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Friday Dec 13, 2024
Friday, 9 June 2017 00:00 - - {{hitsCtrl.values.hits}}
By Chathuri Dissanayake
and Uditha Jayasinghe
Sri Lanka sets itself apart from the rest of South Asia when it comes to investment opportunities with industries and services that are akin to ventures available in Southeast Asian countries, according to top industry experts and officials.
Speaking at panel discussions at the Sri Lanka Investment and Business Conclave from 30 May- 1 June on opportunities and incentives, prominent private sector professionals including KPMG Principal Shiluka Goonewardena, 99X Technology CEO Mano Sekaram and International Finance Corporation (IFC) Country Manager Amena Arif called on investors to avail themselves of investment chances that have opened up in Sri Lanka since the end of a 27-year war in 2009.
Acknowledging that despite the war ending eight years ago Sri Lanka has failed to capitalise on attracting Foreign Direct Investment (FDI), the panellists were nonetheless upbeat that Sri Lanka could catch up on this sector and highlighted IT, shipping, tourism, light manufacturing, and healthcare as being ripe for investment.
“We are far behind on the FDI index. The other thing we have fallen behind in is trade, so trade to GDP has fallen over the past few years and is currently at about 15% of GDP. When you compare this with some East-Asian countries such as Cambodia, Vietnam and others, they are comfortably about 100% or more. So in the period we have fallen they grew. So that is again something we see as both a gap and an opportunity,” IFC Country Manager Amena Arif told the gathering.
Foreign and local investors were encouraged to consider sectors such as tourism and apparel where Sri Lanka has managed to keep a global edge. Companies that are able to synergise with this competitiveness would be welcomed in Sri Lanka, she added. “As a middle income country we do not have the level of infrastructure that we should. That again is an area where we can see significant investment coming in to up the game.”
Sri Lanka’s productivity challenge was also addressed where speakers acknowledged the country’s diminishing demographic window but also saw it as an opening for insurance and healthcare services that are not currently being met by the existing companies. With an ageing demographic, Sri Lanka also has the space to encourage more women to participate in the workforce, which is an endemic issue in Sri Lanka’s workforce.
Sekaram also gave insights into the IT/BPO sector, which he pointed out has become a $1 billion industry in the space of a few decades whereas more traditional areas such as tea took more than 100 years to pass the $1 billion mark.
“We see huge potential in this sector and many companies are aware that they can cater to niche markets and differentiate themselves from larger competitors in India and elsewhere.”
In the 2017 edition of the Ease of Doing Business rankings, Sri Lanka slipped one spot to 110, despite some key reforms. The World Bank said this is not necessarily an indicator that the country has slipped down in rank, but more a reflection that other peer economies have undertaken a larger number of reforms in the business environment during the same period.
A total of 11 reforms, making it easier to do business, were implemented by five of eight economies in South Asia in 2016, significantly higher than the region’s annual average of nine reforms over the past five years.
At the start of this month during the first Cabinet meeting after the reshuffle, investment took a prime position with a fresh decision to establish a new secretariat to foster inter-agency coordination and propel Sri Lanka towards being amongst the top 70 countries on the World Bank Ease of Doing Business Index by 2020.
The Cabinet paper, presented by Development Strategies and International Trade Malik Samarawickrama, proposed to establish a dedicated team within the ministry to act as a secretariat, taking responsibility and leading coordination of the overall reform efforts on a daily basis and escalating challenges they cannot overcome to the Cabinet Committee on Economic Management or Cabinet.
Ten technical taskforces have been identified based on the subcomponents covered in the World Bank Group’s Ease of Doing Business Index that will include public agencies and professional experts from the private sector. The sectors include starting a business, protecting minority investors, getting credit, registering property, paying taxes and enforcing contracts.
The Ministry, in collaboration with the relevant taskforces and the World Bank Group, is proposing reform action plans covering eight subcomponents of the Doing Business Index. These reform actions were a combination of legal reforms and procedural changes that need to be implemented to improve the business climate of Sri Lanka. These key points were highlighted by the Board of Investment (BOI) present at the conclave.
Outlining the potential in energy and shipping and logistics, the session discussing opportunities to invest Sri Lanka brought together a number of industry specialists from leading economic sectors in the country.
Tracing the transition the energy sector is undergoing now from hydro and thermal power to focus more on renewable, International Finance Corporation Principal Investment Officer Kamal Dorabawila said that the opportunities to invest Sri Lankan energy sector were expanding, as the Government was taking steps to facilitate investors as well.
“Sri Lanka is bringing in contractual framework to attract private sector participation. That is the challenge in bringing in contractual framework – ensuring contribution from the private sector,” he said.
Compared to other South Asian countries, Sri Lanka has wider reach with few interruptions, however there are significant areas for improvement, Dorabawila said.
“Sri Lanka has been historically dominated by hydrogenation, but in the last 20 years thermal power has taken the lion’s share. Introduction of thermal power happened through the private sector, so Sri Lanka has had quite a successful track record in terms of partnering with the private sector. Although the initial partnership program did not continue, private partnership continued in small renewables; Sri Lanka has a very successful programme of mini hydro development which still continues, and then solar power generation,” he said.
He stressed that Sri Lanka had decided to move away from coal and move into more climate-friendly energy, while bringing in large-scale renewable, particularly solar and wind, he said.
The Government has already approved a mixed power development project for 1,000MW, 800MW of solar and 240MW of wind, Dorabawila said, adding that there were number of projects in preparation stage to bring in 100MW and 200MW solar in other parts of the country.
The Government has also just closed a bid for 300MW combined cycled gas turbine that is going be fuelled by LNG when the LNG plant comes in and there will be additional thermal power capacity and LNG as well, he informed the investors present.
“This development phase is a very big investment opportunity. In emerging markets solar is becoming very competitive as an option; IFC did a bidding in Zambia which went at six cents and in India we did a bid which went at seven cents; this is where there we want to bring Sri Lanka through private participation. The plan to develop LNG and import LNG is also going to be done with the private sector; this has been done elsewhere in the LNG sector, in India and Pakistan,” he said, outlining the opportunities.
Another developing sector, real estate is expected to grow through the next 10 years, John Keells Holdings Plc Executive Director Krishan Balendra said. According to him, changes in urban lifestyle have fuelled growth, where the sector has seen 2,000 apartments being sold per year, during the last two years. This trend is expected to continue for the next 10 years, he said.
“Over the medium term we are confident it can even increase, given the extent of urbanisation and extent of economic growth in the last seven to eight years after the conflict. Issues around increased vehicle ownership and traffic, the need to be centrally located, we are finding that people are compromising on space, building houses and gardens, and moving into smaller space,” Balendra said.
However, although the apartment culture is setting in, compared to developed cities in Asia, 2,000 a year is very low, he said.
“Outside Colombo there is a significant increase in land prices, primarily in land sites which are good for tourism, especially along the beach. There is a more than tenfold increase in the land prices. But the real estate market is dominated by the residential market in Colombo and the suburbs,” he said. Dispelling arguments that the number of hotel rooms in Sri Lanka may be in excess compared to the demand, Jetwing Hotels Chairman Hiran Cooray was positive about the growth of the tourism industry in the country while emphasising on the importance of promotional campaigns being done right.
“We are always demanding that the country is properly promoted and positioned. If the country is promoted and rightly positioned, there would be a shortage of rooms,” he said.
“Tourism has seen unprecedented growth since the end of the conflict since 2009, it is in its second birth. But there is a new spate of development. Earlier it was only a few companies which kept it going. Now we see many joining the industry in Sri Lanka.”
Outlining the opportunities that exist in the service industries connected to the industry, he said transportation which was key for the sector presented potential for development.
“We need a very good air network. We have not only the two international airports but there are airports maintained by the Air Force, which can be hired by private companies. There is space for private companies to start an air transportation network here, a pick-and-drop service is a prime need today,” Cooray said.
“There is opportunity in other types of transportation too. Sri Lanka is an island so there is space for cruise liners that cruise around the island, or Maldives or South India, and maybe a theme park. There is a lot of opportunity other than building hotels, there is a lot of scope for tourism.”
Shipping and logistics are poised for growth in line with the advantage of the country’s geographical positioning, John Keells Holdings PLC Transportation Group President Romesh David told the audience.
“In terms of investments, Colombo Port epitomises the more successful PPP in the country. Both with SAGT which happened in 1999 and CIGT, the Chinese container port, which happened in 2012. In the same vein there are two PPPs which are now open for investment, heavy infrastructure investment – one is East Container Terminal which is slightly overdue, and West terminal and potentially the second West terminal. The three developments in Colombo Port alone have a magnitude of about $ 500 million per each investment. With all of these the Government will look for PPPs,” he said.
The Hambantota Port, the country’s second port built with Chinese funding, has a lot of potential.
“It is a big harbour, it has the advantage of having jetty areas and land. The Government is very close to finalising the long-term lease with a consortium of Chinese companies and it will necessarily involve parallel investment by these companies and an invitation for regional companies to invest,” he said.
Galle, which has been earmarked for tourism and has been dominantly leisure activity, also has opportunities for investment related to leisure activities in terms of marinas and yachting and yacht building, David said. Cautioning for the need to be ecologically sensitive in development activities in Trincomalee, David highlighted that although the famous natural harbour has no real use at present, there is still potential for investment in tourism-related activities and specified industry-related development.
“If you look at other developed hubs like Singapore, Sri Lanka is totally underdeveloped, and therefore it is wide open for investment. Logistics extend beyond port; inland where cargo is concerned, at the moment we are a container hub. We should extend to cargo development; regional redistribution, opportunities exist for large-scale housing. With growth of tourism and retail, the coal chain is highly underdeveloped and there are opportunities for coal chain, transportation and storage,” David outlined.
Another booming sector in the county, ICT has also large potential for development, Information and Communication Technology Agency (ICTA) Chief Executive Officer Muhunthan Canagey highlighted.
“Sri Lanka has been positioned very well and proved itself in the past. The companies that have come out of Sri Lanka have done well. There are so many tech companies out there and we still have 400,000 coming out of the schools, and about 40,000 of them go to State universities. A lot could be done with them. We don’t have any process for starting a tech company. You can start a tech company in a day with as low as $ 10,000 or $ 5,000 and you can go up to a million,” Canagey said. Highlighting that companies focusing on technology have global reach, he highlighted that many companies whose core business is not technology related were entering the industry.
“It used to be traditionally those who are in the technology industry investing in the tech industry, but today you have a wide variety of companies which are investing to make sure that IT is a part of their industry as well,” he explained.
“Sri Lanka has the right mix; today we see a lot of companies which come in and invest in startups in small ways. Today you have that aspect of startups building in. For the first time Sri Lanka was featured in Global Start Up magazine as one of the destinations for startups,” Canagey said.
Pix by Lasantha Kumara
