Sri Lanka Trade and Foreign Investment

By | July 24, 2022


  • Business Relationships
  • Foreign direct investment
  • FTAs ​​and Treaties
  • Development Cooperation
  • Prospective fields of study (MOP)

Business relations

Trade relations with the EU

The EU is Sri Lanka’s largest export market with a positive trade balance of more than EUR billion. Sri Lanka particularly benefits from the GSP+ preferential system, which allows duty-free access for nearly 6,000 categories of export products, which is 66% of EU tariff items. GSP+ is planned for Sri Lanka until 2023. However, there is speculation that it is likely to be extended until 2025. However, the extension would only occur if the post-pandemic economic contraction results in lower per capita income or if it remains per capita income in the country at the current level. The EU also requires Sri Lanka to continue to implement the 27 international conventions on which the GSP+ is based, all of which have been signed and ratified by Sri Lanka.

2017 2018 2019 2020 2021
Exports from the EU (million EUR) 1,490.00 1,225.50 1,238.10 902.8 1,194.70
Imports into the EU (million EUR) 1,952.20 2,134.50 2,300.60 2,081.00 2,554.50
Balance with the EU (million EUR) 462.2 909 1,062.5 1 178.2 1,359.8

Source: European Commission

Trade relations with the Czech Republic

The mutual trade balance is characterized by a growing trade deficit. There are no available dates for 2021.

2017 2018 2019 2020 2021
Exports from the Czech Republic (billion CZK) 1.3 0.2 0.2 0.2 ON
Imports to the Czech Republic (billion CZK) 0.3 1.3 1.7 1.8 ON
Balance with the Czech Republic (billion CZK) -0.9 1.1 1.5 1.6 ON


Trade relations with countries outside the EU

The trade balance with countries outside the EU is negative. In 2021, Sri Lanka’s trade balance was more than €billion. The main exporting countries include the USA ($billion) and the United Kingdom ($0.9 billion). The main importing countries include China ($billion), India ($billion) and the United Arab Emirates ($billion). Major exports include textiles and clothing, tea, rubber products and petroleum products. The main imported goods include gasoline, textiles, machinery and food.

2017 2018 2019 2020 2021
Exports from countries outside the EU (million EUR) 8 167.7 8,880.2 8,911.8 7,638.0 9,400.6
Imports to countries outside the EU (million EUR) 15,880.5 16,763.4 14,645.9 11,566.0 13,733.1
Balance with non-EU countries (million EUR) -7,712.8 -7,883.2 -5,734.1 -3,928.0 -4,332.6

Source: EIU, Eurostat

Foreign direct investment

Foreign direct investment (FDI) in Sri Lanka decreased to US$548 million in 2020 compared to US$793 million in 2019 and US$billion in 2018. Recent FDI has been concentrated in real estate, mixed development projects, ports and telecommunication sectors. With approximately two million tourists a year (before the COVID-19 pandemic) and a range of cultural, wildlife and outdoor offerings, the tourism industry is a priority sector in the government’s post-pandemic economic recovery plan. With a growing middle class, investors also see opportunities in franchising, retail and services, as well as light manufacturing. Uncertainty surrounding the COVID-19 pandemic is likely to continue to constrain tourism and foreign direct investment.

FTAs and treaties

Treaties with the EU

  • A trade and economic cooperation agreement was signed on 22 July 1975. Relations between Sri Lanka and the European Union are governed by a subsequent third-generation agreement, the “European Community-Sri Lanka Partnership and Development Cooperation Agreement”, which entered into force on 1 April 1995.
  • Sri Lanka also signed a readmission agreement with the European Union on 4 June 2004. This is the first formal agreement that Sri Lanka has entered into to combat illegal immigration. Facilitating law enforcement cooperation forms an integral part of the agreement and recognizes the need for both sides to take measures to combat organized crime, including human trafficking, migrant smuggling and terrorist financing.
  • Since 2017, Sri Lanka has enjoyed better access to the EU market under the Generalized System of Preferences Plus (GSP+). These one-way trade preferences consist of the complete elimination of tariffs on 66% of tariff items on various products, provided that the country commits to ratify and implement several international conventions on human rights, working conditions, the environment and good governance.

Contracts with the Czech Republic

  • Agreement between the Ministry of Justice of the Czech Republic and the Ministry of Justice of the Democratic Socialist Republic of Sri Lanka on the transfer of convicted persons (Colombo, 14 October 2021)
  • Agreement between the Government of the Czechoslovak Socialist Republic and the Government of the Republic of Sri Lanka on the prevention of double taxation and the prevention of tax evasion in the field of income and property taxes (Colombo, 26.7.1978). Note: In 2019, negotiations on a new treaty on the avoidance of double taxation were concluded. The contract was approved by the government of the Czech Republic and the Czech side announced its readiness to sign it. The Sri Lankan side confirmed the readiness to sign only in mid-December 2020. The signing of the contract is expected in 2022.
  • Agreement between the Ministry of Industry and Trade of the Czech Republic and the Ministry of Development Strategies and International Trade of the Democratic and Socialist Republic of Sri Lanka on mutual cooperation (Colombo, 7 February 2018)
  • Agreement between the Czech Republic and the Democratic Socialist Republic of Sri Lanka on the support and mutual protection of investments (Prague, 28/03/2011)
  • Agreement between the Government of the Czech Republic and the Government of the Democratic Socialist Republic of Sri Lanka on air services (Prague, 20/04/2004)

Developmental cooperation

For cooperation to date, the EU has provided Sri Lanka with development aid amounting to approximately EUR 1 trillion, which can be divided into the following areas: bilateral and regional programs, global thematic programs (especially the protection of water resources, seas and marine habitats and the environment), humanitarian aid, projects EIB and EU post-tsunami reconstruction aid. A comprehensive report was submitted to the Brussels headquarters serving as a basis for the document for the following years.

The EU delegation in Colombo concluded a seven-year program to support local self-government and the reconstruction of the country. The new seven-year program will focus more on judicial reform, accountability and transparency of judges and access to justice. 18 million euros will be allocated for it. A program is also being prepared that will focus on green renewal and the circular economy, which will last until 2027. Another part of the program will also be devoted to social cohesion to support the integration of minorities, focusing on the Tamil and Muslim minorities.

In the past, the Czech Republic has long supported Sri Lanka through so-called small local projects focused mainly on strengthening the economic activities of the most vulnerable population and supporting local education. In 2022, the Ministry of Foreign Affairs supported one project in the field of ensuring access to drinking water in a rural area in the east of the country.

Prospective fields of study (MOP)

Water management and waste industry

The Sri Lankan government has committed to recycling at least 80% of municipal waste annually by 2030 in its National Plastic Waste Management Action Plan. However, waste management infrastructure in Sri Lanka is underdeveloped and needs necessary investment. In Sri Lanka, Czech companies with waste sorting technologies, recycling lines and integration systems for the collection of municipal waste will find use.

Energy industry

Sri Lanka’s location offers huge opportunities for the development of renewable energy sources. The Sri Lankan government wants to use this potential as part of the National Energy Policy and Strategy, where it has set the goal of producing at least 20% of electricity from alternative sources by 2025. Sri Lanka is interested in projects mainly related to renewable energy sources, but due to the described unfavorable energy situation, the modernization of outdated coal-fired power plants is also desirable.

Civil aviation industry

Sri Lanka has 15 airports, the largest of which are Colombo and Matala International Airport. A number of airports need modernization in order to ensure better comfort for passengers. For Czech companies, participation in the modernization or construction of airports, as well as the supply of mobile airports, radar systems or small aircraft, is a perspective area.

Agricultural and food industry

Agriculture and food processing are among the highly subsidized areas of the Sri Lankan economy. In the case of Sri Lanka, there is a demand for technology in the food industry (which is growing at 8% per year), for example for sugarcane processing, which Sri Lanka still has to import 95% from India. The government plans to expand food programs aimed at supporting farmers and rural communities. Droughts and floods affecting the country quite regularly often cause low yields of basic agricultural crops and the resulting increased imports from abroad. Opportunities for Czech companies are mainly found in support activities for agriculture and post-harvest activities for plant production, efficient irrigation systems and smart agriculture (using IoT technologies).

Transport infrastructure

One of the government’s permanent priorities is the construction of roads as a basic prerequisite for the development of industry affected by the covid-19 pandemic. In addition to the construction of new roads, there is a constant need in the country to repair existing roads and bridges damaged by annual floods. Czech companies may be interested in contracts in the form of the planned suburban rail system going from the outskirts of Colombo to the center (light railway system), streamlining the city’s bus transport and modernizing and expanding the railway line going to the capital.

Sri Lanka Trade