Foreign investments by Lankan firms decline in 1Q

• Net outflow of direct investments in 1Q17 down YoY at US $ 18.49mn 
• Total direct investment outflows in 2016 at US $ 236.81mn

By Chandeepa Wettasinghe

The momentum of Sri Lankan firms investing in foreign countries appears to have faltered this year and more domestic investments are likely to realize in the future, according to the 
Central Bank.

According to the data Mirror Business acquired from the Central Bank, the net outflows of direct investments from Sri Lankan companies fell threefold to US $ 18.49 million during the first quarter of this year, compared to US $ 59.20 million year-on-year.

Total direct investment outflows from Sri Lanka for 2016 had been US $ 236.81 million, mainly due to investments by Sri Lankan apparel companies abroad, according to the Central Bank.

The apparel industry is facing labour shortages and rising wage pressure in the domestic market, compared to low wages and abundant labour in neighbouring countries, which has resulted in apparel manufacturers looking to these countries for expansion.

These apparel investments may have mainly been to India and Bangladesh, two of the top five direct investment outflow destinations for the year, with the other three – Oman, the Maldives and Fiji – mainly being investment destinations for hospitality and maritime activities.

Last year had been an abnormally high year for investments abroad—reaching at least a 17-year high. Outbound investments had ranged between US $ 52.99 million and US $ 66.82 million from 2011 till 2015, indicating that the outflows this year may be falling back in line with recent trends.
Pressure for apparel investments to continue to leak abroad may have been stymied due to nosedives in sales across key brands in Western countries, such as Victoria’s Secret, that source from Sri Lankan producers.

Meanwhile, the Central Bank said that local companies are likely to start investing within Sri Lanka in the future.

 When queried, Central Bank Governor Dr. Indrajit Coomaraswamy said that foreign investors have been more active in Sri Lanka than locals.

“Up to now that has been the case. That’s why I say that foreigners have been showing more confidence in the Sri Lankan economy than foreign investors so far. But some of our forward-looking indices seem to indicate a change in sentiment,” he said.

Foreign direct investments had totalled US $ 146.5 million for the first half of this year, up 13.2 percent compared to the same period last year.

Under the Central Bank’s Business Outlook Survey—which Dr. Coomaraswamy referred to—industry leaders are expecting to utilize higher capacities in the third quarter of this year compared to the same period last year and are expecting higher profitability during the quarter as well.

However, they are expecting the overall business climate to fall compared to the previous quarter.
The economy is going through a period of uncertainty owing to political developments.