BOI needs new strategy
View(s):When the United National Party (UNP) swept to power in July 1977, ousting the United Front government led by Sirima Bandaranaike, its leader Junius Jayewardene wanted a quick-fire solution to link the country to the global economy.
While South Asia was struggling under the shadow of economies dominated by local industry and a trickle of imports, the rest of the world had opened out trade and commerce to unlimited inflows. Upto that time, Sri Lanka had restricted imports and everyone relied (were compelled to) on locally, produced goods – often shoddy and of poor quality.
Like a modern day cowboy, Jayewardene lifted all controls on imports and foreign goods flowed into the country. But that move, with a single stroke, also killed the local industry and hit hard at big time industrialists at the time like St Anthony’s, Linton’s, Dasa’s, etc, etc. India, subsequently, did it differently – upgrading its local industry to international standards before carrying a phased-out, imports free policy.
With Sri Lanka needing foreign exchange and the creation of more jobs, Jayewardene then created the Greater Colombo Investment Commission (GCEC) to attract foreign investments. The plan was to attract some of the biggest companies in the world like GEC, Honda, Siemen or Rolls Royce.
Then came the anti-Tamil riots of 1983 which propelled Sri Lanka to a pariah status and dashed any hopes of the country garnering any big names as investors.
That has been the situation since then with Sri Lanka still being unable to attract the big investors and relying on range of businesses from garment factories to Chinese restaurants. And these are not sustainable; they are either fly-by-night investors or businesses seeking a haven for something else.
This is somewhat clear from a recent number of factory closures of BOI-approved projects with the owners returning to their home base without paying compensation to workers and leaving behind unpaid loans to state and private banks.
In one of our stories, a Pakistani group closed three factories leaving its 1,500 workers without a job. Loans up to Rs 1 billion have also not been paid and the factories assets are nothing close to this amount, even if they are to be auctioned by the banks.
In the past six months, several of these BOI factories have closed down, leaving employees in the lurch.
This begs the question: Does Sri Lanka need quick-money investors or long-term, sustainable ones?
The country has been pushing (desperately) for FDI (Foreign direct Investment) at whatever cost to bring in foreign exchange. Whether these are genuine investors (has any background checks been down on any investment applicants?) or not, these investors are welcome. In some cases, the addresses of the investors, after they decamped, were found to be false.
That is not the only problem that Sri Lanka faces in ramping up investments. There has been severe infighting between Treasury Secretary P.B. Jayasundera and a host of former BOI chiefs starting off during the time entrepreneur Thilan Wijesinghe was appointed by Chandrika Kumaratunga.
There was a respite for a few years until entrepreneur Dhammika Perera was made BOI chief, and the clash with the Treasury resumed. Word in the grapevine then was that Perera was after Jayasundera’s job.
However that continued during the tenure of Jayampathy Bandaranaike and M.C. Ferdinando, the latter who was to complain to the President.
The issue came to a head when the Economic Development Ministry began independently canvassing for investments. How can Sri Lanka promote investments if agencies involved in this work are openly fighting each other? FDI inflows have been lower than target in the past few years. This year’s target set in Budget 2013 is being revised downwards, just a few months after its announcement.
Jayasundera, on the other hand, is desperate and running out of options to fund government spending, as demands rise and there are fewer options to collect revenue other than raise taxes, an unpopular measure. The IMF refusal to a Treasury request for US$1 billion in budgetary support has worsened the crisis. The Treasury Secretary has been facing a barrage of vituperative, public criticism from Minister Wimal Weerawansa. The minister is furious over his budget being cut and is on the warpath, most likely with blessings of the top.
For the first time, the frustration seems to be showing on Jayasundera. The Treasury Secretary has cancelled all his regular meetings and stays closeted in his room in the Treasury office dealing with mostly Economic Development Ministry work where he is also the Secretary.
Attracting foreign investments appears to be the only way out – but it has to be the genuine investors that Sri Lanka should be seeking. It may not be a bad idea to also separate the two functions – foreign and local investment, and set up a unit that would be responsible exclusively for foreign investment. That would be help in staying in focus and providing attention to detail.
However until Sri Lanka gets the top-of-the-line investors, sudden factory closures and investors running away most likely will be the order of things in the future.
As for Jayasundera, will he finally throw in the towel? Most unlikely. The Treasury Secretary has been part and parcel of the country’s economic landscape much before politicians like Weerawansa first took to politics, that this is a small hurdle to overcome.
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