9 February 2016 | By Simon Moore and Shehla Hasan Insight

Reflections on a visit to Sri Lanka

Insight: Simon Moore and Shehla Hasan, international director and country head, India, CBI

With a new government fighting corruption, Sri Lanka is turning into a bigger opportunity for international businesses than you'd expect

"The election that saved the nation". This was the striking observation of James Dauris, the UK’s High Commissioner in Sri Lanka, reflecting on the country’s general election at the end of 2014. After all, it ushered in a business-friendly and reformist government.

Sri Lanka has had a miserable time of it. An island of so much promise, divided by ethnic struggle and terrorism. My predecessor as international director remarked that he had to avoid the burnt-out car bomb wrecks in hotel car parks during the last CBI visit. That's all gone now, to be replaced by a race between international chains to build the biggest and best beach-front hotels.

This is a country of 21 million people with a vibrant tourist business. It has a high literacy rate of around 93 per cent – far ahead of the south Asian average of 75.5 per cent. It is also neater and less frenetic than India; unique in its culture; and it has a broad, English-speaking middle class.

Dismantling barriers to growth

Sri Lanka has made a remarkable recovery since the civil war ended in 2009, with a rapid growth rate. The present government, elected in 2015, has cancelled many of the licensing and regulatory restrictions imposed by the previous regime. It has tackled endemic corruption. Most significantly it has decisively refocused its diplomatic and commercial diplomacy efforts away from China towards the West, including the UK.

The UK’s largest exports to the island nation are cars and generators and more than 50 per cent of the UK’s school uniforms are sourced from Sri Lanka.

There are also around 200 UK companies doing business in Sri Lanka.

There are still significant legacies of the previous regime to deal with, particularly chronic levels of national debt. Through refinancing and renegotiation these are being slowly tackled, but the spectre of a retrospective Super Tax lurks in the background if the government falls short of revenues.

The country is also coping with trade restrictions imposed by the West – a consequence of alleged civil war crimes by the previous regime. It is lobbying hard to restore the zero tariff agreement with the West it lost during the 26-year civil war.

A route into Asia

But Sri Lanka already has free trade agreements with most of the south Asian nations, and is negotiating final details with the most important of these: the $1.3bn market of India. With a recognisable legal system and reasonably free business environment (measured significantly higher by the World Bank's Ease of Doing Business rating than India), Sri Lanka offers the intriguing possibility of being a launch pad into India for international businesses.

With a large services sector and strength in manufacturing, the government also has ambitions to convert the country into a global financial hub on the same lines as Hong Kong. Its banking system works efficiently, with a large number of private banks freely competing with the state banks. The media, unshackled, is loud and vibrant. And infrastructure is improving quickly – a new airport road has cut the journey into Colombo from three hours to one; two shopping malls are in the planning; and a new port city, offering leisure and retail, is stalled but still on the cards.

The Sri Lankans no longer refer to the country as the Teardrop. The economy has turned a corner and there is plenty of optimism. Instead they call it the Jewel of Asia, and it could be the new and attractive base to reach into the region it is part of.

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