Economic Growth and Competitiveness

Sri Lanka is on a renewed push to attract foreign direct investment (FDI) following a poor performance in the last decade, post-war. Fiscal incentives regimes have changed from time to time, laws and regulations have been introduced, investment promotions missions have been held in major capitals. Yet, attracting FDI remains a struggle, amidst heightened competition from regional competitor locations. In this interview, former Deloitte consultant Danindu Udalamaththa outlines some key areas for Sri Lanka to focus on and learn from. He draws from his experience advising global clients on the investor side, and argues that to attract good investment, Sri Lanka needs to design good incentives frameworks.

Like many countries in the region, SME development remains prominently on the policy agenda of successive Sri Lankan governments, development projects, and private sector support programmes over the years. Yet, a thriving, dynamic, and internationally-competitive SME sector remains elusive. Various schemes to address SMEs’ access to finance issues is a popular, and often dominant, part of most SME development initiatives. In this interview with finance and investment specialist Sharini Kulasinghe we explore some new perspectives on solving SME development challenges, going beyond the common wisdom.

In this interview in the 'Economics x Environment' series of Smart Future Forum (SFF), Nishan Perera - Sri Lanka's leading marine ecologist, an avid diver and underwater photographer - shares some vital insights  on. Nishan is a marine ecologist with an interest in coral reef ecology and Marine Protected Area management. He is a co-founder of Blue Resources Trust, a Sri Lankan marine research organization, where he currently heads the coral reef programme.  His recent work has included research on impacts of climate change on coral reefs, small scale fisheries management and supporting Marine Protected Area management in Sri Lanka. He has previously worked with IUCN, Project Seahorse and the Sustainable Fisheries Partnership.

Sri Lanka’s apparel industry – a significant export revenue earner and employer – was substantially hit by the pandemic. Aside from the short-term supply and demand shocks, the pandemic accelerated trends that were in motion prior to the crisis, and these provide signals of change and point to the direction in which the Sri Lankan apparel industry needs to head in. Moving from recovery to resilience and a new wave of growth will be shaped by three emerging trends - attracting new investment that drives innovation (in business models and products) and plugs into new supply chains and on focussing on meeting more stringent sustainability and other compliance requirements of buyers and preferences of consumers.

Sri Lanka's tax ratio hit an all time low in 2020, with revenue losses caused by the pandemic and steep tax cuts in 2019. The budget deficit reached double digits due to high pandemic related expenditure and fall in revenue. Attempting to revive growth through public investment will be constrained by low tax revenue, and progressive tax reforms are a must to avoid further macroeconomic stress.

For too long provinces outside Sri Lanka’s Western Province have been characterized as ‘lagging regions’, due to their slower growth trajectory, smaller share of national output, and more pronounced weaknesses in development indicators. It's time to change the narrative and see them as 'Secondary Growth Hubs', to transform how all stakeholders engage in partnerships to boost prosperity there - not in terms of how they need to be helped to get out of being ‘lagging’ but rather how they need to be partnered in creating more inclusive economic growth.

Trade finance is currently full of inefficiencies, and access to trade finance has proved to be a continual challenge for SME exporters. The industry is ripe for disruption, and blockchain is proving to be a key source of disruptive innovation. Several pilots have shown the way for blockchain to improve trade finance - both in reducing time and costs.