Private sector prospers from free flow of FDI

Updated 04 February 2014
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Private sector prospers from free flow of FDI

The end of insurgency has been a boon for the Sri Lankan economy as the island nation ushers in a new era of investments aimed at consolidating its reputation as a regional hub.
The end of the war in 2009 meant countless new opportunities for the Indian Ocean island nation and previously unexplored streams of business are opening up further.
The country has succeeded in establishing itself as a priority destination when it comes to investments and trading since the end of the Civil war in May 2009, paving the way for political, economic and social stability.
With the Sri Lankan government taking an aggressive stance with trade delegations, individual B2B businesses, and participation in trade fairs, and President Mahinda Rajapaksa himself making visits to other countries in search of trade partnerships, this is considered a true ushering in of a new era of unprecedented prosperity.
The flow of foreign direct investment (FDI) in the island state has gone up with many global corporate giants exploring the Lankan market for new ventures.
The credit for the surge goes to the Board of Investment (BOI), a government sanctioned body set up for the sole purpose of incremental investments.
Structured to function as a central facilitation point for investors for over 33 years, the BOI with its mandate encompassing the entire island has ensured this objective was met with a steady pace as the investment board, with clear set goals of increasing foreign investments and parallel economic growth, functions with the highest service levels ensuring flow of FDI.
Moreover, a high-powered cabinet sub-committee of inter-ministerial leadership has been constituted to serve as facilitator for investor’s assistance, which further strengthen the BOI, clear all bottlenecks and ensure speedy clearance of investment approvals so that investors can implement projects in a hassle-free atmosphere.
The BOI companies today employ about 500,000 workers and 65 percent of the companies represent Sri Lankan exports and, to be specific, nearly 90 percent of the country’s industrial exports.
The BOI, is therefore, a significant agent of change in the Sri Lankan economy with more than three decades of its existence.
It has radically transformed the island nation economically as well as socially, placing the country in a position where it can compete in an increasingly globalized world.
Sri Lankan economic experts believe that the most significant aspect of working with the BOI is that, when you sign an agreement with the board, the provisions embodied in the agreement remains valid for the life of the enterprise.
Successive governments cannot change these provisions, ensuring a degree of stability that few other countries can offer or match. Further, a contract with the BOI means concessions on taxes and duties, which are appropriated according to the level of investment.
Moreover, the BOI has established a series of Free Trade Zones (FTZs) and trade parks at strategic locations, which provide business owners the most conducive atmosphere for manufacturing purposes.
The island state has found traction in terms of investment flow from June 2009, with new opportunities in sectors such as water purification and supply, mini hydro power, mining, properties, the famed Sri Lankan teas (better known as Ceylon Tea), eco tourism, rubber, agriculture, gems and industrial raw materials.
Foreign investment has flowed more freely into the private sector.
The country enjoys a Free Trade Agreement (FTA) with both India and Pakistan, which provides distinct business opportunities. Investors can have the best of both worlds with, for example, access to India’s market and products and Sri Lanka’s advantageous location as a base.
Due to these reasons, the country has a reputation of being a strategic access point for other crucial markets as well.
The country’s environment also is a perfect fit for specialized industries such as electronics, light engineering, computer software with many new investors in these segments signing up with the BOI.
An often underrated investment opportunity is the agricultural prospects in Sri Lanka. The tropical climate and the renewed opportunities in foliage, cut flowers and exotic fruits and vegetables with an export-oriented market is paving the way for an influx of like minded investors into the country.
Specifically, the climate in the mountainous central district is deemed ideal for agricultural ventures.
The major factor that captures any investor’s eye is the phenomenal growth of stock market in the last five years as the market capitalization of the Colombo stock market improved from $5 billion to $20 billion.
The market capitalization and liquidity is expected to grow further in coming years with new listings and other forms of financing by existing listed entities.
With the expansion, integration and access of the northern areas, economic growth is expected to be at the range of 5 to 7 percent.
Interestingly, US Investment legend Jim Rogers has rated Sri Lanka and China with better investment opportunities than other countries in the region.
With security and stability assuring investors, the market has been on an all time high with returns far exceeding expectations.
The past year has seen a prolific increase in trade related visits by countries such as Belgium, the US, Iran and China.
China being a major partner, has stakes in developments of crucial areas such as power and energy (the Norichcholai Coal power plant is being commissioned by a prominent Chinese company).
Another sector experiencing a boom is the hotel and leisure industries, the recent signing of the Movenpick group to construct a star class hotel within the city is just one of many projects in the pipeline.
Catching onto the growing trend of eco-tourism, many groups are looking to initiate such tourism projects in the green zones.
The Cinnamon Lodge, Habarana and Heritance, Kandalama are two prime examples of successful star class hotels with every amenity and an eco-focused theme.
With tourist arrivals sky rocketing, this segment is proving to be a major money spinner.
Therefore, the country holds more space in one’s mind as the pearl of the Indian ocean (enchanting travelers from the time of Ibn Batuta) for its scenic beauty.
What truly sets apart Sri Lanka from other investment destinations is the efficiency and the smooth, streamlined processes that go with starting up a business in the country, and the lion’s share for this credo goes to the BOI that assists investors from the first boardroom discussion to the construction site.
Sri Lanka being ranked as one of the fastest growing trading hubs and an economy with the most liberal policies, investors to the country are provided with preferential tax rates, constitutional guarantees on investment agreements, exemptions from exchange control and 100 percent repatriation of profits and total foreign ownership available in most of the sectors.
With more concessions and specific benefits planned for foreign investors, the nation gears itself for another year with even greater growth in all key indicators.
So far as the manpower found on the island is concerned, the primary indicators are stronger than ever before. The literacy rate in the country is one of the highest in the world at 91.2 percent and most of the skilled labor have an apprenticeship or technical knowledge at the diploma level.
Ethical practices, which aim for the triple bottom line and ensuring the balance between employer and employee benefits, are maintained and form the foundation for a longstanding work force which rarely shifts organizations.
The government and subsidiary bodies conduct and encourage continuous training programs at specific industries aimed at sharpening the work force knowledge and vocational training.
Since the end of the civil war in May 2009 and prevalence of political and social stability, the country has bought itself onto the discussions of many global corporate giants across the world.
The country is one of the leading hubs for garment manufacturing.
Its companies have long-standing manufacturing contracts with brands like GAP and Victoria’s Secret.
When it comes to the FDI, BOI statistics show that Malaysian companies invested $150 million in the country in 2008-2009, making the country the biggest foreign direct investor in Sri Lanka during the fiscal year. India ranked second with $126 million as Bharti Airtel Ltd., the nation’s largest mobile-phone company, started operations in Sri Lanka. China was placed ninth with $27 million of investments.
With the current governments’ prudent investor friendly strategy, these figures are expected to soar in the future.
The end of the war also meant the channeling of the funds toward internal development such as highways and rebuilding or improving townships which in turn meant improved logistics and transportation capabilities.


Bitter pills: Erdogan’s possible remedies for Turkey crisis

Updated 19 August 2018
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Bitter pills: Erdogan’s possible remedies for Turkey crisis

  • The lira closed a volatile week of trading at just over six to the dollar
  • Even before the crisis broke, economists were urging Turkey to raise interest rates sharply

ISTANBUL: The crash in the Turkish lira sparked by US sanctions has left President Recep Tayyip Erdogan facing the biggest economic challenge of his one-and-a-half decades in power.
The lira has recently clawed back some of its losses, but economists say Turkey still urgently needs to address imbalances in its economy and avert a full-blown crisis.
The fragility of the currency was highlighted again on Friday when Standard and Poor’s and Moody’s both downgraded Turkey’s debt ratings within hours of each other.
The lira closed a volatile week of trading at just over six to the dollar, off the lows of over seven earlier in the week, but still sharply down from the start of the month, when it had been changing hands at under five to the dollar.
Economists say Turkey must act to prevent risks spreading to the European and even global economies.
Erdogan has a number of mechanisms at his disposal. But they could prove bitter pills for the Turkish strongman to swallow.
Even before the crisis broke, economists were urging Turkey to raise interest rates sharply to prop up the lira and rein in inflation.
But Erdogan — who sees his overriding priority as boosting growth — adamantly refuses, with economists worried that the nominally independent central bank is firmly under his control.
With its hands apparently tied when it comes to raising the headline borrowing rate, the central bank has provided banks with more liquidity, while also quietly using a mechanism that allows de-facto rate increases on a day-to-day basis.
William Jackson, economist at Capital Economics in London, said that while “the sense of acute crisis” had faded, “policymakers only really seem to have done the minimum needed.”
Financial markets are also skeptical about Erdogan’s ability to resolve the current crisis, especially after he named his son-in-law Berat Albayrak as finance minister last month.
Erdogan’s unorthodox beliefs have not helped, with the president repeatedly baffling markets by suggesting that low interest rates are needed to bring down inflation.
Moody’s said Turkey lacked a “clear and credible plan” to deal with the challenges while S&P said the response from Ankara so far had been “limited” despite the mounting risks.
Albayrak on Friday insisted that bringing down inflation was a priority for Turkey. But markets want to see actions rather than words.
“Turkey’s economic crisis is far from over,” said Mujtaba Rahman, managing director for Europe at Eurasia Group, calling for a “credible program of fiscal consolidation and economic reform.”
Economists have long warned that Turkey’s high inflation, widening current account deficit and vulnerable banking sector harbored risks.
Nevertheless, the immediate cause of the current crisis is the detention for almost two years of US pastor Andrew Brunson and the ensuing sanctions from Washington that have sent the lira into a tailspin.
One immediate way out of the crisis would be to release Brunson from his house arrest. But this is far from certain, with Turkey noisily asserting the independence of its judiciary.
Another way could be to defuse the tensions with Europe that have mounted since the failed 2016 coup, and focus instead on the joint opposition to Washington’s unilateral trade measures.
The last week saw the surprise releases of two Greek soldiers held for around six months and the Turkey chair of Amnesty International held for over a year, moves bound to gladden Brussels.
These releases “were not a coincidence,” commented a European diplomat, asking not to be named.
In such a situation, the logical move for many countries would be to turn to the International Monetary Fund (IMF) for help. But Washington may not be too keen.
And this also appears to be a red line for Erdogan, too, who has repeatedly boasted that Turkey managed to clear all of its debts to the IMF by 2013.
Albayrak said Thursday that Turkey was not in contact with the IMF over a bailout and said Ankara was looking to attract new investments instead.
After hosting his ally the emir of Qatar earlier this week, Erdogan secured a pledge for some $15 billion of investment from the gas-rich emirate.
But according to Berenberg Bank economist, Holger Schmieding, the Turkish economy, the world’s 17th biggest, is far too important to be kept afloat with relatively small amounts of foreign money.
Many economists say that in the short term the most likely course for Turkey will be to try and weather the crisis without resorting to rate hikes, major political concessions or radical economic reform.
The central bank’s attempts last week to prop up the lira suggest it is trying micro-manage the crisis rather than find more comprehensive solutions.
Jackson at Capital Economics said “policymakers will try to muddle through with a more heterodox approach for as long as possible,” forecasting the lira faced further declines in 2019 and beyond.