Does it safeguard Sri Lankan interests?

By Ramani D.Wickramaratne

Our new Minister of Investment Promotion and Enterprise Development Dr.Sarath Amunugama seems to be on a path to set either an Asian or a world record in issuing approvals for BOI projects in Sri Lanka-congratulations Mr. Minister! There is no doubt that foreign investors are extremely happy with this new trend.

By reducing the bureaucracy and complicated procedures, without any doubt, the time taken from submission of application to obtaining approval will be minimized. Issuing “approvals over the counter” as stated by the Minister, might sound “a State of the Art” method but needs closer scrutiny.

National requirements
Foreign investment on a large scale commenced after 1977 with the introduction of the “open economic policy” of the late JR Jayawardane. At the time, a hurriedly formulated Greater Colombo Economic Commission(GCEC) was established and it was under the late Upali Wijewardane that projects first took off in the Katunayake Free Trade Zone. Initial interest from investors were to establish garment related projects and even though such projects did not provide the volume of employment envisaged, it nevertheless offered part of the requirements but all employment had to be sourced through the UNP trade union-the Jathika Sevaka Sangamaya.

Not a single individual whose affiliations politically, were other than UNP gained employment in the Katunayake FTZ during the first 10 years!

As a state policy, the BOI must first do a serious investigation into what areas in our national economy require foreign expertise and technical know-how and list out projects in line with our national interests.

Foreign investors and their projects must fall in line with those requirements. In as much as we are keen to permit projects which will generate employment for our “educated unemployed”, the BOI must also ensure that through these projects, our national resources will not be depleted eventually.

If Sri Lanka requires foreign investors to enter our country and invest, it is of utmost importance that the government first formulates a National Policy on foreign investment, what is expected, how it will be implemented and how it will benefit our state economy both in the short-term and long-term future.

The BOI has an obligation to be honest with the investors and promise facilities which we can definitely provide-it is of utmost importance that the government and the BOI keep these promises without back-tracking once the agreements have been signed; that will build credibility, efficiency and also ensure transparency at all levels.

Relation between theory and reality
In an article which appeared in a local newspaper on May 20, 2007 titled “Country Set to Achieve Double Digit Growth-Dr.Amunugama” the minister was speaking at the ceremony to present approval letters for 50 projects to the prospective investors. In another report 3 projects were approved and according to the Minister in 2007 alone over 170 projects have already been approved-laudable indeed!

Areas under which projects will be considered according to newspaper reports are: housing and property development; shopping and office complexes; call centres and BPOs; computer developments; hotels, restaurants; IT related services; export-import trading houses; power generation plants; building materials and garment accessories. To this list is also added, telecommunication communication systems.

Some of these projects may not be of utmost importance to our country and it is necessary to conduct evaluation studies before approvals are granted. Housing and property development, shopping and office complexes are very special areas which need special scrutiny to ensure that Sri Lanka does not end up as a dumping ground of ugly “white elephant monstrosities” which become heavy liabilities to the state eventually.

It is of utmost importance when considering telecommunication projects, that approvals are given only to those systems which after investigations will prove to be compatible with already existing systems in this country or else, subscribers will have severe problems when they deal between systems.

Already, this is a serious problem with relation to the CDMA systems that are being marketed by Lankabell, Suntel and SLT -- private Internet and email service providers have been pushed aside and the business has been hijacked from them by these private companies because the necessary software packages have not been intergrated into the CDMA systems. It is sad that the TRC which professes to safeguard the interests of local subscribers, is not performing their duties adequately to ensure satisfactory service from telecommunication companies.

A word of caution needs to be spelt out with regard to “over the counter approvals” for investment projects. Speed in expediting approvals is highly laudable, but our officials must not think that every foreigner who arrives in our country with a fascinating project proposal, an impeccable western suite and tie with a briefcase in his hand, are all genuinely interested in investing long-term in our country. Some of them come here to invest, only as a stepping stone to move elsewhere to more lucrative pastures-this is a reality that our officials must not forget.

The duty of our BOI officials first and foremost, is to check thoroughly the credentials of all investors even to the extent of checking their banks in the country of origin. Many are the dubious entrepreneurs who have entered this country in the past 30 years in the name of investors but they have left our country after having obtained loans from our local banks, repatriated that money and defaulted!This makes it difficult for our banks to recover the loans given to foreign investors.

Our understanding should be, that foreign investors bring in adequate funds for the running costs and maintenance without having to approach our local banks(whose duty is to serve the local business community) for additional loans once they set foot on our soil.

Another area that needs caution when dealing with foreign investors, is to monitor and check whether the technology they bring in, is in keeping with what they have stated in the project proposals. In this area our BOI officials through the years, have been at fault very badly, mostly due to the fact that quite a few of them have demeaned themselves by accepting gratuities from the foreigners.

More often than not, investors promise to bring in “state of the art technology” into Sri Lanka but what they actually bring in is reconditioned machinery and equipment which they wish to discard from their own countries for which spare parts must be imported from their countries and before five years is up-the machinery is discarded in Sri Lanka with no further use.

By this time, according to the agreement they are expected to transfer the technology to locals and hand over the management of factories to local managers. Most often, the local managers who take over find that it is necessary for them to spend an enormous amount of money to purchase new machinery because the machinery brought in by foreigners cannot be used any more! It is also very doubtful whether technology transfer is done according to terms stipulated-from what we know, crucial know-how is withheld from the local technicians.

Success of investment projects
This will depend largely on a number of issues: (1) The thorough scrutiny of the credentials of the investors;(2) The commitment and honesty of our own BOI , Customs and other related government officials;(3) The efficiency with which rules and regulations applicable, reach down to all levels of government authorities involved in implementing investment projects; (4) Regular quarterly, bi-annual and annual monitoring and reporting both from the investors side as well as from the BOI-this unfortunately, is very sadly lacking in the present investment environment; (5) Whether or not the BOI and the government adhere to obligations from our local side; (6) Helping investors procure a dependable work force; (7) Keeping our labour costs within competitive market prices of the region and having a clear cut policy regarding promotions, welfare benefits such as bonuses and increments;(8) Ensuring that all investment projects strictly adhere to the labour laws applicable within Sri Lanka;(9) Where taxes are applicable, the BOI must ensure that the relevant tax authorities do not resort to under hand dealings with foreign investors to deprive our government of receivable dues.

In as much as we expect the foreign investors to comply with the laws of this country, it is more important that our own government officials implement policies with the best interests of our country at heart. Streamlining our systems to enable investors a smooth operation is absolutely necessary.

The Minister offering “approvals over the counter “ alone is not adequate to ensure the success of BOI projects in this country-there is a lot more hard work and commitment that needs to be exhibited from the side of our officials.

The success of BOI approved projects does not depend on our officials bending over backwards to please the foreign investors but, in the monitoring and checking of whether the investors are following the mandate given to them according to the terms and conditions stipulated in the agreements.