Thursday, 3 April 2014 00:00
SRI LANKA ended 2013 having earned US$ 1.42 billion in Foreign Direct Investment (FDI) but remained shy of the US$ 2 billion target for a second consecutive year. Undeterred the Government has set a target of US$ 2.5 billion target for 2014 but has done little to improve the investment environment to assist numbers to leapfrog.
Despite consistently underperforming in the FDI sphere since the end of the war, the Government is ever-optimistic with Investment Promotion Minister Lakshman Yapa Abeywardene spouting inflated numbers that are often unsupported by reality. Even with just three months to go before 2013 ended he was confidently telling media that US$ 800 million could be attracted before December. When these hyperbolic targets fail, the Government grabs on to unsolicited proposals that are rightly causing concern.
Sri Lanka’s archaic and cumbersome bureaucracy together with a politicised public service has created an environment where unsolicited proposals are grabbed with both hands. The latest World Bank rankings for Sri Lanka have seen it slip six places because reforms are not taking place fast enough, even though the Government had pledged to push it ahead significantly.
Instead of having universal rules for investors, the Government has made it clear that certain parties can come, negotiate independently and get better deals including sizeable tax cuts. Yet on one hand such systems not only make international investors wary, they also cost much in terms of good governance.
Clearly, the allure of Sri Lanka is the main draw behind FDI rather than clear policies, adherence to law and order, minimised corruption or reduced red tape. Many of the tangles that beset the country since 2009 have not yet been adequately straightened out but have rather been bypassed by a system of political patronage that can be seen in the way investment offers are handled.
From the infamous CATIC deal to delayed payments on the Krrish project, not to mention possible casinos and port cities, the Sri Lankan Government has chosen to largely ignore the checks and balances put in place for corruption-free, transparent and profitable investment for the country.
In fact the Board of Investment (BOI), which was initially tasked with attracting FDI, has been all but sidelined with prominent ministers heading 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 have fallen by the wayside, with more and more personalised involvement replacing a streamlined process. This latest move shows that the Government has no interest in changing this trend.
Good governance activist and former Ceylon Chamber of Commerce President Chandra Jayaratne in a column to the Daily FT noted that the 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.
He went on to say that the impartiality 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 if publicly-beneficial investments are to become a sustainable reality.