- Highlight it as major reason for poor FDI inflow
- Call for complete liberalization of economy
- Note that two parties governing country, but nobody making decisions
By Nishel Fernando
Sri Lanka’s top business tycoons expressed frustration over inconsistencies in government’s policies and an absence of clear leadership for policy implementation, but expressed keenness to engage the government, acknowledging that politicians, who are the policymakers of the country, are closely linked to the performance of businesses.
Daily FT Editor Nisthar Cassim (co-moderator), Access Group Founder and Chairman Sumal Perera, Hirdaramani Group Director and Former Chairman Janak Hirdaramani, Vallibel One Group Founder, Chairman and Managing Director Dhammika Perera, Stassen Group Chairman and Managing Director Harry Jayawardena, MJF Group (Dilmah) Founder and Chairman Merrill J. Fernando, Softlogic Holdings Plc Founder, Chairman and CEO Ashok Pathirage and ICCSL Chairman Dinesh Weerakkody (moderator)
Pic by Waruna Wanniarachchi
Participating in the ‘Fireside Chat’ organized by the International Chamber of Commerce Sri Lanka (ICCSL) in partnership with the Chartered Institute of Management Accountants (CIMA) Sri Lanka Division and our sister newspaper Daily FT, this week, were Access Group Chairman Sumal Perera, Hirdaramani Group Director and former Chairman Janak Hirdaramani, Vallibel One Chairman and Managing Director Dhammika Perera, Stassen Group Chairman and Managing Director Harry Jayawardena, MJF Group founder and Chairman Merrill J. Fernando, and Softlogic Holdings PLC Chairman and CEO Ashok Pathirage, who extensively discussed the challenges faced by the private sector as well as the way forward for businesses in Sri Lanka.
Sumal Perera lamented that the private sector had become a victim of government’s overnight policy shocks, particularly in the construction industry.
“If you want the private sector to be the engine of growth, you can’t take money from the private sector and give it to the inefficient public sector. It is simple as that. You can’t take money from an efficient sector and transfer it to an inefficient sector. What we don’t want is the shocks; the government shouldn’t give shocks to the system,” he said.
Illustrating an example, Sumal Perera said that the construction industry had suffered vastly from the government’s decision to increase the corporate taxes from 12 percent to 28 percent, which was implemented overnight in order to finance the Rs. 10,000 salary increment to State employees and to finance a fuel price reduction which wasn’t called for.
“In the construction industry, we had a 12 percent corporate tax rate and that’s one of the main factors for us to take our company public. However, overnight, the 12 percent tax rate was increased to 28 percent, which was a 150 percent increase. In addition to the 2 percent NBT on turnover, which was another 10 percent increase in taxes, was the increase in dividends. Altogether, it was a 311 percent additional tax,” he noted.
However, Dhammika Perera attempted to defend the tax increases noting that without an increase in taxes, the government revenue would have fallen to Rs.1400 billion and tax income was essential to balance the government’s cash flows.
Ashok Pathirage drew attention to the constraints to execute expansion plans for private sector, pointing out that high interest rates hindered expansion plans of many companies and hence, called for bank interest rates to be slashed below 10 percent.
He noted that due to existing constraints, banking is the only sector to earn reasonable profits while the rest of private sector developments are hindered.
He also highlighted the policy inconsistencies of successive governments as a major reason for Sri Lanka to still attract low amount of FDI.
“Why are we not getting Foreign Direct Investment (FDI)? That is because even when the Board of Investment (BOI) gives concessions, a new government comes in and the concessions are gone. So who would come and invest in this country? These are the problems,” he noted.
Sumal Perera stressed that businesses are compelled to engage with politicians as they are the policy makers of the country, a point also endorsed by Pathirage.
“I think you need policy patronage. We can’t work in isolation. We cannot work in a lab. Policy is handled by politicians, so whoever handles policy, we need their patronage. It can be a politician, it can be an administrator, or it can be a bureaucrat. Any person who handles policy, we have to interact and we need their understanding and to know we are on the same page. For example, right now we are in the middle of a lot of frustrations because we are not on the same page,” Sumal Perera stressed.
Hirdaramani proposed a complete liberalisation of Sri Lanka’s economy, which would help Sri Lanka to attract FDI and to minimize deep-rooted corruption in Sri Lanka.
“Total liberalisation of our economy is a good solution in reforming. The country will be much better off. We will also have substantial foreign investments coming in. So I think that would be positive,” he said.
His views were echoed by Sumal Perera who stated that Sri Lanka’s economy must be liberalised in order attract investments and to develop. However, he was pessimistic if the government would be able to do so, given that the government is still struggling to liberalise even the shipping sector, after announcing it in the last budget.
“It’s very challenging. I think everything should be liberalised and the market forces must determine everything other than the safety nets of food security in the country,” he said.
Meanwhile, Sumal Perera was in agreement with Pathirage that Sri Lanka needs a strong leadership to execute these reforms.
“We need a strong leadership; what we need is a little bit of a dictator. There are two parties who are governing today, but nobody is making decisions,” Pathirage said.
While agreeing that the policy implementation is the biggest problem in the current government, Dhammika Perea offered technical assistance to the government from debt management to restructuring ministries.
“Any government asks for technical assistance and I’m happy to put my time because it is my passion. Even today you can ask how to restructure 40 ministries and I can answer. You can ask me how to restructure total debt, I can answer. I have solutions. I have done the research as part of my business and because I’m not involved in day-to-day operations and I have enough time to do the analysis. It is because I have this knowledge that politicians sometimes seek my assistance and I can give my time to any government,” he said.
However, Merril J. Fernando said that bureaucracy was the reason for the delays of implementation of State policies as they were afraid of being called to the FCID. Hence, he said they are following strict guidelines when implementing policies and that is causing delays.
Meanwhile, responding to a query on China’s increasing involvement in Sri Lankan economy, Sumal Perera emphasised that Sri Lanka’s best chance of getting investments is from China and suggested that Bangladesh is a good example for Sri Lanka to follow as Bangladesh has been able to attract Chinese investments while maintaining market access to Western countries.
“I think most of the world is living are in denial and not admitting the role China is playing. Our best chance of investments in this country is China. However, we need to retain access to Western markets, otherwise Chinese won’t invest here. They would do one or two major projects, which are strategic; but to get influx of Chinese investments, it is so important that we keep this balance.
Bangladesh is a good example in this regard. They are keeping Americans very close in terms of production while China is carrying out infrastructure development projects. That a good model for us to follow. However, we are missing the bus on a daily basis,” he elaborated.
Speaking of Sri Lanka’s debt burden, Dhammika Perera said debt is essential to spur growth and pointed out that Sri Lanka’s debt burden shouldn’t be a concern as developed countries such as Japan has a debt to GDP ratio of 253.10 percent compared to Sri Lanka’s 81 percent. However, he noted that the country should be cautious of the interest cover when borrowing.
Commenting on the efficiency in the public sector, Harry Jayawardane asserted that the selection of unsuitable candidates for higher posts of State institutions was one of the reasons for the inefficiency.
“Unfortunately, people who we select as the Chairmen and to the boards of directors don’t know their job,” he said.
Jayawardane went on to say that he had warned the government against appointing certain individuals to high ranks. However, despite his warnings, the government has appointed these individuals and the government has been facing a public backslash.
Fernando noted that the whole value chain of the tea industry from plantations to exports is muddled in corruption, particularly by unauthorised tea imports for blending. He therefore urged the State to take strict action against these activities.