Saturday Sep 28, 2024
Saturday Sep 28, 2024
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By Nisthar Cassim
The International Finance Corporation’s (IFC) Asia Pacific Vice President Riccardo Puliti last week expressed readiness to enhance investments in Sri Lanka in tandem with improved outlook.
This optimism follows the IFC, announcing its first equity investment of $ 10 million in Sunshine Holdings’ healthcare subsidiary to increase its pharmaceutical manufacturing capacity and expand the pharmaceutical retail footprint. This is the second investment IFC is making into the conglomerate with the previous one being $ 5 million to help it diversify the business portfolio. It is also one of the first equity investments in recent years with some of the previous ones being PickMe, Cargills Ceylon Plc and SDB Bank. IFC’s major equity investment is in Commercial Bank Plc holding 14.45% stake.
IFC’s active financial support portfolio for Sri Lanka is around $ 400 million and Puliti said that the World Bank’s private sector investment arm would like to expand further.
“I would lie to you if I say that I’m satisfied (with the $ 400 million) because I’m not. IFC would be very happy to increase all the possible financial support we can give to the private sector in the country,” he told the Daily FT in an exclusive interview.
He singled out the planned $ 10 million investment in Sunshine Healthcare since usually in the packing order of financial risk, equity is the riskier. “It is easier to lend than to provide equity. I think that it is a good early sign on how everybody feels more comfortable with how Sri Lanka is having positive economic momentum,” Puliti emphasised.
“We are really ready to put in our equity and hope that many other international investors, public or private, will follow suit. For us, the demonstration effect of investing in equity is quite important,” he added.
“Sri Lanka deserves more funding and we have a strong pipeline for the future. We could go up pretty quick if the conditions are present. We would be very happy to be a major investor in finance here if the conditions are fine. Because of the potential of Sri Lanka we could do more. We really want to be part of Sri Lanka that is transforming,” stressed Puliti.
“From providing banks with a much-needed cross-currency swap facility a year ago, to now investing in equity, IFC is committed to supporting Sri Lanka as it transitions from stabilisation to sustainable growth. This is a vote of confidence in the country’s private sector and economic recovery,” he added.
In what was his first visit to Sri Lanka, IFC also separately in partnership with the European Union (EU) partnered with the Commercial Bank of Ceylon (CBC) to scale up green finance, supporting the country’s commitments towards a low-carbon economy.
IFC will help the Commercial Bank to develop their green lending capability through advisory with funding extended by the EU. He described the arrangement as important as in the future more financing will come to the financial sector in Sri Lanka through green lending.
The IFC Asia Pacific Vice President commended Sri Lanka’s progress in stabilising the economy following the unprecedented crises faced two years ago.
“We see in a very positive note the change, the stabilisation of the Sri Lankan economy.
There are very many indicators that underwrite what I am saying. After six consecutive quarters of recession, Sri Lanka’s economy has begun to grow in subsequent two quarters. The amount of reserves now covers two months of imports. Inflation is down to a single digit instead of a high 70% experienced in the past. We are seeing that the economy has stabilised. Now what we want to see is really going from stabilisation into growth which is important,” Puliti pointed out.
He acknowledged that generating growth is challenging and complacency could set in post-stabilisation. “In the end, the population of any country, including Sri Lanka, wants to see a future of hope and positive life. So it is really necessary to provide that kind of medium term vision of Sri Lanka where jobs creation, low inflation, trade, tourism return to what it was before the big crisis,” he reiterated.
The IFC Asia Pacific Vice President also acknowledged that reforms undertaken to bring stability needs to be pursued since reforms are fundamental in any economy. Many other countries of the world, really trying to make their economy as competitive, as inclusive, as fair as possible.
He commended the reforms effort in the crucial energy sector with initial seeds being sown and the country in the future will be able to have a good harvest. A similar view was expressed with regard to reforms in the banking sector as well. “I cannot think of any performing economy that doesn’t have a transparent and competitive banking sector,” he said.
Restructuring of the state -owned enterprises (SOEs) is another policy which has won the praise of the IFC which is advising the Government on the transactions involving SriLankan Airlines and Sri Lanka Telecom. “What IFC brings is our experience in similar situations all over the world, the transfer of knowledge which adds value to the Government that is entitled to be the final decision –maker,” he explained.
To draw much needed Foreign Direct Investments (FDIs), Puliti stressed the need for Sri Lanka to open up further and pursue good trading relationships all of which are key to generate growth and jobs.
“The need for a really transparent, open, competitive bidding environment is key,” he said if Sri Lanka is keen to draw FDI, and big investors and funding along with the just legal and regulatory framework,” the IFC Asia Pacific Vice President pointed out.
He was of the view that Sri Lanka’s main advantage lies in its strategic geographic location and being close to India which is growing at 7% per year. “That should have a positive impact due to the proximity between the two countries.”
In terms of sectors which IFC sees as high growth, Puliti said export manufacturing includes apparel, agriculture especially cinnamon and tea, renewable energy, tourism, digitisation and IT.
Commenting on the role of the private sector, the IFC Asia Pacific Vice President identified the business community as “extremely dynamic and energetic.” “I see a big role for them in the sense that the country needs investments that are both public and private, but at this moment especially private. I am a big believer that the private sector has a major role to play in every economy,” he emphasised.
According to Puliti, the IFC has a very active and robust advisory program in Sri Lanka covering areas including climate financing, supply chain financing, SME support, financial inclusion, tech entrepreneurship, and improving the competitiveness of the agri sector with a focus on high value products such as cinnamon and coconut.
In FY23, IFC provided Cross Currency Swap lines totalling $ 100 million to three private banks. This timely US Dollar liquidity injection helped strengthen the viability of trade, liquidity of banks, and ensured that Sri Lanka had access to essential items.
Seeing potential in the tech, digital space, IFC invested $ 150 million in Sri Lanka’s largest telecom operator Dialog Axiata in June 2022 to support expansion. IFC also partnered with Sri Lanka Association of Software and Service Companies (ongoing advisory engagement) to foster a thriving tech ecosystem in Sri Lanka. To improve mobility, IFC made investments in PickMe in 2018 and 2020 thereby helping the company expand across the country reaching more Sri Lankans at a critical time.
To help Sri Lankan businesses continue operations and preserve jobs, IFC, provided a $ 25 million loan to Nations Trust Bank (NTB); funded $ 175 million in John Keells Holding (JKH) to expand its supermarket chain in Sri Lanka and help fund expansion or refurbishment of hotel properties in Sri Lanka and the Maldives. IFC also provided a $ 50 million loan to Commercial Bank of Ceylon to support SMEs.
IFC works closely with real sector players in agribusiness and manufacturing sectors (garments, coconut, manufactured rubber, spices).
Since 2022, IFC has been working with industry stakeholders to better position and promote high quality exports of Ceylon Cinnamon – indigenous to Sri Lanka. As part of the program, the country’s first batch of Geographical Indication-certified Ceylon Cinnamon growers were recognised in January 2024.
IFC’s support to the apparel industry was via funding of $ 50 million in Brandix (in November 2021) and $ 30 million in MAS holdings (in June 2021) helped sustain business operations, provide critical working capital, and preserve jobs.
In May 2024, the IFC initiated a new program with the Central Bank of Sri Lanka and other public sector partners to facilitate the creation of export-ready SMEs through targeted programs and regulatory improvements. This includes a new focus on greening SMEs, thereby increasing export revenue from SME exporters, Puliti added.
Recently, IFC partnered with Citizens Development Business Finance PLC (CDB) to help expand its climate finance product offerings and devise a carbon credit aggregation business model. IFC also collaborated with Commercial Bank to build a Supply Chain Financing (SCF) strategy that will enable the bank to lend more to small and medium-sized enterprises and establish itself as a leading SCF bank in Sri Lanka.
During his visit, the IFC Asia Pacific Vice President called on President Ranil Wickremesinghe and met with Power and Energy Minister Kanchana Wijesekera, Central Bank Governor Dr. Nandalal Weerasinghe, private sector representatives, and development partners.
With over five decades of operations in Sri Lanka, IFC’s efforts in the country focus on three strategic pillars: supporting innovation for growth (including export diversification, start-ups, niche market agriculture, value additions for export, and high tech manufacturing); growth-enabling sustainable infrastructure (including low-cost clean energy, and sustainable transport and logistics systems); and deepening social and financial inclusion (including digitisation, and the economic participation of underserved people, especially women).
Since the onset of the pandemic, IFC has invested over $ 800 million in Sri Lanka providing essential long-term capital and trade financing to help sustain businesses and preserve jobs.
