Sri Lanka’s once-promising push to build a domestic automobile manufacturing ecosystem is now facing serious turbulence, not due to international market conditions, but as a result of internal Government delays and policy uncertainty.
At the core of the issue is the Ministry of Finance, which stands accused of stalling the country’s automotive value addition programme by failing to approve critical policy updates and concessions needed to keep the sector afloat.
In 2021, the Government introduced a Standard Operating Procedure (SOP) to support local vehicle assembly and component manufacturing. The SOP was a strategic move to reduce vehicle imports, encourage industrial investment, and generate employment.
It required manufacturers to meet minimum thresholds of local value addition – 20% for four-wheelers and 25% for two-wheelers – in exchange for regulatory support and tax incentives. Initially, the programme showed strong results.
Within three years, Sri Lanka registered 31 vehicle assemblers and 90 component manufacturers, with 19 assemblers and 25 component firms actively operational. The sector created over 3,000 direct jobs and 5,000 indirect employment opportunities, attracted investments worth Rs. 16 billion, and showed potential to generate up to $ 800 million in annual exports.
However, this growth has now stalled. The situation began to unravel following the relaxation of vehicle import restrictions in 2023.
Investor frustration
Despite the Ministry of Industry continuing to support the sector, delays by the Finance Ministry in processing approvals for tax concessions and policy alignments have left investors in limbo.
Many stakeholders are now voicing deep frustration, saying the delays have directly impacted their operations and future plans.
“We have met the value addition targets, invested millions, and generated employment. Now we’re stuck waiting for paperwork and direction. Our export orders are on hold because buyers are wary of instability,” said one local business owner involved in component manufacturing.
Another manufacturer, whose company is preparing for a major export deal, said: “The biggest bottleneck right now is the Finance Ministry. It has dragged its feet on approvals and policy alignment, and this is hurting every local manufacturer. We can’t operate a business based on uncertainty and political indecision.”
A third entrepreneur echoed the sentiment: “One side is promoting local industry, while the other is undermining it. The lack of coordination is our biggest challenge.”
Ministry commitment
In response to these concerns, Ministry of Industry Secretary Thilaka Jayasundara acknowledged the delays but assured that the ministry remained committed to supporting the sector.
“The Government has not given up on the local manufacturing sector despite the lifting of the vehicle import ban,” she said.
She confirmed that the existing SOP was being revised to adapt to current realities. “We are actively working on all related measures and have not neglected any local manufacturer or business,” she added.
When asked about the delays from the Finance Ministry, Jayasundara admitted that there had been setbacks in obtaining approvals, but stated that efforts were ongoing to resolve them through inter-ministerial coordination.
An industry under threat
The automotive industry in Sri Lanka has always faced challenges, but the 2021 SOP provided much-needed structure and momentum. It offered clear eligibility criteria, regulatory guidelines, and promised fiscal incentives.
Local manufacturers responded with enthusiasm. Component production expanded to include more than 20 different parts – from tyres and batteries to radiators and sensors – many of which were exported to global brands such as Toyota, Honda, BMW, Aston Martin, and Volvo.
Strategic partnerships also flourished. Companies like Lanka Harness, Cable Solutions, and Ideal Auto Seating formed joint ventures with global players such as Magna International, enabling knowledge transfer and reducing Sri Lanka’s reliance on imported parts by at least 8%.
Yet, with Finance Ministry approvals now months behind schedule, these achievements are under threat. Industry insiders say around 20 manufacturers who were nearing export readiness are reconsidering their investments. Some have frozen expansion plans, while others are considering downsizing.
There are even concerns that companies may shift operations to more supportive regional markets if the situation fails to improve soon.
For many investors, the issue is not just about tax concessions but about trust. “We built our businesses on Government promises,” one anonymous assembler said. “Now we’re being punished for believing in a local manufacturing vision that the Government itself seems to have forgotten.”
Businesses are calling for a series of urgent actions: immediate clearance of pending approvals, better alignment between ministries, a clear public recommitment to the local value addition policy, and a time-bound plan for future vehicle import regulation.
The Ministry of Industry appears willing to push for these reforms, but unless the Finance Ministry acts quickly and decisively, Sri Lanka risks losing a unique opportunity to establish itself as a competitive regional player in automotive manufacturing.
The local value addition programme was meant to be more than a temporary measure; it was a blueprint for long-term industrial growth. For now, that blueprint sits in limbo, buried under delays and doubt.