Singapore FTA would greatly expand scope of Sri Lankan economy: Stax
International management consulting firm STAX believes the knock on-effects of the Sri Lanka – Singapore FTA, if implemented, could tremendously expand the scope of Sri Lanka’s economy.
“Given the potential of Sri Lanka as a hub for regional trade, a positive conclusion to the Sri Lanka Singapore FTA would serve as a signal for other nations to also enter into similarly liberal agreements with Sri Lanka to take advantage of reductions in tariff lines, labour movement and government procurement,” stated Digital Advisory – Stax Inc. Manager Firaz Markar.
Singapore and Sri Lanka signed a free trade agreement in January 2018 seeking to deepen economic ties and facilitates greater trade flows between the two countries.
Markar added that “such a transformation would enable Sri Lanka to serve as a gateway for global firms to gain access and negotiate deals with the ASEAN bloc, potentially expanding the scope of Sri Lanka’s economy by several orders of magnitude.”
He made these comments while discussing the FTA at the recently concluded AGM of the Sri Lanka-Singapore Business Council.
He pointed out that, while Foreign Direct Investment (FDI) had improved over the recent past, Sri Lanka still attracts investments “at a much lower rate and scale than its regional counterparts.”
Markar also noted that most of Sri Lanka’s FDI had been generated through the telecommunication, manufacturing, and tourism sectors, while the IT sector had also shown improved potential with export growth of 18-19%.
Citing the results of a recent study carried out by STAX among foreign companies that have invested in Sri Lanka, he noted that the most pressing concerns for foreign investors remained a shortage of qualified labour, the high cost of setting up business, insufficient levels of productivity, and policy instability.
“Liberalization of labour movement is of course a complex issue, but if policies stipulate that companies that have invested and set up businesses may be allowed, within specific criteria, to have some movement of labour, the Sri Lankan economy as a whole will benefit strongly,” he stated.
He advocated for the establishment of a clearly defined and articulated national value proposition across industries alongside financial incentives geared to sustainably attract capital into key industries keeping with a portfolio approach to FDI.
“Ideally, all this would be managed under a single umbrella organization tasked with setting and enforcing rules and guidelines.”
In that regard, he noted that the FTA’s 50% reduction in tariff lines – which will grow to 80% over the next 12-15 years – together with the first ever inclusion of government procurement will enable unprecedented opportunities for Sri Lankan businesses to compete for government contracts in Singapore. Similarly, it would incentivize Singaporean companies to engage in similar projects locally, enabling the country to benefit from the introduction of improved standards, international best practices and knowledge transfer opportunities.
Despite the FTA being approved by the Cabinet in January after receiving the Attorney General’s opinion and being signed within a few days of that, President Maithripala Sirisena recently appointed an independent committee of economists to study and compile a report on the agreement.
The FTA will see Singaporean companies enjoying potential tariff savings of up to S$10 million each year, among other benefits as Sri Lanka will, over 15 years, eliminate tariffs on 80% of Singapore’s exports. This has attracted fierce criticism from certain quarters who claim this will seriously hurt local industries.
Singapore ranks as Sri Lanka’s 8th largest trading partner, and at present, there are over 90 Singaporean businesses – including major multinationals – that operate in the country, which generated approximately US$ 241 million in investment in 2017.