Looking beyond the Economic Transformation Bill: Three Steps Sri Lanka Can Take to Increase the Supply of High-Quality Investment Zones

This note proposes three steps Sri Lanka could take to construct and manage high quality Investment Zones, drawing from regional and global best practices. First, is enacting a separate, overarching legislation to govern Zones. Second, is enhancing the quality of Zones by mandating minimum quality standards and establishing minimum criteria for selecting investors to develop and manage Zones. Third, is preventing conflicts of interest by separating the roles and responsibilities of regulators, developers, and operators and establishing a level playing field by ensuring regulatory independence. Underlying these proposals is the recognition that Sri Lanka needs to have a more robust regulatory framework than what is provided in the Economic Transformation Bill (ETB) gazetted on May 14, 2024. The need for such a framework is higher in Sri Lanka, given the scarcity of land and intense competition in the Asian region for foreign investments. The recommendations address three critical problems that have made Sri Lanka fall behind many of its regional peers. First, Sri Lanka has under-invested in both the quantity and quality of Zones. Second, it has exclusively depended on the public sector to build and manage Zones. Third, the country lacks an appropriate regulatory framework to attract private sector investment in Zones and to enhance their quality and performance. While the ETB is an important attempt to resolve these issues, the proposals outlined underscore the need to look beyond the ETB in setting up a regulatory framework to govern Zones.