Land is the most vital natural resource in sustaining a person’s livelihood. However, the lack of land availability for the private sector acts as a hindrance to businesses and investments.
Due to the influence of the Crown Land Encroachment Ordinance (CLEO) of 1840, even in present-day Sri Lanka, approximately 82% of the land is controlled by the Government and only 18% by the private sector.
The private sector, regarded as the engine of Sri Lanka’s economy, plays a pivotal role in job creation, attracting Foreign Direct Investment (FDI) and generating revenue. However, these activities are constrained by the limited land available to the sector.
Increased access to land will create potential for more development in the economy, as individuals and businesses will likely commercialise or develop properties, contributing to a more diversified economy.
The scarcity of available land imposes limitations on industrial growth. This not only reduces current growth opportunities but also undermines long-term strategic planning, affecting overall economic potential.
Land availability vital for industry
Speaking to The Sunday Morning, Industrial Development Board (IDB) Chairman Dr. Saranga Alahapperuma stated that the shortage of land availability was one of the major issues contributing to the lack of a solid industrial base in the country, alongside liquidity and licence issues.
He explained that as a country with a relatively dense population and environmental sensitivity, industries had a chance to thrive when located strategically within dedicated industrial zones, maximising their impact. However, he highlighted that unfortunately in Sri Lanka, local authorities such as the Board of Investment (BOI) and the IDB handled less than 5,000 acres of industrial zones, which as a percentage of the total land extent in Sri Lanka was only about 0.04%.
“If we can at least achieve 1% of the total land extent, we can definitely double the Gross Domestic Product (GDP) without any issue. Even at a domestic level, there are more than enough people to invest if there is infrastructure development.”
Dr. Alahapperuma emphasised that land was needed for industries in order for the country to develop, and not accommodating that requirement might have a detrimental impact on the economy.
“More than two million acres for paddy, 1.1 million acres for coconut, and over 200,000 acres for rubber have been allocated. If at least 1% can be allocated to the industrial zones, it might help significantly,” he said.
Speaking on the challenges and inefficiencies in the system, he stated that such decisions should come from relevant officials of the institutions, stressing that obtaining institutional agreement and concurrence were extremely difficult processes.
“There are highly underutilised plans across the country, which unfortunately, certain officials are not willing to accommodate.”
Suboptimal land management
Dr. Alahapperuma also highlighted the absence of proactive measures in land management, noting that the identification and development of land only began once investors started seeking land. In contrast, rapidly developing countries have already established industrial zones, enabling investors with business ideas or investment plans to immediately access and invest in land.
He further explained that finding suitable land according to investment needs in Sri Lanka could take years, causing potential investors to lose interest.
“Europe is beginning to realise that the entire industrial base can’t depend on China, and they’re trying to move certain industries to our region. We are one of the best countries to accommodate their needs. But the land and licence issue stands in the way of achieving that,” he added.
Addressing the efforts undertaken by the IDB, Dr. Alahapperuma stated that they were operating 18 industrial zones within the country alongside industrialists.
“We have 300 acres, which is not sufficient. We have created more than 8,500 jobs within these 300 acres. Private investment in these is about Rs. 54 billion, and the annual turnover from these industries is more than Rs. 52 billion, despite the limited space,” he said.
He further noted that the IDB had identified a few plots of land in areas such as Kandy, Elpitiya, and Matara. However, prolonged and inefficient legal processes prevented them from handing these over to industrialists for the development of industries, impacting the country’s economy. He added that the IDB was persistent and committed to identifying and acquiring lands.
Situated at a geo-strategic location in the middle of the 21st Century Maritime Silk Road and at crossroads of major shipping routes, Sri Lanka is capable of attracting promising foreign investments. However, The Sunday Morning’s attempts at discussing the issue’s impact on foreign investment with the BOI proved futile.
Drawbacks of relying on Govt.
First Capital Chief Research and Strategy Officer Dimantha Mathew shared his insights on the impact of the current distribution of land between the Government and the private sector on the country’s economic growth.
He focused on restrictions such as alienation that affected the acquisition of large plots of land, as only the Government controlled areas suitable for large-scale projects. He further stated that while such reliance on the Government affected both large and small businesses (because obtaining land from the Government was an extremely cumbersome task), it was particularly detrimental to Small and Medium-sized Enterprises (SMEs) that could not simply acquire land independently or leverage it for credit from banks.
“There is land available in Colombo, but these can’t be used for business because the per perch cost is high, leading to the project becoming non-viable. One needs to venture outside Colombo, but the Government owns most of the land outside the city.”
Mathew emphasised that relying on the Government for land negatively impacted foreign investments due to bureaucratic inefficiencies, lengthy approval processes, and corruption. He added that the weak legal system, with land cases often lasting 20-30 years, further deterred investors.
“It would be much easier if land were more available. A separate structure to privatise some of these lands or a process to distribute land faster would be helpful,” Mathew concluded.
Investor deterrents
Speaking to The Sunday Morning, Advocata Institute Chief Executive Officer (CEO) Dhananath Fernando emphasised that the uneven distribution of land between the Government and the private sector had been an issue of concern for a long period of time. He also stated that the lack of digitisation made it difficult to determine land ownership.
“A team from the Harvard Center for International Development has identified the land problem as one of the key constraints. As more than 75% of land is owned by the Government, even the resident industries lack land.
“The occupancy rates of the BOI zones are also very high and we haven’t created enough BOI zones. Therefore, investors lack land and are required to obtain multiple approvals, which delays the process.”
Fernando emphasised this as a main reason for Sri Lanka’s inability to attract investors, since even when an investor arrived, it would take about three years to commence operations, creating a significant bottleneck. Commenting on addressing these issues, he provided the Port City project as an example where attempts had been made to make the business environment easier.
“They are also trying to address this through the Economic Transformation Bill. Zones Sri Lanka is to set up a separate unit which will manage the zones, allowing for Public-Private Partnerships (PPPs) with the private sector. But it will take time to see results even if it works,” he added.
Ceylon Chamber of Commerce (CCC) Senior Economist Sanjaya Ariyawansa stated that the management of land owned by the State was fragmented and legally complex, creating barriers for private companies, particularly SMEs, often leading to delays and increased costs.
High land prices, especially in the Western Province, worsens the issue of acquiring land. Ariyawansa added that these high costs could deter new investments and obstruct the growth plans of existing businesses.
“When FDI projects are lost or stalled due to land disputes with the Government, it not only affects the confidence of foreign investors but also hampers the country’s ability to attract much-needed investment.
“Additionally, the quality of land administration is low, characterised by poor infrastructure reliability, lack of transparency, and inefficient dispute resolution mechanisms, further complicating the process and adding to their operational difficulties,” he added.
Ariyawansa highlighted that regional variations also played a role in the impact of land availability on businesses, as the Central Province had the highest rate of firms reporting land access as a main obstacle, followed by the Eastern, Western, and Southern Provinces. This indicates that the issue is more prominent in certain areas.
“Recent legal changes, such as the Land (Restrictions on Alienation) Act, which limits foreign land ownership, may have contributed to a drop in FDI. These legal constraints make it difficult for foreign investors to acquire land, impacting their willingness to invest in Sri Lanka and further complicating the landscape for business growth.”
He added that despite the availability of Export Processing Zones (EPZs) such as Mirijjawila, Katunayake, Biyagama, and Seethawaka, which were designed to offer streamlined land access and infrastructure, the process for acquiring land outside these zones remained lengthy and cumbersome.
“Investors often face the requirement of a significant number of approvals, with an average of 16 required to initiate any production venture, which translates to higher costs and longer delays. This difficulty is further highlighted by stringent stamp duty laws, such as the requirement for foreigners to pay 100% stamp duty on land purchases, making it prohibitively expensive for them to invest in land in Sri Lanka.
“The BOI is making efforts to streamline the process and reduce these barriers by proposing new EPZs and establishing Standard Operating Procedures (SOPs) for land acquisition and construction,” he said.
Need for efficient policy reform
Ariyawansa emphasised that the need for efficient land policy reforms remained critical to ensure an investor-friendly environment. Focusing on the positive economic impacts of releasing more land to the private sector, he highlighted that it would benefit SMEs, foster economic activity and job creation, and support sector-specific growth, particularly in tourism and agriculture.
Efficient land administration and initiatives like the ‘Urumaya’ programme increase investor confidence. Expanding EPZs will attract more investments, creating a more favourable business environment.
“More efficient and clearer land administration practices will reduce delays and uncertainties in land transactions. This will foster a more conducive environment for business growth and investment. It will also enhance transparency and reliability, boosting investor confidence,” Ariyawansa continued.
“The introduction of the ‘Urumaya’ programme marks a significant step towards resolving longstanding land ownership issues for over two million Sri Lankans. By converting existing land licences such as ‘Ran Bhoomi,’ ‘Jaya Bhoomi,’ and ‘Swarna Bhoomi’ into freehold deeds, the programme aims to grant full ownership of land to thousands of families.
“This initiative not only addresses land ownership uncertainties but also empowers citizens with the security and freedom that come with permanent land ownership.” he added.
Ariyawansa also emphasised that increasing land availability could help expand EPZs, which had been successful in attracting investments due to their clear land access and streamlined approval processes. It will enhance their capacity, drawing more businesses to set up operations in Sri Lanka.
He concluded that by addressing the land constraints, the Government could help create a more favourable business environment, encouraging both domestic and foreign investments and supporting the overall economic development of Sri Lanka.
Neither the BOI nor Minister of Lands Harin Fernando were available for comment despite The Sunday Morning’s attempt to reach them.