Sri Lanka's competitive strengths create abundant opportunities for increased German business investment
Sri Lanka German Business Round Table Conference, at Federation of German Industries
March 13, 2001
Ladies and Gentlemen:
It is indeed a pleasure for me to address such a distinguished audience this morning. I would like to spend a few minutes outlining our vision for Sri Lanka. I shall also present our views on the economy, on infrastructure development and related areas, and on foreign investment, with special emphasis on the strengthening of business links between Germany and Sri Lanka two countries that have maintained excellent trade and economic relations over the years.
My Government has formulated a clear vision for Sri Lanka’s growth in the twenty first century. This vision calls for taking advantage of Sri Lanka’s competitive strengths in terms of our unique geographical location, with convenient air and sea routes, an educated work force, and vast tourist potential. Let me state at the outset that effective realization of our vision for Sri Lanka assumes that the conflict is behind us.
Briefly, our vision is:
To transform Sri Lanka into a peaceful and prosperous nation, based on the principles of democratic pluralism and participatory development.
To attain a high level of per capita income through rapid and broad-based economic growth.
To eliminate extreme poverty, hunger and malnutrition within a decade.
To achieve a uniformly well-developed human resource base through educational reforms to meet the needs of the globalized world.
To develop an excellent tertiary and vocational education system with emphasis on applied science, information communication technology, and higher-level industrial skills.
To position Sri Lanka as the regional hub in financial services.
To develop and maintain a sound communication and strategic infrastructure network serving a large manufacturing and service base, consisting of dynamic small and medium enterprises alongside large enterprises.
To create an advanced and dynamic rural economy based on commercial agriculture, agro-industrial clusters and related services, and tourism especially eco-tourism, so as to promote harmony with the environment.
To provide an enabling environment for the private Sector to expand and diversify exports, including exports of services, such as IT and port services.
To create a lean, efficient, service-oriented public sector committed to promoting enhanced private sector participation in economic growth.
Let me now make a brief comment on our economic progress since 1994, when my Government took up office. I am pleased to say that despite the armed conflict, we have been able to maintain an average GDP growth rate of around 5 percent over the past seven years. The most remarkable feature of the Sri Lankan economy has been its resilience to external shocks, such as the East Asian crisis of the late 1990s and the recent doubling of oil prices. Our recent economic growth has been under-pinned by buoyant exports, which grew by nearly 20 percent in 2000, and by increased private-sector investment in economic infrastructure and industry-related services. The ratio of private Investment to GDP increased from 18 percent to 23 percent between 1995 and 2000, due mainly to a favourable macroeconomic environment.
These achievements were made despite a relatively high budget deficit of about 8 percent of GDP per annum over the past several years, which if not for the armed conflict, would have been considerably lower. We have also achieved success in respect of several other economic indicators. For example, the inflation rate has decreased from double-digit levels in the early 1990s to around 7 percent at present. Similarly, the unemployment rate has fallen from 13 percent to around 8 percent, the lowest ever.
Sri Lanka is outward looking and we are the most liberalized economy in South Asia. As a direct consequence of our business friendly policies, we have received favourable international rankings in respect of our investment prospect. For example, the index of economic freedom, as computed by the Asian Wall Street Journal, has ranked Sri Lanka 33rd out of 156 countries, placing us ahead of the Philippines, Indonesia, India, China and Vietnam. Furthermore the Economic Intelligence Unit has ranked Sri Lanka’s business environment ahead of India, China, Indonesia, Vietnam and Pakistan, resulting in our global ranking position improving from 45th to 42nd position last year.
Moving on, I can safely say that Sri Lanka has made substantial progress in the development of economic infrastructure. As a direct consequence of the initiatives taken in 1997 to privatize Sri Lanka Telecom, we have one of the most liberalized telecommunication systems in Asia. Today, multiple operators provide services in all segments of telephony covering fixed line, mobile phone, pay phone, wireless loop lines and data communication services. Due to significant private sector investment in the telecom sector, the number of fixed telephone lines installed in Sri Lanka has grown by over 40 percent during the past five years and cellular phone usage, by over 600 percent.
In the power sector, through an active policy of encouraging private sector investment in power generation, Sri Lanka’s power generation capacity has, increased by almost 50 percent over the last few years. The government intends to restructure the dominant state utility and to provide an enabling regulatory framework for a competitive and efficient energy sector.
In the port sector, our vision of Sri Lanka emerging as a major transhipment hub is now being realized. Already the Port of Colombo ranks as the largest port in South Asia and 26th in terms of world throughput. The Port of Colombo is undergoing a major expansion at a cost of over 1 billion dollars, including development of a new South Port in the near future. This will provide a base for the enhanced participation of private sector operators.
The Colombo airport is also undergoing a major expansion at a cost of around 200 million dollars. Through this investment, the passenger and cargo handling facility of the Colombo Airport will be expanded significantly. We have already privatized Sri Lanka’ s national career, which has trebled its aircraft fleet since then.
Among the most ambitious initiatives taken by my Government has been the implementation of a comprehensive strategy to improve Sri Lanka’s road network. Currently, four major highway projects are at various stages of implementation. These projects include an expressway linking the Airport to the City of Colombo, which is currently under construction and the Southern Expressway project, which is expected to commence this year. The combined investment of these road projects is estimated at around 1 billion dollars.
Let me also add a note on human resources. Among developing countries, Sri Lanka ranks one of the highest in terms of the human development index, computed at 0.73 by the UNDP. One of the key factors contributing to Sri Lanka’s economic resilience is our human resource base. The adult literacy rate is 92 percent and average life expectancy is 73 years. It is widely recognized that our work force rates high in terms of basic skills and trainability, which is one of the reasons why foreign companies like to invest in Sri Lanka’s manufacturing sector. But what is needed now are specialized skills to move the economy on to a higher growth trajectory and progressive reforms in labour market policies. The Government is in the process of formulating a transparent and expeditious separation regime for labour and tripartite arrangements for improving industrial relations.
Sri Lanka’s legal framework governing foreign investment is another factor that encourages foreign companies to locate in our country. The right of foreign companies to invest in Sri Lanka is guaranteed by our Constitution. Moreover, we have entered into investment protection and double taxation agreements with many countries, including Germany. Furthermore, foreign companies investing in the production of export-oriented goods and services or in the generation information technology are entitled to a wide range of tax holidays and other benefits, which are among the most attractive in Asia.
Many German companies have taken advantage of these incentives to invest in Sri Lanka. Germany is Sri Lanka’s fourth largest investor with about 170 approved projects at an estimated 12 billion rupees, or 320 million Deutsche Marks. It is also the country’s second largest investor from the EU. Many of the companies operating in Sri Lanka are global leaders in their respective fields of specialization. Their Investment portfolios are in the areas of textiles and garments, light and heavy engineering, electronic products, rubber-based products, gems and jewelry and tourism.
Indo-Lanka Free Trade Agreement
Let me now touch on another important topic, namely the Free Trade Agreement, or FTA, for short, which was recently signed between India and Sri Lanka. It is my hope that the incentives offered under the FTA will also encourage foreign companies to invest in Sri Lanka. The FTA was initiated by me in order to provide opportunities for industries located in Sri Lanka to access the vast Indian market on preferential terms. Companies locating in Sri Lanka can enjoy lower tariff access to the Indian market. Furthermore, due to Sri Lanka’s close proximity to India, the costs of shipping goods to the Sub-continent will be competitive. Therefore I urge the German business community to examine in detail the opportunities available under the Indo-Lanka FTA.
In conclusion, I would like to state that it is now an opportune moment for German industrialists to consider Sri Lanka as a location for offshore manufacturing, given our stable policy environment and greater opportunities for exports. Representatives of leading Sri Lankan chambers and companies are here to further discuss our overall investment climate and export potential, and I hope we can use this opportunity to engage in a productive dialogue with you.
I invite you to visit our beautiful country and explore the abundant opportunities available for trade, investment, tourism and cultural exchange.