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Six ways Sri Lanka can attract more foreign investments

Tatiana Nenova's picture
In 2017, Foreign Direct Investment (FDI) into Sri Lanka grew to over $1,710 billion. But Sri Lanka still has ways to go to attract more FDI.
In 2017, Foreign Direct Investment (FDI) into Sri Lanka grew to over $1,710 billion. But Sri Lanka still has ways to go to attract more FDI. Credit: Shutterstock 


To facilitate Foreign Direct Investment (FDI), Sri Lanka launched last week an innovative online one-stop shop to help investors obtain all official approvals. To mark the occasion, this blog series explores different aspects of FDI in Sri Lanka. Part 1 put forth 5 Reasons Why Sri Lanka Needs FDI. Part 3 will relate how the World Bank is helping to improve Sri Lanka’s enabling environment for FDI.

Sri Lanka and foreign investments read a bit like a hit and miss story.

But it was not always the case.

Before 1983, companies like Motorola and Harris Corporation had plans to establish plants in Sri Lanka’s export processing zones. Others including Marubeni, Sony, Sanyo, Bank of Tokyo and Chase Manhattan Bank, had investments in Sri Lanka in the pipeline in the early 1980s.

All this changed when the war convulsed the country and derailed its growth. Companies left and took their foreign direct investments (FDI) with them.

Nearly a decade after the civil conflict ended in 2009, Sri Lanka is now in a very different place.

In 2017, Foreign Direct Investment (FDI) into Sri Lanka grew to over $1,710 billion including foreign loans received by companies registered with the BOI, more than doubling from the $801 million achieved the previous year.

But Sri Lanka still has ways to go to attract more FDI.
 
As a percentage of GDP, FDI currently stands at a mere 2 percent and lags behind Malaysia at 3 – 4 percent and Vietnam at 5 – 6 percent.

Five reasons why Sri Lanka needs to attract foreign direct investments

Tatiana Nenova's picture
Sri Lanka’s government has recognized the need to foster private-sector and beef up exports to attain the overarching objective of becoming an upper-middle-income economy.
Sri Lanka’s government has recognized the need to foster private-sector and beef up exports to attain the overarching objective of becoming an upper-middle-income economy.

To facilitate Foreign Direct Investment (FDI), Sri Lanka is launching this week an innovative online one-stop shop to help investors obtain all official approvals. To mark the occasion, this blog series explores different aspects of FDI in Sri Lanka. Part 2 will explore how the country can attract more FDI. Part 3 will relate how the World Bank is helping to create an enabling environment for FDI in Sri Lanka.

You may have heard that Sri Lanka is intent on drumming up more foreign direct investments up to $5 billion by 2020. At the same time, the government aims to improve the lives of Sri Lanka’s citizens by generating one million new and better jobs.
 
This isn’t a pipe dream. Thanks to its many advantages like a rich natural resource base, its strategic geographic position, highly literate workforce and fascinating culture, the island nation is ripe for investment in sectors such as tourism, logistics, information technology-enabled services, and high-value-added food processing and apparel.
 
What is foreign direct investment and why does Sri Lanka need it?
 
Very simply, foreign direct investment (or FDI) is an investment made by a company or an individual in a foreign country. Such investments can take the form of establishing a business in Sri Lanka, building a new facility, reinvesting profits earned from Sri Lanka operations or intra-company loans to subsidiaries in Sri Lanka.
 
The hope is that these investment inflows will bring good jobs and higher wages for Sri Lankan workers, increase productivity, and make the economy more competitive.  
 
Sri Lanka’s government has recognized the need to foster private-sector and beef up exports to attain the overarching objective of becoming an upper-middle-income economy.
 
Attracting more FDI can help achieve that goal and fulfill the promise of better jobs.
 
Here are five reasons why:

India’s remarkably robust and resilient growth story

Poonam Gupta's picture

India has achieved much in the last decades. Yet an economic deceleration in the past few quarters has generated worried commentaries about India’s growth potential.  However, our analysis of nearly five decades of data finds that India’s long-term growth process is steady, stable, diversified and resilient. Does this lay the groundwork for a more sustained 8% growth in the future? Yes, possibly, but more is needed. Let us elaborate.

First, India’s long-term economic growth has steadily accelerated over a fifty-year period, without any prolonged reversals. Thus, while growth averaged 4.4 percent a year during the 1970s and 1980s, it accelerated to 5.5 percent during the 1990s-early 2000s, and further to 7.1 percent in the past one decade. The acceleration of growth is evident not just for aggregate GDP, but even more strongly for per capita GDP. The average pace of per capita growth was 5.5 percent a year in the last decade. Interestingly, when compared with some of the world’s largest emerging economies, this steady acceleration of growth stands out as being unique to India.

Second, India’s rate of growth has become more stable. This is partly due to the stabilization of growth within each sector – agriculture, industry and services – and partly to the transition of the economy toward the services sector, where growth is more stable. Particularly interesting is the sharp increase in the stability of GDP growth since 1991. Before this, growth accelerated episodically, was punctuated by large annual variations, and often failed to sustain. Thus, growth has not just accelerated post liberalisation, it has also become more stable.

Third, growth has been broadly diversified. Growth has accelerated the fastest in services, followed by industry, and less so in agriculture. Over the long run, India’s growth has been driven by an increasing share of investment and exports, with a large contribution from consumption. Growth has also been characterized by productivity gains – both in labor productivity as well as in total factor productivity.

Finally, growth has been broadly resilient to shocks, both domestic and external. The resilience of India’s growth can be attributed to the country’s large and spatially diversified economy, as well as to its diversified production structure that is not dependent on a few products, commodities, or natural resources. It can also be attributed to India’s diversified trade basket and broad range of trading partners, wherein a slowdown in any one part of the world will not result in a large impact on India.



The resilience of India’s growth process was on display in recent years when the country recovered quickly from the impacts of two major policy events – demonetization and the implementation of the Goods and Services Tax (GST), an important indirect tax reform. We argue that the deceleration to growth rates below 7 percent between Q3 2016–17 and Q2 2017–18 was an aberration, attributed to temporary disruptions in economic activity as the economy adjusted to demonetization and businesses prepared for the implementation of GST. At present, there are indications that the economy has bottomed out and, in the coming quarters, economic activity should revert to the trend growth rate of about 7.5 percent. We project GDP growth to be 6.7 percent in 2017-18 and accelerate to 7.3 percent and 7.5 percent respectively in 2018-19 and 2019-20.

Sri Lanka at 70: Looking back and forward

Idah Z. Pswarayi-Riddihough's picture
A view from the Independence day parade.At 70, Sri Lanka has accomplished a lot in its seven decades as an independent nation.
A view from the 2018 Independence Day parade. At 70, Sri Lanka has accomplished a lot in its seven decades as an independent nation. Credit: World Bank

Like many Sri Lankans across the country, I joined Sri Lanka’s 70th Independence Day festivities earlier this month. This was undoubtedly a joyful moment, and proof of the country’s dynamism and stability. At 70, Sri Lanka has accomplished a lot in its seven decades as an independent nation.
 
The country’s social indicators, a measure of the well-being of individuals and communities, rank among the highest in South Asia and compare favorably with those in middle-income countries. In the last half-century, better healthcare for mothers and their children has reduced maternal and infant mortality to very low levels.
 
Sri Lanka’s achievements in education have also been impressive. Close to 95 percent of children now complete primary school with an equal proportion of girls and boys enrolled in primary education and a slightly higher number of girls than boys in secondary education.
 
The World Bank has been supporting Sri Lanka’s development for more than six decades. In 1954, our first project, Aberdeen-Laxapana Power Project, which financed the construction of a dam, a power station, and transmissions lines, was instrumental in helping the young nation meet its growing energy demands, boost its trade and develop light industries in Colombo, and provide much-needed power to tea factories and rubber plantations. In post-colonial Sri Lanka, this extensive electrical transmission and distribution project aimed to serve new and existing markets and improve a still fragile national economy.
 
Fast forward a few decades and Sri Lanka in 2018 is a far more prosperous and sophisticated country than it was in 1954 and, in many ways, has been a development success story. Yet, the island nation still faces some critical challenges as it strives to transition to another stage of its development and become a competitive upper middle-income country.
 
Notably, the current overreliance on the public-sector as the main engine for growth and investment, from infrastructure to healthcare, is reaching its limits.  With one of the world’s lowest tax to gross domestic product (GDP) ratios -- 12% in 2016, down from 24% in 1978 —Sri Lanka’s public sector is now facing serious budget constraints and the country needs to look for additional sources of finance to boost and sustain its growth.
 
As outlined in its Vision 2025, the current government has kickstarted an ambitious reform agenda to help the country move from a public investment to a more private investment growth model to enhance competitiveness and lift all Sri Lankans’ standards of living.
 
Now is the time to steer this vision into action. This is urgent as Sri Lanka is one of the world’s most protectionist countries and one of the hardest to start and run a business. As it happens, private foreign investment is much lower than in comparable economies and trade as a proportion of GDP has decreased from 88% in 2000 to 50% in 2016. Reversing this downward trend is critical for Sri Lanka to meet its development aspirations and overcome the risk of falling into a permanent “middle-income trap.”

اهمیت نقشه برداری برای اینده افغانستان، اما یک سرک در یک وقت

Walker Bradley's picture
Also available in: English | پښتو
Mapping Afghanistan’s future, one road at a time
اوپن ستريت مپ يک منبع رایگان معلومات جغرافيايی است که توسط یک گروهی از متخصصان  نقشه برداری بميان آمده و فعالیت می نماید. عکس: تایمنی فلم/ بانک جهانی

بانک جهانی در ماه می سال ۲۰۱۷، از پانزدهمین  سالگرد از سرگیری فعالیت هایش در افغانستان تجليل نمود.  این در حالیست که طی این ۱۵ سال گذشته بانک جهانی حمایت لازم را برای دولت افغانستان غرض فراهم آوری خدمات عامه به افغانها فراهم نموده است. در اين فرایند، مشترکاً با دولت افغانستان ما توانستیم معلومات و آمار بسیاری را در بخش های صحت، معارف و هم چنان زیربنا ها جمع آوری نمايیم.

با آنکه معلومات در عرصه های مختلف بصورت پراگنده و غیر هماهنگ در دسترس عام قرار دارد اما این معلومات هنوز هم کافی نیست تا افغانها و همکاران انکشافی را در طرح ریزی برنامه ها و تدوین پاليسی ها که نقش کلیدی دارند، کمک نماید. به طور مثال ما در حاليکه آمار تطبيق واکسين و اطفال نوزاد را داريم، اما در مورد سرک ها ییکه به مراکز صحی منتهی میشوند آگاهی نداریم. به همین ترتیب، ممکن است در رابطه به میزان حاضری شاگردان در مکاتب و شاگردانيکه در امتحانات کامياب ميشوند بدانیم، اما  در مورد اینکه آیا چه زمانی را در برمیگیرد، تا شاگردان به مکتب برسند، معلومات کافی در دست نداريم.

این مثال ها نشان دهنده این است که چگونه  معلومات و آمار اساسی و دقیق ميتواند در گسترش پلانگذاری تسهيلات و خدمات صحی کمک نماید  و يا هم چگونه میتوانیم با دسترسی به این آمار دسترسی معارف را تقويت بخشیم. در نهایت امر، نقشه برداری هرکيلومتر سرک به ما کمک مينماید، تا بدانیم که اطفال بعد از طی چه مصافتی به مکتب میرسند، یا چه زمانی نیاز است، تا یک بیمار به شفاخانه برسد. بدون شک، دسترسی به آمار اساسی و دقیق یک نياز شمرده می شود، تا در روشنی آن مسوولین ذیربط در تمام سطوح از آن استفاده نمایند. 

د افغانستان راتلونکی نقشه کول، هرځل یو سړک

Walker Bradley's picture
Also available in: English | دری
Mapping Afghanistan’s future, one road at a time
اوپن سټريټ مپ د جغرافيايي معلوماتو يوه وړيا منبع ده چې د کارپوهو نقشه اخيستونکو يوې ډلې رامنځته کړې او فعاله يې ساتي.  انځور: ټایمني/نړیوال بانک

د ۲۰۱۷ کال په مې مياشت کې نړیوال بانک په افغانستان د خپلو فعاليتونو د بيا پيل ۱۵ مه کليزه ونمانځله. دا په داسې حال کې ده چې د دغو ۱۵ کلو په اوږدو کې نړیوال بانک افغان دولت ته اړينې مرستې برابرې کړي او دولت يې افغانانو ته د عامه خدمتونو رسولو جوګه کړی. په دې بهير کې مو له دولت سره په ګډه د روغتيا، پوهنې او زېربناوو په برخو کې ګڼې شمېرې او معلومات راټول کړي.

سره له دې چې په بېلابېلو سکتورونو کې معلومات په خوره وره او ګډه وډه بڼه په عام ډول د لاسرسي وړ دي، خو دا معلومات لا دومره نه دي چې له افغانانو او پراختيايي ملګرو سره د پروژو په طرحه او پاليسي جوړولو کې، چې کليدي ونډه لري، مرسته وکړي. د بېلګي په ډول: موږ په داسې حال کې چې د واکسينو د تطبيق او د نویو زېږېدلو کوچنیانو شمېرې لرو، د هغو سړکونو په اړه چې صحي مرکزونو ته ورغلي معلومات نه لرو. همدا راز، موږ ښايي په ښوونځيو کې د زده کوونکو د حاضرۍ او د هغو زده کوونکو چې په ازموينو کې کاميابېږي د شمېرو په اړه معلومات ولرو، خو په دې اړه چې زده کوونکي په څومره وخت کې ښوونځي ته رسېږي، کافي معلومات نلرو.

دا بېلګې روښانوي چې څنګه دقیق لومړني معلومات او شمېرې را سره د صحي مرکزونو او خدماتو په غځولو کې مرسته کوي او يا څنګه ښوونې ته لاسرسی پياوړی کولای شو. د هر کيلومتر سړک نقشه اخيستنه موږ ته راښوولای شي چې کوچنيان تر ښوونځي څومره پلي ځي‌، او يا يو ناروغ په څومره وخت کې تر روغتونه رسېږي. بې له شکه چې لومړنیو معلوماتو او شمېرو ته څرګنده اړتيا ليدل کېږي، چې په رڼا کې يې اړوند چارواکي په هر پاټکي کې له دې ګټه واخلي.

Mapping Afghanistan’s future, one road at a time

Walker Bradley's picture
Also available in: دری | پښتو
Mapping Afghanistan’s future, one road at a time
OpenStreetMap is an open source geospatial data portal built and maintained by a community of mappers. Photo Credit: Taimani Films/ World Bank


In May 2017, the World Bank celebrated its 15 years of reengagement in Afghanistan. Since reengagement, we have helped the government deliver public services to its citizens and, in the process, accumulated a wealth of data on many sectors from health and education to infrastructure.

However, publicly available base data used across sectors – also called ‘foundation’ data-- is still lacking. As it happens, that information is important to design projects and inform policies.

Case in point: while we may have data on vaccines given or babies born, we don’t know much about the roads that lead to the clinic. Similarly, we may get data on school attendance and passing rates of students, but we don’t know how long it takes for students to reach their schools.

These examples highlight how foundation data can help better plan the expansion of healthcare facilities or enhance access to education. After all, each mapped kilometer of a road can help us understand how long Afghan children must walk to get to school or how long it takes sick Afghans to reach a hospital.

Without question, there is a clear need for better foundation data to inform decision making at all levels.

From potato eaters to world leaders in agriculture

Priti Kumar's picture
 Raj Ganguly
Matching sheer ingenuity with technological prowess, the Netherlands (pop: 17 millions; about the size of Haryana state in India) today is one of the world’s most agriculturally productive countries, feeding people across the globe from its meager land area. Photo credit: Raj Ganguly

Van Gogh’s famous painting of Potato Eaters depicts a family of poor peasants seated around a dinner table eating their staple fare. The artist confessed that this work is deeply reflective of the hard work that Dutch peasants have to do to earn a bare meal. Van Gogh frequently painted the harvest and often compared the season to his own art, and how he would someday reap all that he had put into it. 

Since those difficult times in the late 1800s, the tiny country of the Netherlands (pop: 17 mill; about the size of Haryana state in India) has come a long way. Matching sheer ingenuity with technological prowess, the Netherlands today is one of the world’s most agriculturally productive countries, feeding people across the globe from its meager land area. Indeed, this small nation is now the world’s second-largest exporter of agri-food products including vegetables, fruits, potatoes, meat, milk and eggs; some 6% of world trade in fruits and 16% in vegetables comes from the Netherlands.

But how exactly did they do this? In October 2017, we went to find out. Our team - of World Bank and Indian government officials working on agribusiness, rural transformation and watershed development projects – sought to learn from Dutch experience and identify opportunities for future collaboration. We met farmer cooperatives, private companies, growers’ associations, academia, social enterprises, and government agencies, and gained fascinating insights.

Primarily, we found that a convenient location, a conducive climate, investments in high-quality infrastructure, high-caliber human capital, an enabling business environment and professionally-run private companies have provided the Netherlands with that unmistakable competitive edge:

Maximizing agricultural output with minimum land and labor

Located conveniently as a gateway to Europe, the Netherlands acts as a transit hub for agricultural produce, importing Euro 4.6 billion worth of produce from 107 countries, adding value to these products through collection, re(packaging) and processing, and exporting almost double that value - Euro 7.9 billion - to more than 150 nations. In 2014, Dutch growers had a turn-over of euro 2.9 billion in fruit and vegetables, produced with a minimum of land and labor - only 55,000 hectares and just 40,000 people - indicating a heavy reliance on automation.

The Legacy of Saman Kelegama

Sanjay Kathuria's picture
Saman Kelegama, a Sri Lankan economist and the Executive Director of the Institute of Policy Studies (IPS Sri Lanka) died prematurely in June 2017. He was a champion of deeper South Asian cooperation.
Saman Kelegama, a Sri Lankan economist and the Executive Director of the Institute of Policy Studies (IPS Sri Lanka) died prematurely in June 2017. He was a champion of deeper South Asian cooperation. Credit:  Institute of Policy Studies

I first met Saman in the early 1990s in Delhi.  Over the years, our paths diverged.  When I re-engaged on South Asia, I ran into Saman again. We re-connected instantly, despite the long intervening period.  This was easy to do with Saman—soft-spoken, affable, a gentleman to the core.  He bore his considerable knowledge lightly.  

Despite his premature passing away in June 2017, he left a rich and varied legacy behind him. I will confine myself to discussing his insights on regional cooperation in South Asia, based on his public writings and my interactions with him.

Saman was a champion of deeper economic linkages within South Asia. He was also pragmatic. 

Along with a few other regional champions, Saman, as the head of the Institute of Policy Studies in Colombo, helped to kick-start the “South Asian Economic Summit”, or SAES, in Colombo in 2008, to provide a high-profile forum for dialogue on topical issues, especially South Asian regional integration. It is remarkable that the SAES has endured, without any gap. The fact that the policy and academic fraternity meet with unfailing regularity, despite on-and-off political tensions in the region, is testimony to its value.

Saman repeatedly stressed that Sri Lanka has been able to reap benefits from the India-Sri Lanka FTA (ISFTA), contrary to the general belief. His arguments were powerful: the import-export ratio for Sri Lanka improved from 10.3 in 2000 (the start of the ISFTA) to 6.6 in 2015; about 70 percent of Sri Lanka’s exports to India get duty-free access under the FTA, but less than 10 percent of Sri Lanka’s imports from India come under the FTA (since India provided “special and differential treatment” to Sri Lanka).

Measuring South Asia’s economy from outer space

Martin Rama's picture
New technologies offer an opportunity to strengthen economic measurement. Evening luminosity observed from satellites has been shown to be a good proxy for economic activity.
New technologies offer an opportunity to strengthen economic measurement. Evening luminosity observed from satellites has been shown to be a good proxy for economic activity.
Economic growth is a key concern for economists, political leaders, and the broader population.

But how confident are we that the available data on economic activity paints an accurate picture of a country’s performance?

Measuring Gross Domestic Product (GDP), the most standard measure of economic activity, is especially challenging in developing countries, where the informal sector is large and institutional constraints can be severe.

In addition, many countries only provide GDP measures annually and at the national level. Not surprisingly, GDP growth estimates are often met with skepticism.
 
New technologies offer an opportunity to strengthen economic measurement. Evening luminosity observed from satellites has been shown to be a good proxy for economic activity.

As shown in Figure 1, there is a strong correlation between nightlight intensity and GDP levels in South Asia: the higher the nightlight intensity on the horizontal axis, the stronger the economic activity on the vertical axis.
Figure 1 Nightlight intensity increases with economic activity
Figure 1 Nightlight intensity increases with economic activity

However, measuring nightlight is challenging and comes with a few caveats. Clouds, moonlight, and radiance from the sun can affect measurement accuracy, which then requires filtering and standardizing.

On the other hand, nighlight data has a lot advantages like being available in high-frequency and with a very high spatial resolution. In the latest edition of South Asia Economic Focus, we use variations in nightlight intensity to analyze economic trends and illustrate how this data can help predict GDP over time and across space.

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