Construction Sector Opportunities

Over the past nine years, the construction sector has multiplied in the growth of high-end residential, industrial, hotel, and resort building and infrastructure, with areas contributing to GDP estimated at 7.5% in 2018. The construction industry provides almost 9 per cent of the GDP of Sri Lanka, employing some 600,000 workers. The construction sector's annual value estimated at $3 billion. Several construction companies, locally and internationally, are involved in the industry. Many major infrastructure projects are under construction, including a new Port City within the city limits of Colombo on newly reclaimed land.

The newly elected government has identified the construction industry as a critical industry that can contribute immensely to our development plans. It has acquired maturity in terms of knowledge, experience and technology use. Sri Lankan companies have, therefore, operations overseas. They intend to prepare the background for this industry to expand abroad as an environment-friendly industry with typical Sri Lankan characteristics. Hence, the following are the benefits and opportunities to foreign investors interested in the construction sector:

·         To facilitate relevant approval processes, we plan to establish a system in which construction firms can obtain all required approvals in one place or through the Internet.

·         The time taken for approval of any building to construct will reduce to a total of 3 weeks. A system will be put in place to make all urban construction agree with prevailing urban development plans.

·         Companies will receive the opportunity to pay past loans subject to negotiable grace periods.

·         The government will scrap the 15 per cent VAT on apartments.

·         The direct and indirect taxes exceeding 300 per cent the incumbent government has imposed on the industry will be changed, by replacing the present system with the 2014 tax system.

·         Currently, the banks demand bid bonds, performance guarantees, advance payment guarantees from companies seeking a line of credit concerning massive constructions. To minimise the hassle caused by these, the government will institute via the Central Bank, a new system in the handling of relations between construction firms and banks.

·         The licensing system that operates today to regulate construction firms in their procurement of raw material will be revised.

·         The new government will ensure the security of domestic small and medium sub-contracting firms through legislation.

OSL Take: The government also announced the Western Region Megapolis Project, which hopes to radically modernise urban infrastructure in and around Colombo using innovative technology (e.g. innovations in smart cities) to propel it to the status of a ‘high-income developed nation' by 2030. Foreign firms have significant opportunities to sell a variety of equipment and technology, from earth-moving equipment and building appliances to machinery and heavy equipment related to the construction industry.

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Digitalising Sri Lanka

The 21st Century is considered the ‘knowledge-centric’ century. Technology must be integrated with every sector of the economy, to remain competitive globally,  be it agriculture, industry or the service sector. 

The government will invest strategically in new technologies and integrate such innovations with the education system and economy. The government has significant plans for a massive social transformation and creates a Culture of Technological Innovation.

•          Sri Lanka branded as a Global Innovation Hub – The government will maximise the use of the Nanotechnology, 3D Printing, Internet of Things (IoT), Biotechnology, Robotics, Augmented Reality, Artificial Intelligence (AI), Cloud Computing, and through these innovative measures establish Sri Lanka as a Global Innovation Hub.
•          There will be future tenders for implementing new methodologies and adopting new Internet-based technologies. The issuance of Birth Certificates, Death Certificates, copies of deeds, and other public services such as National Identity Cards (NIC), Passports, Driving Licenses, etc., could be optimised via the establishment of 09 Citizen Service Centers - 01 for each province.
•          The government will establish a Digital and Electronic Payment System for citizens to pay traffic fines with ease and without any hassle.
•          The government will introduce a new online Procurement system following which, the removal of bribery and corruption is to follow.
•  ·         There will be RFPs to establishing a countrywide High-Speed Optical Transmission System and high speed 5G Mobile Broadband System to facilitate data transmission.
•          Traffic congestion, disaster situations, water consumption and electricity consumption, will be addressed via the establishment of ‘digital cities’ with digital monitoring and administrative centres.
•          The government will also introduce mobile and digital payment system, including the required physical infrastructure and legal requirements to manage all local and international financial dealings.
•          Persons and business entities will handle all international trade and financial transactions electronically. A Cross border e-Commerce and International e-Payment system will be implemented, along with the required legal provisions.
•          The Business Process Outsourcing (BPO) industry and the Knowledge Process Outsourcing (KPO) industry would be developed to make export earnings of USD 3 billion by 2025. To realise this, the government will set up IT centres and BPO centres in our connecting cities.
•          The government of Sri Lanka will take steps to increase the number of software engineers and programmers to reach 300,000 by 2025.
•           The new legislation will be introduced to ensure Data Protection, Cybersecurity, and Intellectual Property Rights.
•          The government will be providing maximum support will be given to local entrepreneurs to develop software for the international market.

OSL Take: The observations of the local industry expert that Sri Lanka’s target of US$ 5 billion IT exports was achievable indicate the developments recorded by the country’s IT sector as well as the growing business opportunities in the field. Interested foreign businesses/investors could look at investing ventures in Sri Lanka’s IT sector and gain profits while assisting the expansion of the local IT market.

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Transport Sector Opportunities

The present new government had assigned a high priority to the transport network in the country. The objective was to facilitate commuting and establish a road network that supported economic growth. However, public transport remains neglected, and much remains to be done to upgrade and develop the road network as well as the railway network. 

The newly elected government will assign a high priority to improve the transport network and to provide an efficient and environmentally-friendly system to the public. Investment Opportunities available to foreign investors include:

•   Colombo-Kandy Expressway and the Port city elevated highway project will be extended and finished without further delays. The network will also connect Kottawa, Battaramulla, and Peliyagoda.
•   The government will also complete the Northern and Ratnapura expressway, while feasibility studies will be conducted to explore the possibility of having an elevated highway at 1000 feet connecting Kandy to Nuwara Eliya. 
•   Incorporate an overtaking lane at intervals of 3-5KM to ease the traffic congestion in areas identified as bottlenecks. 
•     The island-wide network of roads amounting to 120,000 KM, which includes all rural roads, has neither been developed nor maintained. Therefore, the entire road network that has fallen into a state of disrepair and neglect will be resurfaced and modernised to conform to international standards. 
•   Develop 100,000 KM alternative road systems to facilitate a higher level of access to main roads and expressways, while all internal and rural access roads will be improved to facilitate access to the alternative road system. 
• Re-fleet the current bus stock and introduce environmentally friendly buses (electric and hybrid buses) to ply within the city limits of the New Colombo. All public and private transport providers will adopt this ‘Green Transport’ concept. 
• The government will introduce a process for a single transport e-ticket system (i.e. multi-modal ticket, day tickets, etc.), and will implement an e-ticketing mechanism for all public and private transport services. 
• The government will convert Colombo-Panadura-Veyangoda, Ragama-Katunayake-Negombo, and Maradana-Homagama rail lines into electric train routes. The government will thereby ensure the public with a luxury transport service similar to that planned for the buses. 
•  E-ticketing system will be provided and introduced for all train transportation. 
•   Develop all key train stations, converting them into the functional, recreational, meeting, greeting and eating places, with malls and shops needed to provide consumers with a total travel experience.
•  Repair existing rail tracks in line with the program of adding value to train services; the Sri Lanka Railway Department will be given adequate powers to ensure that they provide an efficient, clean, and reliable train service to the general public and tourists. 
• Modernise the Ceylon Transport Board (CTB) and make it a world-class transport service on par with any other developed country. The bus stands, located on prime land, will be developed alongside servicing and maintenance depots of such bus routes and networks for commercial purposes of generating revenue to the CTB.

OSL Take: The government of Sri Lanka is engaged in an aggressive development program that covers all critical economic sectors islandwide. The government has paid particular attention to the areas of transport and highways, due to the importance of connectivity in economic development. The objective of importing new trains is to develop the country’s railway transport, thereby improving Sri Lanka’s rail transport sector. Sri Lanka’s development program has created many such business/investment opportunities for foreign businesses/investors.

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Agriculture Sector Opportunities

Earlier in March this year, the Board of Directors of the World Bank approved a $125 million loan for Sri Lanka to boost agricultural resilience and productivity for more than 470,000 small farmers in six provinces in the country's dry area.

 Sri Lanka is especially vulnerable to natural disasters such as floods and droughts due to climate. The agriculture sector, which contributes about 7.7% to the economy of the country and employs 27% of the population, more than 38% of whom are women. (Data Source: World Bank). The newly elected government is planning to develop the agriculture sector by implementing advanced technology, hence a wide range of investment opportunities are available to interested investors:

•  Foreign investors will be invited to produce innovative agriculture-related products under trade names.
• To save on fuel used for farming activities, tax-free importation of solar-powered water pumps and solar cells will be allowed.
•  Implement technological systems to promote cultivation and production of dried chillies, maize, soya, green grams and cowpea, onions, and potatoes. 
•  Small and medium enterprises will be promoted to move into areas of adding value to and processing agricultural produce. 
•    The government will identify locations to build up significant scale storage facilities for agricultural produce and intervene to build up those facilities. Hence, it will enable the domestic farmers and producers to export value-added products instead of exporting commodities in raw form. 
•  New secure railway coaches will be introduced to expand the role of the railways in goods transport. Corresponding improvements to railway infrastructure will be carried out. 
•   Tax relief will provide to private enterprises contributing to agricultural research to compensate for the research expenses they incur.

OSL Take: Sri Lanka’s agriculture sector is ripe with business/investment opportunities due to the development and upgrading of the country’s agriculture industry to be on par with global standards. The Sri Lankan Government has also taken many steps to improve the ease of doing business environment in the country and has made massive progress in infrastructure development as well. Sri Lanka’s geographical positioning, along with the many trade agreements and trade concessions enjoyed by the country makes it an attractive business destination. Therefore, foreign businesses/investors could explore setting up businesses in Sri Lanka as the base for the South Asian region.
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Laugfs adds two 10MW floating Solar Power Plants to the Sri Lankan Renewable Energy grid

The Laugfs Gas group from Sri Lanka has sought permission to set up two floating solar power plants through its energy subsidiary as it seeks to expand and diversify its generation capacity. Laugfs Power Limited (LPL), to be listed on the Colombo stock exchange, has a long-term strategy to achieve a total capacity of 50 MW solar, 20 MW wind and 10 MW mini-hydro.

Laugfs Power Limited is to register on the ‘Diri Savi’ or second board of the Colombo Stock Exchange. Listing 335 million ordinary voting shares and 52 million non-voting shares is the aim. The move is part of the efforts of Laugfs Gas Ltd. Group to focus on their core business - liquefied petroleum gas (LPG) - by spinning off non-core units including leisure and auto emission testing.

The government has received a proposal submission from Laugfs Power to obtain the necessary approvals to set up two floating power projects of 10 MW each, according to the listing documents filed with the stock exchange.

The government is considering the proposals at a preliminary stage, it said. LPL is also exploring the possibility of investing in overseas projects in the renewable industry, particularly in Bangladesh and in African countries.

OSL Take: The decision taken by the Sri Lankan company, Laugfs Gas Group, to expand its operations in solar power generation shows the capacity and opportunities for businesses to develop and thrive within the country’s economy.

Also, the Company’s move to further invest and expand its solar power generation capacity indicates the opportunities for projects and investments in Sri Lanka’s renewable energy sector. With Sri Lanka expected to face a power crisis in 2020, the government is engaged in promoting renewable energy options to address the matter.

The growth shown by Laugfs sets an example of the possibility of expansion for other similar business entities. It is also an encouraging sign for foreign businesses/investors looking at partnering with local companies.

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Sri Lankan Economic Growth to recover gradually says ADB (Part 2)

Gains made over the past two decades in poverty reduction, with a large proportion of the population close to the poverty line, likely at risk of disaster reporting. Sri Lanka needs to focus on disaster-prone areas and transition through weather-related risk management and reduction to a more disaster-resilient economy.

The mobilisation of risk reduction and adaptation resources, the development of the right policy structure and the building of organisational capability often need efforts. ADB is committed to making Asia and the Pacific prosperous, diverse, resilient and sustainable while continuing its efforts to eradicate extreme poverty. 

 The Sri Lankan Government, the (ADB) and the Sri Lankan State-owned RDB reportedly signed Loan and Guarantee Agreements in June this year to further assist Sri Lanka in providing affordable and accessible credit to SMEs across the country.

According to local media reports, with only about 30 % of Sri Lankan firms having sufficient access to bank loans and other resources, limited access to finance is a crucial obstacle facing Sri Lankan entrepreneurs, and these constraints are even more critical for women-led micro and small businesses or those in rural areas.

OSL Take: Sri Lanka’s overall development programme covering the entire country has created many business/investment opportunities in constructing additional infrastructure facilities. The development of urban living is one such area.

The aggressive development programme has resulted in the need to uplift urban living standards to be on par with international standards. Therefore, foreign businesses/investors could explore business/investment opportunities in Sri Lanka’s development programme.

The ADB’s total commitment to Sri Lanka for this year amounts to US$ 815 million. The promise mentioned above, in turn, would result in funding for critical projects in the Sri Lankan government’s development agenda. Therefore, with the funding availability, foreign companies could explore opportunities take part in Sri Lanka’s development projects. Also, the ADB support, along with other international agencies, would result in Sri Lanka’s economy recording an overall growth. Therefore, foreign businesses could confidently look atinvesting in the Sri Lankan economy.

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For the previous article

Sri Lankan Economic Growth to recover gradually says ADB (Part 1)

Economic growth in Sri Lanka is projected to rise to 3.6% in 2019 and 3.8% in 2020 from 3.2% in 2018, according to a recent Asian Development Bank (ADB) survey. Asian Development Outlook (ADO) 2019, the flagship annual economic publication of ADB, predicts a gradual recovery backed by a turnaround in the construction sector and continued growth in services.

"While the economy is expected to recover over the next two years, fiscal and structural reforms remain necessary for Sri Lanka to sustain and accelerate growth," ADB's Senior Country Economist said. "To avoid repeated macroeconomic pressures and generate sustained sources of foreign exchange earnings, addressing policy constraints will be critical."

 Proposals announced in the budget for 2019 will support private spending and therefore growth. The ratio of public investment to gross domestic product (GDP) is expected to pick up and be a catalyst for development and construction. Overall, preserve the primary surplus balance in 2019 and 2020 and further increasing the fiscal deficit, while continuing the economic consolidation route is the aim of the budget.

Headline inflation, as calculated by the national consumer price index, is forecast to be up to 3.5% in 2019 and up to 4.0% in 2020 as a result of a pick-up in economic activity, a base impact on inflation, and stabilisation of non-food and core inflation from late 2018 and early 2019.

The current account deficit would decrease to 2.5% of GDP in 2019 and increase slightly in 2020. A recovery in agricultural exports, a steady increase in tourism receipts, and a reduction in vehicle imports will lead to a decline in the current account deficit.

According to projections, the effect of Brexit on the Sri Lankan economy as a whole is negligible, a downside threat to the textile sector emanates from a no-deal Brexit scenario involving a potential escalation in tariffs between Sri Lanka and the UK.

Because of external debt servicing and political uncertainty, large repayments could affect market sentiment and put pressure on the Sri Lankan rupee. Recurring weather-related disasters in 2016 and 2017, which have had several impacts, as demonstrated by slow economic growth, high domestic food prices, a high oil import bill, high government spending, and a high number of food-insecure households restricting daily minimum calorie intake, are a crucial policy challenge for Sri Lankan economy.

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to be continued ...