Radical reforms imperative to attract FDIs: Godahewa

State Minister Dr. Nalaka Godahewa addressing Parliament during the debate on the Colombo Port City Commission Bill 

Following are excerpts from State Minister of Urban Development, Coast Conservation, Waste Disposal and Community Cleanliness Dr. Nalaka Godahewa’s speech in Parliament last week, during the debate on the Colombo Port City Commission Bill:

Today every country has identified the vital role of Foreign Direct Investment in the development process, that’s why even bigger economies such as the USA, Russia, China, UK, France, Germany, Japan, India, Indonesia, etc., are continuing to strive to attract Foreign Direct Investments (FDIs).

The ability to attract FDIs by the countries which won independence after Sri Lanka, such as Singapore, Malaysia and Vietnam, have immensely boosted the economic development process of those nations. However, it is a fact that we have been very poor in attracting FDIs, even though we won our independence way back in 1948.

Vietnam, which won its independence 27 years after us, has been able to attract $ 20 billion worth of foreign investment in 2020. It is more than 6% of their national GDP. The smallest neighbour of ours, Maldives, managed to attract 17% of their GDP as FDIs. Even under the COVID-19 pandemic backdrop, Singapore in 2020 attracted 28% of GDP as Foreign Direct Investment. However, Sri Lanka has not been able to exceed 2% of GDP over the last several decades.

Hence, we need to face reality at least now, identify what went wrong and address our weaknesses.

We have not been able to pursue consistent economic policies after our independence. Every other government had their own experiments. One era of closed economy followed by an open economy policy. Our governments used to rely on an agriculture-based economy for some time and then zigzagged to a free market economy dialogue. One regime works hard to develop the local manufacturing industry and the next regime starts to sell out valuable local industries. 

We were able to manufacture everything from Kelani tyres to the Crocodile brand before the 1977 era. But the UNP regime which came to power in 1977 started to import everything, crippling these vital local industries. The country which manufactured products such as Fiat cars, Unic Radios and locally-manufactured tractors, started to import everything starting from paper pins.

After President J.R. Jayewardene’s rule, and during the tenures of Presidents R. Premadasa and Chandrika Kumaratunge, a total of 94 solid local manufacturing ventures were sold to the private sector for peanuts. Most of them were not sold to credible or reputable entrepreneurs, but to close friends and cronies. The only intention of those cronies was to sell the assets of these State ventures, not to develop them.

Many manufacturing outfits such as Thultex Garments, Ceylon Oxygen, Puttalam Saltern, CCC Engineering, Steel Corporation, Lanka Leather Products, Lanka Canaries, National Paper Corporation, Plywood Corporation, Ceylon Ceramics, Mahaweli Cement, Ceylon Glass, Sathosa Motors, Ceylon Shipping, and Lanka Tractors, were destroyed which otherwise would have produced world renowned Sri Lankan brands and products.

In 1979, then President J.R. Jayewardene established the Greater Colombo Economic Commission to attract FDIs. It was empowered through the Board of Investment Act. It was established mainly with the manufacturing industry in mind. That commission had a special mandate and powers to fast-track approvals for establishing a business in the greater Colombo area. It functioned well at the beginning.

Both President J.R. Jayewardene and Ranasinghe Premadasa were able to leverage the Board of Investment optimally. But the Board of Investment powers started to get diluted during President Chandrika Bandaranaike’s tenure. The main reason for that was the introduction of conflicting Acts during her regime by various ministers in an ad hoc manner, which undermined and overpowered the mandate of the Board of Investment Act. The end result of this was the failure of the BOI to fulfil its obligations to investors and limit the concept of ‘one stop shop’ to merely a name board.

Today an investor has to get approval from 17 diverse institutions in order to start an industrial venture in Sri Lanka. We have to be surprised if we continue to get attractive investments under such circumstances. We are currently at the 99th position in the World Bank’s Doing Business Index. We were holding 85th position in 2014 and spiralled down during Yahapalanaya, and 50% of the countries in the world today are ahead of us in the Ease of Doing Business Index.

We have to compete hard with other countries to attract FDIs. But unfortunately, not only Singapore, Thailand, Malaysia, Vietnam, but even India, Nepal and Bhutan are ahead of us in the index.

I would like to share one of my personal experiences to highlight how other countries treat their investor prospects. I was working in the private sector during the early days of the last decade. I served as the Chief Executive Officer of several manufacturing outfits of a leading apparel company. We had factories in several countries. Our export destination was the USA. In 2002, I had to go to Vietnam to explore the possibility of opening a factory there.

I went to Vietnam-Singapore Industrial Park, which is situated in Binh Duong province, next to Ho Chi Minh City. The governing body of this industrial park had all the powers to make necessary decisions in a speedy manner. I was really surprised with the way these officials treated me. 

Investment promotion officers told me that I could start the factory in a few more days if I decide to stay in Vietnam for the proposed extra days. I didn’t believe this at the beginning. They found me a building that was already ready for us to occupy and facilitated me with all necessities. All approvals were granted in three days. They found translators and extended banking facilities too. They also assisted me to find employees and issued visas for our consultants who were supposed to travel from Sri Lanka.

The one who went to explore the possibility of starting a factory returned to the country after starting a factory within three weeks. We started manufacturing in three months and we were able to do the first export shipment to the USA within six months. This is the kind of regional competition we have to deal with.

Do our investor prospects have such a pleasant experience today? Investors have to go from post to pillar to get approvals. How many people con the investors and take money? How many investors have left the country having spent years trying to start a business in Sri Lanka?

We have to correct our mistakes, at least at the Port City Special Investment Zone, which is an investment of $ 1,400 million. We have to think fresh and offer efficient service if we are to attract large Foreign Direct Investment. That is why a new legislation and new mechanism is being introduced. The Port City Economic Commission will serve that purpose.

As all the efforts to paint a scary picture by the Opposition have already been addressed by the Government bench, I am not spending my time responding to those arguments. I will outline the benefits that we are going to enjoy as a result of the Port City.

The Sri Lankan Government is the titleholder of 269 hectares, or 665 acres, of reclaimed land with an investment of $ 1,400 million by a Chinese company. It has been gazetted under the administrative district of Colombo. The Chinese company has spent about Rs. 2.4 billion an acre in order to take 116 hectares of land on a 99-year lease basis. The Sri Lanka Government has got a land worth of Rs. 160 billion at no cost as a result of this project.

The world is changing and progressing fast. The opportunities for development today might not be there tomorrow. If we dilly dally somebody else will grab that opportunity. Employment creation for unskilled labour was the main objective of the then Greater Colombo Economic Commission. But we do not have the low-cost labour proposition anymore. 

The Special Economic Zone which we are building is a global business and service centre with special infrastructure facilities. It has opportunities for everyone but mainly for the skilled labour force. Every opportunity here is open for all Sri Lankans. Though there is high interest in education, it is a challenge for youth to find employment which matches their qualifications. There are limited opportunities for educated youth. That’s why brain drain has become a major issue. Products of free education migrate and work for other countries.

I graduated from the University of Moratuwa with a degree in Electronics and Telecommunication Engineering; 90% of my batch mates at Moratuwa University are now employed overseas. Today they live in the USA, England and Australia having received free education at the expense of taxpayers’ money. Similarly, many other professionals migrate at the first opportunity they get. Some children go for overseas education at their parents’ expense and end up staying in those countries. Why is that? Because they don’t have promising opportunities in Sri Lanka.

The Port City creates new opportunities in Sri Lanka for educated new generations which will cut down migration and the brain drain. They will have the opportunity to earn in foreign currency. Not only that, even Sri Lankans living overseas now have the opportunity to apply for jobs in the Port City. It gives them an opportunity to apply their knowledge and experience and serve the motherland.

Local enterprises get new opportunities to provide goods and services to the businesses in the Port City. A new market opportunity is being created through this. Income earned in the Port City does not have to be spent in the Port City itself and circulates throughout the country. Hence the economy as a whole is benefitted.

It is a positive development that every Act is challenged at the Supreme Court. This Government has duly respected all Supreme Court judgments for all the legislations that we introduced. In addition to that, the Government has been sensitive to the public outcry and has introduced necessary amendments.

There is no change on the Government stand with regard to the Port City project. Especially the Government has been flexible to bring about amendments respecting the proposals arising out of party dialogues and public outcry.

In the meantime, I am grateful to His Excellency the President and Honorable Prime Minister for accommodating the proposals to allocate 70% of the job opportunities to Sri Lankans and the majority of commission member positions to Sri Lankans.

Considering the limited time allocated to my speech, I request the Honourable Speaker to include my tabled full speech in the Hansard.