How attractive or unattractive is our business climate to foreign investors?

Sri Lanka’s performance on almost every global index related to the business climate has been poor for the past several years.  For example, the country ranks 102nd on the Ease of Doing Business Index; 91st on the Perception of Corruption Index, and 107th on the Index of Economic Freedom while there has recently been some improvement in the World Economic Forum’s Competitiveness Index.  

In order to meet the growth targets in its economic strategy, the Government is relying on the private sector to dramatically increase investment.  
How is this going to happen if Sri Lanka’s business climate is below average compared to other countries that are competing for foreign investors?  
Recently a Focus Group of 27 concerned businessmen, academics and government officials met to consider concrete steps that could be taken to improve the overall business climate.  The event was hosted by the Pathfinder Foundation, a local think tank and advocacy organisation, and chaired by the President of the Ceylon Chamber of Commerce, Susanta Rathnayake.    
To kick off the discussion, a Pathfinder consultant, funded by the USAID Volunteers for Economic Growth (VEGA) programme,
made a presentation of current issues in the business environment and suggested measures that would increase the attractiveness of Sri Lanka to investors.
 He noted in his presentation that, to the extent the Government has a strategy, it was focusing on improving Sri Lanka’s ranking on one survey — the International Finance Corporation’s Ease of Doing Business Index (DBI) and added that while this was a good and encouraging start, that Index had its limitations and did not cover a host of problems in the overall business environment.  
As one participant noted, the DBI doesn’t cover either land or labour issues — two of the major issues for business.
While survey data and business leaders agree that two years of peace & security and macro-economic stability have been very encouraging, there are a number of other policy issues related to the private sector role in national development that need to be addressed early to improve the business climate in Sri Lanka.  
These include:  “volatile and unpredictable economic policies”, a critique of Government policies made by the Economic Intelligence Unit; the lack of strong endorsement of the private sector as the engine of growth in Government policy documents and public statements; growing State participation in business, such as the recent purchase of Shell’s local gas business; and, Supreme Court decisions that have made void investments approved by the State at the highest levels.
The Ease of Doing Business Index does not address — as a participant put it — “the consistency and predictability of policies”.  
Instead the DBI focuses on a limited set of legal and regulatory constraints in the business environment for purposes of global comparison.  
These constraints are important but they are not comprehensive.
 For example, the DBI research explains that Sri Lanka has eight customs procedures for exports, how long in days it takes to complete them, and what costs are associated with each procedure.  
However, it does not address the onerous and confusing maze of pre-customs registrations, licenses and permits that exporters of certain export products must navigate prior to submitting their Customs Declarations.
In another area, an investor who attended the session bemoaned the months that were required to obtain a construction permit for his project.  Another participant noted that as FDI increases, procedural delays and bottlenecks will become more and more serious problems.  
Here again, the predictability desired by potential investors is absent.
Several participants endorsed the need for a tri-partite mechanism (Government, labour and business) to move forward with the development of a reform agenda for improvement of the business climate.  
Ceylon Chamber President Rathnayake noted that certain civil servants were already hard at work on reforms in some areas but the issues raised at the meeting required a comprehensive and systematic approach.  
Pathfinder Foundation Executive Director invited the participants to provide additional feedback via e-mail to pm@pathfinderfoundation.org and offered the Foundation’s continued support for initiatives that may result from the discussions.