Interview: Champika Malalgoda
How will volatility in the domestic market impact short-term foreign direct investment (FDI) inflows, and how will the BOI mitigate risk?
CHAMPIKA MALALGODA: The BOI’s actions have helped to maintain an upward-trending FDI inflow over recent years. However, reinvestments from existing investors are playing a substantial role in achieving rapid and considerably higher economic growth in the country by bridging the gap between domestic savings and investment. Under these circumstances Sri Lankan exports are encouraged in the short term, and higher interest rates attract further FDI due to its profitability. However, risks have to be anticipated and prepared for in the form of safeguard policies. Sri Lanka already boasts a number of features that tend to be key determinants in attracting FDI inflow, including its fast-developing infrastructure, high-quality labour and openness to trade.
BOI supports investors with their registration, visa permits, import-export and industrial labour relations, thereby enabling investors to operate smoothly and comfortably within the country. In addition, investment incentives, in the form of enhanced capital allowance, are given in addition to normal depreciation allowance, together with duty exemptions on capital goods and raw material imports to reduce upfront and operating costs. Furthermore, the BOI improves service delivery via the Single Window Investment Facilitation Taskforce, expediting the project approval process with its function-based virtual platform.
In line with the National Export Strategy (NES), what role will foreign investment play in helping Sri Lanka diversify its export basket?
MALALGODA: Despite being a pioneer in adopting open economic policies as early as 1978, Sri Lanka’s export basket has been relatively small with regard to primary exports, which have experienced a period of stagnation or decline over the last two decades. The NES aims at encouraging new exporters and supporting the growth of traditional export industries, with a view to elevating the export sector of Sri Lanka from its current annual figure of approximately $11bn as of 2018 to $28bn by the year 2022.
The BOI and Sri Lanka Exports Development Board have jointly conducted a comprehensive study to identify the priority sectors for attracting investment and enhancing exports, and these sectors have accordingly been incorporated into the NES. They include high value-added and high-tech manufacturing; food processing; and spices and concentrates. With these export-oriented foreign investments, Sri Lanka’s export basket will be diversified, and newer products will enter the local market.
What sectors has the BOI prioritised for investment promotion in the short to medium term, and what makes them attractive targets?
MALALGODA: The priority sectors have been identified based on the following parameters: cases in which Sri Lanka’s offering is market-ready; those which are best aligned with Sri Lanka’s FDI needs; and where the country’s value proposition has both clear advantages relative to competing countries and a compelling business case in terms of quality, quantity and cost of supply.
The priority sectors we have identified are manufacturing and services. Within manufacturing, the focus is on high value-added and high-tech manufacturing, high value-added apparel and food processing. In the services sector, the priorities are IT-enabled services, tourism, logistics and education. Furthermore, in terms of new export processing zones, in collaboration with the relevant line agencies, development at three sites in the Kurunegala and Kalutara districts has already commenced and these projects are currently at different stages.
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