The Sri Lankan government is looking into introducing laws into the Companies Act to deal with the revival of ‘sick’ companies. Speaking at the Sunday Times Business Club meeting at the Taj Samudra this week, Central Bank (CB) Governor Ajith Nivard Cabraal said new laws are being looked at which will give support to companies that are experiencing difficulties.

In resurrecting and reviving companies, Mr. Cabraal explained that the difficulty is in securing fresh capital. Troubled companies may also require changes in the board of directors although current regulations in the Companies Act holding directors liable for previous obligations of the company, may prevent directors from coming in.

Nivard Cabraal at the Business Club meeting

Mr. Cabraal said there is approximately Rs.100 billion in assets in ‘sick mode’ that laws can be drawn up to provide the private sector the opportunity to revive companies and buy distressed assets. Prior to becoming CB Governor, Mr. Cabraal had started an association called the Business Recovery and Insolvency Practitioners Association of Sri Lanka (BRIPASL).

Mr. Cabraal said the CB has also embarked on a campaign to develop ‘doing business’ indicators. He said there are a lot of inefficiencies when it comes to starting and maintaining businesses in securing permits and getting water and electricity connections. In the construction industry for example, there are about 22 required procedures from when a project is started to its completion which takes about 214 days. Mr. Cabraal said the government is trying to simplify those procedures to put the onus on the agencies to respond to the applicants.

Addressing the economy, Mr. Cabraal said Sri Lanka has restored and maintained investor confidence over the past several years. During the time of the global financial crisis, the government did not allow any banks or registered finance companies to fail in order to ensure confidence is not eroded in the economy. “This is why we have had a favourable international outlook with investors coming in and reserves rising to unprecedented levels at US$5.3 billion,” he said.

“The unemployment rate is less than 6%. We have restored stability and ensured sustainable growth and benign macroeconomic fundamentals to face the future with greater confidence.”

Mr. Cabraal said the war being the major impediment that was holding back Sri Lanka, has been eliminated. He recounted telling a group of investors in Australia recently that Sri Lanka does not need to give tax incentives and tax holidays to lure investors as was done in the past. “We don’t have those problems anymore,” he said. “We have a stable exchange rate, reasonable interest rates, educated people and sound macroeconomic fundamentals.” He said everyone should pay their due taxes and contribute to infrastructure development and the development of the country.

In 2009, approximately 6.3% of GDP went to infrastructure development. There is currently around US$5.2 billion worth of work in progress on infrastructure development in all parts of the country including 4,000 kilometers of roads in rural areas.

Mr. Cabraal said the government has developed a vision for the future which everyone is working towards. That includes having a per capita income of US$4,000 by 2016. Credit has to increase and the infrastructure has to be developed further. This also falls in line with the government’s plan that all infrastructure will be developed under five major hubs, those being naval, aviation, knowledge, energy and commerce.

Around 14 domestic airports are being developed in addition to the road networks and flyovers that are being constructed to ensure that bustling city life can be supported. Other projects include water, improving telecommunications, changing the school curriculum and accommodating the entry of foreign universities into the country.

Mr. Cabraal said one of the first decisions taken by the government in 2006 was to start the Norochcholai power project and the Upper Kotmale power project which had been stalled for over 20 years. With GDP growth at over 6% over the last three years, with the exception of 2009, Mr. Cabraal said it is important to ensure that electricity is also growing at the same rate to ensure that there are no electricity shortages in the future.

He added that economic development mainly moves across ports which is why the naval hub is especially important. He also said tourism is flourishing with 50% more tourists visiting the country after the end of the war. “This will probably increase further.” The government is working towards a scenario where tourists will spent US$150 per day from the current level of US$75 and that tourist arrivals will increase to 2.5 million over the next few years.

“We need to transform the country economically,” Mr. Cabraal said. “Many people still haven’t absorbed the magnitude of change that has taken place. Sri Lanka is entering a new phase and these projections that are being planned are not pipe dreams.” Mr. Cabraal said 7% GDP growth this year is possible. The International Monetary Fund (IMF) has already stated that the government’s policies will yield around 6.5% GDP growth in 2010. “This means Sri Lanka is on the right track. If we have the right policies and attitude, there is plenty that can be achieved.”

The government wants to see greater private sector involvement. “The top companies reported almost a 50% increase in profit in the last quarter,” Mr. Cabraal said. “We will also face the GSP+ challenge. “Exports to the EU are not as fundamental to our economy as people think.” He explained that in terms of apparel exports, only 30% go to Europe and of that, only 60% with GSP+ concessions. “The bulk of exports leave Sri Lanka without any special concessions.”

Looking ahead, there are obvious areas in which Sri Lanka can do well including tourism. Mr. Cabraal said Sri Lanka has the potential to be a billion dollar industry in fisheries, gems and jewelry, BPO’s and fruit and vegetable exports. The club is hosted by the Taj Samudra Hotel and co-sponsored by Hameedia.