Sri Lanka missing the bus again?

June 25, 2012 (LBO) – If Sri Lanka is to achieve transformative, inclusive growth, it needs to have 7 percent plus growth for several consecutive years. It is well recognized by knowledgeable people, including key decision makers within government, that this would require around one billion dollars in new investment every year.

This quantum cannot be generated internally. Therefore, the government has been, correctly, talking up foreign investment.
What has not been adequately understood is the competitive nature of the process. Being good is not good enough; we must be better than the alternatives. Being good is not enough; we must be perceived to be better.

An investor looking at Sri Lanka will also look at similar opportunities elsewhere, especially in the region. All this time, the relevant questions were whether we were more attractive to investment than Bangladesh, India, Pakistan, etc. But now, there is a new competitor for investment: Myanmar.

“Laws, rules and regulations are important and need to be flexible for investors as they will come and invest only when they are protected by laws,” [President TheinSien] said.

The new investment law will give a five-year tax holiday to foreign investors, an increase of two years from the current rules, [Deputy Minister for National Planning and Economic Development] KanZaw said.

“Our investment policy should be competitive,” he added, noting the growing interest in investing in Myanmar as it opens up.

Other measures included in the planned legislation are steps to allow foreign investors to lease privately owned land. At the moment they can only lease land from the state.

Investment decisions are not only about making and analyzing business cases. Being decisions made under conditions of highly imperfect information, there is a strong emotional component. It is about assessing risk before all the data are in.

Therefore, investors are influenced by intangibles, by press coverage, by how the head of state is perceived and most importantly about the sense of momentum.

With Aung San SuuKyi’s high profile visits to Thailand and Europe to be followed by President TheinSien’s visit to the United Kingdom, Myanmar is rising on the world’s agenda. Tata and the Ruia Group of India have signed agreements to enter the market. GE and Chevron are in negotiations. The momentum is shifting to Myanmar.

Sri Lanka may be on the losing side of this competition, despite better fundamentals:

Table 1: Sri Lanka, Myanmar and comparator countries

When Japan was looking to manage its trade surpluses in the 1980s, it had identified several Asian countries, including Thailand and Sri Lanka for massive investment. The day the crucial investment forum was held at the BMICH, the July 1983 pogrom started a short distance away at Kanatte. If not for that, Sri Lanka’s place in the comparison table above may well have been ahead of Thailand.

For our sins, we missed the bus once. Will we miss it again? Can we make a concerted effort and catch the bus this time?

Rohan Samarajiva heads LirneAsia, a regional think tank. He was also a former telecoms regulator in Sri Lanka. To read previous columns go to LBOs main navigation panel and click on the ‘Choices’ category.