Sri Lanka is a country rich in culture and nature and has a vibrant population anxious to capitalize on their nation’s potential. After decades of civil war, there was an opportunity to capitalize on national resources and the country’s potential. If the correct measures had been taken, we could have mitigated the economic impacts of an unprecedented COVID 19 epidemic and could have averted the subsequent economic crisis.
Opposition to development has come from various quarters and more so from bureaucrats, regulators, politicians and unionists. Bureaucratic Red Tape has bungled many large scale foreign direct investments over the years and such investors have looked elsewhere, for more investor-friendly nations and as a result some of our neighbors have benefitted. This has shackled what should be one of the world’s most promising emerging economies by now.
Complex and burdensome regulations in the country seem to hold back investment and, hence, job creation and growth. Despite Government steps to address some issues, there is, quite simply, still too much red tape.
Recently a high official at the Board of Investment told me that over USD 4 billion worth of BOI approved projects are on hold due to red tape.
He said over 90 percent of new projects where agreements had been signed during the past 12 months could not get off the ground due to delays in approval from several related ministries and state institutions.
I have come to know that once an investor signs up with BOI they have to then get clearance from environment authorities, land authorities, provincial councils and many other governmental institutions and investors are pushed from one institution to another and these discourage them. Some investors are very familiar with such practices.
The official told me, the matter has been discussed with the President and a series of ‘follow up action’ subsequent to the BOI sign up are now being successfully implemented.
Reform Policies
The Government needs to further reform policies to make it easier to start and to manage businesses. This will go a long way toward allowing entrepreneurial spirit to flourish, including for small and medium–sized enterprises.
Measures to improve the business environment could include initiatives such as simple, transparent, and even handed treatment of companies, public institutions that are more transparent and accountable, equal access for all to Government services, adequate skill-building and incentives for employment, better access to finance to help spur entrepreneurship and private investment, better infrastructure and a speedy approval process to start businesses and relevant follow-up permissions.
Equally important to the business climate is clarity and security about rules and their enforcement. In addition, business people need to be part of the solution rather than part of the problem. This means overcoming vested interests which often stand in the way of fully harnessing the ingenuity of the private sector and creating open opportunity for all.
Improved macroeconomic policies are essential to create an enabling environment where the private businesses can thrive and operate with confidence.
Pointless rules and regulations hurt businesses, especially small companies, keeping them in the shadows and forcing them 
to stay small. Sri Lanka’s thick red tape includes an outdated legal and regulatory framework, corruption, rent seeking and a general distrust of private capital.
Sri Lanka needs a more dynamic private sector to meet the aspirations of its people. The reforms to achieve this are often complex, politically difficult, and take time to pay off. Nevertheless, beginning the process is vital for restoring confidence, propelling private sector activity forward, and creating much-needed jobs.
Relax Forex Rules
The Central Bank should further relax foreign exchange regulations, aimed at bringing about more balanced rules in support of capital movement and flexibility in conducting foreign exchange transactions and risk management, as well as cost reduction for the private sector.
In this regard, authorities should allow people and businesses to conduct foreign exchange transactions with greater flexibility for both cross-border and domestic transfers.
The outward transfer of funds such as depositing funds into own accounts abroad for payment of obligations should be further relaxed. This would enable exporters, importers and those in the supply chain to better manage their foreign exchange risks more efficiently without having to request for prior approval.
According to estimates, still 30–40 percent of remittances are transferred through informal networks like ‘Undiyal’ and ‘Hawala’. If a migrant worker in a foreign country wishes to transfer USD 1500 to his family in Sri Lanka he or she can transfer only USD 500 without any hassle. A prominent businessman told me that if someone wants to send more than USD 500 they have to produce proof of funds and many other documents. Such methods are outdated and do not exist anywhere in the world. Also, at times to clear money sent from abroad it takes one week or 10 days. Also, there is only one system to send money to this country while other countries adopt a number of systems.
In such cases people have no option but to resort to illegal methods of sending money such as ‘Undiyal’. They also prefer to go to informal systems because of the high charges and commissions in the formal banking sector. Under the informal money transfer systems, the relevant foreign currency may stay in that particular country or get to Sri Lanka at a later time. The representatives of informal agents in Sri Lanka provide Sri Lankan rupees to the migrant’s family speedily and at a relatively low cost. If dollars are retained with the informal money sending agent where the relevant migrant worker is working, Sri Lanka’s banking sector loses the opportunity of using foreign currency and, therefore, the country does not gain any benefit from the worker remittance.
Sri Lanka’s current external debt is around USD 51 billion and the Government’s local debt amounts to around 41 billion rupees. The restrictions imposed by the Central Bank on capital flows are doing more harm than good. Cross-border funding can provide access to a wider pool of investors, which can be especially beneficial for companies that are looking to raise large amounts of capital. This can also help companies diversify their investor base and reduce their dependence on any sole source of funding. Relaxation of laws will also help to stop illegal methods of cross border capital flows and will ensure that this will be done through the formal banking system. The Central Bank should ensure cheaper, faster and more secure international payments. The expansion of global trade and the related increase in financial transactions have permitted market expansions and created wealth in both industrialized and emerging economies. So why is Sri Lanka still resorting to the outdated rigid methods.
As a successful businessman I have no doubt that liberalizing cross border capital flows will bring more investment and foreign revenue into the country. I am confident that with such measures bringing USD 60 billion plus investments is not a big deal as our country is blessed with an abundance of resources both human and natural. It is high time for us to initiate such reforms as the country now has a President who is a visionary thinker and a practical person who wants to develop the country while blending the best practices in the world with local ones.
Also liberalizing cross border capital flows will help our Diaspora to invest here. As a businessman and official who has been working in the North and East over a long period I fully understand their mindset. Over the years, especially in recent times I have met a lot of members of the Tamil Diaspora, some of whom are very keen to invest here. They also have confidence in the current President and believe Sri Lanka can rise again under him.
I strongly believe that it is high time to forget about the past and petty differences and think as one Sri Lankan family and support the President to develop this country and take it to unprecedented heights. Also, to support his ambitious plans it is very important to get rid of the Bureaucratic Red Tape.
One-stop shops for investment
A one-stop shop for investment can improve opportunities for private sector development and attract more FDI’s.
In general, a one-stop shop is a place or agency that offers a range of products or services under one roof. The term relates to how many stops or points of contact customers need to make to satisfy their needs. Ideally, the customer makes just one stop. This would reduce costs while improving efficiency and coordination.
This could enhance coordination across and within levels of Government, Provide a holistic, user-friendly and user-oriented service, Integrate multi-policy service delivery and create a mechanism for joined-up Government services.
Within private sector development, one-stop shops can perform many functions. For example, they can be centres for business information, advice and training. The most common role for a one-stop shop in private sector development is to centralize and simplify regulatory compliance while boosting private investment.
The one-stop shop model has been found to significantly reduce the number of procedures and visits necessary to register a business and would help to spur both local and foreign investment.
One-stop shops will deliver substantial savings in time and costs for users by providing seamless, integrated and easily accessible contact points. This reduces the administrative burden on potential investors by providing information on the necessary steps to start a business in Sri Lanka.
The basic idea of a one-stop shop is that an investor would only have to contact one single entity to obtain all the necessary paperwork in one streamlined and coordinated process, rather than having to go through a labyrinth of different government bodies.
The Budget 2024 presented by President Ranil Wickremesinghe could be described as a watershed moment in the relation to realizing some of the above goals.
In a very pragmatic move the President in the budget introduced a new mechanism to approve development projects and a Government Committee to review new projects.
As per recommendations of the Committee, the Minister of Finance will grant approval for projects.
He also outlined that the Government has taken steps to reform the institutional and legal framework to promote and facilitate investment and trade in the country.
Accordingly, a new joint investment law has been drafted establishing a National Economic Commission that oversees the institutional framework that integrates the functions of the Investment Development Board, Export Development Board, Industrial Development Board, and National Enterprises Development Authority.
The President said the Government expects to facilitate the investors by enhancing the automation of functions of all Government agencies providing services to investors and linking with relevant approval or licensing authorities through simplification of relevant procedures, interoperability, reduced cost, and time-consuming procedures.
He also proposed to establish new investment zones centered in Hambantota, Jaffna, Trincomalee, Bingiriya, and Kandy and to control these specific investment promotion zones through the Infrastructure Corporation.
The Budget 2024 is no doubt a crucial step in continuing the macroeconomic stabilization measures that began in late 2022, as a response to the economic challenges faced by Sri Lanka.
It is a significant step towards correcting past economic mismanagement and laying a foundation for sustainable growth with a special focus towards fostering both local and foreign investment.
While we want policies that attract investment, we must realize that these are inherently tied to the efficiency of its implementation for such policies to be inclusive and sustainable. For this to happen we must cut through the RED TAPE.
Deshamnya Mangala Senarath
