Interview: Tilak De Zoysa
Which sectors could offer the highest return and lead to sustainable growth in the country?
TILAK DE ZOYSA: Sri Lanka needs to approach its development in a strategic, sustainable, socially responsible and coordinated manner. It is widely accepted that tourism is a sector that generates inclusive growth with a high trickle-down effect and makes a positive social impact. Multiple opportunities for investment in various subsectors of the tourism industry have arisen, such as staff training, domestic airlines, restaurants, retail shopping, entertainment and regional diversification into undeveloped coastal areas. Other areas of opportunity that leverage the country’s favourable geographic location next to large Asian markets and the proposed free trade agreements (FTA) with those nations include port services, warehousing, logistics and subcontracting for regional companies.
In addition, agricultural productivity is extremely low and requires serious attention, while fisheries could yield attractive dividends if properly exploited. The banking and finance sector need to attract new foreign direct investment (FDI) if it is to support economic expansion in a meaningful way in a post-war economy. The country also needs to improve productivity by investing in research and development, which helps to support technologically innovative firms.
What is the geographic profile of FDI and what can be done to make investment more balanced?
DE ZOYSA: A major portion of FDI is concentrated in the Western Province (WP), the most urbanised area of the country, of which the leading sectors are telecoms, financial services and real estate. FDI seeking to maximise productivity and efficiency is also concentrated within the free trade zones of the WP. New investments in the fast-growing IT sector have also been established close to Colombo due to the availability of skilled people who live in suburban areas. However, the WP has become expensive – in terms of land and labour costs in particular – so it makes sense for more industries to be located in regional centres. There are a number of new trade zones outside the WP that are quite well populated. There has also been a large amount of FDI in the hospitality sector, and many of these places are outside the WP, mainly in tourism zones.
Regional diversification will be facilitated if basic infrastructure reaches acceptable standards. Power and transportation, as well as housing, schools, health care, recreation, entertainment, sound provincial administration and skilled labour are prerequisites if such investments are to be broad-based and sustained.
To what extent can the Sri Lankan economy protect itself from negative external shocks?
DE ZOYSA: Sri Lanka is part of the global economy by virtue of trade, remittances and capital flows. It is difficult to weather a storm in an interconnected world, but we can enact prudent and efficient economic policies to help us along. This starts with reducing the fiscal deficit, which has contributed to the high level of debt, at over 70% of GDP. We need to eliminate the dis-savings of loss-making state enterprises if we are to eliminate or reduce the deficit. We also need to improve productivity, diversify our economy and boost exports to reduce sector vulnerability and create the conditions needed to attract FDI. Investment flows into Sri Lanka are low compared to other regional competitors such as India, Thailand and Vietnam.
Some important steps have been taken, such as bilateral treaties and double taxation avoidance agreements with 38 countries, and Sri Lanka is also a member of the Multilateral Investment Guarantee Agency, an investment guarantee agency of the World Bank. Perhaps a return to smaller government, which leaves more room for private investment, combined with greater fiscal discipline, development of mega-infrastructure projects and outward-facing policies, through FTAs which are being adopted, will result in a sustainable model.
