Business Times

Lankan economic experts stress the need to treat local and foreign investors alike

By Bandula Sirimanna

Sri Lanka needs to treat local and foreign investors alike to achieve a higher rate of investment, reduce poverty and regional income disparities, an economic expert said.

There should be no discrimination between investors and it is not necessary to grant concessions like tax holidays with the aim of attracting Foreign Direct Investment (FDI). This was emphasized by Sarath Rajapathirana, Former Economic Advisor,World Bank and Visiting Scholar Emeritus at the American Enterprise Institute, Washington, DC, when he addressed an open forum organized by Sri Lanka Economic Association in Colombo last week.

This view was endorsed by almost all senior economists who attended the forum. He noted that the government should allow wider participation of the private sector in foreign investment promotion as access to international and bilateral donor funding is becoming limited.

Mr. Rajapathirana said that foreign investors also consider good macro economic conditions before investing in Sri Lanka, and the country should assure dividends for their investments for them to come here. Investors are more worried about returns for their investments but less on good governance, he said. FDI is known to provide infrastructure improvement, create jobs and help promote economic growth. But to attract it ‘we’ have to compete with 190 countries, he observed.

Wide ranging infrastructure covering road, rail and air connectivity, power surplus at all times, telecommunication network along with optical fibre connectivity and plentiful water supply are among the indispensable physical facilities. Human resources trained and trainable, disciplined and disciplinable have to be delivered, he said.

Prof. Anoma Abhayaratne, Dean of the Faculty of Arts, University of Peradeniya was of the view that creating a better investment climate, further easing of doing business, provision of better infrastructure, economic and political stability reforms in lbour laws, and eliminating bribery and corruption are the main ingredients in attracting FDIs. She said that trade and regulatory reforms should also be introduced to create a better investment climate.

In the last half a century, FDI flows in the world amounted to a cumulative total of $16.650 trillion by 2008. Of this amount, over 75% was after 2000. The picture is clear that investment resources are no longer confined to the nations generating a surplus. Recipient countries are around 190. Parallel development in those countries has conduced to a globalised economy. Like water seeking its own level, capital flows easily on an even terrain. The world is now flat. Advances in swift transport and incredibly fast communications have helped in the flattening process. Many a physical barrier has ceased to exist. Sri Lankan government has to formulate its policy sharpening its investment climate under this set up, Prof. Abhayaratne said.

Dr. Anura Ekanayake, Chairman - Ceylon Chamber of Commerce was optimistic about foreign investor interest on Sri Lanka. He said that a large number of investors have expressed willingness to invest in the island. But lot more needs to be done to attract their investments, he said. Citing Singapore as an example he said that, neither the smallness of the country nor the limited size of the population is a bar to attract foreign investment. The end of the war in Sri Lanka has removed a block for investment. Laying the groundwork for investment is the first step in consolidating the peace process. North East and South West coming together to move forward may have a historical parallel. Therefore ‘we’ should be positive about foreign investment although it has come down at present, he said.

Expressing his views during the open discussion Dr. Harsha de Silva, UNP Parliamentarian and consultant economist noted that one of the primary reasons for the low FDI situation is the lack of economic governance. Lack of respect for contractual obligations, very high levels of corruption, severe political interference including the almost institutionalized rent seeking behaviour of certain high officials and ministers… all contribute towards this, he said. However there are so many projects going on everywhere. Roads, ports, power plants etc - all these funded by the Chinese not on FDI basis, but rather on high interest loans, he revealed. In fact the Chinese disbursed more money in Sri Lanka than the World Bank, ADB and Japan put together; but 99% came from loans and the bulk at commercial rates.The Chinese loan projects are crowding out FDI space. It is also well known that these non-transparent projects are highly corrupt, he charged.

“Insider trading is rampant at the Colombo Stock Exchange. The other day Colombo Land prices doubled overnight. What triggered the sale of 20% of shares of the majority shareholder? Who sold? Who bought? What are the connections between these people? Who represents who on the board? These are all valid questions people don’t ask due to fear,” he said. “None of these actions build confidence in genuine investors”. “But on the other hand who wants genuine investors? As long as the corrupt can make money and there are those who are willing to play the game, who cares?” he asked.

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