Business Times

New strategy to attract investments

Almost a year has gone by but Sri Lanka is yet to reap the benefits of the end of the conflict.
There was a lot of hype and expectations that the economy will take off and investment – locally and foreign – would be made but that hasn’t happened, as reflected by this newspaper’s economist (in a column in the first section of the Sunday Times).

This is what the economist says: “Only a trickle of economic gains is seen and there is much in the economy that has been a setback as well. The optimistic expectation after the war has turned to dust. In fact the initial confidence in the economy has been eroded and a new wave of confidence would have to be established soon.”

While he has dealt with issues relating to the lack of activity in the economy despite huge expectations that Sri Lanka would take off, we would like to focus on another critical issue: attracting local and foreign investment in the economy.

A diplomat, from a wealthy Asian country, told us this week that one of the problems is that Sri Lanka is relying on the old, hackneyed type of promotion in attracting investments.

“Things have changed dramatically over the past few years. For example Vietnam is a key competitor in garments while Bangladesh is not only a low cost base for garments but its quality has also improved with foreign technology coming in. Likewise may other countries have advanced while Sri Lanka was caught up in the conflict. You need a new format in investment policy. The old tactics won’t work,” he said.

Very true! At an exclusive discussion organised by the Business Times this week on the stockmarket and where it is heading – after the war -, panellists also spoke of short windows of opportunities that have arisen in the past few decades (that Sri Lanka lost) and which may happen in the future. “We need to be ready when these happen,” said one panellist.

They also reflected on a very, real fact: liqudity -- not enough shares available in the stockmarket for international funds to invest in. Except for a few companies like John Keells Holdings for instance, the majority of companies have miniscule amounts available in the public domain which means major international players like Mark Mobius or Jim Rogers are unlikely – though they visited here recently – to invest in stocks unless sizable stakes to make it viable are available. “It will continue to be a market attracting small international players,” a panellist said.

What is urgently required is a re-think of our investment promotion strategies. We need to throw out old, jaded ideas and look for new ones. Tax breaks, a low cost base and a literate labour force are unlikely to attract investors anymore except – like in the stockmarket – draw small players in the global market. Furthermore our market is not big enough to draw manufacturing companies which also look for a domestic market.

The belief that Sri Lanka could be used as a route to the huge Indian market may not work unless we have what India doesn’t produce and furthermore cheaper, which is hard to find.
If we look after our biggest industries, both garments and plantations are saturated and won’t attract investments.

But agriculture will and with companies like CIC and Cargills leading the way in the new generation of businesses involved in the agri-sector, there is a huge opportunity (not to be missed) to produce niche market products like organic food for example.

Similar to the demand for ethically-produced garments, ethical tea and a whole range of other products in the world, Sri Lanka could produce organic fruits and vegetables and serve a growing market in the west for food sans pesticides.

Government planners need to prepare a new investment strategy, aimed at attracting investment and promoting exports, which would take into account the changing scenario in the world. Unless there is a shift in our thinking and investment policies in the post-war development era, the economic model would probably remain the same.

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