BOI: reform or reject?

Justice Minister Wijeyadasa Rajapakshe became the latest official to call for the scrapping of the Board of Investment (BOI) last week after it was revamped by the President earlier this month. Rajapakshe’s contention that some BOI companies release their goods to the local market has spurred an investigation and could spell disaster for the BOI if it does not reverse its descent into inertia.  

From its inception, the BOI was known to be a vibrant organisation and it has made a significant contribution to the economic development of the country with the advent of the free economy in the late 1970s. The BOI had earned recognition for its hassle-free and speedy approval procedure of investment proposals, ensuring one-stop shop facilitation to prevent investors running from pillar to post.

Apart from this, what was unique was the confidence given to investors that an agreement once signed with the BOI had statutory sanctity and could not be repudiated or annulled arbitrarily and unilaterally. However, over the years the BOI became the target of lawsuits by investors on breach of contract allegations. 

During the post-war period the BOI, under different governments, failed to attract substantial FDI. This of course cannot be blamed on BOI officials alone as pointed out in detail each year by the World Bank Ease of Doing Business index. Sri Lanka continues to lag behind the rest of the world in key reforms including labour, bankruptcy, arbitration, intellectual property protection, capital resources, transparent and predictable policies and anti-corruption measures. 

Even though Sri Lanka has climbed up the ranks in some years it has been largely left languishing, only making a mark when compared to its South Asian competitors. This stagnation led to the BOI approving questionable agreements and passing off responsibility to other sectors such as banks and Government departments to prop up FDI numbers. The $ 2.4 billion preliminary agreement signing with Al-Aman World Capital Centre (WCC) for “Sri Lanka’s tallest building and the ninth tallest in Asia” received much publicity because of the excessive claims made by the investors despite not even having land for the project’s execution. The former BOI Chairman justified the agreement on the grounds that Sri Lanka cannot afford to turn down projects simply because it does not have a public profile. However, there is no question that such practices severely diminish the already dented credentials of the BOI and throw out its credibility. Backing opaque projects also damages the BOI from attracting credible investment proposals and negotiating the best possible deal for Sri Lanka.

Such wrong-footed moves have thrown up fresh questions of how the BOI can be reformed with a new vision to attract FDI by shedding non-core functions and concentrating on building up its doldrums reputation. Undoubtedly the BOI should be endowed with more power to eliminate bottlenecks that impede private sector participation, local and foreign. 

Many would agree that the President’s move and the dire investment needs of the economy create the perfect backdrop for deep and sustained changes within the BOI, its mandate and powers. Like other key institutions such as the Central Bank, the only way to bring back credibility is by appointing a professional of flawless reputation to head the institution and through him or her pushing forward genuine change and transparency within the BOI. State Finance Minister Eran Wickramaratne recently quipped at a forum that Sri Lanka has the world’s largest investment body, it is now time to prove what they can do.