Sri Lanka’s search for foreign investment is dependent on a competent and efficient Board of Investment (BOI), with its own Chairman insisting powers trimmed from the authority should be returned to improve investor confidence in the body.
Over several years during the previous Government the BOI, which was initially tasked with attracting FDI, was all but side-lined, with prominent ministers leading the way. Numerous attempts to make Government institutions such as Customs, the Inland Revenue Department and the Urban Development Authority (UDA) support the BOI to speed up projects fell by the wayside, with more and more personalised involvement replacing a streamlined process.
Investors were often wooed directly by ministers linked to the top rungs of Government and concessions including tax holidays pushed through Parliament with little or no transparency. This created an environment for ill-reputed companies to lobby for projects on even unsolicited proposals with little oversight and often sidestepping regulations. Restructuring or renegotiating such projects is difficult for new administrations and in certain instances such as the Mattala Airport making them profitable seems impossible.
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 FDI, especially those with sustainable national economic and social value adding potential.
BOI Chairman Upul Jayasuriya believes the entity needs other support as well with inclusion at policy making level, especially support from the Treasury in deciding tax policies. Establishing a basis for strong engagement is crucial to policy consistency and reassuring investors real change has taken place on the ground. Clear processors are essential to resolving questions and reducing red tape for projects to get off the ground.
Jayasuriya is confident of $ 5 billion worth of projects filtering in Sri Lanka over the next year but some of the larger projects such as a possible monorail are Government driven and based on Build Own Transfer (BOT) basis that do little to foster sustainable investment linked to stronger exports. A more attractive investment climate is crucial to attract technology based exports to foster a knowledge economy.
Partiality and lack of transparency in the work of the Central Bank, Securities Exchange, price control authorities and Public Utilities Commission need to be questioned. FDI as a political appendage needs to end and become more the sphere of the private sector if publicly-beneficial investments are to become a sustainable reality.
Analysts point to the country’s haphazard policies, corruption and weak legal structures as the main reasons for lacklustre FDI. Limitations on contracts and a clogged legal system have made doing business harder in Sri Lanka, according to a global survey by the International Finance Corporation (IFC) and World Bank comparing 189 countries.
Sri Lanka dropped 14 notches from its 85th place in 2014 and ranked at 99th out of 189 countries in the 2015 Doing Business Report released last October. The report said it takes almost four years to resolve a standardised dispute through the courts in Sri Lanka and the slow contract resolution process frustrates freedom of contract. Improvements on these dimensions will make the real difference in making the BOI work.