More than two years after the end of Sri Lanka’s terrorism-eliminating conflict, the country is still struggling to attract foreign investments (FDI) mainly due to the re-emergence of political risk as a result of poor public relations with the rest of the world, an investment expert said in Colombo on Monday.
Mafaz Ishak, Director, Calamander Capital Singapore (Pvt) Ltd, Colombo Office, told a seminar on ‘2011 and Beyond: Trade and Investment Prospects in Asia and Implications for Sri Lanka’ organised by the Institute of Policy Studies that the authorities have failed to promote the country’s positive image and the economic situation about to flourish.
Despite the end of the war, poor management of perceptions has resulted in the emergence of political risk, he added. Many investors are concerned about political issues rather than the flourishing economy, he said. He noted that government should seriously focus attention on the rule of law, bureaucratic red-tape, incompetence and lethargic attitude of public officials, and policy uncertainty in order to attract foreign investments.
He expressed concern on the failure of the authorities to put in place a clear procedure for investors in Sri Lanka. He noted that the Board of Investment (BOI) designed to be a ‘one stop shop’ for investors is now in a state of transition, having been absorbed by the Economic Development Ministry and it is unclear what its future role is going to be. The new US$3 million limit at the BOI for concessions is still a bit premature and it is better to set the bar at US$500,000 and work it from there, he suggested. The other issue was that the investors not only have to deal with the BOI but also with the Tourism Authority, the Health Ministry, local government and anyone else who takes an interest in the project. He pointed out that investors are opportunistic and they are very concerned about political risk.
"The lack of public and media relations has led to the re-emergence of political risk in the country in the eyes of certain investors. If you look at the general perception as evidenced by Sri Lanka’s reputation in some international publications, for example, the OECD’s Country Risk Classification Report gives Sri Lanka a score of 6 from a range of 0 -6, alongside Angola, Georgia, Uganda and Iran. Similarly, the MIGA World Investment and Political Risk Report 2009 (Published in 2010) perceives Colombia, Uganda and Argentina to have less political risk than Sri Lanka.
The AON 2011 Political Risk Map and the Maplecroft 2011 Political Risk Map put Sri Lanka in the company of Libya, Egypt and Peru. In essence, the general perception is that Sri Lanka is a very risky place to do business. This has led to many investors avoiding Sri Lanka as an investment destination, resulting in an FDI of less than $500 million in 2010. Incidentally the AON report’s three key areas of concern illustrate their lack of on the ground experience are ‘Strikes, Riots and Civil Commotion’, ‘Supply Chain Disruption’ and ‘Sovereign Debt Repayment’ - areas which almost no investor in Sri Lanka would put in his or her top five or 10 risks," Mr Ishak said.
"A greater cause for concern is the instability of government policy. Car taxes went down, and have come back up again; there was a great deal of confusion as to whether visas were going to be introduced for tourists and conflicting signals seem to be the norm. For example, the Wall Street Journal, picked up the fact that despite introducing an investor friendly budget, President Rajapakse had boasted of nationalising public sector corporations”.
"The policy climate is highly opaque, and a cursory glance will leave any observer confused and bewildered. Coalition governments, especially as diverse as that of the current government, entails ideological conflict. This leads to policy instability as the President has to balance a range of interest groups and supporters. For example, even within the President’s party, the SLFP, ‘the left’ wants to introduce a mixed economy, the economically right wing UNP crossovers prefer a liberal free market state and then the nationalist right wing are more concerned about environmental impact. The energy sector illustrates this well; although power generation has been liberalised, none of the sectors, such as distribution or marketing, have been done in any meaningful way," he said
Senior Minister for International Monetary Cooperation Dr. Sarath Amunugama emphasized the need of promoting intra-regional trade, entering into regional trade agreements and getting tariff concessions, and compared to India and Pakistan, Sri Lanka is less engaged in such pacts. He added that the country’s companies should gain access to supply chains of big firms becoming parts and component suppliers in the region. Dr. Amunugama said that countries like Sri Lanka should increase its efforts to remove non-tariff barriers, including those arising from unnecessary cumbersome procedures and regulators, if they are to make further progress.
Dr. Saman Kelegama, Executive Director of the Institute of Policy Studies said that political leadership should be given in promoting intra-regional trade including services to harness benefits of the economic boom in Asia Pacific region. He noted that there is a great potential for Asia Pacific developing economies to expand trade and investment in services. These countries have an abundance of low and semi skilled labour that is major input to tourism, construction and transport services. Sri Lanka should focus attention on this aspect and on the creation of high skilled human capital necessary for the development of knowledge intensive services.
Dr. Narhari Rao, Chief Economist, Asian Development Bank Sri Lanka Office, said in India, ministers were not supposed to comment on government policy. "This is a specialized job-one which required technical competence so therefore the Indian government has one spokesman." This will prevent the disseminating of conflicting information on government policy,” he said. |
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