Land, being one of the main factors in a country’s production process, provides the necessary resources for agriculture, industry, infrastructure, housing, energy, and various other essential activities that drive economic and societal development. Efficient and sustainable land use is crucial for the overall prosperity of a country.

According to independent think tank Advocata Institute, approximately 82% of the land in Sri Lanka is State-owned, encompassing forest reserves and sanctuaries, while only 18% remains in private hands. 

Export Processing Zones (EPZ) such as Mirijjawila with 513.49 acres, Katunayake with 513.49 acres, Biyagama with 450.68 acres, and Seethawaka with 431.30 acres cover the highest extent when it comes to the utilisation of the existing Board of Investment (BOI) zones, as per the data provided by the Ministry of Investment Promotion.

Additionally, the data states that a significant extent of land has been proposed for new zones in 2024, consisting of Bingiriya EPZ (Phase III) with  646 acres, Mankulam with 600 acres, and Kappalthurai with 600 acres.

Nevertheless, it appears that the process for foreign investors to buy land and begin production in Sri Lanka is considerably more difficult. Whether local or foreign, any investor would attest to the difficulty of securing a plot of land for production, Advocata noted. 

EPZs are available

Speaking to The Sunday Morning, BOI Director General Renuka M. Weerakone said that the BOI had over 14 EPZs where plug-and-play was possible. He said that there was already a model in place where an investor could choose land inside a zone, acquire the lease, and initiate manufacturing activities. 

“We have had the plug-and-play policy since 1978 when the BOI was formed. The Katunayake EPZ was established when the BOI was formed. Since then, over the last 45 years, we have had zones where we accommodate manufacturing companies that export,” she added.

She also noted that when dealing with land outside export processing zones, the process became longer, especially if the land was owned by another agency or if it happened to be State land. However, if it is private land, an investor can easily take it on lease and initiate their startup.

The BOI is considering specialised sectors for investors, anticipating ease for smaller land extents but acknowledging challenges for larger agricultural projects due to limited availability in Sri Lanka. 

“We are considering modelling our approach so that we have specialised sectors for investors. Realistically, unless there is a requirement for a very large extent of land, such as five acres or even a maximum of 10 acres, there shouldn’t be much difficulty. However, if you are considering something like agriculture and require hundreds of acres, then it becomes a challenge because Sri Lanka is a smaller country and finding such contiguous lands could be an issue. Therefore, we are currently exploring the possibility of identifying available lands to establish a land bank for investors,” she outlined.

Lengthy approval process

Advocata highlights that initiating any production venture typically requires an average of 16 approvals. Investors seek land that is ready for swift set-up and operation, as delays translate to significant costs. They need land equipped with electricity, water, telecommunications, waste management, and other essential services to minimise the time between investment and production.

Minister of Investment Promotion Dilum Amunugama said that there was now a proper system, unlike before, and that the BOI was handling the process of obtaining approval for the lands, so the investor only needed to come, invest, and start the process.

Amunugama also highlighted that the land acquisition process in Sri Lanka was typically lengthy: “To streamline and expedite this process, we have formed a seven-member committee. This committee is currently working on developing Standard Operating Procedures (SOPs) for land acquisition as well as for construction processes,” he added.

“When an investor enters the country and attempts to purchase land, acquire it rightfully, and initiate their business, it will take almost a year. However, the necessary actions are already in progress and until they are completed, we undergo the same lengthy process,” he said.

“Although there is enough land available to support the required infrastructure, our legal regulatory number of days for the Environmental Impact Assessment (EIA) is 116. The committee is working on simplifying the processes.”

Need for investor incentives

Former Deputy Governor of the Central Bank Dr. W.A. Wijewardena pointed to the act that was passed in Parliament in 2004, which stipulated that a foreigner had to pay 100% stamp duty if they purchased land. 

“If a foreigner intends to buy land in Sri Lanka, they have to pay a stamp duty equivalent to 100% of the land’s value. This means that if a piece of land costs Rs. 1 million, the buyer must pay Rs. 2 million to buy the land. Consequently, it has become prohibitively expensive for foreigners to purchase land and this also applies to those who come for investment,” he explained.

According to him, the Government is not inclined to make amendments to the act or to remove the act due to fear of opposition and resistance from those with a more traditional mindset in Sri Lanka. As a result, investors face restrictions in purchasing land. If they intended to buy land, they were required to pay twice the amount that a Sri Lankan citizen would pay, Dr. Wijewardena added.

“This applies not only to foreign investors but also to Sri Lankans who have migrated to another country, obtained citizenship elsewhere, and relinquished their passport here. If such an individual owns land here and decides to sell it, they are required to pay 100% stamp duty,” he noted.

Moreover, Advocata Institute Economic Researcher Rehana Thowfeek, speaking to The Sunday Morning, pointed out that there was an acute shortage of private land because the Government owned about 80% of the land supply. 

“With Government involvement there are significant red tape and bureaucratic roadblocks that prevent the dynamic use of land for plug-and-play activities. Firstly, the land has to be released for more viable economic opportunities for the private sector,” she outlined.

“The land policy is just one area where we are falling short in attracting foreign investments. Generally, we seem to think that having low tax rates will attract foreign investors, but they are staying away for far bigger reasons such as labour laws and land laws, which we are not addressing,” she said.