The Sri Lankan economy, which hit an unprecedented negative stage in 2022, is gradually recovering with the support of the ongoing International Monetary Fund (IMF) programme. A gradual uptick in investor confidence is also expected, with renowned international players bidding for State projects and foreign investors expressing interest.
In the journey of economic recovery, Foreign Direct Investments (FDIs) play a pivotal role, providing much-required foreign exchange earnings and job creation while boosting confidence among potential foreign investors.
New investment law
State Minister of Investment Promotion Dilum Amunugama, speaking on initiatives taken by the ministry to attract investors, said that they were developing a new investment law to simplify the approval process, creating a one-stop shop where all approvals would be granted by a single commission, like the Greater Colombo Economic Commission from the 1990s, which was in place prior to the Board of Investment (BOI).
He said that this new law was currently being drafted. “While drafting the new law, we are simultaneously amending existing laws to align with it. Once the law is finalised, it will be submitted to the President and discussed with relevant agencies. If everyone agrees, the next step will involve further amendments in Parliament. This entire process may take 5-6 months,” he noted.
According to Amunugama, obtaining the relevant approvals is the primary challenge in the investment process, with numerous approvals required to kickstart a project. “This is what the proposed single investment law and commission aim to address,” Amunugama asserted.
Ready-to-invest projects
Amunugama said that a new model termed ‘ready-to-invest projects’ was also being implemented, under which certain projects would be pre-approved, covering sectors such as renewable energy and hospitality, among others.
“We are currently developing 1,000 pre-approved projects ready for investment. We are establishing a mechanism where anyone interested in investing in Sri Lanka can review these pre-approved projects. It’s a plug-and-play model where investors can simply transfer the project into their name, invest, and start operations,” Amunugama elaborated.
Investor Facilitation Centre Committee
Additionally, as a temporary measure, the ministry has established an Investor Facilitation Centre Committee (IFCC) chaired by the State Minister himself.
“The committee comprises the relevant Directors General (DGs) and any issues or problems faced by existing or new investors are addressed at this committee meeting, where all DGs convene to resolve these matters promptly. This serves as a temporary measure until the new single agency is fully operational,” he informed.
Need for predictability
Speaking to The Sunday Morning, Board of Investment (BOI) Executive Director – Investment Promotion Prasanjith Wijayatilake said that ensuring predictability in business operations was critical.
“Many of us consider the cost of doing business as a significant concern. However, predictability in business operations is even more critical than cost. Predictability encompasses various aspects, including costs. For instance, sudden increases in utility costs can directly impact manufacturing expenses. Therefore, predictability should be prioritised over cost,” Wijayatilake explained.
“The IMF programme is implemented over time and involves achieving specific milestones for disbursements. This structured approach provides a degree of predictability from a macroeconomic perspective, which is reassuring for investors, as certain fundamental aspects cannot be altered during the programme period,” he added.
Potential focus sectors for investment
The renewable energy sector is a key focus area, Wijayatilake pointed out. “There is a comprehensive long-term power generation plan for renewable energy, with various project opportunities being identified and rolled out periodically. These projects are particularly attractive to foreign investors due to the expertise, technology, and investment experience within this sector. Renewable energy addresses several key challenges we face, such as energy costs and reducing the carbon footprint of our exporters.”
He noted that within the services sector, Information and Communication Technology (ICT) and hospitality showed promising growth: “Hospitality, in particular, is experiencing renewed interest and robust growth compared to 2018, signalling demand for infrastructure investment. Similarly, the ICT sector has seen remarkable performance from several companies, making a compelling case for investment.”
He also pointed out that as an island nation, Sri Lanka’s geographical location had always been a primary attraction. “Consequently, there are significant upcoming investment opportunities in logistics, transportation, and infrastructure development. Recent port investments and expansions, along with planned future developments, highlight the potential in this sector.”
“Considering our country’s size and resource constraints, it is essential to concentrate efforts on selected sectors to maximise output. Focusing on specific promising sectors allows us to avoid spreading our resources too thinly,” Wijayatilake emphasised.
Creating a favourable environment
Wijayatilake also spoke on the need for creating a favourable environment in the country to attract investors: “Synergy is an important factor when it comes to creating a favourable environment for investors. In our country, the approval process involves multiple agencies in investment decisions. It is crucial for the BOI, as the overseeing agency, and these approval-granting agencies to align our efforts to achieve synergies and efficiencies. This will enhance the investor experience and make the process more seamless, which is essential.”
He pointed out that efficiency and transparency, which were also important, could be achieved through digitisation. “The BOI has been progressively working on this for the past 3-4 years, but there is still much to be done. Implementing a system where applicants can track the progress of their applications will greatly enhance the investment process. This not only facilitates investment for us but also provides investors with the ease of staying updated, fostering trust in the system overall.”
Development policy programme needed
Former Deputy Governor of the Central Bank Dr. W.A. Wijewardena highlighted the Government’s responsibility to create and implement a development policy programme for the country’s economic stabilisation.
“The IMF programme aims to stabilise the macroeconomy, particularly focusing on the external sector and domestic inflation. However, the IMF itself has emphasised that this stabilisation is necessary but not sufficient for Sri Lanka to build its future wealth. To achieve this goal, Sri Lanka requires a separate development policy programme, which is the responsibility of the Government. This initiative is distinct from the responsibilities of the Central Bank or the IMF,” he explained.
“While both the IMF and the Central Bank have taken steps to stabilise the macroeconomic sector, real growth and prosperity for the people necessitate the implementation of a dedicated development policy programme by the Government. Therefore, it is the Government’s responsibility to undertake this crucial task,” Dr. Wijewardena added.
Speaking on the challenge Sri Lanka should address to become more attractive to investors, he said: “The key challenge lies in the Government’s ambitious goal, set by President Ranil Wickremesinghe, to transform Sri Lanka into a developed country by 2048 according to World Bank standards. This transformation requires Sri Lanka to significantly increase its per capita Gross National Income (GNI) from around $ 4,000 today to approximately $ 17,000 by 2048 – almost a 300% increase. Achieving this target demands a proactive development policy programme aimed at sustaining an average growth rate of 8-9% compounded annually over the next 25 years.”
He also said that one of the major hurdles facing Sri Lanka was labour scarcity due to its ageing population, with the current median age of 34 projected to rise to 47 by 2048.
“Additionally, female labour force participation is currently low at around 30% and needs to be increased to 70%,” he pointed out. “To achieve this, we must provide incentives and support for women to enter and remain in the labour market. This includes addressing childcare needs, offering preschool training, improving transportation options, and ensuring the safety of women in the workplace.”
Dr. Wijewardena also emphasised on the importance of reducing the income gap between men and women. “Closing this gap is essential to fully integrate women into the workforce and the development process. Therefore, significant efforts are required on the human resource front to enable Sri Lanka to attain this level of economic growth and development.”
He also noted that if the Government stepped back and allowed the private sector to take the lead, it was likely to perform more effectively. “It is essential for the Government to focus on its core functions, such as maintaining law and order, upholding the rule of law, ensuring a just society, and providing an equal playing field for all individuals. These are the fundamental responsibilities that the Government should prioritise,” Dr. Wijewardena outlined.
Speaking about the possible focus areas for investment, he highlighted the importance of focusing on high-tech manufactured exports as areas for improvement: “Our traditional exports such as tea, coconut, rubber, and apparel have served the country well, but these sectors have limited potential for further development. Therefore, we need significant advancements in high-tech industries. This can be achieved by attracting FDIs or collaborating with India’s high-tech sector to collectively advance in this area.”
Attracting investors
Independent Economist Rehana Thowfeek said that in order to attract investors, it was important to implement essential economic reforms that went beyond the scope of the IMF programme, including market liberalisation, State-Owned Enterprise (SOE) reforms, and governance reforms.
“Even before the crisis, Sri Lanka struggled to attract foreign investment, so it’s crucial to identify the underlying reasons for this and take corrective actions. We cannot afford to remain a corrupt nation lacking accountability and expect to attract foreign investments. In addition to governance reforms, policy stability is crucial, along with other necessary reforms such as education and labour market reforms,” she added.