LKR 500 Billion investment in the next five years to achieve Export targets

Prime Minister Ranil Wickremesinghe says it is necessary to take a massive leap forward based on successful reforms to embark on a rapid development trajectory through a digital economy geared towards exports.

The Premier held a particular discussion at Temple Trees with the representatives of the Sri Lankan Chamber of Commerce on the Chamber's series of proposals to develop the local economy. Prime Minister Wickremesinghe pointed out that in 2015 the government had to take on an unsustainable debt burden but it has now resolved the challenge of moving the country towards a road to reform the economy while relieving the debt burden.

The Prime Minister further claimed that by easing its debts, the government accepted the challenge to bring the country to a high economic level. He pointed out that the state can escape the debt burden by 2030 by quick forward action and generate jobs and new income streams.

Everyone at the meeting accepted that an export-oriented economy could achieve these new employment and income avenues. Often discussed were the practical problems and difficulties faced by businesses from a small business to a large-scale business venture. Representatives of the Chamber of Commerce found out that there was an urgent need for a framework to provide all services efficiently through one platform.

At the conference, proposals on several issues were thoroughly shared, including the transformation of agriculture, the financial sector, small and medium-sized enterprises, transportation and transportation services, administrative problems, regulations and rules, private health services and education.

The importance of finding a collective agreement on the changes to be carried out in conjunction with other boards and organisations was also stressed. Also, Prime Minister Wickremesinghe briefed the gathering on the trade and commercial space around the Kandy-Colombo-Hambantota Expressway and the North and East Economic Development Program.

OSL Take: The Prime Minister’s statement on promoting the diversification of exports will result in the expansion of investment opportunities in Sri Lanka for foreign businesses/investors. Interested investors could look at forming partnerships with local companies and engage in the export sector using the benefits of the many trade agreements and trade concessions enjoyed by Sri Lanka.

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FDI worth $20 bn projects approved this year

International Trade Minister Malik Samarawickrama disclosed last week that the Investment Board (BoI) had accepted over $20 billion in foreign direct investment (FDI) projects for this year. 

There is one project that the Cabinet has just passed, worth $15 billion.

Recognising that it will take at least three to four years for many of these projects to be fully functional with all the correct environmental clearances, the Minister said the reality is that they are all in the pipeline and these investments are currently being undertaken by the necessary authorities. He also said these projects would provide direct employment for more than 25,000 individuals.

Noting that Sri Lanka can be proud of its FDI accomplishments that are now catching up, he said the FDI inflows to Sri Lanka between 1978 and 2018 were $17.3 billion, while FDI inflows were $5.8 billion from 2015 to mid-2019. One-third of the complete FDI since our economy's liberalisation has been coming in within the last four years. Hence, this is a clear sign of investors' confidence in Sri Lanka and the opportunities for investment in our nation.

The Minister also observed that over the previous three years, the government has embarked on a series of policy reforms to promote the economic transition toward more trade, exports, and FDIs. He called on ministries of government, organisations, and government leaders’ dedication to expand exports and boost export-oriented FDIs.

The Minister also observed further legislative modifications to attract more investment by enhancing the efficiency of Sri Lanka in the World Bank's Ease of Doing Business rankings.

OSL Take: The statement made by Sri Lanka’s Minister for International Trade and Development Strategies on the FDIs that have reached the country is indicative of the business/investment potential in Sri Lanka. The country is engaged in an aggressive development program that covers all vital economic sectors islandwide.

Also, the country’s geographical positioning in the Indian Ocean, the ‘ease of doing business’ environment and the many trade agreements as well as trade concessions enjoyed by Sri Lanka have made the island nation the most suitable business destination in all of South Asia. All these have also increased the business/investment opportunities in Sri Lanka.

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Economic Analysis of Sri Lanka (Part 2)

The structure of the economy in terms of GDP spending, the information shows that in 2018, personal service spending made up 70% of the Sri Lankan economy, making it the most significant share of the economy. The second most prominent element of the expenditure in 2018 is expenditure on investments with a 29% share. Government spending represents 9% of the Sri Lankan economy.

Net Balance of Trade, which is exports minus imports, remained an adverse contributor, and their share of the economy in 2018 was about -7%. It is quite apparent that in the last five years, the structure of the economy has not altered much in terms of expenditure either. As for nominal development in expenditure elements, during 2014-2018 consumption and public spending grew at an average pace of 8% and 11.9% respectively.

They were somewhat volatile, especially as the growth in 2016 was minimal. Investment growth ranged from 7 per cent in 2015 to 22 per cent in 2017, which was the most volatile over time. The increase in net exports was negative, except for 2015, and the magnitude of adverse development continued to rise, reflecting poor trade performance. Net exports have grown by 5.2 per cent on average.

Sri Lanka's biggest challenge is to stem the country's declining development in latest years and reinvigorate the economy with a concerted attempt to achieve the next decade's higher single growth. This needs a more in-depth assessment of the Sri Lankan economy's growth dynamics, taking into account experiences in other markets with lower-middle revenue and upper-middle earnings.

While in the five years from 2013 to 2017, Sri Lanka averaged an increase of 4.2 per cent, each other nation in the South Asian region reported more significant average growth development than Sri Lanka. The greatest highlights were India with an average growth rate of 7.4%, Bangladesh with 6.6% and Maldives with 6.3%. East Asia's average growth was 6.5 per cent, with development in China, Cambodia, Laos, and Myanmar exceeding 7 per cent.

OSL Take: While the growth routes of these high-growth Asian economies may not replicate, their growth experiences involve lessons and plans from which Sri Lanka can learn. Economic reforms are vital if Sri Lanka is to unleash its true potential for development.

The key to enormous economic growth is export-oriented industrial development funded by private capital, especially foreign direct investment. Hence, Sri Lanka requires a solid export development policy and a regionally competitive incentive framework to attract large-scale foreign direct investment in this context.

To improve productivity and the contribution to development, significant reforms are required to modernise and diversify the agricultural sector. Private Equity capital must leverage as a growth driver for infrastructure development. High-level human development and extremely trained workers in the country could be harnessed to expand current service industries and generate new ones that can add to growth.

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Economic Analysis of Sri Lanka

The latest financial and economic performance of Sri Lanka is mixed. The island-nation is currently facing a development problem. While the economy has continued to grow, growth in latest years has been small and declining. The nation requires critical structural and other policy reforms to unleash its actual development peripherals. To minimise the current budget deficit, Sri Lanka would require more significant development. In the current development setting, the amount of public debt is substantial and unsustainable.

Further deterioration of the fiscal balance could result in more government borrowing and more debt piling up. Improving the balance of trade and the deficit in the balance of payments also requires increased development. Sri Lanka recently reached the upper-middle-income stage. Higher and sustained development will be needed to maintain this high-income status. With viable assumptions concerning the development growth, Sri Lanka will need about 20 years of annual growth at 5% and around 15 years of development and economic growth of 6% to be classified as a high-income economy.

In terms of general financial development, Sri Lanka has reported average annual growth of 5.4% in actual terms over the previous ten years (2009-2018). This period consisted of two distinct development phases: the economy rose at an annual average rate of 6.5 per cent in the five years 2009-2013, which was the period instantly following the end of a 20-year civil war in May 2009. In the three years following the end of the war, where growth was 8.0 per cent in 2010, 8.4 per cent in 2011, and 9.1 per cent in 2012, the more significant development was particularly spectacular, showing continuing growth momentum.

However, this momentum broke with development dropping significantly to 3.4 per cent in 2013, and the average annual growth dropped to 4.2 per cent in the last five-year period of 2014-2018, which is more than a two percentage point fall compared to the past five-year era.

Besides, growth has shown steady decreases since 2015, with a growth rate of 3.2 per cent in 2018 is the highest in 16 years. Concerning the sectoral structure of the economy, the services sector is the most crucial sector of the economy, contributing 57% of the actual gross national product in 2018, followed by industry (27%) and agriculture (8%). Hence, it is proven that the sectoral composition of the economy has barely changed over the previous five years.

Concerning sectoral development, over the previous five years, the agricultural industry has risen at an average pace of 2.1%. With the exclusion of adverse event in 2016 and 2017, this industry showed at most an increase of around 5 per cent. With a significant variation from 0.9 per cent in 2018 to 5.8 per cent in 2016, the industry sector reported an average development of 3.3 per cent. The services industry showed constant growth of around 5 per cent on average.

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To be continue...

Investment Opportunities in the Tourism sector

Tourism is the country's third-biggest foreign currency earner. With over 2.3 million visitors coming into the nation, Sri Lanka reported its largest-ever amount of arrivals in 2018. In 2018, the industry is projected to have earned around $4.3 billion, 11 percent higher than last year. Sri Lanka provides a combination of beaches, wildlife parks, rain forests, tea plantations, ancient ruins, Buddhist cultural sites, and festivals.

Sri Lanka ranks 64th out of 141 nations in the World Economic Forum's 2017 Travel & Tourism Competitiveness Report. The government is aiming to boost tourist arrivals in 2019 to 3 million, although the terrorist attacks of April 21 have dampened opportunities for 2019 and 2010. India and China, followed by the UK, Germany, and France, contributed the most significant amount of tourist arrivals. Tourism sector investment remains with projects valued at around $223 million authorized in 2018. Sri Lanka is aimed at attracting worldwide names.

Several global and regional hotel chains, including the Marriott, Shangri-La, Six Senses, and Movenpick, have recently started building or running hotels in Sri Lanka. Shangri-La and Movenpick began activities in 2017, while others like Sheraton and ITC are anticipated to complete activities in 2019/20. Some local conglomerates control most of Sri Lanka's luxury resort hotels. Moreover, the idea of the boutique hotel is catching on quickly. International hotel businesses were absent from Sri Lanka during the conflict (which finished in 2009). Hilton was Sri Lanka's only global player to manage a luxury hotel (owned by the state) and an apartment complex for many years in Colombo.

Eastern Sri Lanka is an area with remarkable potential as it is famous for world-class beaches in this region. Locations like Pasekudah and Arugam Bay, particularly for surf lovers, are top destinations. The nation has several parks and forests home to a variety of wildlife and distinctive species of fauna and flora, and several global environmental organizations consider it a biodiversity hotspot. The latest ban on land sales to foreigners can make the construction of new properties more complicated. Eco-friendly resorts are also becoming popular with many developers opting to set up "green" hotels to attract an increasing section of the market.

Increasing tourism is driving the restaurant industry's significant development. An evolving tourism trend has brought a big influx of visitors looking for a more genuine experience, according to industry specialists. These visitors, mostly younger, are looking for cheaper lodging units and homestays, and are using navigation internet apps. The tourism industry should constitute significant possibilities for U.S. providers in a range of fields such as facilities, technology and consultancy services, hotel equipment, furniture, water purification systems, electrical systems, energy-efficient equipment, food, and beverage equipment, bathroom accessories, spa and fitness equipment, and water sports equipment.

Sri Lanka also plans to implement aviation services to promote its tourism drive, including air taxis and helicopter facilities. The enhanced development of the hotel industry, the upgrading of existing properties and the development of global hotel chains requiring high-end inputs and technology offer essential opportunities for U.S. businesses.

OSL Take: Tourism provides possibilities for both investment and trade. The state offers beach land and islets for the growth of tourism. Several policy initiatives and actions to harness the sector's potential were introduced in 2017. The new strategic tourism plan implemented in 2017 is aimed at raising income by 2020 to $7 billion and creating 600,000 employees in support sectors.

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Investment Opportunities in the Pharmaceutical sector

The pharmaceutical industry in Sri Lanka is estimated at USD 400 million annually. Regulating these medicines pricing has a significant effect on the population's health. The revised drug price formula implemented in 2016 guarantees that essential drugs should always be sold below the maximum recommended retail price.

Due to a very aging population, the demand for healthcare facilities is increasing in Sri Lanka. At the end of 2017, nearly 10% of the population was 65 years, and this figure is expected to double by 2030. The government remains its policy of offering public hospitals with free health care. In 2018, government spending on the health industry amounted to about $1.3 billion. Increasing access to private health services is also a government focus, as meeting the demand for healthcare services is hard for the public sector alone.

The private sector has made significant investments in health care, particularly in Colombo and some of the main towns, which has eased some of the state's burden. With higher revenue rates and shifting preferences, demand for healthcare in the private sector has risen. Health insurance provision has also backed development in the private healthcare industry.

There are 612 public hospitals in Sri Lanka, approximately 200 variable size private hospitals, 5,000 private pharmacies, and 1,000 laboratories. The healthcare industry offers U.S. medical equipment suppliers and pharmaceutical companies with excellent possibilities. The local pharmaceutical industry has risen at a pace of about 15 percent over the previous five years, according to specialists in the pharmaceutical industry, and the sector has excellent opportunities for future high-volume development.

The government is promoting investment to produce drugs locally in the pharmaceutical industry. In 2019, the government released laws establishing maximum retail rates for 60 formulations of medicinal products. The Regulatory Authority for Cosmetic Drugs and Devices regulates the pharmaceutical industry to guarantee drug and medical equipment quality, security and effectiveness. Although many pharmaceutical imports come from regional sources, medical practitioners and customers commonly recognize the greater variety and efficacy of Western produced drugs.

Drug registration can be time-consuming with the authorities requiring comprehensive information. It is also complicated to dismiss local officers based on universal values, as the officer must provide the authorities with a no objection letter to appoint a fresh officer. Private hospitals in Colombo are fitted with state-of-the-art machinery, providing excellent possibilities for U.S. providers.

OSL Take: U.S. exports of medical and pharmaceutical machinery to Sri Lanka were estimated at $25 million in 2018. Other possibilities for U.S. businesses in health care are government tenders for machinery, pharmaceutical products, and initiatives. Medical equipment manufacturers need to succeed to engage local officials with medical industry experience and to maintain active contacts with both government and private sector health providers. Well-known brands around the world order a premium. Diagnostic equipment, operational theater equipment, intensive care equipment, clinical analyzers, and hematology equipment continue to give U.S. companies the most significant sales opportunities.
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Investment Opportunities in the Energy sector

The government of Sri Lanka aims for a country that is self-sufficient in energy by 2030. The goal is to raise the country's power generation ability from the current 4,043 MW to 6,900 MW by 2025 with a substantial renewable energy increase. Sri Lanka has already accomplished a 98 percent grid connectivity, which is comparatively high according to South Asian norms. There are three primary sources of electricity produced in Sri Lanka: heat power (including coal and fuel oil), hydropower, and other non-conventional renewable energy (solar power and windpower).

Sri Lanka intends to add 842 MW of Major Hydro, 215 MW of Mini Hydro, 1,389 MW of solar, 1,205 MW of wind, 85 MW of biomass, 425 MW of oil power, 1,500 MW of natural gas and 2,700 MW of coal power to the electricity generation scheme from 2018-2037. The total annual demand for electricity is approximately 14,150 GWh. It is projected that the yearly demand for electricity will rise by 6 to 8 percent, a number limited by high prices.

Despite long-term power generation plans in place, in the past two years Sri Lanka encountered several energy outages as hydropower energy generated started declining owing to less predictable weather patterns. As a result of this, in the next ten years, Sri Lanka plans to add new power plants for coal, renewable and liquefied natural gas (LNG). There are several active suggestions from the government to establish LNG import facilities and associated power plants and a new oil refinery.

The existing oil refinery is over 45 years old and requires urgent modernization to satisfy the petroleum industry requirement. All forms of renewable energy are actively promoted by the Sri Lankan Sustainable Energy Authority (SLSEA).

OSL Take: Sri Lanka requires to add substantial ability to satisfy present and future energy requirements expected to expand at around eight percent per year. Sri Lanka has a total energy-generating capacity of 40 GWH as it depends primarily on heat energy, including a coal-fired Chinese energy plant, which accounts for 45% of its production. Insufficient rainfall has restricted ability to generate hydropower, and the government was compelled to impose power cuts in early 2019 owing to an absence of ability to produce. To satisfy electricity shortages, the government has resorted to buying costly emergency power.

Opportunities in the power industry include wind and solar power plants, LNG power plants, auto-diesel power plants to dual fuel (liquid natural gas) plants, mini-hydro power plants, domestic solar systems, wind power, electrical meters and switches, power transmission and control systems, and power wires. SLSEA actively promotes alternatives for renewable energy and statistics show a steadily growing contribution to renewable energy. Because of its unique location, Sri Lanka has vast wind energy resources. There are presently 11 wind power plants linked to the national grid. USAID has evaluated Sri Lanka's wind and solar potential.
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