Port City SEZ identified key to positioning SL as top financial hub

• Govt. told to rapidly implement a competitive SEZ framework that comprises of best practice elements
• Economist Dr. Ganeshan Wignaraja says SEZ framework has become more critical to attract investment amid slow recovery in global investment flows
• Proposed SEZ framework is expected to be introduced by an Act of Parliament, later this year

By Nishel Fernando
With the COVID-19 pandemic slowing down the global investment flows, the rapid implementation of the special economic zone (SEZ) framework proposed for Colombo Port City (CPC) stands to play a decisive role in placing Sri Lanka as a premier financial services hub, rivalling Dubai to the West and Singapore to the East, in a post-COVID-19 world economy, according a top economist.

In a recent brief published by Singapore-based Institute of South Asian Studies (ISAS), Dr. Ganeshan Wignaraja, who serves as a Non-Resident Senior Fellow there, stressed that the Sri Lankan government should rapidly implement a competitive SEZ framework that comprises of several best practice elements.

He highlighted that the framework should be inclusive of a transparent and competitive tax regime, a clear arbitration framework to solve commercial disputes, strong anti-money laundering rules, an open international labour market as well as a modern and cost-competitive infrastructure.

In early January 2021, the Cabinet of Ministers approved a proposal to draft a law to set up a commission to oversee the activities at CPC, which would become the first service-oriented SEZ in the country.

In addition to the proposed commission, it has been also proposed to set up an advisory committee, an arbitration board and a court of law.

Dr. Wignaraja noted that the project has already faced delays, due to the decision-making lags during the previous regime, while cautioning on further delays, due to the global uncertainties in the COVID-19 economic era.

Further, he noted that a partial recovery in global FDI flows can only be expected in 2022, linked to the availability of COVID-19 vaccines, announcement of a large fiscal stimulus for the United States by the Joe Biden administration and improved business confidence.

Therefore, a competitive SEZ framework has become more critical to attract global investors, which could determine the success of the CPC project.

Central Bank Governor W.D. Lakshman last month said that the proposed SEZ framework would be introduced by an Act of Parliament, later this year.

According to a Benchmark Analysis by the Lakshman Kadirgamar Institute (LKI), CPC was ranked in line with South Korea’s Songdo International Business District (Songdo IBD) and ahead of the comparator SEZs in the areas of accessibility and sustainability.

“Its proximity to Bandaranaike International Airport (BIA) ensures international accessibility and the proposed airport links will help to reduce travel times further in future. This said, Port City cannot compete on the same level than the Dubai International Financial Centre (DIFC) from an accessibility perspective,” it stated.

However, the other critical factors such as regulatory institutions, land and property ownership, immigration policies and taxation framework, still remain unclear, due to a lack of information on the proposed legislative framework for CPC.

“The CPC SEZ can be a game changer for modern services development in Sri Lanka, leveraging the twin advantages of a strategic geographical location and international best practices SEZ framework,” the LKI said.
In particular, it highlighted that the proposed SEZ legislation framework has the potential to define property and land regulations, which would draw in domestic as well as foreign investors. In addition, it noted that the proposed SEZ framework could potentially grant additional tax reductions and concessions, which are in line with the other successful SEZs, enhancing CPC’s attractiveness further.

Meanwhile, Dr. Wignaraja opined that CPC could become catalyst in transforming the country’s services sector through the promotion of foreign direct investment (FDI) as well as facilitating clustering of businesses.

“Notable spillovers can be gained from sharing resources and costs by locating financial and related services activities in CPC,” he added. 

In addition to the CPC SEZ framework, he also called for transparent and predictable national economic policies in the medium term, emphasising a market-oriented economy, a neutral foreign policy, a world-class education system and movement towards political and social stability for CPC to become South Asia’s Dubai.