Key priority for Sri Lanka right now is FDIs
Having stabilised the economy of the country over the past couple of years, Sri Lanka’s key priority right now is attracting foreign direct investments (FDIs), says Minister of Development Strategies and International Trade, Malik Samarawickrama.
Speaking at the Sri Lanka Investment and Business Conclave 2018 titled ‘Partnering for Prosperity’ organised by the Ceylon Chamber of Commerce (CCC) held at the Cinnamon Grand Hotel in Colombo on Tuesday, Mr. Samarawickrama also said the Government has taken initiatives to stabilise and re-orient the economy from a growth model that was inward looking and heavily dependent on debt-fuelled public spending, to one that is driven more by the private sector, trade and FDIs.
CCC Vice Chairman Hans Wijayasuriya. Pix by Indika Handuwala
Minister Mangala Samaraweera
Minister Malik Samarawickrema
Measures have been taken towards stability and resilience focusing on both fiscal consolidation and prudent monetary policy. “We are conscious of the very high debt burden and have introduced new measures to build up our strength like the Liability Management Act that was passed in Parliament last month. We are confident of making our foreign liabilities and global investors continue to remain positive about Sri Lanka. The recent sovereign dollar bond of US$2.5 billion was nearly three times oversubscribed,” he emphasised.
Many foreign investors use Sri Lanka as a springboard for their operations in the region and to reach Africa, Europe and South Asia. Location alone is not enough.
The government is focused on improving the investor climate and easing the burden for investors who are interested in locating here, he added.
He also mentioned that earlier this month the Board of Investment (BOI) launched an online portal for investor application and certification called ‘Swift’. This will make the entry of an investor more streamlined and will ensure greater transparency. There are also several high level mechanisms to fast-track decision making and resolve investor issues. There are also 10 task forces tracking 10 vital aspects doing business index. Under these ongoing reforms the e-register of companies was launched and has cut the time taken to register a new business from six days to just one day. By the end of this year, the time it takes to find a land and register the property will be halved from 52 days to 26 days. The procedures are reduced from nine steps to two.
“To leverage Sri Lanka’s location and to expand market access we are expanding our trade and investment links to diverse countries such as the US, Europe, UK, India, China, Singapore, Thailand, Japan and so on. We are also signing a number of trade agreements. In January this year we signed the Free Trade Agreement (FTA) with Singapore. Negotiations on the comprehensive Economic and Technology Co-operation Agreement with India are progressing and it will be finalised by the end of this year. Discussions with China on the FTA are progressing and we intend commencing negotiations with Thailand next month,” he noted.
Since April this year a new Inland Revenue Act came into effect which was developed with technical advice from the International Monetary Fund (IMF).
He said the top rate of corporate income tax is now lower than Bangladesh, India, Brazil and Mexico and on par with South Africa while the top rate of personal income tax is now lower than all of these countries and Thailand, Vietnam and Turkey. There is a misconception that the new Act has removed tax incentives. Under the Act an investor would receive capital allowances and accelerated depreciation based on the size of the investment. “You can set off your investment against future taxation; in fact you don’t have to start paying income tax until you recover your investment. For every capital investment there is an additional 100 per cent capital allowance and for investments above $100 million the capital allowance goes up to 150 per cent,” explained Mr. Samarawickrama.
“Our new incentive regime may not be outright tax holidays but it is effectively the same when it comes to tax burden. If you invest $10 million in a venture here in equipment apart from a land purchase, until you recover that $10 million, you don’t have to pay tax. If you are an export oriented industry, you only pay the corporate income tax at the low rate of 14 per cent. We are looking at further reducing the upfront cost of investment by cutting the various border taxes that we have to face and making the taxable period start only after commercial operations have commenced,” he stressed.
Minister of Finance and Mass Media, Mangala Samaraweera raising similar points noted that the lack of economic stability has been a major hindrance for doing business in Sri Lanka. As a result economic growth in the post war years have been dominated by debt financed state investments and this model is unsustainable.
With a growing debt stock the government finds it difficult to balance public investment and debt servicing because in this context the government has shifted to a private sector export and FDI led model of economic growth. The state will play a key role in smart regulations setting robust institutional framework and targeted interventions to ensure social justice.
Mr. Samaraweera added that in addition to the fiscal policy reforms the Central Bank has been successful in bringing down inflation to 1.6 per cent in April this year.
Reserves reached a record high level of $9.5 billion and credit growth has been managed to a sustainable level. Along with the GSP+ concessions that Sri Lanka won back, the country will soon have market access to India, China and Europe becoming a unique destination for investment. The FTAs will enable meaningful integration in the regional value chains to drive trade and economic growth and make use of the opportunity of Sri Lanka becoming the gateway to the great Indian sub-continent.
He also elaborated that the 2018 Budget was marked as a milestone of reform agenda and a new Foreign Exchange Management Act was produced last year. The reform agenda includes eliminating para-tariffs on imported goods, removing barriers on trade and FDI services, a single window for investment approvals, eliminate non-tariff barriers in exporting and importing goods, targeted promotions of identified sectors for investment in Sri Lanka, establishment of new export processing investment zones, improvement of business climate through digitalization of key processes such as land registry and incubating government agency approvals.
Macro-economic conditions have now stabilised taking the stage for investment and economic growth. Sri Lanka is poised to be a major source of investment for companies eyeing the country as a way to tap into the fast growing Indian Ocean, he noted.
Ceylon Chamber of Commerce Vice Chairman, Hans Wijayasuriya at the event said that this event provides a robust and multi-faceted platform for showcasing Sri Lanka’s credentials as an investment destination. It will also be a platform for focused interaction between potential as well as existing investors and counter parties across the private and government sectors in Sri Lanka.
Over the past years there has been a steady increase in the number of delegates, organisational participants as well as in engagement from various stakeholder groups. “There is a growing interest in Sri Lanka as an investment and a business destination from the country’s performance over the past years. Last year the country saw FDI and merchandise export earnings reaching an all-time high,” he noted.
Mr. Wijayasuriya also elaborated that consistency needs to grow in terms of policy execution and facilitation by the government of Sri Lanka which has been the foundation in increasing both inflows of new FDI and repeat investments from existing investors. Trade and investment is a key driver of Sri Lanka’s economic trajectory going forward. Sri Lanka has progressed at speed with respect to the establishment of trade agreements with several countries in the region which will afford preferential access to an ever expanding regional and global market, he added.