Foreign investments bypassing paradise isle

Foreign investments bypassing paradise isle, despite preferential trade access to major world markets.

Sri Lanka’s investment promotion agency, the Board Of Investment (BOI), says foreign investment is not flowing into the island, despite preferential access into two of the world’s largest markets – India, and the EU.

“Investment into Sri Lanka has been stagnating for a few years now,” the BOI’s head of research, Nihal Samarappuli, said on Friday, at the launch of the UNCTAD’s World Investment Report 2005.

Last year, Sri Lanka’s total inward foreign investments added up to a measly US$ 233 and this year so far, it’s around US$ 200 mn.

“Sri Lanka has not performed well. Investments are stagnating around the US$ 200 mark but Pakistan and Bangladesh have overtaken Sri Lanka,” says Samarappuli.

Foreign cash flows into Bangladesh doubled last year to reach US$ 460 mn.

Pakistan pulled in US$ 952 million worth of FDI (Foreign Direct Investment) while India netted over US$ 5.3 billion worth of foreign funds to become the eighth largest developing country destination for FDI.

The BOI will not say what is driving foreign funds away from the sunny isle despite readymade export markets, domestic tax breaks, strong intellectual property rights laws, a plethora of double taxation and investment protection treaties, literate and English speaking people and inherent competitive advantages in sectors like tourism, ports and fisheries.

“The investment climate in Sri Lanka is discouraging investors. So we must first work out a mechanism to put Sri Lanka back in their radar,”says Samarappuli.

“But now the competition has become very, very fierce,” he says.

While Sri Lanka was playing political power games, other developing countries have successfully learned to harness the power of foreign funds for development.

UNCTAD says the driving force behind world FDI recovery last year, were developing countries that pushed up their share of global FDI by 40 percent, from US$ 166 billion in 2003 to US$ 233 billion.

The region of Asia-Oceania broke records, pulling in US$ 148 billion in FDI compared to US$ 68 billion by Latin America and the Caribbean and US$ 18 billion by Africa.

Over US$ 60 billion ended up in China, making it the largest single recipient of FDI inflows in the world and not just in Asia.

The SAARC region however, still accounts for only around one percent of the total US$ 648 billion global FDI – but showed a 31 percent improvement because of increased inflows into India, Pakistan and Bangladesh.

UNCTAD says the prospects for the region are “increasingly bright” mostly due to Trans National Corporations (TNC) sitting up and taking notice of policy changes and investment attractions set out by governments.

In fact, SAARC giant India, is now in third place behind China and the US, in the list of most attractive global business locations.

UNCTAD also notes that a majority of foreign funds are heading into service sectors with research and development (R&D) emerging as a new TNC attraction.

Global spending on R&D was US$ 6,771 billion in 2002 and is concentrated in developed countries, but R&D facilities are now shifting to the developing south.

“In China, the number of foreign affiliate R&D centres climbed to 700 in 2004; in India more than 100 TNCs have established R&D facilities,” says a statement from UNCTAD.

Smaller developing countries are also latching on to the potential.

Thailand for example, was recently selected by Toyota as its fourth overseas R&D centre.

The BOI says Sri Lanka too, is trying to attract R&D investments but, like other areas of open to investment, has seen little progress.

-Dilshani Samaraweera: dilshanis@vanguardlanka.com