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The foundations for such a growth path cannot be set in motion, unless the presently skewed and inconsistent policy regime, inappropriate foreign policy, fiscal indiscipline, questionable monetary management, lack of good governance, rule of law, justice systems and transparency, are changed significantly.
Promoting FDI
Perceived high level of policy capture corruption, nepotism and rule of raw challenges, especially from politically-exposed persons, will need the immediate attention of all stakeholders. Further, focused strategies must effectively be in place to promote foreign direct investments, especially those with sustainable national economic and social value adding potential.
Consistent double digit growth requires annual private investments in excess of 30% of GDP. In the context of State investments being limited to 6% of GDP and with local private sector growth linked investment options limited beyond the levels currently achieved, attracting in excess of US$ 4 billion annually as Foreign Direct Investments annually become the stretched target of the Government, investment authorities and the private sector.
It is most important that all public and private investments are prioritised, transparently negotiated and directed to productive sectors of the economy, in manner to yield sustainable and equitable national economic benefits in the longer term.
Business chambers, academia and business leaders must advocate for necessary changes, with one collective voice, and demand that the leaders in politics and the executive create an appropriate economic and business environment that attracts sustainable and value foreign direct investments.
Foreign investors demand strictly enforced intellectual property protection. Despite enhanced enforcement support initiatives launched recently, the ratings on this critical score have not advanced adequately to satisfy foreign investors. This weakness is exacerbated by the unacceptable delays in seeking redress though the court systems.
Rule of law
Rule of law effectively enforced, associated with an unbiased, high quality and effective justice system are a priority demand of foreign investors. The recently publicly-reported breakdown in law and order, with most of these instances purportedly linked to politically exposed persons, armed forces, the Police and underworld gangs, have sent blinking amber signals in the perceptive minds of foreign investors. Some of these incidents even directly touched foreign tourists and foreign-invested businesses and generated negative vibrations.
With increasing signs of religious and ethnic/minority tensions, partiality in law enforcements and perceived shade of protection given to extremists and wrongdoers by powerful forces within the governance structure have sent shivers down the spines of investors.
The amber signals turned red when the leaders in governance resorted to the unbelievable and unjust treatment of the Chief Justice, adopting processes contrary to Commonwealth Latimer principles in relieving her of her position an appointing a new Chief Justice, believed to be closely associated with the Executive and a key spokesman in their defence in international fora. This appointment, of an individual with significant conflicts of interests and against the judgments of superior courts to head the Judiciary, sent negative signals, interpreted by investors as an act of executive control over the independence of the Judiciary.
Continuing militarisation of the administration, with a heavy presence of the armed forces across the island, who are often engaged in Police duties and have begun commercial activities in competition with the private sector, raises negative comparisons with unacceptable regimes in other countries.
Expropriation
An act of suicide on the part of the Government in November 2011 made a permanent dent in the mindset of foreign investors, when Sri Lanka passed a law to expropriate assets of dozens of enterprises. This was despite protests from trade chambers, which warned that it would scare off investors. 
The Joint Chamber Movement in its press release stated: “We believe that the proposed Bill may impact investor sentiment negatively and will thus be counter-productive...,” and “Further, the expeditious manner in which the legislation is being enacted is likely to heighten such negative sentiments.”
The institutions subjected to this unfair expropriation included several entities with foreign investors, some enjoying foreign investment protection via specific agreements entered in to with the Board of Investments. This foolish act was in the backdrop of the Board of Investment promoting foreign investments based on constitutional guarantees and international treaty based guarantees as a member of the Multi Lateral Investment Guarantee Agency (MIGA).
The negative perceptions of foreign investors were heightened when it was revealed that some of the expropriated business entities could not be classified as underperforming according to the scope of the definition in the act. Further some entities with freehold right to the property were classified for expropriation as leasehold property of the Government, in order to illegally bring these entities within the scope of the act. The Hilton International managed local property, with a significant Japanese investment, was one of the entities taken over. It is reported that the owners of these properties, including the owning company of the Hilton hotel, have yet to receive compensation.
Foreign policy stance
The foreign policy stance of the Government has tilted positively towards business linkages with China, USSR, African Countries and Iran, in preference over our main trade, investment and technology partners, the USA, Britain, Japan, India and EU. This is seen by investors from the latter countries as discriminatory.
This gulf has further widened by the human rights record of the Government and the perceptions of serious violations of international treaty obligations during the latter stages of the war against terrorism. This widening is in a large measure the result of lobbying actions of diaspora groups, the failure of the Government to effectively implement policies aimed at national reconciliation (including its own appointed Lessons Learnt and Reconciliation Commission), the repeated resolutions demanding accountability from Sri Lanka adopted at the International Human Rights fora in Geneva led by the USA and the aggressive and vituperative comments of local political leaders aimed at our Western trading and investment partners.
All these issues have kept the pot boiling against high quality foreign investors from committing to invest in Sri Lanka, now classified as a country not delivering on its commitments as per its bilateral and multilateral commitments.
The Government and the private sector have to take joint accountability for the failure to develop effective relations with India, especially to capitalise on the trade and investment benefits from the Free Trade Agreement and Comprehensive Economic Partnership arrangements.
The foreign policy stance and anti-Indian sentiments articulated by leaders in governance, especially the unacceptable conduct of extremist parties in the coalition within the government, have significantly damaged the relations with India. A special dampener to effective trade and investment partnership has been the antagonistic stand of South Indian politicians, angered by actions of the Sri Lankan Government in extending preferential treatment of China, potentially damaging the security and economic interests of the regional giant neighbour.
Public-private partnerships
The Government has failed to effectively win back the support of foreign investors through public-private partnerships. Here, the State preference appears clearly towards engaging in all major infrastructure projects to its own account, using borrowed foreign debt capital, especially those obtained from sources lacking in transparency.
This policy stance and reluctance of the Government to invite the big names in global infrastructure investment arena to be partners in PPPs has been a definite negative in attracting top international investors into many other sectors, especially those investments linked with export sector and global value chain linked processes of manufacturing .
Many business leaders and academics have been critical of the role played by regulators and other public institutions, which are seen as mere appendages of the political system and the political masters in power and are willing to bypass expected standards of control, compliance assurance, and assuring a level playing field between investors (i.e. irrespective of whether they be from the state of private sector).
The impartiality and lack of transparency in the work of the Central Bank, Securities Exchange, price control authorities and Public Utilities Commission have been questioned. Recently a leading economist said: “What is more important to look at is not what stated in publicly-released data, but what is not stated at all and also to gauge the extent to which such data have been massaged to masquerade and misrepresent the actual position.”
Important elements
Seven of the most important remaining elements in an assessment by foreign investors before entering a country, not dealt with above, relate to the following:
Local market options associated
with growth on a sustainable basis, improving with equality the level disposable incomes of the citizens,
within a well-distributed sector representation and growing export value addition
Effectively enforced responsibility for fiscal discipline and effective monetary management, ensuring a stable interest and exchange rates, with low inflation and effective risk mitigation processes, assuring stable macro-economic and monetary systems
Policy consistency with ease of doing business ,supported by well developed physical infrastructure
Labour market flexibility
High quality capable pool of human resources committed to productivity and quality assurance
Effective independent public institutions engaged in regulatory and good governance assurance, led by persons of highest integrity, independence and capability, especially the Central Bank and Bribery and Corruption Commissions
Transparency, right to information and effective anti-corruption mechanisms, with special focus on the control of policy capture corruption
An independent assessment on all of the above seven factors in respect of Sri Lanka will lead to relatively lower scores than competing countries inviting the same foreign investors, which competing countries offer bigger markets and well developed physical infrastructure.
If the above leads us to wonder whether the foreign investment attractiveness of Sri Lanka is a critically ill patient, some recent revelations makes one wonder whether the patient is actually being nailed in a coffin alive by politically exposed persons, whilst the law enforcement officials and leaders in governance blindfold themselves in their own self interest!
Here the Noori Watte expose (refer http://www.dailymirror.lk/video/33228-noori-under-reign-of-terror.html) for which The Daily Mirror, its Editor, journalists and especially the Directors of the owning Group, must be loudly cheered and recognised by citizens, bares before us the reign of terror practiced by politically exposed and protected persons for years, where the brunt of the repercussions were borne by our villagers and estate workers and ended on the doorstep of a leading American investor and his local estate superintendent.
At this stage, no one else other than the President, the Defence Secretary, the Economic Development Minister and the Secretary to the Treasury can raise the critically-ill foreign investment attractiveness patient out of the coffin and resurrect him/her!
Collective initiative required
In this external environment, if adequate levels of foreign investment are to be mobilised annually, a collective initiative of government, chambers, business leaders, international agencies and foreign embassies will be essential. Following an intellectual debate, a strategic analysis involving a SWOT, competing forces and the identification of challenges ahead, a change management process within a defined strategy should agreed and implemented with commitment by all. This strategy should be supported by short and medium term action plans and be monitored through a dashboard scorecard.
Let those in governance recollect two famous quotes of Thomas Jefferson: “When the people fear the government, there is tyranny. When the government fears the people, there is liberty” and “If we can but prevent the government from wasting the labours of the people, under the pretence of taking care of them, they must become happy.”
(The writer is a good governance activist and a former Chairman of the Ceylon Chamber of Commerce.)
