SL urged to get FDI fundamentals right

By Shabiya Ali Ahlam
As Sri Lanka grapples with the issue of attracting sufficient amount of Foreign Direct Investment (FDIs) to spur economic growth, a global strategy consulting firm pointed out that authorities must put more emphasis on getting the basic fundamentals right to attract higher FDI.

A senior Stax Inc. official pointed out that Sri Lanka lacks a few elements in capturing FDI numbers accurately, which needs to be addressed at the earliest to prevent potential investors going from pillar to post. 

“First of all, I think the way we gather FDI data is not accurate. 

There is no one single truth to FDI numbers. 

The Board of Investment (BOI) has one number while the Central Bank has another.

“Even the way it is collected is not accurate. Right now we are using paper-based methods to capture these numbers,” Stax Inc. Managing Director Dr. Kumudu Gunasekera told a panel discussion in Colombo this week. 

He stressed that the whole process needs to be digitized so that potential investors are able to have access to the correct information within a required timeframe. 
Dr. Gunasekera also noted that in addition to ensuring the availability of accurate information, authorities have not been successful in recognizing key industries, such as knowledge-based services, which could help luring more FDI. 

With the current market for it being Rs.2 billion and on track to reach Rs. 5 billion, knowledge-based services are yet to be acknowledged as a key catalyst for future growth. “This market is not captured in the FDI. Under the FDI definition, repatriable profits that are brought into Sri Lanka and invested in the company is not captured anywhere. As a result, the sector does not receive the right incentive to grow,” noted Dr. Gunasekera. 

Under the new Inland Revenue Act, repatriable income is taxed at 14 percent, while in the previous there was none. According the Stax official, the tax introduction is “depressing” and serves as a constraint. “There is much that can be done to change the landscape to attract more FDI,” he stressed. In 2017, FDI into Sri Lanka grew over US $ 1.7 billion including foreign loans received by companies registered with the BOI, more than doubling from the US $ 801 million achieved in the previous year. 

The ministry of International Trade and Development Strategies has said that in 2018 Sri Lanka has attracted FDIs worth US $ 2.2 billion.  According to the World Bank, as a percentage of GDP, FDI currently stands at a mere 2 percent in Sri Lanka, whereas in Malaysia it’s 3 to 4 percent and Vietnam 5 to 6 percent.