Analysis of Foreign Direct Investment in Sri Lanka (Part 2)

Another way to compete is through trade processing speed and price. While national logistics is inefficient, Sri Lanka is doing better globally. It currently ranks 57.7 out of 100 on the BMI Logistics Risk Index and ranks fifteenth on the UNCTAD Liner Shipping Connectivity Index, which ranks nations by their level of connectivity to global maritime networks. The per-container cost of exporting and importing to and from Sri Lanka is much lower than the average of South Asia but not at world-class level (US$ 560 and US$ 690 respectively – South Asian average is US$ 1,923 and US$ 2,118, 2015).

1.         Promoting investment and laws while avoiding policy uncertainty - The island ranked 111th out of 190 countries in Ease of Doing Business index 2018, showing opportunities for enhancement. Since 2016, the government has carried out some targeted reforms to enhance the investment climate, and improvements are emerging with the anticipated lag. Changes are required in fields such as land ownership to tackle critical problems. At present, land in Sri Lanka is mainly state-owned, and land administration is weak and complicated. Anecdotal proof indicates that FDI projects are discouraged owing to land problems. 
   In addition, the BOI (the primary facilitating body for FDI in Sri Lanka) is transitioning to contemporary investment promotion. The Internal Revenue Act streamlined and enhanced the effectiveness and transparency of foreign investment incentives in Sri Lanka. The state also liberalizes controls over foreign exchange. Long-term policy approaches in support of the GOSL vision can serve as path-setters and expressed dedication to policy continuity.
2.  Strengthening innovation through competitive product and financial markets - Over the past 20 years, Sri Lanka has seen little change in what it has been exporting. There has been restricted innovation and diversification into "near-by-product" space (fresh products strongly associated to current ones) which is a more straightforward step with the investment that occurs organically. This challenge of moving into new space also left the nation out of touch with regional and international networks of manufacturing. Where there is innovation, it is restricted to a few sectors. A national plan for innovation aims at tackling gaps and supporting start-ups and SMEs.
3.  Providing the right environment for logistics and infrastructure - Nationally, Sri Lanka requires to tackle transportation deficiencies that have seen unfair development with some areas disconnected from growth, rising congestion problems, and insufficient women's safety. Different regions face different transport gaps in roads, air travel, and shipping infrastructure, while rail infrastructure is outdated and limited, particularly for goods transport.

OSL Take: Sri Lanka's International Trade and Development Strategies Minister Malik Samarawickrama informed the Parliament last week that the government has approved US$ 4.6 billion worth of Foreign Direct Investment (FDI) projects in the first seven months of 2019. The statement on the FDIs that have reached the country by Sri Lanka's Minister for International Trade and Development Strategies is indicative of Sri Lanka's business/investment potential.

VBS/AT/09102019/Z_TB1