Experts evaluate sustainability of proposed Economic Transformation Bill

From left: Harsha Fernando PC, Avinda Rodrigo PC, former BOI Chairman Upul Jayasuriya PC, Peradeniya University Economics and Statistics Department Senior Lecturer Dr. Kalpa Rajapaksha and Moderator Jessica Nimali Abeyratne – Pic by Ruwan Walpola

• All Union Alliance of BOI together with FTZMA holds awareness campaign

A panel of experts last week assessed the sustainability of the proposed Economic Transformation Bill and its amendments aimed at restructuring institutional frameworks. 

In an awareness campaign organised by the All Union Alliance of the Board of Investment of Sri Lanka sponsored by the Free Trade Zone Manufacturers Association (FTZMA) last Thursday at Ramada Hotel, the dialogue featured insights from prominent figures in the field.

Experts including former BOI Chairman Upul Jayasuriya PC, University of Peradeniya senior lecturer Dr. Kalpa Rajapaksha, Harsha Fernando PC and Avinda Rodrigo PC shared their views. The session was moderated by Jessica Nimali Abeyratne and attended by a diverse group of investors and stakeholders. FTZMA Secretary General Vasantha Dias and veteran trade unionist Leslie Devendra also contributed their perspectives during the question and answer session.

The experts dissected the proposed Bill, which spans 167 pages, and highlighted numerous concerns that have ignited intense debates nationwide. The Bill’s ambitious yet contentious proposals aim to reshape the country’s economic landscape, prompting a thorough examination of its potential consequences.

Former BOI Chief Jayasuriya raised critical questions about the proposed Economic Transformation Bill, urging a careful examination of its potential impact on foreign investment in Sri Lanka. 

Reflecting on the country’s recent economic downturn, he stressed the need for comprehensive reforms to enhance the domestic environment and attract investors effectively.

“The question we must ask ourselves is whether this Bill aims to attract investments or distract them,” he challenged, citing the urgency of improving the local economic conditions as a prerequisite for successful foreign investments.

Highlighting historical context, he referenced the inception of the Greater Colombo Economic Commission Law in 1978, later transformed into the BOI Law. 

He recalled the original objectives lay out by then - President J. R. Jayewardene, including stimulating economic development, diversifying foreign exchange sources and fostering industrial and commercial enterprises.

Drawing from personal experience as a former BOI Chairman, he lamented past inefficiencies in project execution under the BOI, noting several projects that failed to materialise despite initial agreements. 

“Is it their problem or whose problem, and how to solve that problem is something that we should have looked at,” he said, suggesting lingering challenges in operational frameworks that the new Bill must address.

Jayasuriya expressed doubt about whether the Economic Transformation Bill adequately tackles these systemic issues and hinted at unresolved issues from the past and underscored the importance of a robust legislative framework that not only attracts but also sustains foreign investments.

Dr. Rajapaksha, categorised the Bill’s shortcomings into five distinct dimensions – timeliness, wisdom, scientific basis, feasibility and democratic legitimacy. 

His critique detailed references to specific provisions within the Bill, encapsulating these criticisms terming it “5Us”.

“By carefully analysing the Bill, these are the things you can see; it is untimely, it is unwise, it is unscientific, it is undoable, and it is undemocratic,” Dr. Rajapaksha underscored the key flaws of the Bill, urging a thorough examination of its implications during the ongoing discussions.

Central to Dr. Rajapaksha’s critique was the Bill’s alignment with International Monetary Fund (IMF) conditions, effectively making IMF proposals binding law. 

He pointed out that fiscal policies outlined in the Bill mirror IMF recommendations from 6 June 2023, arguing that such alignment could undermine Sri Lanka’s economic sovereignty.

Dr. Rajapaksha also voiced scepticism about the Bill’s institutional framework, questioning the practicality and affordability of establishing new bodies such as the Economic Commission and the Office for International Trade. 

He warned against privatising critical sectors, a move he believes could exacerbate economic challenges rather than alleviate them.

The economist also challenged the Bill’s philosophical underpinnings, particularly its emphasis on absolute financial liberalisation and fiscal policy as a tool for promoting private investment. 

He argued that empirical evidence contradicts the Bill’s assumptions about inflationary pressures stemming from fiscal deficits, asserting instead that external price pressures, especially from imported commodities, are the primary drivers of inflation in Sri Lanka.

Drawing on global economic examples, Dr. Rajapaksha criticised the Bill’s reliance on liberalisation without adequate safeguards against speculative investments and potential financial crises. 

He cited instances from East Asian developmental policies, advocating for a more cautious, State-guided approach to economic transformation. Dr. Rajapaksha called for a collective effort to not only challenges the Bill but also to propose alternative strategies that prioritise social responsibility and environmental sustainability. 

He emphasised the need for inclusive economic decision-making that incorporates insights from diverse stakeholders, including academia and civil society.

Fernando underscored the enduring relevance of investment zones, highlighting their historical evolution and contemporary global prevalence. 

Addressing a diverse audience including stakeholders from the investment community, he articulated his views on the proposed Economic Transformation Bill, shedding light on its potential impacts and operational challenges.

Fernando began by contextualising Sri Lanka’s pioneering role in introducing investment zones back in 1978, emphasising their subsequent global proliferation. 

He noted that as of recent reports from the UNCTAD, there are approximately 5,800 investment zones worldwide, underscoring their attractiveness as a model for attracting foreign investment. 

Unlike investments in volatile stock markets where capital can swiftly relocate, Fernando highlighted the enduring commitment of investors who establish factories and employ local labour, thereby fostering deeper ties and stakes in the host country. Fernando expressed reservations about the efficacy of the proposed Bill in effectively regulating and operationalising investment zones in Sri Lanka. 

Citing the country’s history of ad-hoc regulations and swift policy changes, he cautioned about the discretionary powers granted to Ministers under the new Act. 

He pointed out that while the Bill mandates parliamentary approval for investment policies, the potential for revisions could undermine stability and investor confidence.

Reflecting on Sri Lanka’s broader governance challenges, Fernando likened the proposed reforms to a stimulus to pervasive governance issues such as bribery, corruption, and regulatory inconsistencies. 

He lamented the country’s stagnant corruption perception index and emphasised the critical need for systemic reforms beyond legislative frameworks to ensure investor confidence and operational success.

Legal expert Fernando acknowledged the potential of the Economic Transformation Bill to address Sri Lanka’s economic imperatives but stressed the necessity for comprehensive improvements and rigorous implementation tailored to local contexts. 

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He advocated for a balanced approach that integrates legislative reforms with enhanced governance practices to create environment for sustainable investment.

“Context in concept it’s very good and looks good but to be operational in Sri Lankan context I think a lot more thinking has to go into it,” Fernando added.  President’s Counsel Rodrigo delved into additional dimensions of the Bill, encouraging stakeholders to pose questions and express concerns, thus enriching the dialogue on Sri Lanka’s economic future.

He pointed out that the Government has failed to clearly state the concessions to be granted for investments, which is likely to create uncertainty among foreign investors. 

“Export processing zones were originally established to create enclaves within a country where normal laws did not apply. This meant that tax concessions and other benefits not typically available elsewhere in the country could be offered in these specific zones. The goal was to attract foreign investment by isolating these zones from the broader legal and economic framework of the country. These zones, known as EPZs or free trade zones were designed to encourage foreign investors to invest in designated areas that operated under different economic rules, facilitating exports from these zones. Yet, the Government’s inability to address this fundamental aspect of investment through this Act has created uncertainty among potential investors,” he explained. 

He contends that the Government has left open the possibility of altering tax concessions as the IMF process unfolds.

“Concessions are left open for regulations and one thing we all know is that an investor wants certainty. They need to know if they put in this amount of money and sign an agreement, this is what they get,” he said.

The stage was then set for further discourse in a subsequent panel discussion, inviting attendees to engage deeply with the implications and nuances of the proposed Bill.

Following the panel discussion, concerns were prominently raised regarding the proposed Bill and its potential impact on existing investors and operational frameworks. 

Representatives from various industries expressed apprehensions over the transitional period and the implications of shifting from the current BOI regime to the new Economic Commission structure.

Dias articulated several pressing questions on behalf of industry stakeholders. “Having noticed that there is no transitional provision provided in the new act, as existing investors under the BOI Act, what measures will be in place to ensure continuity of services? Will companies now be expected to financially support the new entity, Zone Lanka, to facilitate its establishment?” he asked.

His questions underscored widespread uncertainties among investors about the financial implications and operational changes under the proposed Act. 

Veteran trade unionist Leslie Devendra criticised the Bill, labelling it a “complete disaster”. 

He argued that the economic transformation of the country and the necessary reforms to the BOI are distinct issues. “Improving the BOI requires a separate approach and should not be conflated with broader claims of national economic transformation,” he added. 

Devendra attributed the confusion to local parties involved in drafting the bill, suggesting they misunderstood the IMF’s instructions for economic reform.

“This is the product of that misunderstanding. Economic transformation is a totally different matter. Here we are modelling totally unconnected things and wasting our time,” Devendra said. 

Concerns were particularly voiced about potential additional costs to businesses transitioning to the new regulatory framework.