From last week
To attract and entice such investments, hosting country run many promotional agendas, trade agreements, free ports, free trade zones, export processing zones (EPZ) are some of the examples of by ways and means of promoting so and in that context the latest trend is having special economic zones (SEZs). Accordingly, the subject project under review by this article; the Colombo Port City is considered as a Special Economic Zone (SEZ).
Attracting FDIs
The trade agreements, EPZs are some tools used since 19th century by many countries in view of pushing the boundaries of the economies for growth. Since 1930s, the countries, such as Singapore, Hong Kong, Gibraltar have opened their economies for foreign investors by forming export processing zones. By about 1970s, this concept became more popular around the world as it helped in expanding horizons and opened new doors for developing the economies. Given the popularity, more than 3,500 EPZs bloomed across more than 130 countries by the end of the 20th century.
The said tools of FDIs rose in popularity as they acted as catalysts for portfolio growth given the win-win situations created for increased efficiency, mitigating risks, increased return per unit of risks, capital and technology transitions, adopting best practices in manufacturing, management, accounting, law and regulations. In the long run, it paved the way to increase the standards of living for both the investor and especially to hosting country. The pivotal advantages of the FDIs are that the developing country/hosting country is able to manage the BOP issues, patch the drain outs and stabilise the economic hostilities.
Hence when promoting FDIs, it’s imperative to arrive at a mutually agreeable equidistant to appeal investors by mixing different monetary and non-monetary tools. For example, the entities in the Katunayake Export Processing Zone (KEPZ) are free from tax when importing raw materials, some entities enjoys tax holidays, some were taxed at zero percent, more attractive terms on profit repatriation.
They enjoy more relaxed labour rules than in common law avail in the country, trade unions and labour movements are not allowed to entice smoother and uninterrupted operations within the zone.
The KEPZ was managed and administered by the Greater Colombo Economic Commission which is now being named as the Board of Investment (the BOI). If it was not for the various kinds of tax concessions, the investors would not have selected Sri Lanka as a lucrative place to mobilise their investments. Hence having the best mix of concessions plays a paramount role in attracting such investors.
There’s a misconception among the public that different kinds of investment zones, agreements or industrial zones are traps by developed countries or those are to exploit nations like us. But in reality it is not the truth and even the first world countries such as Australia, England, Canda are having such arrangements in view of reaping the comparative advantages based on the strengths and opportunities at one’s disposal. Some examples are given below:
FTA (Free Trade Agreements) - European Free Trade Association (Norway, Iceland, Switzerland and Leichtenstein), NAFTA - North Atlantic Free Trade Agreement (USA, Mexico and Canda), ChAFTA - The China Australia FTA.
FTZs (Formerly Free Ports) - HongKong, Stockholm, Los Angeles, NewYork City, China -6 FTZs, India - 8 FTZs.
EPZs - Export Processing Zones - KEPZ & BEPZ in Sri Lanka (as per ILO stats 320 EPZs in North America, 225 in Asia, 39 in Middle east, 51 in Caribbean) Industrial Parks or Industrial Estates (IPs / IEs ) - (Guidelines are issued by United Nations Industrial Developement Organization (UNIDO) - Trafford Park Manchester - UK - World’s first IP. Alberta Industrial Heartland - Canada, The Oriketo Industrial Zone - Turku - Finland, Mahindra World City, Chennai Aero Park, Hyderabad Pharma City.
BLPs (Bonded Logistic Parks) - Zhangjiagang Bonded Logistics Park, Jiangsu province, China, Yantian Port Bonded Logistics Park, Guangdong province, Indospace - India, India to set up the first Multi Model Logistics Park in Assam by 2023.
Urban Enterprise Zones - Jersey City - New Jersey - USA, UK has more than 20 enterprise zones.
Special Economic Zones
The discussions on the concept of Special Economic Zones (SEZ) first appeared in the late 1950s in industrialised countries. The very first SEZ emerged in Shannon Airport in Clare, Ireland in the 1970s. A special economic zone is an area in a country that is subject to different economic regulations than of the normal law of the country with a more conducive environment for attracting foreign direct investments. The tax concessions act as the main attraction in most cases.
Our immediate neighbour, India, tried painting a negative picture on the Colombo Port City Development Project bringing up claims of threats posed to their national security, shared environments and maritime domain and there were some other parties of local and international making allegations over impacts on marine bio-diversity and livelihoods of local fishermen. Although India made such allegations, India is also one of the largest country who is trying to reap economic benefits from the concept of SEZ. Currently, India has developed 439 SEZs aiming at 11 industries.
For example, Andra Pradesh SEZ - Visakapatnam is one of such SEZ where Sri Lankan company Brandix have made their footprint in the form of Brandix India Apparel City (BIAC) which was estimated to invest about USD 1.2Bn on completion. BIAC, a 1000-acre Park with full infrastructure and environmentally compliant, is designed and constructed especially to meet the discerning needs of top-notch international textile and apparel manufacturers.
Hence the SEZ is neither a bad concept nor some invisible fist to exploit us. It is a commonly used economic concept in mobilising funds between economies by creating win-win situations. It is a concept being used not only in developing countries, but also in developed countries.
False allegations
China inaugurated its first SEZs somewhere back in the 1970s and in terms of the hands on experience, China can be considered as the most competent and possessing proficiency than any other country thus far, hence it could be the best partner we can have.
The first allegation was made by the American Centre in Colombo and India. Some other so-called rebellious parties in Sri Lanka as well made several attempts to sabotage the project. They had gone to an extent of alleging that this will be acted as a hub for money laundering.
However, when we think of money laundering the very first places come into our minds are scoundrels such as Bahamas, Luxembourg, Seychelles and Panama that are famous for off shore accounts and shell companies. Hope you would remember one of the former Minister’s name appeared on infamous Panama Papers Scandal? Further in Indian context, the IPL and Bollywood film industry of India are another alleged settings for money laundering. Having realised the true potential of the projects and its ability to become the core or the catalyst, not only America and India, even the countries such as Dubai and Singapore seemed to be dazed about the emergence Colombo Port City.
It has been confirmed that many internationally recognised and renowned Banks will make their presence in the Colombo Port City. The licences will be issued by the Central Bank of Sri Lanka in concurrence with the President of GOSL under the recommendations made by the Colombo Port City Economic Commission.
Currently the Sri Lankan Banking sector is being controlled and governed by the following regulations: Banking Act 30/1988 (proposed to be repealed in 2021), Monetary Law Act 58/1949 (as amended 2014), Active Liability Management Act 8/2018, Financial Transaction Reporting Act 6/2006, Payment and Settlement Systems Act 28/2005, Registered Stock and Securities Ordinance 7/1937 (as amended 2004) and Foreign Exchange Act, No.12 of 2017.
Moreover, you may inquire the measures we have placed as a country in combating money laundering and financing for terrorism through the link ;http://fiusrilanka.gov.lk/acts_regulations.html
Additionally, CBSL has taken the steps to review and amend/repeal the Accounting Standards and Banking Act with a view of strengthening and upgrading the information systems and technological platforms and to improve risk managements in relation to expected augmentations in the industry through the Colombo Port City.
The Port City is to be managed and administered by the Colombo Port City Economic Commission as the Board of Investment (BOI previously known as Greater Colombo Economic Commission) does for other such places such as KEPZ and BEPZ. These commissions and the relaxed terms and conditions laid down from time to time to attracted FDIs to Sri Lankan economy are timely decisions made by the governments prevailed at those times.
Concept of specialisation
However, the only concern that I have over the previously implemented EPZs is that those are mainly aimed at labour intensive industries and promoted more blue-collar jobs and the mainly centered around one industry i.e. the ready-made garments. Given the concept of specialisation and division of labour, an employee is getting exposure only to stitch a very small part of the whole garment (eg. May be a collar or the cuff link or the person who does buttonholes only knows to do that part. No one is allowed to gain complete exposure or to acquire a complete skill. Hence the value addition to the system in terms of developing skill levels were far below.
When we look at the Colombo Port City project, the majority of the employment creation are in the category of white collared. It demands comparatively higher perks, skill development and opportunity to become competitive in international arena. With the newly acquired skills and foreign exposure, they will stand a better chance when it comes to international job market.
It is about time to respond to one of the commonest accusation thron at the government these days. It is hilarious to see people asking the government that “what have we done so far for past 70 years?”
About 70 years ago the life expectancy was confined only up to about 40 years. Over the period it has been increased to 70+ thanks to the free health services prevailed in the country. Health service is designed and maintained in a manner that any citizen is covered from birth to death without spending even a single penny by the citizen. And when we compare our KPIs (Key Performance Indicators) of health sector with the rest of the world, we are very much ahead than many countries and in most of the areas we are on par with the health KPIs of the first world countries. Maintaining such level of performance is arduous hard to do and it requires gigantic budgets to be allocated from the government income which in turn the tax paid by you and me over the years.
Sri Lanka is renowned for having a high quality free education system which is evident by its products such as Professor Cyril Ponnamperuma and Dr. Sarath Gunapala. Any citizen can pursue primary, secondary and higher education free of charge. The resource allocation for the education sector is also another enormous expenditure borne by the Government.
By the time we were granted independence from the British colony, the total population of the country was not exceeded 4.0Mn. Post WWII created us many opportunities to supply rubber to the countries such as West Germany, Japan and the USA. However, when we look back, it is evident that we have been losing the demand for such agrarian products over the years owing to less utilisation of technology in the agricultural sector and not meeting cost parameters. Moreover, with the population growth and fragmentation of the lands, the advantage over the agricultural products too diminished. People were moving away from agriculture. Remittance through labour supply to Middle-East countries and the emerged garment sector employment became foremost streams of income.
Despite having many lapses, the Government prevailed in 1970 is the only Government that took genuine efforts to inculcate industrialist mind set to the economy with the assistance of the Leftists Camp of the world. Although there were few fallacies, all in all the Government was equipped with a vision to take the country forward.
Struggles
The saddest part is, the Government had to face riots and rebellious group attacks and a considerable time and efforts were consumed battling those movements. The very people asking the question I quoted above (as what have we done thus far for last 70 years) were the people who fueled the unrest in the country. They have been the most deliberate disrupting force throughout the period which is only second to the damage done by the terrorism of 30 years emerged in the North and the East.
It is hilarious to see them questioning the growth while they contributed taking the country backwards over the years, who has just destroyed many national assets including the most precious human capital as well. The number of precious lives we lost due to civil unrest during 1988/89 was about 60,000. Those are irreversible crimes. Resources we lost are irreplaceable. National assets such as transport services, electricity grids, postal service, agrarian services, education system, private sector industrialists were became victims of such attacks.
The loss and delays faced by the human capital is invaluable. The ripple effects still come in to play and the vacuums created by them were not easy to fill, the adversities are still recurring and the impact is countrywide.
Apart from the rebellious events in 1970s and 1988/89, the country faced another battle of 30 years. The terrorist group was well equipped by sea, air and landed troops. They were identified as one of the most ruthless terrorist organisation in the world. Owing to that we lost more than 27,000 youngsters and close to 100,000 civilians were brutally killed by them. The centers of economy such as the Central Bank, oil refinery, the airport were targeted.
Even the religious places such as the Temple of the Sacred Tooth Relic, Jaya Sri Maha Bodhiya were also targeted and attacked. There was no escape even for children or to the priests of any religion. The cost per minute was as high as Rs. 100,000 for the battle against terrorism. Those were unbearable outflows to the economy. Whatever the political alignment we would be bent on, we all shall be grateful for ending the battle and taking the country back to the path of prosperity.
Over the triumph of long lasted battle of 30 years, now we have arrive at a point to taking a long leap for economy to uplift the county to the next level. To facilitate it, the Port City Colombo is undoubtedly a great catalyst. So wake up and dream on to reality!