ADB and WB assess Lanka's investment climate

DESPITE gains in reducing corruption and red tape, Sri Lanka's investment climate remains unattractive due to continued political instability, weak infrastructure and poor access to finance, says a recently completed study by the Asian Development Bank [ADB] and the World Bank.

Achieving a permanent peace is undoubtedly one of the important steps Sri Lanka can take towards improving its investment climate, said Peter Harrold, World Bank Country Director for Sri Lanka. "If we are to achieve sustainable poverty reduction in Sri Lanka, we must raise the overall level of investment.

This joint report between ADB and the World Bank presents the first comprehensive scientific analysis of the factors that are inhibiting investment, domestic and foreign, urban and rural, he said.

The report will be launched today with the Minister of Finance and Planning Dr. Sarath Amunugama, delivering the key note address. Based on an island-wide survey of more than 2,000 enterprises, the report highlights the difficulties that small scale rural entrepreneurs face in starting and growing a business.

The survey found that small businesses in Sri Lanka's rural areas are hampered by poor transport, limited access to the formal financial sector and frequent power outages.

Urban businesses, located mostly in the Western province, enjoy better access to roads and other forms of transport, but are affected by the high cost and unreliable supply of electricity.

Sri Lanka needs to address squarely the issue of power supply, cost, and efficiency, through increased generation according to the least cost expansion plan; reduction of the short term debt burden of the power utility; and restructuring of CEB said Alessandro Pio, ADB Country Director for Sri Lanka.

While Sri Lanka has to do better in terms of electricity and transport to catch up with better performing countries in the rest of Asia, there are areas where the country excels. One such area is telecommunications where early reform of the sector has seen a rapid expansion in the number of landlines and mobile phones.

Another important constraint exposed in the report is the country's labour regulations which can be characterised as inflexible and arbitrary. Offering no certainty to the investor they discourage firms, especially local firms, from job creation.