It is a well-known fact that the foreign exchange revenues have depleted to an absolute low during this ongoing Covid-19 pandemic. Even before the spread of the virus, the state coffers were suffering from the inadequacy of foreign reserves. Due to the impact, the second and third foreign revenue generating sectors, apparel and tourism, which collectively brought in approximately US$ 9 billion to the country, was destabilized depriving the country of its largest foreign revenue earnings.
The bigger apprehension is the uncertainty of the recovery period of both sectors. According to international media, the two main markets for apparel, the USA and Europe, will be in dire straits due to low sale volumes experienced in history. They predict that the textile market will not recover for a long period of time. Similarly, global tourism also is suffering heavily with the grounding of airlines, closure of hotels and tourist sites.
In this writer’s opinion, for Sri Lanka, there are three main avenues to restore the influx of foreign revenue. First, promote Sri Lankan products to international markets and secondly control the outflow of foreign exchange by imposing maximum restrictions on imports of non-essential products. The third is to promote Foreign Direct Investments (FDI). The Government has already initiated effective action on the first two fronts, although more is expected by the people. The Government is yet to announce plans for promoting FDIs by attracting international investors.
| The only viable solution for Sri Lanka to attract FDIs is to create more favourable conditions for investments which seem to be lacking at present. Introducing more effective trade policy regulations would be the first task to encourage investors, both local and foreign. Encouraging the private sector involvement more would lift the burden on the public sector to a certain extent whereby they would have more space to promote public welfare. |
Nevertheless, with the proclamation of import restrictions and promotion of local industries by none other than President Gotabaya Rajapaksa, many Sri Lankan entrepreneurs, both large and medium, have started planning to establish manufacturing operations at their own levels. A new boost is emerging in the business fraternity on localizing business to substitute or replace the colossal number of imported products on the list. This phenomenon is undoubtedly a silver lining so far as the overall economy is concerned. However, the business community expects rock-solid policy regulations on the continuation of the recently imposed import restrictions fearing changes if a regime change takes place in a few years.
With regard to FDI investors, the Government has to address a few areas as its highest priority. At present, the highest focus of FDIs is on infrastructure development, although on short term basis this is a fair initiative that brings in investments and provides employment. However, in the longer run, manufacturing will provide long term employments, tax revenues to state coffers, curtail the outflow of foreign exchange by covering for imported products and finally, a lasting overall economic growth.
Therefore, the Government must take the initiative to shift the focus to attract more foreign investors for manufacturing and services such as information technology (IT) related operations.
The only viable solution for Sri Lanka to attract FDIs is to create more favourable conditions for investments which seem to be lacking at present. Introducing more effective trade policy regulations would be the first task to encourage investors, both local and foreign. Encouraging the private sector involvement more would lift the burden on the public sector to a certain extent whereby they would have more space to promote public welfare. More trade can promote technological advancements, skills improvements and also increase healthy competition.
The existing vagueness and ambiguity in the current trade policy is a major setback for investors. With faults in the information flow, bureaucracy, inefficient implementation and frequent policy change, the investors fear to enter into the stream with confidence. The only solution to this grave setback is to devise long term policies that cannot be changed at the whims and fancies of politicians, whenever a new Government comes into power. An important factor in the present scenario is to bring a complete ban for the politicians to involve themselves in the process. Public opinion is that President Rajapaksa should involve himself personally in order to curb this damaging menace.
Sri Lanka’s export trade has seen very little improvement and innovation during the past several decades, except the enhanced priority given to the apparel and foreign employment sectors. Exporters are of the view that even traditional exports of tea, rubber and coconut were not given due attention during the past many years. It is no secret that minor export crops such as black pepper, cinnamon, clove and many others which had a lucrative international market were neglected paving the way for treacherous dealers to ruin the good name earned and maintained for centuries.
However, fortunately, the manifesto, which was presented long before Covid-19, clearly defines President Rajapksa’s future plan for this important sector covering almost all products. Therefore, finding new markets in the aftermath of the pandemic and nullifying the anticipated fierce competition from other countries in the region will boost investors and entrepreneurs.
Labour related issues are a big hindrance to investors. Sri Lankan labour laws are probably the most stringent in the South Asian region with high comparative pay packages. Even though these laws with costly and lengthy exit processes are worthy for the Sri Lankan labour force, it has driven foreign investors away to other countries such as Bangladesh, Vietnam and Indonesia.
Added to the worry is the currently experiencing drastic shortage of semi and unskilled labour in the market which hampers operations, particularly the construction industry. In a positive move, the Government has granted permission to employ a limited number of expatriate laobourers with work VISA to a few Chinese mega structure investors. This is another critical and sensitive area the President and the economic revival task force has to consider and offer immediate solutions.
However, an important factor to consider by the authorities is that the World Bank Group flagship report of ‘Doing business 2019’ has placed Sri Lanka at 83rd place on starting up a business in the country, out of a total 190 countries. Even though Sri Lanka is above some of the directly competing countries, the overall position is not acceptable and need to be looked at immediately. Except for the rank of ‘dealing with construction permits’ which stands at 65, other rankings are much lower. Therefore, the President and the Government must involve a team of professionals to improve the rankings.
Products from China, India, Europe and other countries are now easily available everywhere in the world because of the globalization of business during the past decades. The markets will be opened up very soon as the affected countries that were closed for over two months are now gearing up to open themselves for business. That creates a more expanded market opportunity for Sri Lanka and the country should make the maximum effort to grab it. Therefore, a strong drive by the Government is a dire requirement to draw in good investors.
The pride of Sri Lanka’s natural wealth with fertile soil, the vast fish rich ocean around the island, tropical climate with immeasurable bio-diversity and highly literate citizenry can be promoted to bring in best investors. In this context, Sri Lanka has a superior prospect than many other countries. These investments can bring in precision technology, modernization, innovation more employment and finally the much needed foreign reserves. Hence, now is the best time to act.