Dr. PB exposes what stifles investments - Members Response!

- Finance Ministry 2011 Annual Report lists key factors
- Raps promotional agencies BOI, Sri Lanka Tourism, EDB Tea Board and others for bureaucracy and lack of coordination
- Private investment needs to be increased to 30% of GDP from 24% in 2011

Despite the end of the war three years ago, the full potential for higher investments in the country is yet to be realised and if the usual case is private sector complaining of bottlenecks, then for a change the Finance Ministry has joined the chorus.

The recently released 2011 Annual Report of the Ministry of Finance, a portfolio held by President Mahinda Rajapaksa himself, admits that private sector investment is constrained.

Quick Take
As per Finance Ministry, factors constraining investments are :
a) Inefficient approval process that take investors to multiples agencies
b) Lack of focus investment priorities and project proposals in priorities.
c) Price controls on some selected commodities such as milk, poultry, and cement etc instead of using pricing formula and regulatory supervision.
d) Inadequate flexibility by line ministries and agencies to promote private sector into commercial activities.
e) Inadequate long term funds and institutional support to SMEs.
f) An absence of coordinated promotional effort by BOI, Tourism Authorities, EDB, Tea Board and Foreign Employment Bureau due to highly compartmentalised operations and bureaucracy.
g) Outdated institutional setting in investment promotion agencies and inadequate professional skills.

“Despite policy reforms towards private sector development, the private sector investment is constrained by several factors which need urgent corrective actions by strengthening institutional set up,” emphasised the 2011 Annual Report of the Finance Ministry, whose Secretary is Dr. P.B. Jayasundera.

The critical analysis of constrains and causes is after highlighting the key achievement of a record $ 1.06 billion in Foreign Direct Investment last year and private investment increasing to 23.7% of GDP from 21.4% as well as a host of incentives made available during the past few years.

For Sri Lanka to achieve double digit growth, private investment has to be increased to around 30% of GDP. Given Finance Ministry's role and with Dr. Jayasundera being Economic Development Ministry Secretary the tone and contents of the Report are expected to stir much debate, according to analysts.

 “As promotional agencies particularly in investment, tourism and export have operated under traditional institutional framework with red tapes, lack of investor friendly institutional environment, poor coordination with other Government agencies and lack of conclusive decision making process,” the Finance Ministry Report said, adding, “Reforms to make them a private sector friend has become an urgent to promote investment.”

The Report includes an interesting table listing core functions of select organisations as well as expenditure allocation, alluding to the fact that they could make substantial contribution in investment, tourism, foreign employment and exports.

The Report said that in the context of expected private investment of around 26-30 per cent in addition to public investment of around six per cent of GDP, promotional agencies are required to re-strategise their role on a priority basis.

“As the country is endowed with improved infrastructure, improved skilled and productive labour force, favourable tax and incentive environment and emphasise on a number of activities for export development and import replacement industries together with new opening for infrastructure development with the participation of private sector, the promotional agencies are expected to develop new strategies with strong commitments,” it added.

The Finance Ministry also said a Cabinet subcommittee on investment is expected to coordinate this task in addition to reforming the respective organisations to deliver better results.

Whilst the Report lists various incentives for private sector investments, the Finance Ministry said key imports indicate a large market scope for investment in order to reduce foreign exchange outflows.

“The need for private investments in these areas has been recognised and a wide range of tax incentives have been incorporated into tax laws including the Strategic Development Project Act of 2008. The Board of Investment (BOI) in collaboration with relevant line ministries needs to focus on such investments for which specific project proposals and required domestic arrangements need to be firmed up to exploit potential areas of investment.

“The Government expects the economy to move from a consumption-oriented one to a savings and investments driven real economy. To achieve this, there is still ample space to investments in Sri Lanka’s growing economy,” the Finance Ministry Annual Report said.
Accordingly, the levels of inflows are expected to increase significantly in such areas as hotel and tourism, infrastructure development, IT/BPO services, renewable energy and pharmaceutical industry. Complementing to this, portfolio investments are also expected to increase in the future.

Meanwhile, the Government is also committed to continue the infrastructure development move by mobilising a large amount of project related funds from development partners. The increased fixed capital formation will enable to maintain desired level of investments to sustain higher economic growth in the future, it added.

In 2011, the report said the private investment was mainly encouraged by the low interest rates prevailed in the country in the backdrop of relaxed monetary policy stance as the cost of funds was relatively low for the investments in real assets.

The improvement in the private sector investments was reflected in the significant growth in the credit to the private sector and the expansion in the importation of investment goods in 2011. Hotels and tourism, manufacturing, trading, construction, and infrastructure, including telecommunication and petroleum, were among the key areas that attracted private sector investments during the year.

Within the private investment, the Foreign Direct Investment (FDI) inflows increased by 107 percent to US$ 1,066 million in 2011 from US$ 516 million in 2010 due to the enhanced investments by the foreign investors to establish their presence in an economy with diverse opportunities.

The Board of Investment (BOI) incentive regime was revisited to move towards a broad based low tax regime and to provide an equitable incentive regime for private investment. Accordingly, the tax regime under the BOI Act was harmonised with the Inland Revenue Act (IRA) in relation to Section 17 of the both Acts and all the tax incentives were brought under the IRA.
 
Courtesy - Daily FT

COMMENTS

Citizen on June 1st, 2012 6:33 am
Our officials are in an utopia of their own.
What prevents foreign investment?
1. Unpredictable, Unstable economic policies of the Govt. Taking over of Private Industries etc.
2. Political interference. You need to know a Rajapakse or someone close to him to get anything done.
3. High taxation and local costs. Everything is so over valued here. It is cheaper to do business in other Asian countries.
4. Cheap labour is a myth. Our Labour laws are not conducive to having a productive enterprise.

K Deheragoda on June 1st, 2012 8:57 am
What a joke that PB Jayasundara is trying to become the messenger in this case. He only needs a mirror to find the cause for all these limitations for economic growth. All these issues that he is bringing up today were perfectly within his control solve all these years. For example wasn’t he the secretary to the Treasury and Secretary to the Ministry of Finance for almost 16years under different Government s except for two short breaks. In addition to being the secretary to the Ministry of Finance and Treasury secretary wasn’t he also appointed the secretary to the Ministry of Economic development 3 years ago giving him the necessary powers to address all these issues. All he had to do was to study the limitations in the investment approval process and bring in the required legislation to strengthen the BOI once gain to function like a true ‘one stop shop’ as in late 80′s when country had a huge influx of foreign direct investment. He must learn from his predecessors such as Mr Paskaralingam former Treasury Secretary and Secretary to the Ministry of Finance, how to be an effective administrator without crying foul every time he is exposed.

Asitha M on June 1st, 2012 9:06 am
Jayasundara talks about the absence of a coordinated promotional effort by BOI, Tourism Authorities, EDB, Tea Board and Foreign Employment Bureau. Isnt BOI and Tourist Board are directly under the him as the secretary to the Ministry of Economic Development ?. As secretary to the Ministry of Finance Dr P B Jayasundara also has a direct influence over EDB, Tea Board and FEB. Not only that, even Sri Lankan Airlines which can contribute significantly to country promotional efforts is directly under the Treasury. So what has he done all these years to initiate a coordinated effort for country promotions?. Isnt this his 16th year in the same job ? The truth is he is blocking promotional efforts of all these institutes. M M C Ferdinando the Chairman of BOI is not allowed to send a single official abroad for investment promotions. It is a fact that Minister of Economic Development is only interested in agriculture and country promotions or investment promotions are not subjects that attract his attention. So PB is running the show alone and taking the country back to the dark ages.

Pubudu de Zilva on June 1st, 2012 9:12 am
I totally agree with Dr Jayasundara that we do not see any investment priorities in the Government agenda. But the question is whose responsibility is to set those priorities ?. May be it is Treasury, May be BOI, May be Ministry of Finance, May be National Planning, May be Ministry of Economic Development. Oooops but arent they all under you Sir ? What have you been doing all these years ?

Anusha De Valary on June 1st, 2012 2:20 pm
Sri Lanka is on the path to economic prospirity. I hope all these problems will be solved soon so that we can invest in the country. It is a beautiful country. Only problem is land is expensive. Can you guys study other countries and bring some policy changes to support foreign investors

dvladvct on June 1st, 2012 4:42 pm
To my mind, this is an issue of lack of proper strategizing, planning and the professionalism in the every nook and corner. We have to re-visit all these areas. (Investment, Tourism and Trade)
One cannot be loggerheaded over others ideas. We all should sit in a one table and have to put our minds together without find faults with others to find an answer to few strategic questions. If, I were PB, I will start with the following null- hypothesis,
Why Sri Lanka cannot attract more FDI? is it because BOI is not sophisticated enough for promotion as per PB or because PB has not allowed BOI officials to go for foreign promotions as said by BOI?
These are very much minute matters when compared with a overall promotion strategy of investments. Devils are in the details.
How I put like this? if I approach BOI or PB as a potential investor, how many tailor-made competitive investment proposals either BOI or PB can give to me!

alwis on June 1st, 2012 5:37 pm
SRi-Lanka bureaucracy is strong plus corruptions and no clear cut policies for investments from the government side hinders FDI. All. thought relaxation of Taxes and other incentives Country’s policies are not transparent. In Sri-Lanka can’t do anything without political influence. Many a middle men influencing country policies.Law and order is a must to attract FDI.

cgudu on June 1st, 2012 6:22 pm
Bribery & corruption is the top most obstacles which stifles investments. I know a specific case where a foreign business was asked to pay a ransom before he gets approval by the BOI. So how come people invest?

jack on June 1st, 2012 8:06 pm
The points highlighted by Dr.PB are not new for us. Even 5 years back the same has been put forwarded with heavy discussions. But practically nothing happens.
What we need is actions..Not the meters long reports.
Is this the Miracle in Asia?

Daminda on June 1st, 2012 8:47 pm
PB is trying to cover up his inefficiencies. Earlier, he puts the blame on Central bank for the over valued rupee but he is also a member of the Monetary Board where this would have been discussed. It was he who initiated the appropriation bill targeting businesses owned by opposition members and we paid a huge price for it as it is not easy to convince the business community that a thing like this will never happen again. Also, he was at the Treasury since President Chandrika’s time and proved a very poor performer. He is all over the place and does not know what is happening in places coming under his purview. Ex.tourism,treasury,etc. It is high time to pack his bags and go home without further ruining our economy.

Asara on June 1st, 2012 9:34 pm
Govt land value is normally decided by the chief gvt valuer. Chief Gvt Valuer is expected to be independent. But for the last 2-3 years chief valuer doesnt seem to be working independently. Auditor General should to do an audit on chief valuers valuations during last 2-3 years for prime government properties. He will be shocked to know how many times the same land has been priced differently by CGV dept under the influence of Treasury. Investors have to come through one person and through no body else if they want to get the right value for Government Land. Thats why only a few international investors have been able to invest in the country after the war. They are the people who came through the right chanel. Land price appear to be going up or down within days depending on what some people want. This is a serious matter that needs to be verified. Why not media check on this ?. Anyway Auditor General Over to you !

G S C SILVA on June 2nd, 2012 3:05 am
It is sad to see, a man with talent like PB cannot deliver what was expected of him by our leaders in the past 16 years. While countries far behind us,having developed brands that bring more money than our GDP, we lagged behind giving funny excuses. Though we say, everyone likes ceylon tea, over the years, we have completely lost the marketing tea at all in Europe and other developed countries and now we see other Asian and African countries doin g absolutely well. . No one knows about our products any longes. Please guys . . .dont let us wait another 200 years.

SRI LANKA FORUM MEMBERS!
Please feel free to make your comments in this thread. Professional responses are welcome!

No doubt he is a talented and one of the outstanding professional in the public service. But solutions for many of the economic problems were within his reach and he should have acted more prudently. In this government, there are no senior politicians with a sound background in economics and this reflects in their haphazard and bizarre economic decisions.(this situation is same in CBK era as well). So as an economist and as the most powerful public servant regarding the economy of Sri Lanka , people expected much more than this from him, in that case he too should be responsible for current scenario. But we should admit that he is so far the best person who headed that position, when compared to others in history, though he couldn't deliver full magnitude what the country expected from him.

WildBear wrote:No doubt he is a talented and one of the outstanding professional in the public service. But solutions for many of the economic problems were within his reach and he should have acted more prudently. In this government, there are no senior politicians with a sound background in economics and this reflects in their haphazard and bizarre economic decisions.(this situation is same in CBK era as well). So as an economist and as the most powerful public servant regarding the economy of Sri Lanka , people expected much more than this from him, in that case he too should be responsible for current scenario. But we should admit that he is so far the best person who headed that position, when compared to others in history, though he couldn't deliver full magnitude what the country expected from him.

agree.

1000% agree

This is a situation where you work in a Family run business as the Finace Controller where the owners doesnt have any finance background,and dont care of the stakeholders, and family members meddles in to all decision making with an objective of earning something to their pockets out of everything. And bunch of fools surrounded by the bosses to give advise which makes them happy.

Finally the Finance Controller to tae the blame