Why affordable energy, domestic entrepreneurship, fair taxation and retaining skilled professionals must become the foundations of Sri Lanka’s economic transformation
By Dilum Alagiyawanna
Environmentalist | Wildlife Conservationist | Public Policy Analyst
(Continued from yesterday)
Recognising home-based digital exporters
A modern electricity pricing framework should recognise that the distinction between a home and a workplace is becoming increasingly blurred.
Sri Lanka could examine whether verified home-based digital businesses might qualify for an appropriate electricity tariff arrangement.
Such an arrangement could involve optional separate metering, transparent eligibility requirements or another auditable mechanism for identifying genuine productive consumption.
However, the policy would require careful design.
It should not allow wealthy households to reclassify ordinary domestic consumption to obtain unjustified subsidies.
Nor should it impose excessive administrative requirements on small freelancers.
Existing domestic time-of-use tariffs, improved energy efficiency and better cooling technologies should also be evaluated.
Any proposed concession must account for the actual cost of electricity supply and avoid transferring unjustified costs to other consumers.
The objective should be to ensure that legitimate home-based economic activity is not unnecessarily disadvantaged by tariff structures developed for an earlier economic era. Sri Lanka’s digital economy will not be built exclusively inside large data centres.
Part of it will be built in ordinary homes, by Sri Lankans who sell their knowledge, creativity and professional expertise to the world.
Taxation, disposable income and the loss of human capital
Energy affordability is only one component of the economic environment faced by skilled professionals.
Taxation, housing, healthcare, education, professional opportunities and confidence in the country’s future also influence whether individuals choose to remain in Sri Lanka.
The country’s standard personal income tax structure includes progressive rates reaching a maximum marginal rate of 36%.
However, qualifying income from services provided to overseas users and received in foreign currency through Sri Lankan banking channels benefits from a concessionary maximum rate of 15%, subject to the relevant statutory conditions.
This distinction is important. Not all freelancers or digital-service exporters face the ordinary maximum income tax rate.
Nevertheless, tax policy should be evaluated alongside disposable income, business operating costs and incentives for entrepreneurship.
Sri Lanka continues to experience substantial outward labour migration
According to the Central Bank’s published statistics, 311,223 Sri Lankans departed for foreign employment in 2025, compared with 314,670 in 2024.
A substantial proportion of these workers were classified within skilled occupational categories.
However, this broad classification should not be confused with university-qualified professionals alone.
Furthermore, foreign-employment departures do not necessarily represent permanent emigration.
Some workers return, others migrate repeatedly, and professionals relocating through permanent residence, education and other visa pathways may not be fully captured in those figures.
Sri Lanka therefore needs a more comprehensive statistical framework for understanding the international movement of its skilled workforce.
Professional migration cannot be attributed to a single cause
International salary differences, career development, research opportunities, public services, quality of life and family circumstances all influence migration decisions.
Nevertheless, retaining and attracting skilled people must become an important national development objective.
A software engineer, scientist, medical professional or technology entrepreneur who remains in Sri Lanka may contribute not only direct economic output but also innovation, mentorship, institutional knowledge and future enterprise creation.
At the same time, overseas Sri Lankans contribute through remittances, investment, professional networks and international knowledge exchange.
The objective should not be to discourage legitimate international mobility.
It should be to make Sri Lanka an attractive country in which skilled people can choose to build their careers and businesses.
A country cannot build an AI-driven economy merely by investing in computing infrastructure. It must also create conditions in which the people capable of using that infrastructure can afford to remain, innovate and prosper.
The relationship between taxation, entrepreneurship and national revenue
There is another fiscal dimension that deserves serious consideration.
If affordable electricity, predictable taxation and improved business conditions encourage domestic enterprises to expand, the resulting economic activity may broaden the country’s tax base.
Similarly, encouraging skilled individuals to earn internationally while remaining in Sri Lanka could support domestic consumption, investment and public revenue.
However, it would be economically irresponsible to assume that every tax reduction or electricity concession automatically pays for itself through higher growth.
The costs and benefits must be carefully modelled.
Sri Lanka must maintain fiscal stability while creating an environment that rewards productive economic activity.
The relevant policy question is therefore not simply how much tax revenue can be collected from existing businesses and professionals.
It is also how public policy can enable more businesses to succeed, more people to earn taxable incomes and more domestic economic value to be created.
Tax policy and energy policy should be coordinated with wider objectives for entrepreneurship, productivity and export growth.
From a handful of major investments to thousands of competitive enterprises
Sri Lanka’s development strategy should place greater emphasis on the cumulative economic potential of domestic entrepreneurship.
Consider the benefits if thousands of small businesses could reduce electricity expenditure, modernise equipment and improve productivity.
Imagine additional agricultural producers gaining access to reliable refrigeration and processing facilities.
Consider village-based manufacturers expanding beyond domestic markets, or small engineering enterprises adopting modern production technologies.
Imagine independent software developers and digital consultants exporting services directly to international customers while continuing to live in Sri Lanka.
None of these opportunities will arise automatically through lower electricity prices.
Access to finance, skills development, technological adoption, efficient regulation and international market connections are also essential.
Nevertheless, competitively priced electricity could remove one important constraint on productive activity.
Unlike economic development concentrated in a small number of industrial facilities, stronger domestic enterprises can distribute opportunities across districts and communities.
Foreign direct investment should remain part of this strategy
But major investors should also be encouraged to develop domestic supplier networks, establish technological partnerships and create opportunities for local MSMEs.
The aim should not be to choose between foreign investors and domestic entrepreneurs.
It should be to establish an economy in which both contribute to higher productivity, stronger exports and sustained national value creation.
The strategic opportunity cost of exporting wind power
Sri Lanka possesses significant wind-energy resources, particularly along its north-western coast and potentially in offshore waters.
In April 2025, Sri Lanka and India signed a memorandum of understanding concerning a high-voltage direct-current electricity interconnection intended to facilitate electricity imports and exports.
Such infrastructure could provide considerable benefits.
A bidirectional interconnection could allow Sri Lanka to import electricity during domestic supply shortages and export surplus renewable generation when economically advantageous.
The concern is not international electricity trading itself.
It is the possibility of committing strategically valuable generation resources to inflexible long-term export agreements without adequately examining future domestic requirements.
Consider a hypothetical 500 MW wind-energy development operating at an annual capacity factor of 40%.
Such a project could generate approximately 1.75 billion kilowatt-hours annually.
At an illustrative export price of six US cents per kilowatt-hour, annual gross export receipts would amount to approximately US$105 million.
The net economic value retained by Sri Lanka would depend on financing, generation costs, transmission arrangements, ownership and contractual terms.
The important question is whether that electricity could create greater national value through domestic utilisation.
Could it replace more expensive electricity generation?
Could it help lower the cost of supplying energy to domestic industry?
Could it support the expansion of manufacturing, agricultural processing or higher-value digital services?
Alternatively, would the electricity otherwise be curtailed because domestic demand and available grid capacity were insufficient?
These different circumstances require different economic conclusions.
Exporting electricity that would otherwise be wasted may create substantial additional value.
Likewise, dedicated export-oriented renewable projects may be commercially worthwhile if they provide sufficient national economic benefit without compromising domestic energy security or causing unacceptable ecological damage.
However, theoretical wind-energy potential should never be confused with electricity that is genuinely surplus to national requirements.
Sri Lanka should export electricity where doing so generates demonstrably greater national benefit, rather than treating electricity exports as an automatic development priority.
Mannar: The ecological costs cannot be ignored
The environmental implications of renewable-energy development remain central to this debate.
Mannar is one of Sri Lanka’s ecologically sensitive coastal landscapes, associated with internationally important migratory bird movements, wetlands and marine biodiversity.
Inappropriately located wind developments can create risks of bird collisions, habitat fragmentation and cumulative ecological disturbance.
These concerns require rigorous scientific evaluation.
The transition away from fossil fuels should not become an excuse for unnecessary environmental destruction.
In November 2025, the Government acknowledged environmental and social concerns regarding wind-energy development on Mannar Island, with the Cabinet supporting the decision not to implement further new projects there without local community consent.
This demonstrates the importance of environmental safeguards, scientific assessments and public participation.
Where renewable electricity is intended primarily for overseas markets, the distribution of environmental costs and economic benefits deserves particular scrutiny.
Sri Lanka should not compromise environmentally sensitive landscapes merely because the available renewable resource appears commercially attractive.
Strategic environmental assessments, cumulative ecological studies, appropriate exclusion zones and continuous monitoring should form part of renewable-energy planning.
The objective must be to develop renewable electricity without undermining biodiversity and the wider ecological systems on which communities and other economic activities depend.
Climate resilience and future energy security
Long-term electricity planning must also consider the increasing uncertainty associated with climate variability and extreme weather.
Hydropower generation depends partly on rainfall and reservoir conditions, while wind and solar generation vary according to seasons and time of day.
Periods of drought, extreme rainfall, high temperatures and infrastructure disruption may create simultaneous pressures on electricity supply.
These challenges reinforce the need for diversified generation, energy storage, reliable transmission infrastructure and effective demand management.
A well-designed electricity interconnection with India could strengthen national resilience by allowing access to additional electricity when domestic production becomes constrained.
However, long-term export contracts must preserve appropriate flexibility to protect domestic electricity security.
A national renewable-energy strategy should be tested against different climate, economic growth and electricity demand scenarios.
Affordable electricity is important, but dependable electricity is equally essential.
For a manufacturer operating production machinery or a professional serving overseas clients, interruptions can impose costs considerably greater than the electricity charge itself.
Sri Lanka must therefore aim for the lowest sustainable total cost of reliable electricity, rather than simply the lowest apparent cost of individual generating technologies.
A national economic transformation framework
Sri Lanka now requires an integrated development framework connecting electricity policy with industrial competitiveness, household welfare, entrepreneurship, digital transformation and human-capital retention.
Such a framework should address several interconnected priorities.
First, national electricity planning should incorporate clearly defined scenarios for accelerated industrialisation, domestic entrepreneurship, AI infrastructure and transport electrification.
Second, renewable-energy investment should be evaluated according to its contribution to lowering the long-term cost of reliable electricity.
Third, the Government should establish a transparent international benchmark of actual industrial electricity costs, comparing representative Sri Lankan enterprises with competitors in other Asian economies.
Fourth, household electricity affordability should be reviewed using a more comprehensive understanding of income, family circumstances and essential electricity requirements.
Fifth, the feasibility of appropriate arrangements for verified home-based digital exporters and other microenterprises should be examined.
Sixth, domestic entrepreneurship should receive stronger support through access to finance, technology, skills development and international markets.
Seventh, major foreign investment should be encouraged to generate meaningful domestic economic linkages, including opportunities for MSMEs.
Eighth, professional retention and international mobility should be monitored through improved statistics, while policies should encourage skilled Sri Lankans to live, work and invest domestically.
Ninth, electricity export agreements should undergo independent economic and environmental appraisal, taking account of alternative domestic uses and future energy-security requirements.
Finally, renewable-energy development must be accompanied by grid modernisation, storage investment, climate resilience and ecological safeguards.
These priorities should not be pursued as disconnected initiatives by different ministries and institutions.
They should become components of a coherent long-term national economic development strategy.
The economic value of the next megawatt
The ultimate challenge is to maximise the economic and social value generated by Sri Lanka’s limited resources.
One megawatt of electricity can support export revenue.
It can also contribute to a manufacturing enterprise, an agricultural processor, a technology startup, a university laboratory or a home-based professional earning foreign exchange.
These uses differ in their capital requirements, employment intensity, productivity, economic returns and environmental impacts.
No single option will always be preferable.
That is precisely why electricity policy must be guided by independent economic analysis rather than predetermined assumptions.
National energy development should be assessed against several measures: economic value added, electricity affordability, export competitiveness, employment, technological capability, fiscal sustainability, energy security and environmental protection.
Importantly, economic value should not be measured solely through the direct revenue generated by a particular electricity consumer.
Domestic supply chains, skills development, innovation and long-term economic resilience also matter.
For Sri Lanka, the objective should be to build an electricity system that becomes a foundation for wider national prosperity.
The danger of being penny wise and pound foolish
In October 2024, I warned that Sri Lanka could compromise future economic opportunities by prioritising immediate financial returns from renewable-energy exports.
Two years later, that warning has acquired a much broader significance.
Sri Lanka is now contemplating greater investment in AI infrastructure while confronting persistent questions about electricity affordability, domestic entrepreneurship, taxation, employment opportunities and the retention of skilled professionals.
These are not isolated problems.
They are interconnected dimensions of national economic development.
What is the value of increasing electricity exports if domestic businesses cannot obtain reliable electricity at competitive prices?
What is the purpose of developing advanced digital infrastructure if skilled professionals struggle to find attractive opportunities within Sri Lanka?
And how can the country become a successful digital export economy if some of its most entrepreneurial citizens face substantial operating costs simply because they work from home?
These questions do not justify rejecting foreign investment, international electricity trading or fiscal discipline.
They demand a more integrated approach to national development.
Sri Lanka must recognise that economic transformation will not occur exclusively inside large industrial estates, data centres or foreign-owned infrastructure projects.
It will also take place in small factories, family businesses, agricultural processing facilities, research institutions, village enterprises and ordinary homes where independent professionals connect with international markets.
Sri Lanka’s long-term economic strength will depend not merely on how much foreign capital it attracts, but on how effectively it enables its own people to become productive, innovative and internationally competitive.
Our renewable-energy resources should help create those opportunities.
Electricity exports should complement national development, not constrain it.
The ultimate national ambition should not be to become a supplier of inexpensive electricity to other economies while domestic households and enterprises struggle with energy costs.
It should be to use affordable, reliable and environmentally sustainable energy to develop competitive industries, strengthen entrepreneurship, retain skilled people and generate higher-value exports.
Sri Lanka must move beyond exporting energy towards using energy to create lasting national value.
That is the difference between selling a resource and building a prosperous economy.
And it is why the warning against being penny wise and pound foolish remains as relevant today as it was in October 2024.
Author: Dilum Alagiyawanna is a telecommunications engineer turned environmental and wildlife conservationist, citizen scientist and wildlife documentary filmmaker. His work bridges science, public policy and sustainable development, with particular emphasis on the long-term conservation of Sri Lanka’s elephants and other threatened species.