‘Create an FDI enabling environment’ | Sunday Observer

‘Create an FDI enabling environment’

The policies adopted by Sri Lanka have not been effective in sustaining the country’s attractiveness as a destination for foreign direct investment (FDI). Therefore, it is important to create an enabling environment for FDIs, Candor Group Director Ravi Abeysuriya (CFA) said.

“There is a need for robust policy initiatives to improve the country’s investment climate to attract and retain FDI for Sri Lanka.

Real estate is an important asset class to include in an investment portfolio to benefit from diversification and to generate wealth,” he said.

Although the government has recognized this need, the political will, commitment and the speed at which policies are being implemented leave much to be desired. Most importantly, if Sri Lanka is to improve its investment climate, changing the mindset of the public is essential.

Sri Lanka has missed many opportunities to transform itself into a developed nation. As evidenced by realized inflows, Sri Lanka’s attractiveness for FDI has remained low in spite of continued efforts to facilitate such investments.

The weak investment climate in Sri Lanka can be attributed to a range of factors including policy uncertainty, institutional weaknesses such as corruption and weak regulations, and faltering infrastructure.

However, Sri Lanka is attracting lower volumes of FDI as a percentage of GDP, than its peer economies - only 1.1% of GDP. There exists a clear opportunity to attract more FDI, an opportunity that Sri Lanka cannot miss, he said.

Most of the FDI to Sri Lanka in the last ten years comprised investment into the tourism and real estate sectors.

The real-estate sector is among one of the key drivers of the economy and constitutes an important contributor to national GDP, a source of revenue generation for the government and a large employment provider.

The land price index (LPI) end 2017 for the Colombo District, has recorded a year-on-year growth of 10.4%, the lowest since the 2015’s 14.5%, owing to recent trends in land price movement.

“We have some major challenges coming up with the introduction of 15% VAT on apartment sales with effect from April 1, 2018 and the introduction of Financial Intelligence Units (FIUs), reporting of cash transactions on apartment purchases.

According to the Central Bank of Sri Lanka, the residential sub-index recorded a YoY growth of 9.7%, while the commercial and industrial sub-indices recorded YoY growth of 11.2% and 10.1% respectively,” he said.

Land prices in core areas of Colombo City (Colombo 1, 2 and 3) are likely to peak with 270 hectares of new land coming into the market in 2018/2019 in the port city, equipped with supporting infrastructure and urban landscaping with clear titles, which will be much more attractive to developers.

Investors, not end-users buy a majority of prime and upper-mid apartments. If prices and the rental yields decline, margins of real estate developers will shrink. High returns for investors are unlikely to sustain through 2019, he said.

Limited fiscal space and tax-based funding by the government are not adequate to meet the pressing needs for infrastructure. It is important for the government to attract private investment for the provisioning of infrastructure through Public Private Partnerships (PPPs).

It is essential that policies be implemented swiftly with consistency in order to attract higher levels of FDI to the country, particularly in the backdrop of relatively higher FDI inflows to emerging market economies such as India and Vietnam.

The government could make infrastructure an attractive value proposition for FDI to flow, make Colombo an ‘Ideal Overseas Retirement Haven’ and improve on the Global Livability Ranking out of 100 (EIU, Economist)

Colombo is not included in the Global Retirement Index 2018 where standings are ranked based on 12 criteria - cost of living, climate, governance, healthcare, visas, buying/renting property, entertainment and amenities, compared to countries such as Costa Rica, Malaysia Thailand, etc.

Global Living Conditions Rankings are based on the findings of the latest livability survey where every city is assigned a rating of relative comfort for over 30 qualitative and quantitative factors across five broad categories: stability, healthcare, culture and environment, education, and infrastructure. Among the top ranking countries are Melbourne – 97 (100 is the ideal) best livable city, Toronto – 97, Colombo – 51, Karachi – 40 and Dhaka – 38.

Policy changes have helped in attracting more FDI to India as the country is ranked forth in developing Asia for FDI inflows. The construction development sector in India has received FDI equity inflows to the tune of USD24.3 billion in the period April 2000-March 2017.

Whether the big FDI capital flow into the real estate sector is good or bad remains a hot topic of debate among analysts. While some believe that Vietnam should focus on attracting FDI to the manufacturing and service sectors which can bring advanced technology and generate added value, others believe Vietnam still needs to continue luring FDI to real estate.

In India, foreign investors are allowed to invest with 100% ownership in the construction sector - construction of residential/commercial premises, roads and bridges, hotels, resorts, hospitals, educational institutions, recreational facilities, city and regional-level infrastructure and townships, where as previously only non residential investments (NRI) were allowed and foreign investors were allowed only to integrated townships and settlements.