Government explores guarantee facility to encourage private investment in North - East

COLOMBO: The Secretariat for Coordinating the Peace Process (SCOPP) jointly with the Board of Investment (BOI) convened a series of meetings to devise a strategy to ascertain the demand among investors for a proposed investment guarantee facility which will cover private investments in conflict affected areas.

A SCOPP press release said in consistent with the Government's increasing emphasis on the development of the North and the East, and facilitating the distribution of resulting benefits to the people of these Provinces and raising their living standards, the meetings were organised.

SCOPP had initiated discussions on possible assistance from the Multi-lateral Investment Guaranty Agency (MIGA) of the World Bank Group in establishing the proposed facility.

A State owned insurer, e.g., Sri Lanka Export Credit Insurance Corporation (SLECIC), with technical and logistical support provided by MIGA, has been invited to consider administering the facility and underwrite payments.

Representatives from the World Bank, MIGA, Ministry of Finance and Planning, Board of Investment (BOI), Sri Lanka Export Credit Insurance Corporation (SLECIC), Bank of Ceylon,

People's Bank, Hatton National Bank, National Development Bank (NDB), Seylan Bank, Prima and Tokyo Cement participated at these meetings. Dr. Palitha Kohona, Secretary-General, SCOPP, at the outset, explained that the Government's policy in encouraging private investment in the North and East, was aimed at creating job opportunities for the young which would in turn enable them to realise life's higher aspirations - a better life for them and their families.

Development of the North and East offered an alternative pathway to lives which were otherwise marred by violence and destruction. Development is a sine qua non for peace.

Dr. Kohona further said that though some interest so far has been shown by the private sector in investing in the North and East, it has not actually manifested itself, in concrete terms, because of the absence of security for the investments. Insurers have not volunteered to guaranty investments and MIGA's initiative was therefore timely.

Dr. Kohona invited the active involvement of the private sector in the peace process through investments in the North and the East. Dr. Srilal Perera, Chief Counsel Operations, Legal Affairs and Claims Group, MIGA who nurtured the idea, provided a detailed exposition of the proposed facility.

He outlined the manner, citing examples of similar MIGA sponsored initiatives in Afghanistan, West Bank and Gaza, Bosnia & Herzegovina and Kosova, in which the MIGA guarantee facility had been extended to cover local investments in the conflict affected areas.

The core element in this proposal is a guarantee facility funded by the World Bank and other donors and leveraged by the insurance capacity of local actors.

It is envisaged that the size of the World Bank fund would be approximately US $ 40 Million. MIGA can cover expansion of new investments, debt as well as equity and business interruption. If there is a default of a bank loan, payments can be made out of the fund. MIGA was in a position to cover loan portfolios.

A cluster of loans could be grouped into one major loan. MIGA can cover both existing and future loans but only against political risks.Dr. Srilal Perera said that the investment guaranty facility would cover both debt and equity investment.

SLECIC's role would primarily be the issue of cover, while MIGA will assist SLECIC in - a) claim determination - b) technical assistance, c) underwriting, and d) forensic investigations.

Prof. Lakshman Watawala, Chairman, Board of Investment (BOI) said that bank reluctance to fund business enterprises in high risk conflict affected areas, could to some extent be overcome by establishing industrial zones.

Prof. Watawala further suggested that there should be incentives for investors to be attracted to invest in conflict affected areas. He mentioned:

a) Tax Holidays and Special Duty concessions, b) Revival of industries that were originally established in these areas like cement, c) Special duty concessions from USA & UK for items exported from these areas, and d) Bank loans for industries to be established in the North and East.

C. A. N. Perera, Chairman, Sri Lanka Export Credit Insurance Corporation (SLECIC), said that the resolution of the national question and establishing peace in the country was the need of the hour. He was therefore willing to look at any proposal directed at achieving these ends positively.

He said that the MIGA proposal to help establish an Investment Guaranty facility in the country has been placed before SLECIC since 2003. He has also updated his knowledge of some MIGA projects in Hong Kong, China, Malaysia and Thailand, at various meetings he had attended abroad including a recent meeting in Amsterdam.

The World Bank, which participated in the discussions, remains whole- heartedly committed to assist the peace process and engage in development work. Assisting private sector investment in conflict affected areas would be a challenge for the Bank.

It is proposed to circulate the MIGA proposal widely in the private sector for better awareness.

A survey would be conducted to assess demand for the investment guaranty facility, and promote an investment drive in the North and East not only among local investors but also among the diaspora which is already investing substantially in Colombo.

Diaspora funds could play a critical role in changing the lives of the people in the North and the East.