To-do list for BoI

The President’s former Chief of Staff Hemasiri Fernando has been appointed as the new Chairman of the Board of Investment (BOI) after a snap dissolution last week. Given Sri Lanka’s large debt, limited reserves and dire need to improve exports and attract investment, the role of the BOI has heightened in importance. There is also much that needs to be done to improve the function, credibility and efficiency of the BOI to bring it in line with national economic policies. The BOI is central to structural reforms Sri Lanka needs in order to foster growth and close the economy’s output gap. 

First, and perhaps most importantly, there has to be credibility. The BOI has announced grand numbers and failed to deliver for too long. The BOI has also been complicit in approving proposals that promise massive numbers but without adequate due diligence. The best example for this could be the approval of the World Capital Centre (WCC) in 2017 that promised $2 billion investment and the construction of the tallest structure in Asia. The entire project ran into massive controversy and was eventually scrapped but not before it harmed the credibility of the BOI. Not just the proposals but the officials of the BOI, particularly those at the top, have to ensure that they are credible and transparent. The prognosis for this changing in the future is not necessarily reassuring.

Secondly, the BOI has to be transparent, possibly starting with better stakeholder engagement including media. At present there is usually an annual announcement of BOI related FDI, followed by sporadic press releases when an agreement is signed. But there is little information in the public domain about the implementation levels of these projects, what employment they may generate and how they would boost economic growth. Lack of transparency also makes it harder to monitor and engage with potential investors, increase feedback and establish a close working relationship with the private sector.

As a percentage of GDP, Sri Lanka’s FDI currently stands at a mere 2% and lags behind Malaysia at 3-4% and Vietnam at 5-6%. More importantly, FDI into Sri Lanka has been skewed away from high value-added global production networks. And currently the larger share of FDI inflows have been focused on infrastructure. 

While they may boost jobs and growth temporarily during the construction period, these investments have little long-term impact. Compare this to a factory or a new IT service firm which would employ people as long as it makes profit, and export, pay taxes, and contribute to Sri Lanka’s growth for decades. Clearly there is a massive need to shift BOI focus from simply entertaining delegations to actively focusing on the most productive sectors for the Sri Lankan economy and aggressively woo investors. This is, particularly essential for the services sector that is fast becoming the preferred employer for locals and a sector that is able to meet the aspirations of Sri Lankans. 

In an environment where the Government is dedicated to removing para-tariffs and liberalising the labour market it is essential that the BOI understand its role clearly to facilitate a more competitive economy. It is also imperative that the BOI works to manage the narrative about Sri Lanka’s most promising investment projects such as the Hambantota Port and the Port City to ensure that a balanced view is presented to the world. It is high time the BOI stopped being seen as a political tool.