MR’s Shadow

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2017-11-23

HSBC CEO Sri Lanka and Maldives Mark G. Prothero at a seminar organized by The Council for Business with Britain at Colombo Tuesday where Board of Investments (BoI) Head Dumindra Ratnayake was present, said that though the Government targeted US$ five billion in foreign direct investments (FDI) by 2020, however, Vietnam enjoyed $ 12 billion worth of FDI and Cambodia and troubled Myanmar $2½-3 billion each, last year.

Prothero's point was that though there is policy consistency as shown by the Government's efforts towards fiscal consolidation, whether this consistency could be continued if there is a regime change?

Last year Sri Lanka attracted $ 448 millionin foreign investment whereas thus far for the year, this figure of a billion dollars is aided by regaining the GSP+ in exports to the EU, coupled with the Colombo Port City Expansion Project by the Chinese.

Ratnayake plans to boost FDI to $ 1.5 billion by the year end and to $ 2.5 billion next year, though these numbers appear to be peanuts compared to the value of FDI of Vietnam.

Ratnayake in reply was honest enough to say that political consistency was beyond his writ, but added that the new Inland Revenue Act to an extent ensured both political and policy consistency by saying that no other Act can supersede the new law.

To buttress his argument, he said that in respect of certain investment projects, the Act has guaranteed a 14 per cent corporate tax rate for 10 years.

The BoI boss however, accepted that the lacuna in this argument was that Parliament can always change laws. Nonetheless, Ratnayake said that even Vietnam suffers from similar uncertainties.

Sri Lanka's political and policy inconsistency is underlined by democracy, where such freedoms are not enjoyed by either Vietnam or Cambodia, whereas it may be too early to be judgmental about Myanmar a recent fledgling democracy, which came into being only after decades of military rule.

Does this mean that dictatorships, whether communist or of any other form are better placed to attract foreign investment than a functioning democracy?

The answer may well be 'yes,' because it's only the UNP which has a majority in Parliament, though not an absolute majority, but which party has been committed to a free market economy since independence, whereas the other principal party, the SLFP, may not generate that same enthusiasm among foreign investors due to its dubious economic policies of the past.

And, on the back of all of these doubts, the shadow of former President Mahinda Rajapaksa, still active in politics, in opposition to the UNP-SLFP Coalition Government, with his allegedly anti-Western and Sinhala ultra-nationalist line, may be looming larger than life in the minds of foreign investors, who conduct business more with multinational banks such as HSBC than local banks.

HSBC may be feeling the pulse of a foreign investor better than any domestic bank. Could these alleged fears and trepidations of the foreign investor be fixed, if Rajapaksa is neutralized?

Finance Minister Mangala Samaraweera in his 9 November budget speech spoke of setting-up special Courts to try out offenders, 'especially recent crime prosecution delays' for the setting-up which Rs 25 million will be allocated by the Government.

The allegation of laws delays is that in respect of alleged political murders or otherwise and money laundering crimes that took place during the Rajapaksa era from November 2005 to 8 January 2015, none of the big wigs of then, involved in such malfeasances have been prosecuted, unlike the J.R. Jayewardene Presidential Commission which found former Premier Sirimavo Bandaranaike guilty of abuse and misuse of power in 1980, three years after she was booted out of office.

Next year marks the third year of the Government. Probably history, after a lapse of 38 years, may be repeated then for the betterment of political consistency and therewith higher FDI.

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