Spanning on 269 HA of ocean reclamation, Port City Colombo will be Sri Lanka’s largest project attracting Foreign Direct Investments (FDIs). Port City is known as a Special Economic Zone which is designed to generate economic growth and employment on the back of attracting foreign direct investments. They differ from other economic regions on the basis that SEZ’s are usually subject to more favourable regulations and often include fiscal incentives as well including tax holidays and paying lower tariffs.
On May 27, the Parliament approved the Colombo Port City Economic Commission Act No. 11 of 2021, giving the Port City Colombo the authority to operate as a Special Economic Zone (SEZ). The Colombo Port City Economic Commission, which consists of seven members, was established in accordance with the Act to promote Colombo Port City as a prominent Special Economic Zone in the area and to oversee its operations.
The Colombo Port City project, which is estimated to be worth $1.4 billion that is wholly owned by the Government of Sri Lanka is the biggest FDI project in Sri Lanka to date. Of the 170 hectares of land that are marketable, 112 hectares have been leased to the project business for a 99-year period.
The purpose of the Port City is to attract new FDIs and the Colombo Port City Economic Commission was created in accordance with the Act to serve as the Port City’s supervising body for amending and enforcing local laws, including those pertaining to business licenses and registrations. The Commission is granted a number of important functions, including the ability to create and approve environmental standards, oversee and implement environmental improvements, and cooperate with and enter into agreements with other international agencies.
When providing such permits, the Commission is obligated to obtain the appropriate legislative authorities’ permission. The “Master Plan” as approved by the Commission, along with the President’s approval, should serve as the basis for all zoning and physical development operations inside the Port City.
A person must possess a license issued by the Commission in order to conduct business within and from the Colombo Port City’s area of jurisdiction, according to the Act, which details the Commission’s additional authority. If the individual in question were a business, that company would also need a Certificate of Registration issued in accordance with Part VII of the Act. Several regulatory requirements that give the Commission the jurisdiction and authority to control offshore businesses and offshore banking may be found in the Act. Accordingly it may be enacted with the Monetary Board’s approval.
The Act will also require that anyone seeking authorization specify the entire amount of proposed foreign direct investment (FDI) to be made in any specified currency with a Sri Lankan rupee embargo. Furthermore, no authorized person may lend Port City money using a foreign currency loan from a bank that is licensed under the Banking Act or use a foreign currency deposit from one of those institutions to invest in the city. The Port City must raise all of its funding abroad.
It is required by the Act that authorized individuals conducting business in the Port City employ both citizens and non-residents. Additionally, both categories of employees’ earnings will not be subject to income tax. In accordance with the Act, any goods or services delivered to a citizen or resident of Sri Lanka may be paid for in Sri Lankan rupees within the Port City. The act states that any unrestricted buyer may make such a payment, which may thereafter be received and converted into foreign cash in Sri Lankan rupees.
The Act also addresses the granting of exemptions or incentives to “any authorized persons carrying on Business of Strategic Importance, as may be approved,” “notwithstanding the provisions contained in any other written law.” According to the Act, such exemptions or incentives should be provided to “Businesses of Strategic Importance” that would guarantee the accomplishment of the goals in establishing the Colombo Port City, having regard for the advancement of the national economy.
Indicative criteria for what might be deemed a “Business of Strategic Importance” include the anticipated transformation of knowledge in terms of the promotion of services or technological advances, destination promotion for Sri Lanka through the promotion of tourism, entertainment, and shopping activities, or through the promotion of urban amenity operations with the settlement of a residential community, or the impetus anticipated through the promotion of services with the setting up of corporate headquarters operations and regional distribution operations.
By luring FDIs, Port City Colombo has the opportunity to support local firms effectively. The project is very open to foreign direct investments because business operations could be conducted in any foreign currency, and it could bridge the gap between Dubai and Singapore to serve as a highly sought-after center in South Asia with current infrastructure in place.
Participation by local investors is not restricted, but the money needed for the Port City should be raised outside the country. This implies that local businesses can collaborate with foreign investors and benefit from these relationships even if they perceive their inability to secure project funding abroad as a barrier. In addition to commercial alliances, there will be more chances for regional companies to offer services to companies operating in the Port City. It is extremely unlikely that there would be excessive competition as attracting foreign direct investments is the main objective.
Making the Port City an international financial hub in the area and making it a location where people can access capital most efficiently and quickly is the unsurpassed result that is desired for the city. The Act has addressed some financial market-related issues, and regulates offshore banking activity in and from the Colombo Port City’s jurisdiction.
Overall, the Port City appears to have been founded with noble intentions, and it is anticipated that its operation will benefit Sri Lanka’s economy and have an impact on the culture that is visible in foreign markets. The Act marks a significant turning point in Sri Lanka’s economic history as not only Sri Lanka but South and Southeast Asia would profit from its successful and seamless deployment. A golden era will begin with the opening of the new Financial Center and the relocation of global corporations’ headquarters into Port City Colombo.