Multiple factors ranging from wars to climate change are impacting the global political, economic and business landscapes. And it is a given that these dynamics affect foreign direct investment (FDI) flows around the world.

“FDIs – from a global standpoint – have been increasing steadily,” noted the Statutory Board Member, and Chair of Sri Lanka & Maldives of the Commonwealth Enterprise and Investment Council, Niro Cooke.

He continued: “The movement of capital, much like that of people, follows a similar pattern to water – it follows the path of least resistance and usually tries to identify the highest yield.”

Cooke explained that “the migration of people has been a historical phenomenon that’s occurred time and time again – and the movement of capital is very similar; it will constantly move to find the highest yielding opportunities along the path of least resistance.”

“I think Sri Lanka’s objective is to try and identify – and capture – that capital to meet its ends,” he added, in conversation with Ruwandi Perera, on a recent airing of LMDtv.  Cooke noted that Sri Lanka achieved a positive balance of payments for the first time since 2019 but maintained that it isn’t attracting as much in FDI as it has the potential to.

He elaborated: “There has been an increase in FDIs post-economic crisis and post-pandemic. Having said that, between the postwar era [beginning from 2009] and 2019, Sri Lanka averaged around US$ 1 billion in FDI annually. We’re still below the billion dollar target – but the target the government has set is four billion dollars in FDI this year.”

This target could be challenging in this election year, given the prospect of political and economic instability.

“Sri Lanka is much more stable both politically and economically but there’s still a perception of it not being completely ready to attract serious levels of FDI,” he said, adding: “While the objectives are good and we’re moving towards the target, I don’t know if we’ll gain sufficient traction to reach it.”

He continued: “Having said that, I think that those who invest this year will probably reap the rewards of discounted entry prices.”

FDI is “absolutely critical” for Sri Lanka for a multitude of reasons, in Cooke’s view. “Post-economic crisis, Sri Lanka has to attract capital to grow its economy,” he averred, noting that “there is a strong correlation between FDI and gross domestic production (GDP). If you look at that correlation, most countries strive towards 1:1.”

He explained: “Singapore has a greater contribution to its GDP from every dollar invested. For example, if Singapore attracts a dollar of FDI, it typically has a contribution of US$ 1.04 in GDP growth, which is a remarkable statistic. This means that the system’s efficiency is able to generate greater output from the corresponding input.”

“Sri Lanka’s GDP growth to FDI isn’t quite as good as it should be,” he pointed out, adding that “it will improve over a period of time as policies and efficiencies are improved, and export focussed industries are invested in.”

Moreover, Cooke highlighted the importance of investment inflows to Sri Lanka: “FDI is going to be the main catalyst that’s going to drive our economic growth moving forward because it will attract not only capital but also [lead to] technological advancements, and increased skills and knowledge transfers.”

“If FDI [is invested] in the right industries, it will be a major catalyst for economic development,” he asserted.

Cooke also commented on the Sri Lanka’s positioning in terms of attracting FDI: “Sri Lanka has a strategic location; we have an educated and qualified workforce; and we have free and preferential trade agreements with a number of countries.”

“Yet, these are not enough on their own,” he argued, emphasising in conclusion that “the policy the government sets to facilitate FDI and create a conducive environment is most important.”