Monday, 15 December 2014 00:00
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Foreign investments to Sri Lanka surpassed $ 1 billion in the first nine months of 2014, largely pushed by inflows to the country’s booming tourism industry. Yet it is likely the island will miss its $ 2 billion target for a third consecutive year- undaunted fresh government measures are in place to beat the odds.
Sri Lanka’s Government has targeted $ 2 billion Foreign Direct Investment (FDI) for the past two years but failed to achieve the goal. Despite the end of a three-decade war in 2009, the South Asian island has lagged behind in attracting FDI.
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 in 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. One of the many elements that need to be changed once presidential elections are wrapped up.
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. 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 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.
In fact the Board of Investment (BOI), which was initially tasked with attracting FDI, has been all but side-lined, 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.
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.
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.
