Foreign investors look for two key factors before committing their hard earned funds to any country – political and economic stability. The dust has now settled on the No-Confidence Motion brought against Prime Minister Ranil Wickremesinghe and a new Cabinet is likely this week. Both President Maithripala Sirisena and Prime Minister Wickremesinghe are committed to continue the National Unity Government until 2020. This will no doubt ensure political stability.
The Government has also ensured economic stability. The Rupee’s slide has more or less been arrested, the Colombo Stock Exchange is performing well and many mega development projects are underway. There is more good news - Sri Lanka has recorded its highest ever Foreign Direct Investment (FDI) inflows in 2017 amounting to US$ 1.913 billion rising by a sharp 138% compared to inflows of US$ 802 million in 2016, the Central Bank confirmed on Friday.
The infrastructure sector saw the maximum FDI inflow of 61%, while investments into the manufacturing sector comprising 20% and 19% in services. The highest FDI came from China, followed by Hong Kong, India and Singapore. Sri Lanka is targeting to achieve US$2.5 bn in 2018 and US$5 billion by 2020 in FDI as work on developing several new export promotion zones has been initiated.
Foreign Direct Investment (FDI) is essential for any developing country to strengthen the economy and create jobs. Sri Lanka, which liberalized its economy exactly 41 years ago, is known as a premier investment destination in South Asia. There is intense competition for FDI among developing nations. This is why Sri Lanka must offer the right projects and the right investment climate for foreign investors. In other words, our ‘product’ must be unique and different.
Sri Lanka now has a great opportunity to reinvigorate its FDI prospects thanks to a slew of foreign investment projects led by the US$ 1.1 billion Hambantota Port. Sri Lanka needs enhanced investments for economic growth for which there are no short cuts. It is also vital for the domestic private sector to be more robust for growth to pick up.
Creating a climate conducive to investments is very important. The Board of Investment (BoI) was established with this aim in mind, but even the BoI has not been able to totally eliminate the copious amount of red tape involved. Some investors, driven from pillar to post, have left the country and taken their investments to countries such as Vietnam and Bangladesh. This aspect should be addressed and investors should get a seamless experience from the time they come in with the proposal to the opening of their FDI project(s).
There was one other “hidden factor” that had driven investors away – corruption. Many foreign investment projects launched during the previous Government’s tenure were grossly overestimated, with the additional amount reflecting the corruption element. There should be no room for corruption at any level in the approval process for FDI.
Foreign investment should not be considered as a panacea for all ills. Sometimes all we need to have are better managed enterprises, public or private. There is no debate that certain loss-making and debt-ridden state-owned enterprises should be restructured and streamlined to serve the public in a better way. Public Private Partnerships (PPPs) are also an ideal solution. The authorities should explore PPPs in transport, utilities, ports, tourism, construction, housing, health care, financial services, information technology and mining and minerals sector.
Sri Lanka should seek more foreign investments in the power and energy sector, given the imperative need to phase out thermal power and rely more on renewable energy. Fossil fuels, with the exception of coal, are generally expected to run out in the next 100 years. In this backdrop, several alternative energy projects have already been announced by the Government. Concessions and incentives should be granted to local and foreign investors who seek to implement wind, solar and even ocean wave energy projects. This will help reduce the massive fuel import bill which exceeds US$ 6 billion a year.
Many countries face myriad challenges in attracting FDI due to the volatile global economic conditions. These issues relating to FDI will be addressed at the three-day mega global event, Annual Investment Meeting (AIM) that takes place at the Dubai World Trade Centre on April 9-11, 2018.
The conference will focus on: Driving sustainable development through FDI; investment in the Fourth Industrial Revolution; how technology is changing the future of productivity and growth; public-private partnerships for infrastructure projects, Sovereign Wealth and Private Equity Funds and their role in investment.
The AIM is being held at an opportune time, given that global investment is seeing a bumpy recovery as worldwide FDI flows reached US$ 1.52 trillion in 2017. According to the World Investment Report published by the United Nations Council on Trade and Development (UNCTAD), FDI to developing economies such as Sri Lanka remained stable, at an estimated $653 billion, two percent more than the previous year. Sri Lanka must position itself as a gateway to South Asia and indeed, Asia itself to secure a bigger slice of this global investment pie.
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