31st, August 1997

Mc Donalds comes to Sri Lanka

by Farah Mihlar

Mc Donalds, one of the leaders in the food and beverages industry will open itís first restaurant in Sri Lanka early next year, Mr. Rusi Pestonjee, Director Abans the local franchise holder said. The franchise was granted to Mr. Pestonjee after almost 2 years of studying the market, a spokesman for Mr. Pestonjee said. The deal between the local franchise holder and McDonalds was sighed early this month , but was not made public.

McDoanlds which has nearly 20,000 outlets in over 95 countries follows the well known food chains Kentucky Fried Chicken and Pizza Hut which have already opened here.

Investments on upward trend

By Imran Vittachi

SRI LANKA is poised to post record investment numbers in 1998, surpassing one billion dollars in value of signed agreements, the head of the Board of Investment said on Wednesday.

"The trend appears to be that in 1997, we're going to exceed the highest ever level of agreements signed," Thilan Wijesinghe told Sunday Times Business , in an interview granted to "set the record straight" concerning recently published criticism of BOI's performance. "But I expect this figure to be in the excess of US$ 1bn on account of a few large-scale projects that I expect will be signed within the next few months."

Despite setbacks dealt to national investment from 1994 to 1996 — partly as a result of investor jitters over insecurity — Sri Lanka was now on the way to breaking the 1994 mark of US$ 885ml in total worth of signed agreements.

"Investment figures are very much on the upward trend," Wijesinghe said. "The value of agreements signed was US$ 712ml for 1996, compared to US$ 289ml for 1995."

The country was also set to better the 1993 record of US$ 185ml of foreign direct investments (FDI) actually put into Sri Lanka.

"I am confident, that in the year 1998, Sri Lanka can achieve the highest ever level of foreign direct investment committed," Wijesinghe added. "I'm expecting 1997 to be around $130m which is, in fact, 50 percent higher than the level we achieved in 1996."

Since Sept. 1995, when he took over as head of the Government's investment arm, BOI had doubled the average size of investments, he said. In 1997, this stood at US$ 5.2ml — a two-fold plus increase from the 1995 average outlay of US$ 2.5ml.

Two new multi-million dollar deals, which are in the pipe, could swell the investment pie even more. In his opinion, it was a sign that the country was now attracting FDI away from traditionally low-tech industries to hi-tech industries with a premium on value-addition.

"We have also received two firm proposals to set up an information technology park and a science park from Singaporean and Malaysian investors," Wijesinghe said.

Declining to reveal names or go into detail, he said the prospective deals could be up-and-running "a few years down the road". Between them, they could generate up to 25,000 jobs.

"The value-addition generated from one employee involved in the export of software could be as much as 100 employees involved in a low-tech operation," Wijesinghe added. "So from the context of Sri Lanka transforming itself from relatively low value-added manufacturing to software and technology, which would involve high value addition, these two projects would be very important in the national context."

Prospects are looking bright on the investment horizon but, according to the BOI chief, they could be even better.

"This is not to say that Sri Lanka is, in fact, attracting the levels of investment that we should be attracting," he said. "In my opinion, we should be targeting to attract at least US$ 500ml per annum of committed FDI."

Given political instability and rising costs of labour in emergent economies of East Asia, foreign investors could be looking west to set up shop. In Wijesinghe's view, Sri Lanka stands to tap into billion dollar industries like electronics.

"I believe that with the expansion of the Philippines and rising wage rates in that country, if we have the infrastructure in place... Sri Lanka can position itself to become the next major destination for attracting investment in the electronics sector," he said.

Wijesinghe attributed Sri Lanka's recent success in building an investment base to a rekindling of investor confidence in the "sheer ease of entry" here. They had been encouraged — not only by the soundness of local laws and the relative lack of red-tape when setting up investments — but by People's Alliance moves to foster stability, and lay down infrastructure that would facilitate more investment.

"Investors today are far more discerning... they're discovering the pitfalls of going into a country where there is no rule of law," he said. "Investors over time find that Sri Lanka is a far more easy place to do business."

Thilan Wijesinghe also took the opportunity to respond to allegations of gross incompetence recently made against BOI by another newspaper.

"My performance should be judged by virtue of the achievements of the BOI by the minister concerned — that happens to be... the President — based on factual data and concrete investment projects that have been implemented," Wijesinghe said. "It is unfortunate that a particular newspaper — without, in fact, recourse to me whatsoever for comment — published certain information which is inaccurate and misleading."

Among other criticisms, it was alleged that Sri Lankan investments had plunged to an all-time low under Wijesinghe's tenure. Graphs, depicting the Board of Investment's performance over the past five years, were presumably extrapolated by the paper from data published in a leaked BOI document submitted to the Committee for Public Enterprises in July.

In his defence, Wijesinghe maintained that a "serious procedural lapse" had occurred, in which flawed information was sent to COPE without his oversight, and that he would punish those responsible for the slip.

"This information was released without my explicit authority, and this information was wrong," he said. "I have placed my apology to COPE for providing inaccurate information, and I am in the process of taking action in order to reprimand the officers who were responsible for releasing such information, which I believe is an act of negligence."

BOI was working to computerise its records and establish a cross-checking mechanism for data correction, he said.

Wijesinghe also elaborated on why he thought the criticisms were skewed. Facts were misinterpreted, he said, because they failed to present the data within a cumulative context of years. A BOI-approved investment could take between one and three years before it is operational, he noted.

"The correct interpretation of this data is that of the 389 projects approved in 1992, as of today 178 are in commercial operation," he said. "To say that the implementation ratio of projects for 1992 is 178 divided by 389 is wrong. "

Wijesinghe acknowledged that BOI had approved 122 projects in 1997, and that only one of these had started up. But, given the 12 to 36-month lag that normally follows BOI approval, it was a "pleasant surprise" to him that the one venture was already operating. And, he noted, to arrive at a more accurate picture, this venture had to be considered with approvals or cancellations that had happened over the past five years.

"That does not necessarily lend itself to dividing one by 122 and saying that the implementation ratio is, in fact, less one percent," he said. "If we were to interpret the data in a correct manner, we had a total of 21 projects that commenced commercial operations in 1997, and not [just] the one that the alleged article points to...."

The actual number of projects in commercial operation — as a percentage of approvals in force in 1997 — was 39 percent, and not 0.8 percent as alleged, Wijesinghe added.

Credibility in Economic Policies

Credibility is an important factor in the effectiveness of economic poli cies. The People's Alliance government suffered for quite some time from lack of credibility in its economic policies. This was one of the underlying reasons for the slow growth in the economy in the last three years. This appears to have changed.

There appears to be growing confidence that the framework of economic policies that the government announced would be implemented and that there would be a continuity in market oriented reforms. The business community also senses a more courageous approach by the government to economic issues.

There were many reasons why the government lacked credibility. First of all the parties of the People's Alliance advocated economic policies drastically different to their earlier policies. This historical legacy made people skeptical as to whether the government had actually changed its economic policies. They feared that despite the announcements, the government would adopt earlier socialist policies.

This belief gained further strength as some of the coalition partners and even cabinet ministers articulated their opposition to some of the key elements of economic policy. Further the contradictions within the government led to a go-stop-go type of implementation which did little to convince people that the government really intended to pursue its economic policies.

At last, after three years, there is a much greater degree of confidence that the government would continue its private enterprise led market oriented economic policies. There has also been a much greater evidence and resolve in continuing the market oriented system. Fiscal policies have supported private enterprise development. The implementation of large privatisations like Telecom, Plantations and the NDB have also added to a reinforcement of this confidence.

It is also hoped that those who have so far opposed or have been critical of the government's economic policies from within the government would also support these policies. If this were to happen there would be even greater confidence in the continuity of market led economic policies.

One of the reasons adduced for the modest economic growth performance in Sri Lanka has been the lack of continuity in economic policies. The PA's liberal economic policies ushered in a new era of greater continuity. This also bore witness to the fact that while the world was changing Sri Lanka could ill-afford to not pursue economic policies which took advantage of the global currents.

The remaining socialists should also be pragmatic and realise that their approach of the commanding heights of the economy being in state control is only likely to lead to economic stagnation. Many socialists and socialist countries have themselves changed their economic stance and are pursuing market oriented reforms. Why should Sri Lanka which had a mixed economy not opt for a private enterprise economy?

There are several reasons for the economic recovery and growth which we are witnessing today. This includes the lack of adverse factors like drought, power cuts and poor security conditions in Colombo. Apart from the absence of these factors, there is little doubt that the government's recent economic policies and the enhanced credibility of the government's economic reforms are vital ingredients of the current improvement in economic performance.The continued confidence and credibility in economic policies is undoubtedly essential to continue the momentum of economic growth. The government should realise this and make every effort to strengthen the confidence the business community has at last gained.

Continue to Business page 3 * By Business Bug * When the clock ticks to 2000 look for chaos in IT solutions * BoE Governor will get strength from two deputies

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