Sri Lanka aims to boost FDI as outside funds come in

COLOMBO Nov 4 (Reuters) - Sri Lanka's Board of Investment (BOI) on Thursday said it will prioritise approvals of investment into specific sectors as part of its thrust to revive the Indian Ocean nation's economy after the end of a three-decade war.

Foreign investments into tourism, agriculture, fisheries, education, IT, outsourcing, infrastructure, ports and aviation will take precedence over all others.

"For these particular sectors, we will give highest possible importance," BOI spokesman Dilip Samarasinghe told Reuters. "We want to develop these sectors."

Projects in those sectors will be given priority over those in telecommunications, property development, garments, and manufacturing, which are already developed, he said.

Although Sri Lanka's economic situation has turned around sharply since the end of a civil war in May 2009, foreign direct investment fell 16.8 percent in the first half of the year compared to the same period in 2009, when fighting raged. [ID:nLDE67O1I8]

The government is already abolishing a BOI tax holiday of up to 20 years that was enjoyed by foreign investors during the war.

The International Monetary Fund, which loaned Sri Lanka $2.6 billion in July 2009, has urged an end to that subsidy. The government has also argued that advent of peace and the opportunities it offers are enough of an investment incentive.

Sri Lanka is starting to see some fund investment, albeit more slowly than expected, even though the Colombo Stock Exchange .CSE has given Asia's strongest return this year.

Most offshore investors have opted for the island nation's treasury securities, a safe haven with a risk-free return of over 7.5 percent at the minimum. The stock market is deemed as too small and too illiquid by most outside investors.

Singapore-based private equity fund Calamander Group was first to launch a Sri Lanka-specific fund which aimed to invest a total of $75 million, primarily in local companies to turn them around for sale.

On Thursday, Dubai-based Heraymila Investments opened a brokerage house and said it is looking to invest up to 10 billion rupees ($89.6 million) in Sri Lanka to found a unit trust aiming to capture post-war growth potential.

In July, New York-based LR Global started an asset management unit in Sri Lanka with an initial investment of $20 million. ($1=111.61 Sri Lankan rupees) (Editing by Bryson Hull)