Sri Lanka officials respond to political, economic and market posers at New York Investor Forum
Wednesday, 10 September 2014 00:06
The Invest Sri Lanka Forum in New York included a comprehensive panel discussion for the benefit of participants. The panel comprised Senior Minister for International Monetary Cooperation and Deputy Minister of Finance and Planning Dr. Sarath Amunugama, Deputy Minister of Investment Promotion Faiszer Mustapha, Governor of the Central Bank Ajith Nivard Cabraal, Permanent Representative of Sri Lanka to the United Nations Dr. Palitha Kohona, SEC Chairman Dr. Nalaka Godahewa and CSE Chairman Vajira Kulatilaka. They responded to a host of questions concerning politics, economy, capital markets etc, posed by panel discussion moderator Stephen Jonathan, FX Application Specialist – Bloomberg as well as from participants. Here are excerpts.Q: Mr. Ambassador, given your perspective of being in the US, we will start with you. Over the past five years and over the past decade there has obviously been some enormous change in Sri Lanka and people would be interested to know how you have responded to information requests and questions about Sri Lanka as it has evolved and how you have been able to answer those concerns and change those perceptions on the part of investors in the US.
Dr. Palitha Kohona, Permanent Representative of Sri Lanka to the United Nations: Perceptions of Sri Lanka, in the United States have changed, very certainly. There are a number of reasons for this; the first one is that Sri Lanka is far away from the US radar and people don’t pay much attention to Sri Lanka. The result is that most people depend on the newspaper headlines. There are also certain vested interests that used the terrorist conflict to paint a negative picture of Sri Lanka. Given this background, the perceptions in this country (USA) may have taken a little longer to change than the perceptions anywhere else in the world. If you take Australia and New Zealand, they have a very positive perception of Sri Lanka.
I have taken a cross section of Ambassadors from the UN and other parts of the world to Sri Lanka and everyone came back with an image of the country as one being absolutely at peace. It is no exaggeration that Sri Lanka has not had a single incident since the end of the conflict.
Q: Minister Amunugama, you emphasised Sri Lanka’s geography and noted that one of the ways that you interact with the world is by developing infrastructure. How would you address any further concerns that investors would have about participating in the further developments of infrastructure in Sri Lanka?
Dr. Sarath Amunugama, Senior Minister for International Monetary Cooperation and Deputy Minister of Finance and Planning: We welcome it very much. The general perception is that we are most dependent on Chinese funds, but you must remember that the whole of Asia is demanding money for infrastructure. If you go to ADB or WB meetings, you will see that the demand for funds is for infrastructure projects. However, we don’t depend only on China; we get a lot of multilateral investment, money from ADB and the WB, and Sri Lanka would welcome very much American investment in infrastructure. In a few years there will be a surge of investment in India from the West and from there it will be a very simple matter of extending that activity to Sri Lanka.
In this delegation here we have a number of companies which are in the process of negotiating with American companies for investing in infrastructure. Now having built all the roads, we have to graduate into building the soft infrastructure, in the areas of education and science and technology.
After the development of the new airport in Mattala we are talking to Boeing, where Sri Lanka would be the cheapest spot to do repairs for aircrafts in the region. This way you don’t have to bring it all the way to Seattle. For this higher level of investment, where it is more in the area of soft infrastructure development, America has a big role to play.
Q: Governor Cabraal, I get asked a lot of questions about Frontier Markets with regards to its currency. One of the things that people think about when they read the IMF Article 4 is managed float, where they think how much managed and how much float. How do you envision attracting more Foreign Direct Investment, into Sri Lanka?
Ajith Nivard Cabraal, Governor of the Central Bank: I must admit that I am not very much into technical terms; I’m more of a realistic guy. Sometimes we have deliberately avoided defining what kind of management we have, because that gives us flexibility. In the case of the investment, one important factor is the flow of the investment. How convenient is it to come into a country and how easy is it to get out of the country – these are the concerns that an investor has. We have given confidence to all our investors; you can bring in your money, do you business and if you wish to take it away, you can do so.
Further, the private sector must have areas for which investment can come in, this is one of the main reasons why we opened our economy into five separate hubs, so there will be focus on these areas where investment can be channelled.
At one point the entire health sector was in the hands of the Government. Today we have about 40,000 new beds being maintained in the private sector. This is also attracting patients from the Middle East and the Maldives to come to Sri Lanka, seeking medical treatment. Therefore new opportunities have been created.
The current account deficit that we have is not a negative thing; it is just an indication that there is opportunity for foreign investment to come into Sri Lanka.
Q: Dr. Godahewa, as a Frontier Market, what is the size, what is the market cap and what is the liquidity and the size of the float and what kind of assurance can you give people in the room who are thinking of Sri Lanka as a place for portfolio capital in terms of what they will be able to invest in and how they will be able to get in and out?
Dr. Nalaka Godahewa, Chairman SEC: The CSE is a growing market, this is why we are coming and talking to you. Bringing money in and taking money out is not the only concern, it is also to do with capital gains and returns.
We have a very strong corporate culture. If you look at our listed companies and a number of unlisted companies which hope to list in the near future, they have a strong sense of corporate governance. The Securities and Exchange Commission along with the Institute of Chartered Accountants has developed a series of standards, the latest of which was revised as recently as 2013. We are constantly looking at the rest of the world and developing standards based on progress that we see globally.
I also want to mention that yesterday we met with the US SEC, the New York Branch, and they asked us a number of questions about our regulatory framework and we were on par with their standards. Our market was left stagnant for so many years due to the war, but now we have developed standards and are one par with global benchmarks for regulation.
Q: Vajira Kulatilaka, the past five years has been categorised by a realisation from the investment community when it thinks about emerging markets, to think about corporate investment and corporate debt potentially, as opposed to sovereign. Therefore there has been a focus on corporate debt from Sri Lankan corporate. What do you think have been some of the key drivers in this and is it sustainable?
Vajira Kulatilaka, Chairman CSE: I would say that it is the tax concession that opened the way for this investment; we saw growth in this area and it has now been inculcated into the system. In the past there was a perception that only banks invested in bonds, but that is not the case anymore; now you have a lot of institutional investors also looking into bonds. We are also looking towards developing a more vibrant secondary market for corporate debt. We are developing the infrastructure for this and giving licenses to intermediaries to ensure this area of the capital market is also well developed.
Q: Deputy Minister Musthapha, can you give us a broader overview of the investment climate in Sri Lanka and how the Ministry for Investment Promotion works with those who are looking to get into the country on an active basis?
Faiszer Mustapha, Deputy Minister of Investment Promotion: We work in the area of actual business. If you look at the state of the country in 2009, we did not have the infrastructure to do business. After 2009, we had a continually-developing infrastucture system. Before 2009 I was the Tourism Promotion Minister and when I used to go to road shows people used to ask me ‘how do you expect to attract tourism, when bombs are being dropped all over?’ And the famous line I used to respond with was, ‘If you are at the wrong place at the wrong time, you are doomed.’ But after 2009, we brought about the Strategic Development Act, where as soon as a project proposal would come in, we would take it before Parliament and the project would be approved.
In order to develop investment in the country, we have a one-stop-shop approach, where when an investor comes in and wants to do business in Sri Lanka, we work with the line ministries to get all the approvals they need. In every sector we see great momentum through the five-hub concept. If you take tourism in 2009 we had less than 250,000 tourists and today it is 1.3 million; in 2016 we expect 2.5 million tourists. We now have 24,000 hotel rooms, we need 36,000 hotel rooms; we see Shangri-La and Hyatt coming into that sector.
If you look at the IT sector, we have 100,000 working in that sector, and we have a very resilient workforce. Also in the area of energy, especially in the area of renewable energy, there has been great interest from the US. With regard to real business, we have a very positive environment.
The legal infrastructure is also developed and if you have any concerns, we would want people to know that we have subscribed to international standards and therefore you could even have international arbitration in Sri Lanka if you run into any issues while doing business.
Q:Audience question: My question is for the Governor. I want to ask you, how conducive is it for investors from China and Indian to invest in real estate properties in Sri Lanka? Many are building so many hotels, but there is some concern on the return on investment?
Ajith Nivard Cabraal, Governor of the Central Bank: The Sri Lankan investment environment, as I mentioned earlier, allows any investor to come in and take part in the economy and move out whenever he wishes to move out. For instance, Overseas Realty did the World Trade Centre many years ago and that is one of the iconic towers in Sri Lanka; there is also Havelock City. These are all Foreign Direct Investments, exceeding $ 500 million. The Shangri-La hotel which is also coming up is again a Foreign Direct Investment. The Sheraton Hotel and Crown investment by James Packer are also establishing themselves in Sri Lanka.
There are many projects that are coming to Sri Lanka and they are all given various tax concessions and they will be entitled to more benefits in the future. This means that they do not have to pay taxes upfront, before their investment. As you know, it worries some investors when they have to pay taxes in advance. Once they have an income stream, there will be certain taxes that are charged after a period of time.
Faiszer Mustapha, Deputy Minister of Investment Promotion: If it is a mega investment, you come under the Strategic Development Act and that proposal is put before Parliament and you can get tailor-made concessions.
Vajira Kulatilaka, Chairman CSE: Furthermore, one of the major impediments for the real estate sector was the high interest rates. The rates have now come down drastically and that will also help to encourage more foreign investment in real estate.
Q:Audience question: My question is for Faiszer Mustapha; has Sri Lanka made any moves to see young entrepreneurs come out and start up innovative technologies?
Faiszer Mustapha, Deputy Minister of Investment Promotion: In the IT sector especially there is a lot of potential and a lot of companies have shown interest in investing in this sector.
Vajira Kulatilaka, Chairman CSE: There is also a huge increase in angel investors in Sri Lanka and I think it will certainly lead to entrepreneurial essence coming out and we are also in process of developing the private equity sector. These are the things that will help to promote the kind of projects you are talking about.
Pix by Nisthar Cassim