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‘Invest Sri Lanka’ initiative can drive the next wave of FDI: BOI Chief

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Board of Investment (BOI) new Chairman Dinesh Weerakkody says Sri Lanka’s value proposition is key to attract investors that can foster job creation and expansion of the economy. “The National Single Window System is a must and finding the right mix of techniques and organisation to do the promotion is key,” emphasises Weerakkody in this interview. Here are excerpts. 

BOI Chairman Dinesh Weerakkody 

Q: What are the measures taken by the BOI to increase FDIs in the country in light of the current economic crisis? What are the bottlenecks stifling foreign investments and how are you addressing them?

 If you look at most surveys, the top three factors influencing investment decisions are political stability, macroeconomic stability, and a country’s regulatory and business environment. So as a country we need to focus on: Effective economic structures, shorter lead times for approvals, consistent trade policies, ease of doing business indicators and online markets. The BOI value proposition needs to get transformed in order to compete with other FDI destinations. Our digitalisation efforts must offer multiple opportunities for industries to pivot and embrace e-commerce, allowing companies to reach out to new markets but at a lower cost. Essentially, creating new business models to thrive.

We are looking at targeted Initiatives to get from $ 1 billion in 2022 to $ 2 billion in 2023. Specifically, we are looking at: Attracting 100 technology services companies with a new product, a targeted program to get 50 existing BOI companies to reinvest, setting up industry advisory councils for the four thrust sectors for leads, policy tweaking and promotion, digitalisation of key investor services, aggressive promotion of the destination, key account management and modernisation of existing zones to meet with international green standards. 

Also there is a large number of new sectors which are emerging, associated with digitalisation and with the new economy. Also the traditional sectors have new elements coming out as sub-sectors. Whilst the larger sectors like petroleum, power, infrastructure, healthcare, manufacturing which bring you the big FDIs. However the sectors of the future will be the new sectors which are now emerging. 

Q: President Wickremesinghe recently stated that he is looking at setting up a new institution replacing the BOI and the EDB. What is your opinion? Would that mean new laws and disbanding institutions? 

: Certainly we need serious reform. If not we will continue to do more of the same and get the same results. For a start we need an initiative to bring all key agencies involved in country investment promotion to work together to showcase SL talent, products, quality of life, legal framework and location advantages and act as a single window for all investments. And for better use of our limited resources. We are focusing on an Invest Sri Lanka initiative to brand Sri Lanka as an investment destination, improve investor care, access new markets for our products and services, communicate better with the world and grow our market via new trade arrangements. 

Q: How is the BOI dealing with market size disadvantages? 

 Even though Sri Lanka’s internal market size is small, with a population of around 22 million, Sri Lanka has signed three free trade agreements with India, Pakistan and Singapore: Sri Lanka-India FTA, Sri Lanka-Pakistan FTA, and Singapore-Sri Lanka FTA, giving 1.5 billion consumer market access on a duty-free basis. Sri Lanka is also a member of South Asian Free Trade Agreement (SAFTA), Asia Pacific Free Trade Agreement (APTA) and the country is eligible for duty free access to 27 EU countries under EU GSP+ and also is eligible for duty free access to UK under UK DCTS.

Q: Sri Lanka needs to offer attractive tax incentives to increase FDI; what is the way forward?

 Tax incentives have traditionally been used by governments as tools to promote investments to targeted sectors. They are preferential tax treatments that are offered to selected sectors/locations and take the form of exemptions, tax holidays, credits, investment allowances, preferential tax rates and exemptions from import tariffs (or customs duties), and deferral of tax liability. The generalised use of tax incentives has been justified by the need to correct market inefficiencies associated with the externalities of certain economic activities, target new industries that are subject to tax competition and to subsidise companies during their downturn. 

Most developed countries use tax incentives to promote research activities, export activities, and support the competitiveness of their enterprises in the global market; while developing countries use them to attract foreign investment and develop key industries. Tax incentives are still an essential component of the policy mix employed by nations to attract more foreign investment, despite the lack of hard evidence supporting its total effectiveness.

Q: How crucial are tax incentives for a country like Sri Lanka?

 Tax incentives have been widely used by the competing countries to promote investment and Sri Lanka is no exception to this. Incentives, especially fiscal incentives have been associated with higher investment in several countries in the region where incentives are granted for selected target sectors. With the new amendments to the Inland Revenue Act in 2022, Sri Lanka has moved away from granting tax holidays, concessionary CIT or Reduced CIT and retained only the Enhanced Capital Allowance that will be available for investments of more than $ 3 million on depreciable fixed assets (ECA for investments less than $ 3 million will be applicable only up to 2024). 

Further, a reduced CIT rate of 14% applicable for most of the sectors including exports of manufacturing goods have been increased up to 30% for those who have signed agreement after the enactment of new Inland Revenue Act in 2018. However, most of the peer countries grant tax holidays ranging from 2-20 years in addition to granting concessionary CIT or Reduced CIT. So getting the right mix is crucial for our future success. 

Q: Given our forex crisis, what are Sri Lanka’s options if overall incentives become uncompetitive?

 Some experts are encouraging governments to move away from incentives-based means of competing to attract FDI in favour and focus more on rules-based means of competing. Generally tax incentives appear to entail a revenue loss to the Government, to ascertain the real benefit of granting incentives for investments to attract FDI, all the contributable factors such as export growth, direct and indirect employment generation, infrastructure development and technology needs to be taken into consideration. Enhanced capital allowances will add to the national infrastructure stock and accelerate technology transfer. In order to attract investment. Sri Lanka must use every tool at its disposal. 

The competing destinations are still providing a considerable amount of tax incentives; thus, Sri Lanka cannot entirely eliminate tax incentives for investments. However, moving away from broad tax holidays in favour of more focused incentives makes business sense, such as reduced/concessionary CIT rates, accelerated depreciation, reinvestment allowances, allowance for increased exports, incentives for skills development, technology upgrade. However top tier FDI investors want stable, predictable and transparent rules. ESG focused investors is another clear possibility.

Many of the governments that are most successful in attracting FDI are also among those that best meet the requirements for good governance and credibility to incentives programs in the eyes of investors, by making them likely to be seen as sustainable. However, aftercare service, professionally responsive to inquiries and competitive staff possessing the best knowledge of new-age industries and language diversity are key competencies to attract and retain FDI. There are lots of lessons from the banking industry that can be adapted to attract and retain investments.

DailyFT

Nelum Yaya CSR: School shoes donated to children in Mahiyanganaya

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By: Isuru Parakrama

Mahiyanganaya (LNW): Thirty (30) pairs of school shoes were donated to children of low-income families from selected schools in Mahiyanganaya and Ridimaliyadda educational divisions today (13) as part of the corporate social responsibility (CSR) project ‘Suwethi Daruwan’ undertaken by Nelum Yaya Foundation (Mahiyangana).

Funded by Duminda Mayadunna, Chairman of of ‘Dumee International’ Group, in celebration of his birthday, 30 pairs of schools shoes were donated to children from Haddattawa Secondary School, Haddattawa Primary School, Aluttarama College, Batalayaya College and Galporuyaya College, in a joint effort by ‘Dumee International’ and Nelum Yaya Foundation (Mahiyanganaya).

If you are interested in contributing to ‘Suwethi Daruwan’ CSR project by Nelum Yaya Foundation, contact:

Priyantha S. Bandara (Founder)
Suwethi Daruwan
0779878637

Massive strike action looms in the backdrop of Sri Lanka economic revival

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By: Staff writer

Colombo (LNW): Sri Lanka is to be forcibly dragged backwards this week towards economic downturn again by severe strike actions in many crucial sectors nationwide which will bring the country to a standstill, as the public buckles under the financial strain of multiple price hikes and heavy taxation.

Such unwarranted strikes have devastating effects on the economy, cause injury to members of the community and non-striking workers, and more particularly poverty as the government would retrench workers if the institutions do not provide essential public services.

As a result of these protest campaigns, the country has incurred a massive economic loss of billions of rupees and it has lost over 8 million man hours in two days of strike and protest demonstrations recently. 

In the wake of Sri Lankans about to see a light at the end of the dark tunnel following first sign of economic recovery as a result of the unlocking of US $2.9 billion International Monetary Fund (IMF) bailout loan by March 20, the country’s progress is to be disrupted by ongoing strikes and protest campaigns.  

The Professionals Trade Union Collective and several other trade unions representing government and semi-government sectors have planned to launch trade union actions from today March 13.

More than 40 trade unions including health, education, water, electricity, nurses, teachers, government and semi-government sectors have expressed their support.

Trade unions said one of the main reasons for the trade union action is the failure to provide solutions to the burdens caused by the unfair tax policy, while salaries have not been increased and the economic crisis continues.

Through the protests, the trade unions will also highlight several other matters including skyrocketing interest rates and issues related to salaries and increments.

They were demanding the reversal of the government revenue enhancing measures, cost of living and unavoidable price hike. 

Half a million workers from across Sri Lanka’s public and private sectors joined strikes and protests recently in opposition to the International Monetary Fund measures being imposed by the government.

The measures include a pay as you earn (PAYE) tax on workers’ salaries, increased interest rates on bank loans, cuts in overtime payments, privatisations and tens of thousands of state-sector job cuts.

According to a government survey, 44,540 public servants out of 148,451 in Sri Lanka’s six provinces walked out on strike on last Wednesday.

This included 36 percent in the northwest, 40 percent in north central, 49 percent in the south, 25 percent in central, 21 percent in the east, and 19 percent in Uva.

The survey also revealed widespread participation by government doctors across all provinces.

This included 914 out of 1,322 in the northwest, 434 out of 690 in north central, 1,547 out of 2,472 in the central province, 942 out of 1,339 in the south, 454 out of 1,338 in the east, and 730 out of 918 in Uva.

Those participating included workers from the petroleum, electricity, water supply, port, banking, health care, postal, railway, and school and university sectors.

The industrial action, in defiance of President Ranil Wickremesinghe’s strike-breaking Essential Public Services Act, included full- and half-day strikes, sick-leave campaigns, “go slows,” lunch-time pickets and other protests.

SL Rupee appreciates against US$ bringing positive and negative results

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By: Staff writer

Colombo (LNW): The Sri Lankan Rupee (LKR) has been appreciating against the US Dollar (USD) and other major currencies since last week bringing positive and negative results.

The Colombo Tea Auction last week saw a mini storm brewing as substantial quantities went unsold amid the sharp appreciation of the rupee against the US dollar.

Tea brokers said the first sale in March began on a very hesitant note due to the Sri Lankan rupee strengthening in an “unexpected manner”.

“At the commencement of the sale, large volumes of tea were unsold with bids realised being significantly below the percentage appreciation of the Sri Lankan rupee,” said Forbes and Walker Tea Brokers in its weekly tea auction report.

The gold price has come down further this week, as a result of the rupee’s appreciation against the dollar, the Jewellery traders in Sea Street Colombo said.

As per the traders, a 24-karat gold sovereign which was at Rs. 185,000 last week has reduced by Rs. 40,000 whilst a 22-karat sovereign which was at Rs. 172,000 last week has come down by Rs. 38,000. “Currently 24-karat sovereign is now at Rs. 145,000and 22-karat sovereign is at Rs. 134,000,” jewellers claimed.

The reduced prices have boosted sales in Sea Street jewellery shops after a hiatus of almost three years, they noted.

The Colombo stock market remained positive yesterday reinforcing its latest status as the world’s second best performing with improved investor sentiment and activity. Both indices closed with 0.5% gain after dipping in early trading.

Turnover was Rs. 2.5 billion involving 97.4 million shares. Net foreign inflow persisted as well. Year to date the ASPI has gained by 14.3% and the S&P SL20 by 8.7%.

Public Expenditure/Revenue Gap continued to grow steadily over the last two decades and widening of the gap accelerated since 2016. In 2020, COVID-19 made the situation worse.

Public revenues declined much faster against sharply rising expenditure, making it nearly impossible to bridge the gap without radical and painful measures to cut down the cost and increase revenues.  We rely heavily on borrowed funds, both foreign and domestic, to fill the ever-increasing deficit.

US Signature Bank shut down by regulators, days after SVB collapses

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By: Alex Turner-Cohen

A third US bank has toppled in as many days as shockwaves have been sent around the world as the financial disaster deepens.

A third US bank has toppled in as many days as shockwaves have been sent around the world.

On Monday morning Australian time, New York-based Signature Bank collapsed, after a massive stock plunge.

US regulators said state authorities had to intervene and shut down the bank.

Signature Bank was a traditional banking institution and was federally insured but it was well known for being a primary lender for digital assets, including cryptocurrency exchanges.

The US Treasury, Federal Reserve, and Federal Deposit Insurance Corporation said in a joint statement that the bank had officially closed for good.

“Signature Bank, New York, New York, … was closed today by its state chartering authority,” they wrote.

However, customers will not lose any money poured into the bank.

“All depositors of this institution will be made whole,” the regulators added.

“This step will ensure that the US banking system continues to perform its vital roles of protecting deposits and providing access to credit to households and businesses in a manner that promotes strong and sustainable economic growth,” the statement added.

They also said that “no losses will be borne by the taxpayer” arising from Signature Bank’s collapse.

According to filings with the corporate regulator, as reported by CNBC, Signature Bank had US$110.4 (A$165b) billion in assets and US$88.6 (A$132b) billion in deposits.

In the past 12 hours, Signature Bank’s share price on NASDAQ dropped by an eye-watering 22.87 per cent.

The move came several months after Signature tried to reduce its exposure to the crypto sector, especially in the wake of the implosion of FTX.

Signature Bank had 38 banking branches across several US states, including its head office in New York, and also offices in Connecticut, California and North Carolina.

It’s unclear how many staff the bank had that will be impacted by its closure.

The US banking system has had a tumultuous few days.

On Friday Australian time, Californian-based Silvergate Capital announced it had gone into voluntary liquidation, after racking up $1 billion (A$1.5 billion) losses in the past quarter, as well as its shares being down 67 per cent.

Less than 24 hours later, Silicon Valley Bank went into receivership.

The bank was the 18th largest in the country and had a market capitalisation of around $40 billion as well as assets of more than $300 billion.

It was the second-biggest bank failure in US history.

SVB’s collapse is expected to have far-reaching consequences for tech and start-ups, with many of them using debt facilities at the bank.

US building managers at Silicon Valley Bank’s Manhattan branch reportedly called the police after a group of tech founders showed up and attempted to pull out their cash.

Warnings of an economic meltdown

It comes as hedge-fund manager Bill Ackman warned of an economic meltdown on Monday as uninsured bank customers rush to withdraw cash with several banks going bust in recent days.

In a rambling, 649-word, one-paragraph tweet on Saturday, the billionaire predicted that uninsured bank customers would rush to withdraw cash unless the government stepped in to guarantee their funds.

“The [government] has about 48 hours to fix a-soon-to-be-irreversible mistake. By allowing [SVB Financial Group] to fail without protecting all depositors, the world has woken up to what an uninsured deposit is — an unsecured illiquid claim on a failed bank.

“Absent [J.P. Morgan, Citigroup or Bank of America] acquiring SVB before the open on Monday, a prospect I believe to be unlikely, or the [government] guaranteeing all of SVB’s deposits, the giant sucking sound you will hear will be the withdrawal of substantially all uninsured deposits from all but the ‘systemically important banks’,” he wrote on Twitter.

Source: news.com.au

SL Tourism booms with confidence attracting over 30,000 tourists in 8 days

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By: Staff writer

Colombo (LNW): Sri Lanka Tourism last week shared a strong message about the resilience and openness for business at the ITB – the world’s leading travel and trade show in Berlin, Germany.

“I’m delighted to say that Sri Lanka tourism has bounced back and is booming with confidence,” Tourism Minister Harin Fernando told international journalists covering the ITB.

During the first eight days of March, Sri Lanka welcomed 31, 086 visitors, boosting the confidence of the industry for a good year. A total of 241,270 visitors have arrived in Sri Lanka so far, the provisional data by the Sri Lanka Tourism Development Authority (SLTDA) showed.

Acknowledging the challenges it faced with political instability and economic crisis, he said the country has overcome the difficulties and had returned to normalcy.

“Sri Lanka is not a bucket list country, but a destination that is impossible not to love. Our efforts at the ITB were to offer more of our hospitality and tell the story of our beautiful country which is worthy to love,” Fernando added.

The participation at ITB was only to promote the tourism business, but also to showcase to the world that Sri Lanka is in the spotlight in the Asian region as a preferred destination for European travellers.

Noting that Germany was ranked among the top three tourist source markets in March so far, the Minister said Sri Lanka tourism is banking on German travellers this year to visit the country.

“Sri Lanka has all that to offer for all segments. Before you leave ITB, book a ticket to Sri Lanka. You will not regret it because seeing is believing,” he stressed.

Fernando also outlined that the country will be redefined with a different set of experiences on offer for tourists.

“We have curated a walking experience funded by the European Union called Pekoe Trail. This hike is conceptualised for travellers to complete in segments,” he added.

Recalling that Sri Lanka had many German restaurants in the southern coastal belt, he called on the investors to consider buying villas, lands and islands in the Northern Peninsula, as plans are underway to launch the first-ever tourism investor forum.

Minister Fernando also pointed out that many international airlines such as Air France, KLM, Swiss Air and several others have restarted calling at Colombo, he attributed it due to the potential they see Sri Lanka as a top travel destination.

SriLankan Airlines Worldwide Sales and Distribution Head Dimuthu Tennakoon said the national carrier has signed a Memorandum of Understanding (MoU) with the Deutsche Bahn (DB) – the national railway company of Germany to sell SriLankan air tickets.

“The air tickets can be purchased via 5,600 train stations in and around Germany,” he added.

Minister Fernando also stated that an app will be introduced soon as an end-to-end solution to the needs of tourists which will include places to visit, accommodation with reviews and security features.

Sri Lanka economic management suffers from a lack of compliance: Verité Research

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By: Staff writer

Colombo (LNW): The most recent Insight published by Verité Research highlights that economic management in Sri Lanka suffers from a lack of compliance – by the bureaucracy and by the Parliament – to the existing laws and rules of the country. It shows that this has been the case for at least 20 years.

It said the Government of Sri Lanka proposed introducing a new law to establish stronger rules on public finance management. But the analysis shows that the problem for Sri Lanka is not simply a lack of laws, but the ability for the highest levels of Government to flout the laws of the country with impunity, and/or change those laws when they become a constraint to irresponsible decision making.

In September 2022, the Government proposed a new Public Finance Management Act. This is presumably based on a diagnosis of the IMF that more and better rules would help. The IMF practices a policy of non-transparency with regard to the prior actions that it requires a Government to take before receiving board level approval – therefore the precise recommendations of the IMF are not known.

This Insight by Verité Research suggests that the IMF diagnosis could also be misplaced: “The analysis shows that the core weakness in Sri Lanka is not the lack of rules but the lack of compliance. To be effective, any new law will need to contend with this problem of governance.”

This is exemplified by the analysis of the existing Fiscal Management (Responsibility) Act, adopted in 2003. Verité Research shows that three rules of the FMRA have been consistently flouted.

Rule on budgeted deficit: FMRA limits the deficit (amount by which Government expenditure exceeds revenue) to 5% of estimated GDP in any given year. But the actual budget deficit violated this rule every year in FMRA’s 20-year history

Rule on Central Government debt: FMRA introduced a limit for Government debt and laid out a pathway to reduce it over time. However, successive governments simply altered the deadlines to achieve reduction and ultimately drove a path of increasing rather than reducing the debt.

Rule on treasury guarantees: FMRA limited the increase in Treasury guarantees that could be provided by the Government. Instead of complying, the Government repeatedly made the rule more lenient in 2013, 2016, and 2022, and increased the Treasury guarantees at will

Adopting fiscal laws with rules normally serve as a tool for anchoring confidence and improving public finance management. In the case of Sri Lanka, however, failure to comply with the existing laws suggests that more of the same (as possibly recommended by the IMF) is not likely to be the solution.

To recover confidence and build the economy, Sri Lanka may need deeper diagnostic and more robust correction mechanisms with regard to the crisis of governance.

Navy seizes 02 poaching trawlers in SL waters

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Colombo (LNW): The Sri Lanka Navy yesterday (12) conducted a special operation to chase away Indian poaching trawlers from Sri Lankan waters.

The operation led to the seizure of 02 Indian trawlers with 16 Indian nationals poaching in Sri Lankan waters northeast of Veththalakeni and off the Analativu Island.

The Navy continues to conduct regular patrols and operations in Sri Lankan waters to curb illegal fishing practices of foreign fishing trawlers.

As an extension of these operations, the Northern Naval Command deployed Fast Attack Craft of the 04th Fast Attack Flotilla to chase away a cluster of Indian poaching trawlers, having spotted they were engaging in illegal fishing in Sri Lankan waters northeast of Veththalakeni and off the Analativu Island. In this operation, the Navy held 02 Indian poaching trawlers with 16 Indian fishers continuing to remain in Sri Lankan waters.

The seized trawlers together with 16 Indian fishermen were brought to the Kankesanthurai Harbour and they will be handed over to the Mailadi Fisheries Inspector for onward legal proceedings.

In 2022, the Navy seized 36 Indian poaching trawlers in island waters and handed them over to authorities for legal action. Meanwhile, in 2023 the Navy seized these 02 Indian poaching trawlers and they will also be handed over to authorities for onward legal proceedings.

Taking into account the consequences of illegal fishing practices of foreign fishermen in Sri Lankan waters, on the livelihood of local fishermen and ocean resources of the country, Sri Lanka Navy continues to remain vigilant and conduct its operations.

Source: SL Navy

Court orders the arrest of MP Wimal Weerawansa

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By: Isuru Parakrama

Colombo (LNW): The Colombo Magistrate Court today (13) issued a warrant for the arrest of Leader of the Jathika Nidahas Peramuna, MP Wimal Weerawansa, in connection with a protest ‘oppressing the public’ held in 2016.

This was when the case was taken up before Colombo Chief Magistrate Prasanna Alwis today (13).

Weerawansa and six others are accused of holding a protest oppressing the public during an official visit of a former Human Rights Commissioner of the United Nations in 2016.

The warrant to arrest the MP was issued as Weerawansa failed to appear before the Court today.

Public Security Minister denies appearing at HRCSL citing ‘inappropriate procedure’

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By: Isuru Parakrama

Colombo (LNW): Public Security Minister Tiran Alles has decided not to appear before the Human Rights Commission of Sri Lanka (HRCSL) today (13) citing ‘inappropriate procedure’ being followed to summon him.

Following deep concerns raised by a number of parties on the manner in which the Police had acted to repress the recent protests held in Colombo and around the University of Kelaniya, the HRCSL had launched a probe and the Public Security Minister was summoned to appear at the Commission on March 13, 2023.

However, four members of the HRCSL had later told media that the decision to summon the Subject Minister was made on the sole discretion of the Commission Chairman and that they had no part in it. The Commission was not convened after February 28, 2023 and one member is currently overseas, the media reports claimed.

In the backdrop, Minister Alles stressed that he had informed the HRCSL in writing that he will not be appearing before it on the basis that the summoning was carried out outside any ‘standard procedure.’