In The Press

Foreign Direct Investment (FDI) in Sri Lanka, for the past ten years, has been low and the Special Economic Zone (SEZ) dedicated to services would increase Sri Lanka’s ability to attract FDI in the modern services industry, stated CHEC Port City Colombo Pvt. Ltd. Assistant Managing Director Thulci Aluwihare. He was speaking at a programme organised by the CFA Society of Sri Lanka. Sri Lanka received FDI worth USD 1.37 billion in 2017 and USD 1.61 billion in 2018, mainly from the Hambantota Port project.

Apart from those two years, Sri Lanka’s FDI in the last ten years have been less than one billion dollars per year, that too despite around 50% of the FDI being from re- investment in already existing foreign companies, thus a dedicated SEZ for services along with the Colombo Port City Economic Commission ACT would help in bringing the required FDIs, stated Aluwihare. During the period 2016-18, among the emerging Asian countries, Sri Lanka has only attracted 0.1% of Software services FDI, despite being a service oriented economy claimed Aluwihare.

During the same period Singapore has attracted 32% of FDI in the Software industry among Asian countries. “Moreover, we have been sticking to traditional services whereas there is a lot of growth in modern services industry like ICT, Fintech. With Port City coming up, Sri Lanka can aim at increasing its market share in Modern Services,” he said.

He added, “We are ranked 99th in the Ease of Doing Business index and it has been the same in the past five years. It takes, on average, 29 days for land registration, which includes title search and surveys, but now it is going to be brand new titles. Registering property, getting electricity, construction permits would be much faster in the Port City.

The project company CHEC Port City Colombo has already committed USD 1.4 billion in Port City, out of which USD 1.12 billion has already been invested by March 2021. In addition to USD 1.4 billion investment, the project company has come up with another USD 01 billion investment for mixed use development project, and it has partnered with a local company for first phase, planning to break ground in 2H 2021.” India started SEZ in 2005 through the SEZ Act, noted Aluwihare.

“Currently, India has close to 300 SEZ. However Indian SEZ has not been successful and one of the main reason is that SEZ authorities lack economic and governance freedom from the Central Government. Too much bureaucracy has led to its failure. However, recently, a commission was appointed to look into to the shortfalls.

This resulted in four regulators in the financial sector namely the Reserve Bank of India (RBI), Securities and Exchange Board of India, Insurance Regulatory Authority of India, and Pension Fund Regulatory Development Authority have been brought under one apex body called ‘International Financial Services Centre Authority’. Now, if anyone is operating under the Indian 2005 SEZ Act, they will only have one regulator, which may increase efficiency in SEZs of India. On contrary the existing regulators still have jurisdiction within the port city, which may create additional burdens to the investor.”

Speaking on the same subject Nithya Partners Partner’s Naomal Goonewardena said, “based on the Supreme Court decision, approvals has to be obtained from Regulatory Authority which cuts the single window facility to some extent”. Aluwihare remarked, “despite the Supreme Court decision slightly reducing the single window facility of Colombo Port City Economic Commission, Supreme Court Law provides space for regulators to setup office under the Commission and appoint officers with seniority, such that the approvals can be received expeditiously.”

Aluwihare added, “With the Colombo Port City Economic Commission Act, the commission can approach global brands to invest in Port City. Globally, one of the main reason for a SEZ to operate successfully has been it’s strategic location, a factor which Colombo Port City has lots of advantages. Also cost wise, it is advantageous when compared to other regional hubs like Hongkong , Singapore and Dubai.

Interim provision allowing the companies to setup office outside the Port City for five years would help real estate sector of Sri Lanka.” When questioned regarding who needs to take charge of promoting Port City, Aluwihare replied “it would be a collaborative effort of the Commission and the project company too.

Moreover, the project company has already invested heavily in port city, thus its ROI would depend on the overall success of Port City project. “There are geopolitical factors involved too; in such issues the support of the Sri Lankan Government would be important. We need to attract Indian Primary developers to invest in Port City. Indian developers need to get approval from RBI. Indian Capital Account is quite restricted. In such issues, it is better if the Sri Lankan Government works with Indian counterpart to build confidence and attract Indian investors.”