It is no secret that Sri Lanka is currently facing unrest and great pressure. From the COVID-19 pandemic to the current economic situation, Sri Lanka has overcome it all. As an island nation capable of meeting any challenge thrown at it with sheer resilience, Sri Lanka is now in dire need of foreign investment.
Sri Lanka faces a difficult macroeconomic situation. There are a combination of options that are contrary to each other in the face of this challenge and understanding how to mitigate them, while resolving them will require some tough decisions.
The construction industry presents an array of issues that a foreign investor will directly consider in their consideration of the country as the ideal location for their investment. We can see that almost 3/4 of the construction sites in Sri Lanka are currently halted due to various reasons ranging from ever increasing cost of raw materials to unavailability of essential goods due to import restrictions and crisis current exchange rate. This is a severe blow to the labor market, as construction sites employ a large number of workers. It also impacts a large number of local suppliers of the hundreds of items needed to build doors, windows, steel, locks, tiles, glass, wood, etc.
Real estate is an infrastructural asset and adds to the nation’s wealth and asset base and enables the creation of a stable middle class and a secure working class. Main aspects of economic growth. It is therefore essential to revive the real estate sector. To achieve this, it will be essential to make Sri Lanka an attractive destination for foreign investment.
There are two major tools the nation’s leaders have in their belts:
Now, more than ever, it is essential that foreign investments in real estate are exempt from taxation. This exemption was mistakenly removed several years ago (when taxes on domestic industries were disastrously reduced). The absence of tax advantages for foreign investors has led to a slowdown in future foreign exchange-funded projects and, therefore, an impact on foreign exchange inflows.
Simultaneously, lower taxes on local businesses have caused the state budget to dry up, leaving the country extremely vulnerable to a shock like COVID. It is hoped that strong financial incentives will be put in place to attract foreign investors to Lanka. Without such markets as India, Pakistan, Thailand, Dubai will always appear as better avenues for investment.
It is important that foreign investors perceive the country as having a stable regulatory environment. The period from 2016 to 2018 saw many sudden changes in policies and processes which led to great uncertainty and concern among foreign investors.
This should be avoided during any change of administration as it damages the country’s reputation with investors in the long term. For example, the rule on VAT and NBT was modified 3 times in the space of a year during this period. Investor protection: A foreign investor should feel welcome and safe. Here, despite the efforts of an overwhelming majority of forward-thinking leaders and bureaucrats, a small minority can do a lot of damage.
In my own case, we were stalked and harassed by a certain MP for no reason, and slandered in a grossly unfair and mendacious attack in a local newspaper. We were attacked because we were a foreign company and we lost a lot of business because of this defamation. This scared off our staff and caused many of our investors to stop investing in Sri Lanka. I am happy to report that in the end, the Sri Lankan legal system came to our rescue and the courts issued an order protecting us. In the end, we survived, shaken but still resolute in our commitment to Sri Lanka. Unfortunately, not all foreign investors have this kind of resolve, especially when there are other markets that offer more welcoming access. The solution here is to give the Board of Investment real powers to tackle these obstacles and protect foreign investors. I have been investing in Sri Lanka for over 15 years now. We were the first company to invest in Sri Lanka after the war ended. I have seen the determination and the strength of the nation and I am convinced that this crisis will pass. I hope we can learn from the crisis and come back better and stronger.
(The author is president of Iconic Developments and an alumnus of the Wharton School of Business and INSEAD)