HOME

Sri Lanka gets serious about improving investment climate

The Central Bank convened a special meeting of state-run institutions in the presence of the Economic Development minister and Defence Secretary to find out why Sri Lanka is performing poorly in investing quality foreign investments.

A complicated tax regime, numerous approvals and regulations, red tape and power tussles between a number of government institutions whose mandates often overlap makes it difficult for investors to do business in Sri Lanka, but with the 30-year-old war long over and with political stability the government of Sri Lanka is keen to clean-up and improve state-machinery in order to lure more investors to the island.

Last Saturday, the Central Bank of Sri Lanka convened a special meeting which brought together the heads of all government institutions that deal with investors at various stages, to layout on the table the problems that prevent these institutions from working efficiently.

Economic Development Minister Basil Rajapaksa and Defence Secretary Gotabhaya Rajapaksa attended this meeting which was chaired by Central Bank Governor Ajith Nivard Cabraal in the presence of representatives from business chambers and other civil society organisations such as the Bar Association of Sri Lanka.

Sri Lanka’s recent ranking on the World Bank Doing Business Report is a poor 105 among 183 countries, down nine places from 97th place in 2009. This overall ranking is based on Sri Lanka’s performance in 10 areas.

According to the latest report, it took more than 200 days and 22 different procedures to obtain building and construction licenses and Sri Lanka was ranked 161st among 183 economies. Registering land took 83 days with eight procedures to be followed and the country is ranked 148th.

Sri Lanka is ranked 166th in paying taxes with 62 different payments during the year accounting for 63.7 percent of a business’ profits. In enforcing contracts, the ranking is 137 with 40 different procedures to be followed costing 22.8 percent of the contract value and 1,318 days to be enforced.

Starting and closing a business is relatively easy in Sri Lanka with a ranking of 41 and 45 respectively. Hiring labour gave Sri Lanka a ranking of 96, access to credit 71, investor protection 73 and cross border trade 65.

High ranking officials of the Department of Motor Vehicles, Immigration and Emigration, Registrar General, Labour, Employment Provident Fund, Export Development Board of Investment and Colombo Municipal Council made presentations on how these institutions functioned and presented the problems and issues faced by their respective divisions.

Objective...

The meeting was objective from the very start and it ended with the obvious realisation that state-institutions have to change — procedures and processes, regulations and attitude of public officials need to undergo a paradigm shift.

Cabraal requested the Economic Development minister to appoint a special committee to identify specific areas where change is needed in these institutions, so that improvements can be identified, implemented and monitored.

Fast, cost effective changes...

A study presented by the Board of Investment showed that a few specific changes to five areas out of the ten considered by the World Bank Doing Business Report, could improve Sri Lanka’s ranking without incurring huge restructuring costs.

If the number of procedures in dealing with licences was brought down to 15 from 22 and the number of days to 150 from 214, Sri Lanka’s ranking could improve from 105 to 90. If the number of days taken to register property was reduced to five from eight, the ranking could go down further to 78.

Sri Lanka could achieve a further improvement in its ranking, to 65th place, if the number of procedures to enforce contracts was brought down to 20 from 40. With efficient tax administration, if the time businesses devote to taxes could be reduced to 150 hours from 256 hours, the ranking could improve further to 62.

Finally, making credit more accessible could improve Sri Lanka’s rating to 45.

The BOI study showed that these changes could be easily carried out in the short term with existing systems in place so that the Treasury would not have to be burdened with restructuring costs.