Fix domestic environment before marketing it to global investors, urges Ajit Gunewardene

• PickMe Chairman says true investment promotion relies on regulatory predictability and fixing internal operational friction, not hollow global marketing campaigns or tax holidays 
• Warns that Sri Lanka cannot successfully attract foreign capital while a rigid domestic environment systematically chokes growth and formalisation of local small businesses

Ajit Gunewardene

Sri Lanka’s obsessed pursuit of foreign direct investment through hollow global marketing campaigns is fundamentally broken because it ignores the toxic domestic friction currently strangling its own local small businesses.

Speaking at a high-level panel discussion co-organised by the World Bank Group and University of Colombo, held in Colombo yesterday, PickMe Chairman Ajit Gunewardene creatively bridged these two economic challenges.

He argued that a country cannot successfully market an investment product globally when its domestic environment is systematically designed to choke its own internal growth engines. 

The veteran corporate leader pulled no punches, emphasising that true investment promotion is not about external advertising but about fixing the domestic operational environment, so that the local and foreign capital can thrive together.

He stressed that the underlying economic engine of the country is currently misaligned, with the policymakers falsely relying on legacy conglomerates to drive long-term employment. 

Gunewardene bluntly stated that large existing companies alone cannot solve the unemployment problem, emphasising that real, sustainable job creation must stem almost entirely from the small business sector. 

However, these local enterprises face an existential glass ceiling because a lack of access to growth-stage capital prevents rapid scaling. While initial support might exist for early start-ups, the critical growth resource required to graduate small local businesses into global competitors remains entirely absent, as “scaling capital structurally is missing; it just doesn’t exist”.

This domestic capital starvation is further exacerbated by a hostile regulatory framework that actively disincentivises expansion and formalisation. 

Gunewardene highlighted the structural bottlenecks facing the local firms, pointing to a rigid domestic landscape defined by severe labour market rigidity that makes the employers cautious about hiring permanently, alongside regulations that essentially punish formalisation. This combination creates a powerful survival instinct, where the local enterprises intentionally choose to stay informal and small. 

By choking domestic formalisation, the state effectively destroys the country’s economic product before it can ever be pitched to international markets.

It is this exact domestic failure that renders Sri Lanka’s external investment promotion strategies completely ineffective, according to him. The government is attempting to project an illusion of economic vibrancy abroad while ignoring the reality that its internal operational foundation is broken.

“We treat investment promotion as a marketing exercise, rather than fixing the underlying friction,” he argued, warning that the country is engaged in wholesale marketing without actually having the base of the product ready.

This fundamental mismatch explains why the island consistently loses out to aggressive regional competitors, as the policymakers blindly pitch to private capital and then act surprised when the investments inevitably flow to Vietnam.

The ultimate consequence of this dual failure is a massive, parallel flight of both capital and human resources, which are intrinsically tied to the same economic realities. Gunewardene noted that “capital and for that matter labour, flows to where it’s taken care of best”. 

The severe brain drain crippling the nation—the mass exit of doctors, lawyers, engineers and accountants—deprives the economy of the essential mid-career operators, who would otherwise be actively building the local companies. Trying to mask this structural decay, with arbitrary fiscal carrots, is a proven failure because the investors prioritise predictability, reliability and ease of doing business over temporary tax holidays.

The solution requires abandoning the facade of superficial global pitches and focusing entirely on creating institutional excellence at home. True investment promotion, Gunewardene proposed, is achieved by creating an environment where a local business can scale smoothly, which naturally signals safety to the global investors. The country must earn its investment promotion by ensuring regulatory predictability, rather than handing out hollow incentive packages. 

He concluded with a sharp call to action for the economic managers to “stop selling tax holidays” and instead, redirect their energies toward resolving the concrete domestic bottlenecks—such as power, cost, approval processes and bureaucracy—governed by strictly enforced, measurable service level agreements. (NF)