FDI wins

Foreign Direct Investment (FDI) into Sri Lanka doubled to $ 1.63 billion in 2017 from 2016, raising hopes that the country is finally turning the corner on its poor FDI performance. Despite the end of the war, Sri Lanka failed to attract significant FDI, often depending on bilateral loans, mostly funnelled towards infrastructure, to make up the numbers. 

The Board of Investment (BOI) has been revamped over the past year with new resources and a different approach to attracting FDI and the latest numbers have to be applauded. However it is clear that more needs to be done to make investment accessible and improve the competitiveness of Sri Lanka as an FDI destination.   

Among the highest growth sectors attracting FDI were export-oriented Manufacturing (+27%) and Services which includes Tourism and IT (+50%) and Infrastructure (+190%). The highest FDI came from China, followed by Hong Kong, India and Singapore. Sri Lanka’s FDI, like its exports, need to be broadened and focus more on private sector investment rather than State-led ventures.  

The Government also needs to improve transparency and accountability, particularly when it tackles unsolicited proposals. The infamous effort to build the tallest tower in Sri Lanka last year, where BOI signed an $2 billion agreement with the company even before allocating land for the project, severely dented credibility of the key institution. The BOI should also be given more powers and resources to work independently and free from political interference.  

Ideally a pipeline of projects has to be rolled out with staggered implementation so that both the public and the Government have faith in a reliable flow of FDI.  The Government also has to bring dividends of job creation, value addition and technology transfer to Sri Lanka, which calls for board basing FDI into sectors such as healthcare and education.  Continued focus on protecting Sri Lanka’s interests will also need attention. 

In the backdrop of intensifying politics, Sri Lanka also requires a large number of legal changes to underpin the strong economic reforms promised by the Government. However, there have been many blips along the way in this effort. The Legal Draftsman’s Department has redrafted Bills, some more than 20 times, as instructing agencies keep on changing policy. 

The tug-of-war around policy, understandable given the cumbersome nature of coalition governments, nonetheless has been a major sticking point since 2015 to rolling out desperately-needed reforms, without which Sri Lanka’s economy cannot be expected to be taken to the next level. Sprucing financial laws are also likely needed after Sri Lanka has been placed on watch as a potential money-laundering destination. 

Over the last two years Sri Lanka has failed to move up the World Bank’s Ease of Doing Business Index, not because there are no changes happening locally, but because reforms are being implemented faster elsewhere around the world. If Sri Lanka is ever to catch up with its own ambitions, then its Government will have to do more to efficiently draft out and implement policy. This would include preventing top politicians from making irresponsible statements, and encouraging inclusive policy making. 

Strong, deliverable policies coupled with strict adherence to law and order is a connection Sri Lanka is still stumbling at.  With this Government’s term expected to end in 2020, time is running out to get all the work done on time.