The Cabinet of Ministers this week approved a proposal to instruct the Legal Draftsman to prepare a new Investment Protection Bill, aimed at preventing arbitrary nationalisation of private enterprises and enhancing long-term policy stability for investors.
The move advances a proposal first outlined in the 2025 National Budget to safeguard private property rights and strengthen investor confidence. The draft legislation — to be titled the Investment Security Bill — will include provisions to prohibit capricious state takeovers of private businesses and assets, while establishing an Investment Protection Board to handle investment-related disputes.
“The new law is intended to enhance policy predictability and create a stable, transparent environment for both domestic and foreign investors,” Cabinet Spokesman Dr. Nalinda Jayatissa said at the weekly post-Cabinet media briefing on Tuesday.
He said a committee of officials had earlier developed a concept paper outlining the proposed framework and objectives. “Based on this concept paper, the Cabinet has now directed the Legal Draftsman to proceed with preparing the draft Bill,” Dr. Jayatissa added.
The proposal was submitted by President Anura Kumara Dissanayake in his capacity as Minister of Finance, Planning and Economic Development.
Officials said the proposed legislation is expected to play a critical role in strengthening investor protection, improving Sri Lanka’s ease of doing business, and attracting sustainable foreign direct investment (FDI) in the coming years.
Why Investment Protection Matters
Analysts note that stronger investment protection laws are vital for Sri Lanka to rebuild investor trust, attract new capital inflows, and ensure a predictable policy environment following years of economic uncertainty and inconsistent governance.
Key objectives of the proposed framework include:
Restoring investor confidence: Past economic crises and abrupt policy shifts have eroded investor trust. Legal safeguards against arbitrary state action are seen as essential to rebuilding credibility.
Attracting FDI: Clear legal protections reduce investor risk and support Sri Lanka’s target of mobilising around US$5 billion in FDI by 2025.
Ensuring regulatory stability: The Bill, together with reforms under the Economic Transformation Act, is expected to provide a transparent and consistent investment regime.
Combating corruption: Improved governance, public disclosure of incentives, and streamlined approvals are aimed at reducing administrative inefficiencies and corruption.
Facilitating economic recovery: A secure investment climate is viewed as a cornerstone for job creation, private sector expansion, and sustainable growth.
Historical Context
Sri Lanka’s experience with state-led takeovers underscores the need for stronger investor safeguards. Between 1956 and 1977, successive governments pursued extensive nationalisation under socialist economic policies, acquiring private assets in key sectors such as transport, banking, insurance, and petroleum.
The 1972 Land Reform Law further restricted private land ownership, leading to the expropriation of over a million acres, including foreign-owned plantations. In 1973, the takeover of the Associated Newspapers of Ceylon Ltd. (Lake House) was widely criticised as politically motivated.
More recently, the 2011 “Underperforming Enterprises and Underutilised Assets Act” enabled the state to seize assets from 37 private firms — some of which were profitable — reigniting concerns over arbitrary state intervention. Similar issues arose with the reacquisition of privatized entities, such as Sri Lanka Insurance Corporation and Lanka Hospitals, later ruled by the Supreme Court as improperly privatized.
Analysts say these precedents have long weighed on investor sentiment, reinforcing the urgency of codifying legal protections to ensure predictability, fair compensation, and due process in any state intervention.
Subscribe to our newsletter to get notification about new updates, information, etc..
