Financial Times

Govt. to ease restrictions on foreign investors
The government is considering relaxing restrictions on foreign investments in key sectors of the economy with the enactment of the new Foreign Exchange Management Act. The new act, which has been approved by the Cabinet, will repeal the existing Exchange Control Act through which foreign investment in several areas of economic activity is controlled.

"There is a possibility to review the negative list presently applicable to foreign investors once the proposed Foreign Exchange Management Act is enacted," said a Central Bank official. It was likely that restrictions on foreign investment in businesses like freight forwarding might be relaxed under the new law as part of government efforts to further liberalise and reform the economy.

Currently, foreign investment in freight forwarding is allowed only up to 40 percent of ownership, unless otherwise approved by the Board of Investment. Foreign investment in shipping agencies is also similarly restricted and the Ports and Shipping Ministry has resisted attempts to relax the restrictions despite lobbying by foreign shipping lines.

Government officials acknowledged that the proposed changes are likely to be welcomed in some quarters and opposed in others. The government has been gradually relaxing restrictions on foreign investment and has allowed 100 percent foreign investment in financial and professional services, infrastructure development, and setting up branch or liaison offices of companies incorporated overseas in Sri Lanka.

The 'negative list', where foreign direct investment is barred or only minority stakes are allowed, has been whittled down to 19 sectors and is to be reduced further. "We proposed not to have exchange control as a tool to control these areas," the Central Bank official said. "We're going to review in a positive way the negative list with the new Foreign Exchange Management Act under which FDI will be subject only to the requirements of the regulatory authority."

The existing Exchange Control Act has provisions restricting certain activities by non-residents and foreigners such as share investments and transferring controlling stakes in companies to foreigners. Under the current negative list no FDI is allowed in money lending, pawn brokering, retail trade with a capital of less than a million dollars, and coastal fishing.

FDI is allowed in other areas such as air transportation, travel agencies, coastal shipping, tea, rubber and coconut cultivation and processing, mining, mass communications and education subject to restrictions and approval on a case-by-case basis by the government.

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