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A commendable achievement

Sri Lanka's economy has shown its resilience again, this time in the face of a global downturn in foreign investment. The World Investment Report of the United Nations Conference on Trade and Development (UNCTAD) released on Friday disclosed that Foreign Direct Investment (FDI) inflows to Sri Lanka reached US$ 242 million last year, a three-fold increase from US$ 82 million in 2001.

This 195 per cent increase in FDI inflows was achieved in the backdrop of a decreasing global trend in FDI. This performance places Sri Lanka among the third in Asia-Pacific countries which defied the downturn.

One of the key factors that has helped Sri Lanka to reach this position is the peace process. No major incidents have been recorded since February 2002 when the Sri Lankan government and the Liberation Tigers of Tamil Eelam signed a ceasefire agreement. Although peace talks per se have not been held since April this year, the ceasefire holds and there are encouraging signs that the talks would resume before long.

Peace is vital for investment, which is feasible only in a conflict-free environment. No investor will want to risk millions of dollars by investing in a war-torn country. Thus maintaining the momentum of peace will be essential if Sri Lanka is to seek more foreign investment.

Apart from the peace process, the investor community has placed their faith in a government which has by word and deed been committed to private-sector led economic growth. Many investor friendly policies of the government, together with effective promotional campaigns abroad, have had the desired effect of achieving a significant rise in foreign investment. Prime Minister Ranil Wickremesinghe and senior ministers have been personally involved in these efforts, sending a positive message to investors.

Sri Lanka's endeavour to sign free trade agreements with its main trading partners has also helped the investment drive. A prime example is the Indo-Lanka Free Trade Agreement, which has stimulated new FDI for rubber based products, ceramics, electrical and electronic items, wood products, agricultural commodities and consumer durables. Thanks to the FTA, 37 projects are in operation with a total investment of US$ 145 million. Hopefully, this scenario could be extended to our other trading partners as well.

Nevertheless, Sri Lanka and the rest of South Asia occupy only a fraction of the world investment pie. Sri Lanka is still categorised as an `under performer' in terms of FDI performance and potential. Much needs to be done to enhance our position in the investment rankings.

Improving basic infrastructure is an immediate priority. Good roads and a reliable power supply are critical especially for investments in the outstations. Roads and power projects must be expedited in order to encourage more investors to fan out to inland areas, instead of basing their projects in Colombo or the Free Trade Zones. This will also spur development in the interior.

Labour issues also pose difficulties for foreign investors accustomed to more flexible employment laws in their countries. The authorities should consider changes in this area to lure more investors. Making the Board of Investment a more effective investment resource centre is another timely need.

Sri Lanka must not confine itself to a limited number of investment opportunities such as the apparel industry, especially in the context of the looming abolition of the quota systems. Diversifying the investment portfolio will help Sri Lanka to improve on its commendable achievement and become 'the' FDI centre of South Asia.

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