Sri Lanka aims for big investments to boost slow FDI

Reuters: Sri Lanka is targeting big-ticket projects that will give the economy a short-term boost and enhance export earnings, to increase slowing post-war foreign direct investment, the State investment body’s head said on Friday.

Despite the end of a 25-year war in May 2009, the Indian Ocean island nation is still struggling to bring in FDI.

Despite the Board of Investment’s (BOI) approval of 268 projects worth $2.5 billion this year, only about a third have been started, mainly in telecoms, power generation and manufacturing, BOI Head Jayampathy Bandaranayake said.

FDI in 2010’s through September has only hit $310 million, compared to $350 million in the same period last year, he said.

“From a 40 percent drop in the first quarter, it has now narrowed to around 12 percent in the first three quarters,” Bandaranayake told Reuters in an interview. “Hopefully by end of the year we will reach around the same level of the last year.”

Foreign direct investment hit a record $889 million in 2008 despite the severe fighting in the island’s north and bomb blasts all over the country in the final phase of the war. But it fell in 2009 to $602 million due to the global downturn.

Some economists have blamed Sri Lanka’s contradictory policies for falling FDI including reversals of privatisations, failure to honour contracts and unclear regulations, while the opposition Marxists have blamed the erosion of democratic norms and aggressive foreign diplomacy.

The top five investing countries so far in 2010 have been India, Malaysia, Britain, China and Mauritius.

“This year is a stock-taking year. The 2011 Budget has set out the policy to going forward with a lower tax regime and an enabling investment environment,” Bandaranayake said.

The Ministry of Economic Development has tasked the BOI with attracting $1 billion in FDI next year, $1.5 billion in 2012 and $2 billion in 2013.

To reach those targets, the BOI wants what it terms strategic investments: large-scale projects which will help the country enhance export earnings and prevent an outflow of foreign exchange, Bandaranayake said.

Thus far, the expansion of the Colombo Port, the construction of a 1,000 megawatt coal power plant in the East, a joint venture with India and the offering of licenses to prospect for oil in the offshore Mannar Basin are of the scale Sri Lanka wants, he said.

At the lower range of investment, the Government has identified what it calls “thrust sectors” including tourism, education, information technology, and ports to boost inflows.

“We want to attract a scale of investment between $3 million to $10 million for each project in the thrust sectors,” Bandaranayake said.

The Government has already announced a five-year tax holiday for investments ranging from $5 million to $10 million in the budget. Government officials have said further tax concessions are possible for large investments on a case-by-case basis.