US targets private sector-led global investment

Overseas Private Investment Corporation Executive Vice President David Bohigian - Pic by Lasantha Kumara

By Madushka Balasuriya 

Recently, The United States Senate moved to more than double the US Government’s scope for investment in overseas projects, from $ 23 billion to $ 60 billion. The move is widely seen as a concerted effort to counter China’s growing global influence, but for a Sri Lankan economy that has seen the rupee in free-fall against the dollar and foreign debt burgeon, it could also be a timely lifeline.

“The US private sector wants to be more involved here. That’s why I’m here today, and that’s why we had a team here last week,” David Bohigian told Daily FT in an exclusive interview last week. “We think the opportunities here could be enormous.”

Bohigian is the Executive Vice President of the Overseas Private Investment Corporation (OPIC), which is essentially the development finance arm of the US Government. Until recently, however, OPIC was on the brink of being shut down; despite its record of commercial investments and profitability, the Trump administration had reportedly been unhappy with what it perceived as the dispensing of aid to developing nations.

Now, however, with growing caution around China’s brand of debt-trap diplomacy - where they are accused of miring developing countries in unsustainable debt-based relations - the US Government feels the OPIC could offer a healthy alternative for those countries in need of foreign investments.

“We’re interested in making sure that today, as the SL Government is working through Private Public Partnerships (PPPs) and major infrastructure tenders, that they’re looking at some factors that we think are important for development,” notes Bohigian.

“One is to make sure the projects are benefiting the people of Sri Lanka across the entire population. Second, that the environmental protections are maintained for such a beautiful country; third is to ensure that the workers that are being employed in these major projects are Sri Lankan, so that it’s benefiting generations of Sri Lankans.

“Next, to ensure the sovereignty of Sri Lanka is being defended, and then last, to make sure these projects are built to last.”

It is no coincidence that each of these concerns has at one point or another been brought up when discussing Sri Lanka’s most ambitious infrastructure projects, be it the Hambantota Port, Mattala Airport, or the Colombo Port City. All of these were, or are being, built with funding provided by the Chinese Government.

That said, only 10% of Sri Lanka’s foreign debt, which stands at some $ 50 billion at present, is owed to China. The majority of the country’s debt has been incurred through international sovereign bonds. As such, the Sri Lankan Government has spoken at great length in the past about its intention to service these debts by attracting more foreign direct investment (FDI) into the country. This is where OPIC comes in. 

OPIC, of course, is no stranger to Sri Lanka, having invested $ 118 million in the country over the years, with currently almost $ 20 million invested across four projects. Globally, since the 1970s, OPIC has helped developing economies through private sector relations, investing in political risk insurance, in private equity, and project finance.

However, for Sri Lanka to get a piece of pie, so to speak, they need to address some harsh truths. Namely, that in terms of the World Bank’s Ease of Doing Business rankings, Sri Lanka has fallen from 79th in 2012 to 110th in 2017.

This unflattering reflection of the negative trend in the investment climate in the country, means that Sri Lanka needs to be doing more - and fast - if they are to keep up with its regional neighbours, all of whom are vying for the same branches of investment.

“What I see when I travel around the world is that every country is trying to improve their policy environment, because every country realises they’re in both a regional as well as global environment, where investors can move capital, they can move jobs, to where they’re best suited. 

“Sri Lanka has enormous comparative advantages, I think it’s obviously in the middle of a dynamic region, but in the policy environment, there’s a race to the top that’s happening across several countries in Asia and around the world. And whether you’re trying to build a financial centre here, or whether you’re trying to be a transhipment centre, everyone has choices. So you need to make it as attractive a destination for capital and jobs as you can.”

Improved policy environment a must

During his visit last week, Bohigian also had productive talks with Finance Minister Mangala Samaraweera. During those discussions, many points regarding how Sri Lanka could improve its “attractiveness” in terms of being an investment destination were discussed.

Areas such as policy consistency and certainty, intellectual property rights, OPIC’s women’s initiatives, and the importance of small and medium-sized enterprises (SMEs) in creating an entrepreneurial culture, were all high on the agenda, he revealed.

“We talked certainty of policy, we talked about intellectual property rights. We talked about how OPIC has a women’s initiative to help empowerment by supporting female-owned businesses, female-managed businesses and female-empowered businesses. We talked about the importance of SMEs generally for creating an entrepreneurial culture. We also encouraged him and his team to help us find projects that US businesses can work on in the 21st century.”

Meanwhile, the more pressing concern for Bohigian centres around tariffs, more specifically the consistency and frequency with which they are altered. This echoes a common complaint among several multinational corporations in Sri Lanka, in that the Government at times may target profit-making entities as a means of increasing tax revenue.

“One thing we talked about was the certainty of the policy environment including tariffs. For a policy to change, I think it’s important to seek stakeholder input, whether that’s the business community or the constituents in a democracy. 

“When a policy like tariffs can change overnight, it throws businesses off and is not conducive to creating that certainty of policy outcomes. The US remains the largest export partner of Sri Lanka, and I think if we want to continue that, it’s gonna be by attracting multinationals here, by attracting the kind of companies that are ready to export in the 21st century, and it’s gonna take more certainty around policy to do that.”

In terms of intellectual property rights, Bohigian also envisions avenues which Sri Lanka can take in order to position itself as a bio-pharmaceutical hub. As it stands, however, he feels that there is certainly room for improvement.

“I think intellectual property rights are crucial for any modern economy. If a creator doesn’t have the opportunity to reap the benefits of their creativity, then there’s little economic benefit to doing that. I think you see that across bio-pharmaceuticals, where Sri Lanka has an opportunity to be a bio-pharmaceutical hub, you see that across copyright where Hollywood and Bollywood has created enormous value for those economies. Also ensuring that products are safe and secure for the people that are using them. 

“You have got to have a patent system that people can rely on, you’ve got to have a copyright system that protects traders, have courts that are willing to enforce those rights, even though it might be a creator vs. user. I think that’s an important balance that needs to be struck for intellectual property.

“I think every country needs to get stronger at that, and when you look at the World Bank and other doing business indicators, Sri Lanka has a ways to go.”

Moreover, in terms of a wide range of industries, whether it be manufacturing, retail, or textile and apparel, there is also disquiet surrounding the loss of skilled labour - foreign firms, reveals Bohigian, are constantly at risk of losing out on trained staff as they look for better opportunities abroad.

“We talked with businesses about the ability to have young graduates work in a company and receive that training - though unfortunately, many times taking that experience overseas. And so to be able to train that talent, and then retain that talent, is gonna be important because the workforce here, the companies we’re talking about - what good employees they have - but the fact that they move on from company to company is something that provides a challenge for the companies operating here.”

Flawed Sri Lanka’s eye-catching potential 

The common denominator, though, when it comes to potential foreign investors eyeing Sri Lanka, is the potential they see in the country. While formulating a more welcoming policy framework is undoubtedly an exigent and time-critical concern, Bohigian acknowledges that the comparative advantages Sri Lanka holds in relation to its competitors is what keeps investors constantly hoping for a brighter future.

“I think the companies that I spoke to look at the development of infrastructure that’s happening here. Whether that’s in the energy field, or building roads and hospitals, or educational opportunities for people, that are going to be able to create a 21st century opportunity society.

“We had a chance to go to Hambantota and fly over some of the most beautiful terrain I’ve ever seen, and so the natural advantages are there as well. Then you think about, more broadly, the geo-strategic position in which Sri Lanka occupies itself, the population centres that are between an hour to four hours away by flight, comprise more than half the world’s population. 

“So I think you’ve got real opportunities there as a transhipment point, as well as a point where people can enjoy the natural beauty of Sri Lanka, these are key competitive advantages that are naturally occurring.”

From the US Government’s point of view, Sri Lanka provides an ideal candidate for what it views as win-win in terms of economic growth and mutual prosperity - one that is not laden with the unsavoury caveat of debt.

“I wanna make sure that these projects are here to global transparency, global environmental, global workers’ rights, wanna make sure that these projects are well built. When I think about these projects, I wanna make sure that they’re economically feasible as well. That’s why we think it’s important to have a private sector-led model, because they’re making economic decisions, they’re not making political decisions.”