Sri Lanka could soon become a hotspot for global investment and development—but some major growing pains are likely.
On the plus side, the country is newly stable with the end of a lengthy civil war and a new government in place. It is seeing economic growth in the 5- to 6-percent range, and offers good value for investors looking to get a foot in the door early.
But the market has also had a rough year, according to experts. The Colombo Stock Exchange All-Share index is down more than 7 percent so far this year, although it's tacked on around 5 percent so far this month. Still the construction sector looks positive—which can mean good things for new hotel development. "There's a big push from the government on construction across the country," Dumith Fernando, executive chairman at Sri Lanka brokerage Asia Securities, said. "That had stalled over the last year while the government was relooking at all their projects but most of those projects will start again this year."
Stalled projects include Chinese developments that were put on hold after the ouster of former-president Mahinda Rajapaksa. A port project is back on track, and as many as three casinos may be underway if the new government approves.
These developments would be welcome in the country as its tourism sector improves. Government data indicates that visitor arrivals last year climbed nearly 18 percent from 2014, reaching more than 1.8 million arrivals, nearly quadruple the level a decade ago, according to government data. About 316,000 of those arrivals were from India, up 30 percent from a year earlier.
And locals are taking advantage of growing demand: Ajit Gunewardene, deputy chairman of Sri Lankan conglomerate John Keells, says his company is proceeding with building the waterfront integrated resort, including convention space, that was meant to accompany an on-hold casino that may or may not ever open. John Keells' hotel chain is the conglomerate's largest net asset exposure, with two of its hotels in the capital Colombo offering 40 percent of the five-star room capacity in the city. Gunewardene claimed that the company's hotels run at about 80 percent occupancy year-round.
Liquidity is also limited, and the dollar has climbed more than 10 percent against Sri Lanka's rupee since the start of the year, making it important for the new government to rein in spending, Gunewardene said. This, he said, will give foreign investors "a level of comfort."