AMCHAM: High debt, instability and labour constraints strong challenges for FDI

High government debt burden, policy instability and labour constraints pose strong challenges for Sri Lanka’s Foreign Direct Investment ( FDI) landscape and investor sentiment.

Addressing these concerns will be crucial if FDI into the country especially from the US is to be improved, a recently released white paper by the American Chamber of Commerce (AMCHAM) suggested.

The white paper was compiled by AMCHAM, in collaboration with global strategy consulting firm Stax.

It carries a detailed analysis of private sector perceptions of the local business environment and the view point on major operational issues faced by potential investors.

In addition to reforms carried out at a regulatory level, there is still a need to engage on issues such as the lack of transparency and corporate governance

in the local business environment in order to improve FDI inflows especially from the US, it said.

The first copy of the whitepaper was handed over to Development Strategies and International Trade Minister Malik Samarawickrama by AMCHAM President Kumudu Gunasekera.

“Sri Lanka is at an economic crossroads,” Mr. Gunasekera said adding that “the private sector is increasingly becoming a primary focus for trade and investment growth, and as such it is important to ensure that policy reforms are directed towards improving investment promotion and business conditions within the country”.

Presenting the white paper titled "FDI Landscape and Investor Sentiment in Sri Lanka", Rafi Musher - Founder and CEO, Stax told a gathering of AMCHAM members at a meeting in Colombo on Thursday that the government’s fiscal strength is compromised due to its debt burden.

The country has already embraced a private sector driven growth model focused on exports and FDI, he revealed.

The introduction of new tax concessions appears to have contributed to a rebound of FDI over the last couple of years, he added.

As a reputed policy advocate that facilitates dialogue between US businesses and regulators, AMCHAM will have a key role to play in improving matters on this front.

Near- term, however, substantial improvement in fiscal strength is unlikely, given the country’s low efficiency in tax collection.

FDI into Sri Lanka grew to over US$1.63 billion in 2017, doubling from the $802 million achieved the previous year.

FDI inflows in 2016 were pegged at $898 million with telecommunication, tourism, and manufacturing being key areas of investment.

Contrary to overall Central Bank data, Board of Investment ( BOI) statistics

showed an increase in inflows from 20112014, signifying that external loans accounted for an increasing share of investment during this period.

Although this data shows a pronounced decline in 2015, it has rebounded in the last two years, he said adding that the decline in FDI inflows attributed to a policy shift on tax concessions granted by the BOI to investors.

Sri Lanka primarily attracts FDI from Asia, with telecommunication, tourism, and manufacturing being key areas, he disclosed.

While the economic reform process undertaken by the government is positive, policy consistency and stability remain key for foreign investments.

Sri Lanka’s key investment projects including the Hambantota Port and the Colombo International Financial City are likely to provide a much needed boost to FDI inflows, which are expected to trend positively over the next five years, the white paper emphasised.