SL’s struggle with Investment Complexity – Corruption takes the lead

Sri Lanka’s strategic positioning abutting the world’s major trade arteries and in close proximity to key markets in the region makes it a leading investment destination. The successive governments, more or less, have made various attempts to attract investments. The country is still at a loss despite its enormous potential. Things have moved at a snail’s pace, leaving people largely at the receiving end in a land with promise. The failure on the part of the successive governments to unleash the potential is a serious matter to be focused on.

The World Bank has estimated Sri Lanka’s untapped potential at around US $ 10 billion, an amount sufficient to generate as many as 142,500 jobs for the youths. In one of the recent address, Faris Hadad-Zervos, World Bank Country Director for Maldives, Nepal and Sri Lanka, said that tapping this missing potential requires liberalizing trade and attracting more and better investments.

“I am glad to see the budget speech announcement that para-tariffs will be gradually phased out. This will ultimately need to be followed by a broad reduction in tariffs to increase competitiveness and export orientation. In parallel, a streamlined institutional and legal framework is required to improve the regulatory and policy environment to attract and retain investment. We are pleased to see Sri Lanka moving in this direction with a plan to put in place a comprehensive stand-alone ‘Investment Law’ to facilitate all aspects of the investment life cycle,” he said in his speech now posted online.

Complaints are however galore from diplomatic circles about what is called ‘Sri Lanka’s complex investment climate’. Bureaucratic red tape, commission–seeking politicians, technocrats and public servants, complex land laws, the absence of policy consistency even on vital matters such as taxation and foreign currency regulation stand in the way of attracting much-needed investments. The whole problem is now like a web of creepers, and the government has to take a lot of pain to untangle it.

In one example, a diplomatic source said that there are a number of Australian companies with live investment proposals that have not been approved because of the complex investment environment. For them it is hard to navigate the labyrinth.

“These cases have all been ongoing for many years, so the companies are very frustrated,” the source said.

In another instance, Sri Lanka has not pursued investment proposals sent by a team of Chinese investors. A source familiar with them said Sri Lanka failed to generate sufficient confidence and the lethargy displayed is unexplained.

“Also, the social unrest last year, the crash of the economy and the currency and the general difficulty of doing business in Sri Lanka did not help,” the source said.

The abrupt cancellation of tenders awarded, at times, is yet another reason for the erosion of investor confidence. The cancellation of the Light Rail Transit project is an example in this regard. The current government made a great deal of diplomatic efforts to convince the Japanese government in this regard. The project is now slated to be resumed.

The government has initiated some steps to improve the investment climate. The restructuring of the state-owned enterprises (SOEs) is one of them as otherwise misallocation of resources in favour of them affects competitiveness in an open market.

The Foreign Direct Investments (FDI) have largely been focused on tourism, real estate, mixed development projects, ports, and telecommunications in recent years. The country ranks 99 in the ease of doing business index. According to Transparency International's 2022 Corruption Perceptions Index (CPI), Sri Lanka scored a 36 on a scale from 0 ("highly corrupt") to 100 ("very clean").

It means that there is a lot for Sri Lanka to improve the investment climate. It is always politicians who are slandered for corruption. Equally responsible for corrupt practices are bureaucrats whose connivance is needed for politicians to indulge in fraudulent activities.(Kelum Bandara)