VZCZCXRO6085
PP RUEHBI RUEHCI
DE RUEHLM #0817/01 2311101
ZNR UUUUU ZZH
P 191101Z AUG 09
FM AMEMBASSY COLOMBO
TO RUEHC/SECSTATE WASHDC PRIORITY 0413
INFO RUEHKA/AMEMBASSY DHAKA PRIORITY 1851
RUEHIL/AMEMBASSY ISLAMABAD PRIORITY 8871
RUEHKT/AMEMBASSY KATHMANDU PRIORITY 7110
RUEHNE/AMEMBASSY NEW DELHI PRIORITY 3244
RUEHCG/AMCONSUL CHENNAI PRIORITY 9452
RUEHKP/AMCONSUL KARACHI PRIORITY 2512
RUEHCI/AMCONSUL KOLKATA PRIORITY 0405
RUEHBI/AMCONSUL MUMBAI PRIORITY 6753
RUCPDOC/USDOC WASHDC PRIORITY

UNCLAS SECTION 01 OF 04 COLOMBO 000817 
 
SENSITIVE 
SIPDIS 
 
DEPARTMENT FOR SCA/INSB, EEB/IFD/OIA, EEB/IFD/ODF DAVID 
WILLIAMS 
 
E.O. 12958: N/A 
TAGS: BTIO CE ECON EINV
SUBJECT: SRI LANKA: INVESTMENT OPPORTUNITIES ABOUND 
 
 ¶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Lanka,s infrastructure is outdated and in need of expansion, 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 
 
COLOMBO 00000817  002 OF 004 
 
 
completed, and land acquisition is in progress.  Currently, 
the BOI is looking for a partner for implementation of the 
project. 
 
--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 
potential. 
 
--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 
potential. 
 
----------------------------------------- 
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 
 
COLOMBO 00000817  003 OF 004 
 
 
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. 
 
 
COLOMBO 00000817  004 OF 004 
 
 
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Comment 
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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. 
MOORE