Ideal political climate for FDI would be coalition-free
By Uwin Lugoda
As a developing and country and an emerging global market, Sri Lanka is heavily dependent on foreign investments and businesses. Local companies and the government need the expertise and funding from multinationals to help expand their businesses globally, bringing more currency into the country.
Countries like Sri Lanka need these private investments to build infrastructure and energy to increase jobs as well as employee income. But, first and foremost, what do we have to do to attract these investors to Sri Lanka?
According to Insaaf Mohideen, the Chief Investment Officer (CIO) for one of the world’ largest international sovereign funds, the country would attract more international investors if Sri Lankan start-ups brought out more disruptive ideas marketable internationally, or regionally at least.
“People aren’t dreaming big enough; you have a lot of ‘me too’ ideas where you take global ideas and localise it for the Sri Lankan market. Unfortunately, it is not attractive from an investor’s perspective.”
Having invested and advised over a hundred Silicon Valley start-ups, the Sri Lankan-American has had a highly successful career over the past 25 years, spanning across the fields of finance, management consultancy, technology, and entrepreneurship.
Mohideen explained that there are several reasons why these “me too” start-ups do not bring in experienced global investors. He stated that while countries like China and India with bigger markets are able to localise these global products and acquire attractive returns, Sri Lanka is too small of a market, and although great for utility and generating revenue, when converted into dollars or euros, these “me too” companies start to lose their value.
“We no longer have physical boundaries to hold us back; we can come up with disruptive ideas especially when it comes to technology, whether it is within the crypto or AI space. If Sri Lankans can come up with a brand new technology or service, it could potentially be tested in the Sri Lankan market and made international. I think that would attract a lot more investors.”
He went on to state that while Sri Lanka does have quite a bit of private investors for sectors like real estate, we lack investors when it comes to ideation and start-ups. For this to change, he suggested that Sri Lankan entrepreneurs make a change and have ideas that can absorb a million-dollar investment, rather than government policies. One needs ideas with billion-dollar potential to bring in billion dollars, he said.
Setbacks in attracting investors
When speaking about bringing in bigger companies, Mohideen stated that Sri Lanka lacks the infrastructure needed to house the headquarters of a multinational company. Big companies would require at least three to four buildings and a strategic location that would give quick access to both the airport and Colombo. He stated that due to the absence of these facilities, Sri Lanka has yet to sell itself as a hub for South Asia – the same way countries like Singapore have.
“Once you land in Katunayaka, it’s a nightmare to get to Colombo. Therefore, infrastructure-wise, the Port City is a great idea in terms of development, but we still need some regional development.”
Since Sri Lanka is a developing country, Mohideen explained that although global investors find it risky investing here, the payout they receive is three to four times more than what they receive by investing in developed countries.
He stated that the risk of investing in a developing country lies in the fact that a lot of external factors can impact the investment. One of the main concerns is that when the government changes hands, will the new government honour the previous government’s investment portfolios and investment collateral. Another risk is investing without knowing if Sri Lanka has the talent pool required.
“If I take an idea to Silicon Valley, I can gather any kind of talent and infrastructure I need, and I can have it up within a week. Here, the same might take me six to eight months, but the advantage is that the payout is probably going to be three or four times more. This is because it’ll be cheaper for me to get it done here. Then there’s also the satisfaction of having launched an idea off a developing country.”
This risk was made evident after the tragic Easter Sunday attacks. Mohideen said that while Sri Lanka’s growth forecast over the next six months dropped from 3.7% to 3.2%-2.7%, investors didn’t want to pull out. He stated that their confidence was further backed when Sri Lanka showcased its resilience by preventing further attacks and returning to a sense of normalcy this early. However, he also mentioned that bringing in new investors will be purely based on the next election and whether or not the country is going to achieve stability.
“Are we going to move away from finger-pointing? Are we going to have more meaningful economic and fiscal reforms to be able to control inflation? While having money, I wouldn’t deploy it until after the election to see who the leader is. As an investor, you don’t want to get involved on politics, but you would still want to make sure the political environment is more conducive to appropriate investments.”
He stated that the perfect political environment for investors would be one that gets away from a coalition and has a well-laid-out three to five-year plan, as far as fiscal and economic policies are concerned. This should also include plans to bring the current debt under control and maintain the integrity and sovereignty of the rupee, which was the biggest concern last year due to the massive deflation.
With regard to infrastructure, Mohideen suggested looking into security measures and preventing any other future attacks. He went on to state that this means getting to the root cause of these attacks and bringing the youth of Sri Lanka together in harmony.
He explained that in western countries, there is a huge emphasis on investing in social causes in countries that are not in conflict; topics such as ethnic cleansing and religious divisions do not play well in their narrative. He stated that investors are attracted to peaceful and thriving countries with communities that get along.
Mohideen stated that opening Sri Lanka up to new and innovative technologies will also help move the country forward; advancements like digitalisation would help break boundaries and end beliefs and practices like classism.
A country with redeeming qualities
“It’s not the Rothschilds of the world that are the rich anymore. You basically have the ability to create wealth where it didn’t exist, and you can break barriers where every kid can dream, whether it is in the villages of Sri Lanka or Colombo.”
He went on to state that there is so much resistance towards crypto currency because it helps level the playing field, and the central banks will not be able to exercise the kind of control and impose the kind of economic classism that exist today.
“I think technology as a whole is going to eradicate classism at every level – we’ve already seen that at social, economic, and governance levels in other countries. In countries like Sri Lanka and India where classism still exist, the quicker we are able to adopt this bandwagon, the faster we will eliminate social classism.”
Mohideen stated that things like crypto currency cannot be stopped and that crypto is the antithesis to governance. He compared it to when digital banking was first introduced and how, despite being completely against it at first, banks worldwide eventually had to get behind it.
“Countries like the US, the UK, and Europe have already realised that crypto currency is here to stay. So now, they are trying to figure out how to tax it, at least making some revenue out of it, and put some legal safeguards around it.”
He explained that currently, cash is the most dangerous form of currency due to it having no visibility, whereas in crypto currency, you can track it down to its inception and what hands it has exchanged. He went on to suggest that while it’s already a bit too late, Sri Lanka still has an opportunity to become a hub for crypto currency and that this would bring a tonne of capital back into the country.
Mohideen stated that compared to other countries in this region, Sri Lanka has much more redeeming qualities that attract investors, two of which are our vast English-speaking population and democracy.
“Unlike most countries in this region or developing countries, Sri Lanka has a beautiful democracy. Up until this coalition cluster, we’ve had free and fair elections, transition of power where almost anyone can get into politics. It is endearing to investors to know that their investments are safe and honoured despite power changing hands between the political parties.”