Recently the Japanese Ambassador to Sri Lanka, at a public forum, raised concerns about the import ban by Sri Lanka saying it would hamper trade relations. He was focusing in particular on vehicle imports from Japan. Other foreign envoys have also expressed similar concerns saying Sri Lanka exports, particularly garments to the European Union, were [...]

Business Times

FDI dilemma for Sri Lanka

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Recently the Japanese Ambassador to Sri Lanka, at a public forum, raised concerns about the import ban by Sri Lanka saying it would hamper trade relations. He was focusing in particular on vehicle imports from Japan.

Other foreign envoys have also expressed similar concerns saying Sri Lanka exports, particularly garments to the European Union, were not restricted, while imports were banned by Sri Lanka affecting the usual two-way trade practice. It was unfair on Sri Lanka’s part to restrict imports and expect markets to be open to Sri Lankan products, they said.

I was pondering these issues when the phone rang on this bright Thursday morning. It was ‘Koththamalli’ Fernando, the Kokatath Thailaya (oil for many ailments) expert who has a remedy for any issue, on the line.

“Hello Koththamalli, how are you?” I said, greeting him warmly. “Fine…fine. I hear there are discussions between the government and Ayurvedic practitioners to ascertain how reputed Ayurvedic medicine can improve the immune system of people as a means of tackling COVID-19. This is a good move,” he said.

“I too heard about that but is that the purpose of your call?” I asked. “No it’s about something that worries me as a Sri Lankan: I am talking about the resolution against Sri Lanka at the Geneva UN Human Rights Council. Will that have a major impact on Sri Lanka particularly on business?” he queried.

“Maybe…maybe not. However, in a nutshell, it could have an impact on the country’s ability to garner foreign investment particularly when promotions are about to start to attract investments to the new Colombo Port City,” I said.

“How would it get affected?” he asked again. “Well…the resolution has to some extent impacted the country’s reputation as a nation that respects human rights and related issues and another issue that could come up is the GSP+ concessions which are conditional to respecting the human rights of all citizens. We lost the GSP+ once and suffered a loss of revenue totalling billions of rupees, until it was restored. We can’t afford another suspension; it will be disastrous to the economy particularly now as we battle the repercussions of the COVID-19 pandemic,” I said.

“In this context, the government needs to engage the international community to ensure that such measures are not enforced. Otherwise, we could suffer job losses,” he said and after a few more minutes of discussion, we ended the conversation.

In the meantime, the trio had gathered under the margosa tree and were munching ‘maalu paan’ and drinking tea, when Kussi Amma Sera raised a question. “Mokakda me, pol-thel prashne (What is this problem about coconut oil)?” she asked.

Lankawata aanayana karapu samahara pol-thel wala wasa-wisa thiyenawalu (Apparently, some imported coconut oil stocks have had poisonous substances),” said Serapina.

Mekata naraka kaalayak, mokada pol-thel godak avashyai-ne rasa kevili hadanna avurudu-walata (It’s a bad period for this because a lot of coconut oil is needed to prepare sweetmeats for the New Year season),” noted Mabel Rasthiyadu.

“Mama denang hitiye-ne api pol-thel aanayanaya karanawa kiyala. Apita pol-thel deshiyawa thiyena nisa (I didn’t know that coconut oil was imported, when we produce it locally),” added Kussi Amma Sera. “Aanayanaya karanne, pol karmanthaye adu-padu thiyena nisa pol- paavichchi karala hadana pita-ratawalata arina deval-valata (There are imports because there is a shortage of coconuts to produce coconut-based products for export),” said Serapina.

While Sri Lanka’s efforts to drum up foreign investment in recent years have been abysmal and attracting just between US$1-2 billion a year, other countries in the region are speeding ahead. In the first nine months of 2020, foreign direct investment (FDI) in Sri Lanka totalled $548 million. In the whole of 2018, it was $2.1 billion which dropped to $1.2 billion in 2019 due to the fallout from the Easter bombing attacks in April 2019.

In the region, Sri Lanka is lagging behind India, Pakistan and Bangladesh in attracting investments. For example, India witnessed a 13 per cent growth in foreign investment to $57 billion in 2020 from 2019. FDI inflows to Pakistan increased to $2.2 billion in 2019 from $1.7 billion in 2018, while FDI inflows to Bangladesh fell by 56 per cent to $1.6 billion (still higher than Sri Lanka) in 2019, compared to $3.6 billion in 2018.

In the Asian region, the success story is Vietnam, which saw FDI rise by 6.5 per cent to $4.1 billion in the first three months of 2021.

Another country that has performed better than Sri Lanka even though having a lower GDP ($77 billion vs Sri Lanka’s $84 billion) is Myanmar which recorded $3 billion FDI in 2019. This is despite a long-standing displacement of the minority Rohingya community and now the installation of a military junta. Investments are most likely to fall this year with more than 400 people killed in the military crackdown (so far) against growing civilian protests against the takeover.

Of course, in Sri Lanka, the government is banking on huge foreign investments coming into the new Colombo Port City but it remains to be seen whether the new centre will attract foreign investment from the West or mainly entice investments from Asia. Last week, the bill to set up the commission that would govern the activities of the port city was gazetted and would soon be presented and debated in Parliament.

This is the second significant piece of proposed legislation setting up an economic commission with wide powers that Sri Lanka is introducing after the formulation of the Greater Colombo Economic Commission (GCEC) in 1978 under which the Katunayake GCEC zone was created. The new Colombo Port City bill, however, has wider implications and far reaching provisions.

There is euphoria in government political circles that the Port City is the ‘thing’ and will enhance Sri Lanka’s attractiveness as a destination for foreign investment, but government politicians and policymakers should tread with caution since it won’t be easy to attract big-ticket investors – particularly in the aftermath of the Geneva-debacle.

As I wound up my column, Kussi Amma Sera walked into
the office room with my second mug of tea, asking,
Pol-thel thathvaya genada liyanne (Writing about the
coconut oil situation)?”

I said, “Ne (No),” and reflected on how Sri Lanka is stumbling from one crisis to another or is it what the government proclaims: “It’s all opposition propaganda?” Your guess is as good as mine!

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