Policies alone will not attract foreign investments
One-stop-shop not one-more-stop, the need of the hour
by Dinesh Weerakkody
Many foreign investors I engage with want Sri Lanka to emulate
Ireland, or even Vietnam, because they tell me the attractiveness of a
country to foreign investors and the feasibility of individual
investment projects are not merely linked to a country's policy
environment.
According to them, the administrative implementation of these
policies are far more important to attract investment. It is no secret
that our administrative procedures pose serious obstructions even with
our apparently quite liberal investment environment.
Many investors openly complain about the difficulties even after the
introduction of broad liberalization measures with respect to Foreign
Direct Investment (FDI). Often broad policy reforms do not actually
translate into improvements in the various bureaucratic processes
investors have to go through.

Apple CEO Tim Cook at Apple’s office in Ireland. Apple has
publicly stated that it wants to significantly
expand its operations in Ireland |
Therefore, before the government starts signing FTAs it would be wise
to seriously look at setting up a one-stop agency to support Sri Lanka's
trade and investment needs. The one-stop shop, which can be called Trade
Invest Sri Lanka, must have the teeth to provide support to Sri Lankan
and foreign businesses, as outlined in our policy framework. Trade
Invest Sri Lanka must bring together all support programs including
incentives to build strong partnerships with business.
We need to look at an approach of having trade, which is driven by
investment not relying only on MOUs and FTAs. Like Ireland, we need to
build on our investment capacity and promote trade through investment.
We already have a number of MNCs which are some of the largest investors
in other parts of the world, and therefore, we need to drive an
investment-led trade initiative.
Investor experience
Most investment promotion activities by themselves are not sufficient
to attract investors to the country. In fact, such an approach can
easily boomerang. A good marketing and public relations effort might
well result in a strong response from abroad, with many interested
investors visiting the country to explore it first hand as a potential
investment location.
But in situations where administrative structures pose a serious
problem, potential investors are likely to find out fast and move to
another country. Experiences with obtaining visas and entering a country
might be taken as the first signal.
Indications and opinions of existing investors who incurred
unnecessary costs and losses due to delays resulting from actions - or a
lack of action - by government agencies will leave lasting imprints.
Should it turn out that administrative practices do pose a serious
problem, potential investors are very likely to walk away, never to
return, as the country will be seen as not being investor friendly.
It is not that investors essentially dislike government rules and
regulations any investor has to follow. In fact, they are used to
dealing with government administration procedures in their home
countries and other countries they have invested in.
They also do not expect all these procedures to always be
straightforward and work seamlessly. But they will be allergic to
discretionary behaviour and unpredictability with respect to obtaining
approvals.
Serious investors will think twice before committing their money,
especially when they find that the success of their venture will, to a
large degree, depend on paying kickbacks or relying on personal
relations with ministers and well-connected people.
All this means that the government cannot simply rely only on the
policy environment to attract investments. The practical implications
are far more important for investors. Although the country is advertised
through road shows as an attractive investment location, credibility
rests with the satisfaction of potential investors and existing
investors. Should investors find that their expectations are not
fulfilled, they will often feel betrayed and lose trust in the country.
Recognizing that existing administrative practices pose a threat to
their policy reform efforts, the government needs to find practical
solutions to creating a more attractive business environment.
The BOI, being the point of first contact and gate of entry for
foreign investors, it would ideally be the most appropriate agency to
tackle these issues. During the mid-1980s, the concept of a 'One-Stop
Shop' (OSS) came into fashion as a vehicle to deal with administrative
barriers and to provide a more streamlined and investor- friendly policy
environment.
However, the experience with the OSS concept for Sri Lanka is
checkered and not particularly helpful in some instances.
One-Stop Shop (OSS)
When trying to establish an investment project and making it
operational, investors need to interact with various government agencies
to obtain all the permits, licences, approvals and clearances.
In short, an investor coming to Sri Lanka has to be in contact with a
number of different government and local authorities and go through
their administrative procedures before operations can begin. Some have
even struggled for over two years. A delay can only translate into
additional costs and foregone revenue, and any permit, approval or
clearance not forthcoming can jeopardize the entire project. Given the
complexity of this process, the concept of an OSS still seems very
attractive. The basic idea is that an investor would only have to be in
contact with a single entity to obtain all the paperwork in one
rationalized and coordinated process, rather than having to go through a
maze of different government bodies.
In practice, an OSS would effectively mean that one government agency
has all the powers to grant the various licences, permits, approvals and
clearances. Without such an all-embracing authority, the agency will be
unable to wield much control over the process. It could, therefore, not
actually provide all the clearances at various stages of the
administrative process, having to depend on other agencies instead.
Politically feasible
Today, what is more relevant is, whether a high-powered OSS is
politically feasible? The other question is whether a single agency
should actually have this much authority and power? It is important to
recognize that most agencies and administrative processes were created
in response to policy concerns of the government. Be it concerns related
to policy, immigration, environmental, tax incentives or health and
safety problems, each agency tries to address a particular issue with
specialized staff and processes.
Any OSS that hopes to give sanctions in any of these areas, would in
fact have to re-build these (or similar) structures in-house. Otherwise,
approvals such as tax incentives, environmental impact assessments, or
health and safety certificates would most likely not meet the underlying
policy objectives.
But such a mirroring of administrative abilities would quickly turn
an OSS into a governmental super-agency with massive staff and resource
requirements. It is unlikely that any such agency would be able to
provide fast and client-oriented services to the private sector.
Governments, therefore, typically shy away from establishing such an
OSS in the narrow sense. Instead, they rely on some form of coordination
mechanism where the various authorities maintain their existing mandates
and responsibilities.
The typical structure of such a coordinating mechanism consists of
the delegation of staff from the various ministries and agencies to set
up their offices in the same location, frequently a Presidential or
Prime Ministerial Coordination Committee will act as the apex body with
the OSS reporting to that body with well-established scorecards and MIS.
Way forward
Whatever the solution the government has in mind, the existing
One-Stop Shop we have, according to most investors has now actually
turned into a 'one more stop', as investors are now forced to interact
with one more entity in the process of implementing their projects.
Certainly, it may not be the weakness of the people who the run the
OSS, it could be the lack of a particularly strong and all-embracing
legal mandate. Well-known examples where an OSS system works well are
the Economic Development Board (EDB) of Singapore, the Malaysian
Industrial Development Authority (MIDA) and the Industrial Development
Authority (IDA) of Ireland.
In all three agencies, investors can rely on the agency to provide
practically all the approvals and clearances needed with out much
hassle. All these agencies however, have strong support from the Prime
Minister.
In the final analysis, the starting point for any effort, therefore,
would be to reform the current Economic Affairs Committee of the
government (a committee structure launched during President Premadasa's
time in the late 80s) and make it more output driven than policy and
approvals driven and finally fix the structure and get the talent to
reflect the change taking place in the economy and in the UNP- SLFP-led
government.
The writer has held senior positions in the public and private
sectors. |