Monday, 9 February 2015 00:00
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In a bid to galvanise Foreign Direct Investment (FDI), the Government will revive 235 foreign and local projects with a potential investment of $ 6 billion that the Board of Investment (BOI) put on hold during the past few years. But it could well be the tip of the iceberg in reforms needed to really promote the sector.
Investment Promotion State Minister Eran Wickramaratne had told journalists the focus will be on fixing small bottlenecks such as easing restrictions on the import of machines. But deeper initiatives will no doubt also be focused on despite the short time left to the ministers.
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 in the recent past. 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.
Experts have noted 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, Governments in the past 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 in the past 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 needs to be straightened out by the new Government to enhance FDIs.
The Board of Investment (BOI), which was initially tasked with attracting FDI had been a victim of many policy changes as well as rationalisation of incentives. With top lawyer Upul Jayasuriya appointed as new Chairman and Director General and given the dynamism of Minister Kabir Hashim and Deputy Eran Wickramaratne, expectations will be high to ensure a more professional and effective approach to draw much-needed FDIs.
The BOI truly needs to be a one-stop-shop with close coordination with other Government institutions with a more streamlined process. Further, focused strategies must effectively be in place to promote FDI, especially those with sustainable national economic and social value adding potential.
Over the next five years, creation of one million jobs is critical and the new Government has promised it will deliver. For this, BOI has an important role to play and the past practice of 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.
