Business

Wanting foreign investment without the foreign investor

By Sarrah Sammoon

Foreign Investment is a much-discussed topic at most public and private economic forums, where at times it very quickly becomes apparent that we want foreign investment without the foreign investor.
The Centre for International Development at Harvard University in 2017, in a concept note on Sri Lanka, said the economic progress of now-developing economies was tightly linked to the accumulation and invention of productive know-how. That know-how goes beyond the kind of knowledge you learn in school, read in books, or gain online. It is embodied knowledge that comes from intense learning-by-doing on the job and is transferred from one person to another through constant interaction, demonstration, and repetition. We have consistently seen countries grow due to the entry of know-how rich multinationals.
In Sri Lanka, at the National level, the Investment, Trade, and Commerce related ministries promote foreign investments into Sri Lanka. However, when the investor arrives, the market entry and eco-system for them to sustain remain challenges.
Take the example of an Australian Entrepreneur who moved to Sri Lanka in March to set up a food manufacturing business through use of organic produce sourced from Sri Lanka. He is of the new breed of purpose-driven start-up entrepreneurs. After six months of applying every effort to get the project off the ground, he left Sri Lanka. His plan, if successful, would have created jobs, brought new technology and knowledge transfer into the country, taken our produce overseas, and contributed positively to our economy.
There were several specific causes which changed his mind about investing in Sri Lanka:
1. Uncertainty regarding “Organic Certification” of required produce.
For him, a major draw to establishing a business in the food industry in Sri Lanka was the availability of fresh seasonal produce. The business plan incorporated organics into the model, but it proved difficult to procure produce that is organically grown. More importantly, the organic certification status in Sri Lanka remains uncertain from a global/export perspective.
2. Disinterest from Sri Lankan businesses to supply
He found a general disinterest from Sri Lankan businesses when he approached them for a supply of goods and services. Whilst he had a few outstanding exceptions, often businesses came across as disinterested in dealing with him. Promised quotations, proposals or even the return of a phone call did not happen at times.
3. The Sri Lankan concept of time
‘Sri Lankan time’ was perhaps the greatest barrier to doing business for him. More often than not, meetings were set up and parties simply didn’t show or repeatedly left him waiting for 30-60 minutes in their office.
4. Uncertainty surrounding the legal framework of permissible activities for new foreign businesses.
Being a seasoned entrepreneur, he was well aware that any new business should apply risk mitigation strategies, particularly at start-up. He found it quite difficult to develop solid strategies when the legal and statutory parameters seemed to continually move.
5. Undercurrent of racism or fear of security, culture
He strongly felt, with some people, what seemed like an undercurrent of racism in Sri Lanka towards a Caucasian man. This was an unexpected realisation because as a tourist, it was much less evident. For him as a potential business person, it became evident, albeit covertly.
6. Political uncertainty
The political scene in Sri Lanka created a perception of risk for foreign investors. He said it appeared to be all about “who’s in power now, will they keep their position in parliament,” etc. If decision makers are ousted from their positions, will the implementation framework for foreign-owned businesses still be applicable?
7. Southern coast mafia
At one stage his business model may have seen sales activities directed at tourist markets around the southern beach districts. A deeper investigation revealed to him mafia-like activities controlling real estate in the southern coast. From a risk mitigation perspective, this simply was unworkable.
8. Outstation healthcare facilities
Perhaps the final straw was being infected by Dengue fever and being hospitalised in Galle – a profound traumatic experience. There was no access to an international standard hospital and service down South.
The risk/reward ratio pertaining to the issues he faced, and dealing with the virus, it became unimaginable for him to consider three-to-five years of blood, sweat, and tears pioneering a new business in Sri Lanka.

Investing in rising real estate projects in Sri Lanka

The significant inventory of high profile real estate projects being developed in Sri Lanka also relies, to a certain extent, on foreign investment. Sri Lanka is competing with the region in real estate. Europe and the Caribbean are also heavily competing for the Real Estate market. They offer hassle-free investment visas which provide an EU passport with access to many countries, for the same amount that Sri Lanka currently requires for a five-year visa. It is predicted that by 2020 the supply of apartments in Sri Lanka will rise while demand will ease. So our offerings have to remain both attractive and smoothly processed.
Mary and Joe, a British and South African couple, visited Sri Lanka over 20 times and fell in love with our people and the natural beauty of the country. Being serial investors, they liked the idea of investing in real estate in Sri Lanka, working on a few business projects, and making the island their home. They are part of the ‘untamed entrepreneurs’ culture as conceptualised by Jim Hughes. They bought luxury apartments in Balapitiya for rental income, and land to develop in the Puttalam District. Local developers market these properties with the offer of obtaining residence visas in Sri Lanka and push the investors to make the deposits as fast as possible into the dedicated Inward Investment Accounts.
1. IIA vs RGS bank accounts
For Mary and Joe, once they transferred the money, they were left alone to sort out their residence visa. The required investment is $ 250,000 for the current Investor visa, but in spite of the fact they have brought in far in excess of the required investment, they are still struggling to get recognition for inward dollar investment outside of the specified accounts for the RGS visa. The apartment developers fail to advise their clients that in order to obtain the current Investor Visa you need to first make the application to immigration, then open a specific Resident Guest Scheme account, then transfer the funds to Sri Lanka.
2. Access to investor information outside the Western Province
For Mary and Joe, the property investments are just part of the project. They were trying to set up a social enterprise and a tourist business here, but when you are outside of the Western Province, it becomes even more difficult to access information and the regulations remain further unclear. Also, there is a massive language barrier. They have begun to realise that investment in Sri Lanka is expensive compared to other countries, and ownership and operating rules are not clear or easy.
3. Seeking local partners
One of the ways Mary and Joe have overcome their difficulties are by seeking strong local partners who are subject-matter experts to ease through bureaucracy and red tape.
There is speculation that the Department of Immigration is introducing an attractive law for Investors which promises to be clear and hassle-free.
We often hear the best part of Sri Lanka is our people, our smile, and hospitality. We need to adopt this culture across the board for foreign business persons, too, and ensure we provide clarity on the processes in Sri Lanka. It’s not just about the large FDI’s, because foreign SME’s and Residence by Investment are also invaluable sources to a country. They bring knowledge of foreign markets, connections to overseas supply chains, different cultures, new strengths, ideas, and innovation which would help our country remain realistic and relevant to the global market.

Achievable insights

· Creating transparency in information – preferably online – for organic licensing of produce in Sri Lanka given we are a fertile tropical island with more than 30% employed in the agricultural sector.
· Current ministries and institutes to provide more clarity on rules and regulations, and maintain consistency throughout the process without changing tactics amidst a process.
· Clear standardised one-rule-for-all information on the regulatory framework on how to do business in Sri Lanka for potential investors without relying on personal meetings and the concept of ‘who-you-know’ in Sri Lanka.
· Education at both a national level, in school curricula, and corporate levels on cross-cultural differences in business practices.
· Awareness programmes on, what may seem like racism towards foreign nationals, the display of fear of lack of security of their businesses, potential dilution, or loss of culture.
· The need for better medical facilities for the high net worth investors in Sri Lanka outside Colombo.
· Empower private companies to provide the service to enable foreign investors to settle here and have a consistent sentiment across all government sectors to clear the path for people to invest safely.

Sarrah Sammoon is the CEO at Magellan Champlain, which provides global immigration advisory in Sri Lanka and handles market entry and corporate destination services.