Challenges for FDI

SRI LANKA has ambitious goals for development and needs investment to push up growth to the expected levels of eight per cent or more. Even though the country has fared well in 2010 and 2011 by posting eight per cent and 8.3 per cent growth consecutively for the first time in history, there is increasing evidence that this will become more challenging in 2012.

The Central Bank has set a target of US$ 2 billion in Foreign Direct Investment (FDI) for 2012 and depends on tourism to provide the bulk of this along with infrastructure projects. However, facilitating foreign investment consistently and transparently has been a significant issue in Sri Lanka for many years with many complaints of red tape and bureaucracy delays. Ad hoc measures by the Government to fast track the process by picking specific companies and pushing the projects through ministries rather than the Board Of Investment (BOI) has created a complicated web that could hamper FDI flow.

Over the weekend there were reports that the ongoing tug of war between the Treasury and BOI is hindering Sri Lanka’s efforts. The report points out that having been absorbed by the Economic Development Ministry, the BOI is still in a transition without a Chief Executive Officer proposed in 2010 and included in November when the 2011 Budget was presented, to issue clear direction on investment promotion. They said the BOI top management has failed to perform up to expectations in spite of Treasury instructions towards revitalising the country’s premier investment agency.

More than 18 months after proposing the post, Treasury Secretary Dr. P.B. Jayasundera again referred to the issue at a media conference last week, saying they are searching for a suitable candidate for the post of CEO to turnaround the BOI.

On the other hand, top BOI officials expressed concern over foreign investment deals and canvassing for investments by powerful individuals completely ignoring normal procedures. They said that the role of the BOI had become less important as its functions and responsibilities had been taken over by certain ministries and that this was one of the reasons for its slow progress in facilitating new investments. Right now the BOI is simply acting as an agency to get tax relief, not promote investments, they say.

Responding to the Treasury Chief’s observations and criticism, BOI Chairman and Director General M.M.C Ferdinando had said that he had taken measures to attract mega investment, as all the other investments had been saturated. He initiated these actions since his appointment as the acting Chairman of the agency in mid July last year. Necessary infrastructure to attract such investments had to be built and he initiated a massive project to set up a heavy industrial investment zone in Sampur at an investment of US$ 4 billion towards this end, he said.

Ferdinando put the blame on other Government institutions such as Customs, Inland Revenue Department and Urban Development Authority (UDA) for not supporting the BOI adequately. The Government had also established a committee with secretaries of relevant ministries to support quick approvals, but all these layers have failed to clarify and speed up the investment process.

According to economist Dr. Saman Kelegama, to maintain consistent levels of eight per cent growth, investment would have to grow to US$ 6-8 billion – a hefty task indeed. This places even more onus on the Government to streamline their various institutions to support a clear, transparent and efficient investment system that functions independent of political influence. It is the tough task but essential to meet the Government’s expectations of development.