Comment - New BOI strategy vital to woo investments

The head of the Board of Investment of Sri Lanka (BOI), the premier investment promotion arm of the country has changed again. Dhammika Perera, a well-known entrepreneur has been appointed as the new chairman.

Perera was a former member of the BOI and there is no doubt of his personal capacity to handle the most challenging task the country has, bringing investments to a country where all the main conditions that investors seek are not sound.

However, the problem of attracting FDI is mainly a political issue, specially the lack of prudent policies and plans, not the head of the BOI. All ministers and BOI heads followed traditional ways to market the country as a safe and profitable destination for foreign investors. Ministers set billions of dollars as targets on FDI but the achievements were far below.

The failure in achieving FDI targets is something that the new BOI administration should take into account. There are three challenges that the BOI faces in attracting investments.

Firstly, in promoting Sri Lanka as a safe and a place of high returns for investments. This is extremely difficult in today's situation. When all international media run stories of the war, killings, and bomb blasts as headlines how does the BOI convince investors that the country is safe.

Sri Lanka has to compete with many other countries in Asia, Eastern Europe and Latin America for investments. We have to prove that the returns from investments in Sri Lanka are higher than others.

However, the situation has changed and the many plus points we had in 1980s have dwindled. The advantage of low labour cost no longer exists. The garment industry has already lost its competitiveness and the investment outflow has now started and even Sri Lankan investors are moving out. The garment industry faces a shortage of skilled labour.

Tax holidays and other incentives have become ineffective compared with high risk and cost of inputs. Attracting investments to regions have failed. The garment industries which were opened in rural areas closed after the quota system was phased out.

New industries where we have a comparative advantage have been identified. Minister Dr. Sarath Amunugama has placed much hope on the software industry. However, there are serious issues to be solved immediately. The issues faced by the software industry are lack of a talent pool, lack of fluency in English, lack of presentation skills, high cost of bandwidth and electricity.

The poor condition of infrastructure is another issue that we have raised for many years. The speed in addressing this issue can be seen in roads, ports and electricity sectors. These are not new projects and they have been in the pipeline for many decades. In the tourism industry the political climate is not favourable for investors to come in.

The LTTE propaganda campaign against Sri Lanka is very strong. They have teamed up with NGOs and INGOs and the latest, the ongoing Amnesty International campaign at the Cricket World Cup leaves much to be desired.

Therefore investment promotion overseas is linked to peace and restoration of normalcy, a political target is beyond BOI's purview. To face the adverse campaign against Sri Lanka the BOI needs support from the Foreign Ministry and other foreign missions.

We should take all steps to counter the LTTE propaganda. The traditional business and promotional campaigns will not be effective unless we counter the LTTE propaganda war. Secondly, the BOI should be a truly one stop shop for investors but today it is not so. Investors face difficulties due to inefficiency and corruption in various government agencies.

Thirdly, the inefficiency in the BOI too is also a grave issue. Recently Dr. Amunugama said that he has ordered his officials to forward any software investment project to him within 24 hours for approval.

The BOI should be an institution that has the same efficiency without the Minister's involvement in any investment. We are also aware of some investors who wait for two to three years to obtain approval for their projects and finally succeed only after the President's intervention.

Vietnam is the best country we should emulate to learn about investment promotion. A stable political situation is the greatest advantage for the country. Vietnam has set an ambitious goal to attract around US$7 billion FDI in 2007. Around US$5-6 billion is fresh investment.

To achieve this goal the Ministry of Planning and Investment (MPI) says that it requires significant efforts of the relevant government bodies and local authorities. In Vietnam regions are competing with one another to attract FDI.

Vietnam has planned to open representative offices to promote investments in the US, Japan and the European Union to achieve the target. Most of the garment industry investments now flow to Vietnam due to low labour costs.

Vietnam is clearing all stumbling blocks to woo investments and a liberalisation program is now under way. The new legislation to facilitate investments, the "Common Investment Law" introduced last year offers an equal playing field for foreign firms.

The challenges and competition to attract investments are today different. The new BOI chief has to come up with new strategies.