Over the past 25 years, Sri Lanka has seen steady economic growth, accompanied by a profound transformation of its trade and industrial structure. While this progress is heartening, Sri Lanka has failed to keep pace with East Asian countries in economic growth and poverty reduction. To help answer questions pertaining to the most severe obstacles in Sri Lanka’s investment climate, this assessment uses micro level data from a survey of the urban and rural investment climates conducted in 2004. This investment climate assessment is also the first to include an analysis of entrepreneurship in rural areas, allowing a more comprehensive look at the business environment.