Colombo Port City’s long-promised transformation into Sri Lanka’s first purpose-built services export zone is beginning to take measurable shape, with project officials reporting US$1.3 billion in foreign direct investment (FDI) already secured and a sizeable pipeline under negotiation.
However , behind the upbeat messaging lies a complex mix of fiscal incentives, risk-management mechanisms and early-stage operational challenges that will determine how far the project can influence the wider economy.
Speaking at the Sri Lanka Economic Summit organised by the Ceylon Chamber of Commerce, CHEC Port City Colombo Deputy Managing Director Thulci Aluwihare outlined how China Harbour
Engineering Company’s three-decade presence has evolved from traditional infrastructure contracting into long-term urban development.
The project, originally envisioned as a reclaimed waterfront real-estate venture, was re-cast midway into a strategic services export zone, addressing a major policy gap given that services represent nearly 60% of Sri Lanka’s GDP but previously lacked a dedicated hub.
CHEC has invested US$1.3 billion in land reclamation and infrastructure, with another US$250 million earmarked for Phase Two.
The project has already secured investors for six plots of landalso totalling around US$1.3 billion in commitments while negotiations with another six potential investors could yield a further US$600–850 million over the next three to four years.
The final outcome, however, depends heavily on macroeconomic stability and investor sentiment toward Sri Lanka’s risk profile.
To secure investment flows, Port City Colombo pushed for a fiscal package acceptable to both the Government and the IMF, eventually winning key concessions such as 10–15-year corporate income tax holidays, duty-free imports for construction, exemptions from border taxes, and cost reductions estimated at 20–25% for developers.
These incentives have sparked debate, especially under an IMF programme typically discouraging tax holidays, but Aluwihare argues they are essential to offset Sri Lanka’s weak competitiveness indicators.
Beyond tax measures, the project’s most transformative provisions are non-fiscal incentives designed to shield investors from currency risk and restrictive capital controls—two longstanding obstacles to FDI inflows.
Port City transactions can be carried out in 16 designated foreign currencies, with the Sri Lankan rupee not recognised as legal tender within the zone, effectively providing a hedge against exchange-rate volatility.
The zone also guarantees full capital mobility, 100% foreign employment options and long-term visas.
Despite this progress, implementation difficulties persist. Infrastructure completion has lagged, forcing 155 licensed companies to operate outside the Port City premises using interim arrangements. Even so, nearly 500,000 square feet of commercial space has already been utilised, signalling rising market confidence.
Notably, the project has revived momentum in Colombo’s broader real-estate sector, which had been weakened by the economic crisis.
As Port City approaches operational readiness, its ability to convert its investment pipeline into sustained FDI inflows will be crucial not only for its success but for Sri Lanka’s wider economic recovery strategy.
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