfield ventures. This is a positive development as overall FDI into developing countries saw a 2 percent decline in 2025. However, Sri Lanka’s billion dollar FDI is an insignificant amount compared to total USD 877 billion FDI attracted by developing countries.

Data from Central Bank show that FDI during the first three quartes of 2025 amounted to USD 561 million (as shown below). FDI inflows in the form of foreign (cash) inflow into the country was USD 383 million for the same period.    

Interestingly Central Bank data (as at December 2025) further reveal that FDI in the form of retained earnings for the full year was estimated at USD 227 million.  This imply that, if Sri Lanka actually received USD 1 billion FDI during the year, USD 447 million should have been remitted to the country in the form (new) equity and debt during the last quarter of 2025.  

FDI profit repatriations on the increase.    

Many developing countries are now facing surge in foreign exchange outflows due to unplanned promotion of FDI ventures, and Sri Lanka is no exception. Sri Lanka has seen significant surge in profit repatriations during last decade (especially following surge in FDI into real estate development post 2009). Data indicate this trend is likely to have significant negative impact on country’s Balance of Payment (BOP), if authorities do not intervene to attract more foreign income generating FDI. Surge in property related FDI during post 2009 property boom contributed to country’s forex crunch few years ago and surge in profit repatriations during last decade is believed to be a result of profit repatriations from property projects. High level of profit repatriations indicate either majority of FDI ventures have reached mature growth or they are less confident on the country and are not reinvesting for growth.   

Actual repatriations by FDI ventures likely to be much higher than dividends as many FDI ventures have other mechanisms to repatriate earnings (through management fees, royalties, etc.) 

Sri Lanka’s FDI track record

When we closely analyze Sri Lanka’s FDI track record, a notable trend is that almost all major and important FDI in Sri Lanka have entered to country as brownfield and secondary investments. Despite Sri Lanka having a separate state body to promote greenfield FDI, volume of greenfield FDI remain low.  Even recently announced high profile greenfield ventures failed to take off ground due to various issues (e.g., Hambantota Refinery, Adani Power project). Slow take up of Port City is also probably due to this investor reluctance of greenfield investments in Sri Lanka. 

Almost all successful and impactful FDI ventures in Sri Lanka are either brownfield or secondary investments (e.g., SLT, Hambantota Port, LSE, CEAT-Michelin). Even majority of successful greenfield FDIs in Sri Lanka were started as joint ventures with local firm initiative (e.g., Dialog, SAGT, City of Dreams, Ferentino Tyre Company).  

Are we on the right path in attracting FDIs?

Judging by various media reports, it appears that the authorities are focused on attracting greenfield FDIs by offering various fiscal incentives and other facilities like land. However attracting impactful greenfield investments for a small country like Sri Lanka with very limited competitive advantages appear to have failed. Moreover greenfield ventures tend to have more economic development impact, stable policy framework as well as efficient administration system are required to facilitate large greenfield investments.

Given country’s fast changing political and economic situation exacerbated by growing climate related risks, it may be prudent to shift the focus on attracting brownfield and secondary investments. There are several ways state can support to develop an eco-system that promote brownfield and secondary FDIs. Government itself can act as a catalyst by promoting commercially viable projects directly or indirectly (like Hambantota Port) and later attracting suitable investors/partners when project implementation risk is eliminated. Recent purchase of a Sri Lankan IT company WealthOS by a major global bank JP Morgan Chase, and purchase of Sri Lanka’s troubled Colombo Dockyard by India’s Mazagon Dock Shipbuilders are testament to the potential of Sri Lanka’s ability to tap FDIs through channels other than greenfield investments.  

By promoting greenfield and brownfield investments, Sri Lanka can also benefit as part of profits made by FDI ventures and capital accumulation retain  in the country. This is because, unlikely in most of the greenfield investments, brownfield and secondary investment ventures have local partners/sponsors.