Investment promotion strategy in times of crisis and beyond

To drum up foreign direct investment and domestic investment in Sri Lanka, President Ranil Wickremesinge has put forward a strategic plan that defines a goal or desired outcome and includes the major steps or milestones needed to reach the required target at the right time.

As the country’s leader and savior of the island nation, President Wickremesinge will go ahead with his road map for economic recovery overcoming all obstacles and roadblocks and back stabbing of opposition politicians and saboteurs with their own agendas.

These so-called opposition political party leaders, especially the left wing subversives like the Janatha Vimukthi Peramuna and Frontline Socialist Party have pulled the country backwards from its forward march towards economic reforms during the past four decades.

The promotion of investments play a crucial role in boosting a country’s economy. The government has also recognised the significance of collaboration between the public and private sectors in the country’s journey towards economic growth.
The goal is to transform Sri Lanka into an export-oriented economy that is globally recognised, following the successful models of countries like South Korea and Singapore, President Wickremesinghe told the nation recently.

Furthermore, the present administration aims to prioritise modern and sustainable efforts such as renewable energy, green hydrogen, and digitisation.

Over the next few months, the government will make a special invitation to the private sector to submit their own business proposals that align with the vision of modernisation and sustainability.
The selection of project proposals for investments is based on four key criteria:1. size of private investment 2. job creation, 3. export contribution, and 4. economic contribution.
To ensure the effective implementation of these business proposals, the government will introduce a new system called the lab methodology.

Under the lab approach, action will be taken to bring together government ministers, government officials, subject matter experts, and key representatives from the private sector to collaboratively engage in detailed discussions over a period of six weeks.
The aim is to collaboratively resolve any roadblocks hindering the roll-out of investments and projects by listening carefully to the private sector.

During these discussions, comprehensive implementation plans will be developed, and the necessary facilities to support the implementation of these projects will be organized.
Government stakeholders involved in the ‘Labs’ will dedicate their full-time efforts to ensure the successful execution of these projects.

Sri Lanka is capable of meeting its goal of attracting USD 5 billion in foreign direct investments (FDI) by 2025. Higher levels of FDI would also strengthen exports, foster growth and assist the country to put its debt on a more sustainable footing.
The World Bank also said that it believes this is entirely doable given the country’s rich natural resources, strategic location, highly literate workforce and opportunities for investment in tourism, IT enabled services, logistics, high value-added apparel and food services among others.
However, for Sri Lanka to leverage on these competitive advantages, the World Bank called for the country to focus on comprehensive reforms to increase productivity and competitiveness.
It has identified that in some sectors such as textile and clothing, IT and manufacturing Sri Lankan firms have been expanding their footprint and have been able to become very competitive globally and move up the value chain to more sophisticated products and markets.

According to the World Bank Country Director for Sri Lanka, Nepal, and Maldives Faris Hadad- Zervos, Sri Lanka is currently placed 99th in the latest Ease of Doing Business rankings.
As such, he called for policy makers to focus on export earnings in comparison to overall GDP and track its growth consistently to identify what policy changes are needed to improve competitiveness and reach.
He also advocated for a fresh look at tariff systems and improved access to intermediate imports needed for export value addition.

Sri Lanka’s FDIs have failed to achieve the desirable impact amidst the present economic setback, policy uncertainty and political instability along with the removal of tax concessions including tax holidays, a ministerial consultative committee report has revealed.

The Board of Investment (BOI), now acting as an intermediary rather than facilitator, has been directed to provide actual FDI data to the Central Bank and the Treasury as it should be armed with a clear record on foreign investment projects and the actual value of investments, the committee advised.
Since the establishment of this export promotion entity approximately 40 years ago, the institution has managed to attract only USD 20 billion in FDI, it added. It has been observed that the average annual FDI inflow has been merely USD 500 million.

It has been observed that the granting of tax exemptions was one of the BOI’s main roles until the responsibility moved to the Ministry of Finance in 2011.
However, the lack of clarity in BOI records of FDI inflows, number of project proposals received and number of projects approved or registered has confused actual data.

With no plans and strategies properly being implemented during the previous administration, the BOI has become a burden to the state as a dormant institution after four decades of poor performance in its role of investment facilitator, a foreign investment report of the Finance Ministry revealed.
Another main accounting practice of the BOI was the inclusion of foreign loans to Direct Investment Enterprises in annual FDI while publicising dollar earnings of existing free trade zone enterprises.
Despite setbacks, the BOI has attracted FDI inflows amounting to USD 713 million in the first nine months of 2022, which is 71 per cent of the 2022 full-year target of USD 1 billion, State Minister of Investment Promotion Dilum Amunugama said recently.

However, according to Finance Ministry estimates computed by using mathematical models, the FDI in 2022 will be in the region of USD 476 million excluding foreign loans obtained for ongoing projects.
Under the new leadership however, the BOI is looking at targeted Initiatives to get from USD 1 billion in 2022 to USD 2 billion in 2023. Attracting 100 technology services companies with a new product, a targeted program to get 50 existing BOI companies to reinvest.

The other measures were the setting up industry advisory councils for the four thrust sectors for leads, policy tweaking and promotion, digitalisation of key investor services, aggressive promotion of the destination, key account management and modernisation of existing zones to meet with international green standards.

Furthermore, there is a large number of new sectors which are emerging, associated with digitalisation and with the new economy.

The traditional sectors too have new elements coming out as sub-sectors. Whilst the larger sectors like petroleum, power, infrastructure, healthcare, manufacturing which bring you the big FDIs. However the sectors of the future will be the new sectors which are now emerging.

Even though Sri Lanka’s internal market size is small, with a population of around 22 million, Sri Lanka has signed three free trade agreements with India, Pakistan and Singapore providing market access to 1.6 billion consumers on a duty-free basis.

Sri Lanka is also a member of the South Asian Free Trade Agreement (SAFTA), Asia Pacific Free Trade Agreement (APTA) and the country is eligible for duty free access to 27 EU countries under the EU GSP+ scheme and also is eligible for duty free access to the UK under the UK DCTS.

The government is to set up a new agency by bringing the Board of Investment, the Export Development Board and the Sri Lanka Export Credit Insurance Corporation together into one platform.
The National Enterprise Development Authority and other entities that support exports and investments will also come under the purview of the new agency.

The government has taken this decision after evaluating the performance of these institutions during the recent past as on average, it takes around 170 days to approve an investment project in Sri Lanka as these processes involve over 40 line agencies, it has been observed.

At present, there are 73 project proposals still to get approval at around 10 different agencies. The delay in approving the projects does not augur well for investors.

Meanwhile, a high-level review of the National Trade Facilitation Committee (NTFC) was conducted this week chaired by President’s Secretary Saman Ekanayake in a bid to accelerate trade facilitation commitments and bolster the business landscape in Sri Lanka.
In order to streamline compliance and optimize performance, several directives were issued during the meeting. Firstly, it was decided to establish the NTFC Secretariat under the supervision of the Ministry of Finance. Secondly, immediate measures will be taken to address the staffing requirements of the Secretariat.

The high-level review of the NTFC’s performance underscored the urgency of the Wickremesinghe administration in taking decisive action to enhance the business environment in Sri Lanka.
By addressing key issues such as staffing, budget allocation, and the implementation of the National Single Window, the government aims to expedite trade facilitation commitments and promote a conducive atmosphere for businesses in the country.

-Carcharodon