BOI Board in limbo

• Given one month extension pending reconstitution

Adding to the confusion and controversies, the Board of Directors of the BOI is in limbo with subject Ministry Secretary Dr. P.B. Jayasundera giving it a month’s extension.
The move follows the tenure of the members of the Board ending recently and until the latest extension indicated this week, work at Board of Investment (BOI) had been at a standstill.

The temporary extension of the Board appears to be until the BOI Board is reconstituted, a move originally announced by the Economic Development Ministry as part of its response to recent adverse reports on the BOI and alleged tussle between Secretary and the Board.
The BOI Board comprises of M.M.S. Ferdinando (Acting Chairman and DG), Eshana de Silva, Sanjeewa Wickramanayake, and Anura Jayasinghe.
The dilemma for the BOI Board and its staff as well as independent observers is a choice of which cup – half full or half empty. The Government has claimed that last year, a record $ 1 billion in FDI was attracted, though some say of that around $ 250 million was ‘technically’ on land sales. If that analysis is correct, then the 2011 figure is below the previous best of $ 890 million achieved in 2008 despite the terrorism problem in the country.
The target for 2012 is $ 2 billion, and the BOI this week announced that in the first quarter FDI in approved projects amounted to $ 400 million.
Recent criticism against the BOI from the Economic Development Ministry as well as emphasis of reforms needed add fuel to the analysis that Sri Lanka hasn’t attracted the desired level of FDI following the end of the conflict in mid-May 2009.
The private sector too has highlighted this underperformance given the country’s potential. This view, however, isn’t shared by the BOI Board, which has maintained that its performance has been hampered by policy inconsistency, for which the Ministry and Treasury is responsible.
Despite questions over actual FDI last year, the Central Bank in its 2011 Annual Report said that the largest FDI inflow was to the hotels and tourism sub sector, followed by the infrastructure sector, which attracted investments mainly to telephone, telecommunication network and fuel, gas and petroleum sectors.
Foreign investments in the manufacturing sector were mainly attracted by the textile, wearing apparel and leather products; chemical, petroleum, coal, rubber and plastic products; and fabricated metal, machinery and transport equipment sub sectors.
It also said a considerable amount of FDI received for the manufacturing sector was for the revitalisation of the Ceylon Steel Corporation, which is currently awaiting implementation. The cumulative realised investment of the BOI by end 2011 was Rs. 1,033 billion or Rs. 1.03 trillion.
Estimated foreign and local investments approved under Section 17 and Section 16 of the BOI Act during 2011 stood at Rs. 495 billion. This was an increase of more than 115% compared to the previous year and amounted to Rs. 230 billion, according to Central Bank.
The food, beverages and tobacco products category and the petroleum, coal, rubber and plastic products category contributed to a substantial component of the investments in the manufacturing sub sector.
Amongst the projects that signed agreements during 2011, the non-metallic mineral products category contributed to the largest estimated investment. The textile, wearing apparel and leather products category was the largest contributor among projects, which commenced commercial operations during 2011.
In its recent clarification, the Economic Development Ministry said investment promotions and approvals were not constrained by the Treasury. The only aspect in which the Treasury gets involved is the processing of requests involving concessions under Strategic Investment Law. All such proposals have been duly processed by the Ministry of Economic Development with the concurrence of the Ministry of Finance and Planning as required by the law and no delay has occurred whatsoever.
The papers sent by the BOI to obtain Cabinet approval of the Ministers are scrutinised by the Ministry on the guidance and advice provided by the Minister and submitted to the Cabinet of Ministers, unless the Minister has deferred them or requested revision, generally such requests are processed expeditiously. After all, the line Ministry Secretary is required to take full responsibility of factual content of cabinet papers and other documents.  All investment approvals are undertaken by the BOI within their laws and the concessions are granted under respective legislations.
It also said the Treasury is represented at the BOI Board by a Deputy Secretary to the Treasury, to improve Treasury coordination in such work. In addition, the Commissioner General of Inland Revenue and the Director General of Customs are also present at BOI Board meetings to address matters coming under the purview of the Ministry of Finance.
Furthermore, the Ministry said promotional activities should be directed towards emerging economies and there are greater potentials to attract tourism, trade and investment from South Asia, Middle East, East Asia, Russia and Far East in addition to its traditional markets in Western Europe and USA. It is in this context that the BOI has been requested to spearhead this task.
Further, the BOI had been requested to effectively provide support services to the investors who are already here in its export processing zones and elsewhere. On the direction of Minister, BOI has appointed Country Directors to coordinate and facilitate investors from respective countries. The Minister has also requested additional investments should be sought from them in addition to facilitating new investors coming from abroad.
As many investors who have shown keen interest in exploring Sri Lanka’s investment potentials, the Minister has further requested the officials to work out a wide range of investment proposals that can be  presented to investors to make such promotions more focused. In that context, the Ministry also requested the BOI to give a detailed breakdown of the proposed US$ 2 billion foreign investment that the BOI is expected to realise this year to ensure close monitoring.
With regard to overseas promotions, the Minister has requested the identification of an effective promotional team rather than regularly sending the same officials of these organisations for all promotional activities overseas and seminars workshops, road shows, fairs and conventions.
The Ministry also said it has not stopped any requests from any organisations unless those officials have repeatedly gone for overseas missions without follow up work or seeking service extensions contrary to Government policy decisions or the Minister thinks that the purposes of such overseas visits could be achieved through Sri Lankan missions abroad.
Already the BOI Law has been amended to appoint a fulltime CEO to work under the overall supervision of the Chairman and Board of Directors, to make this change with the full cooperation of all officials in the BOI. The Minister proposes a reconstitution of the BOI and appointment of a new CEO by mid June 2012.
Tax incentives have been incorporated in the relevant statutes to accommodate the interest of SMEs, large investments and strategic investments. The Government itself has expeditiously cleared several large strategic investments in recent times, proving such quick and investor friendly decision making is feasible, the Economic Development Ministry said.
The BOI in a statement this week said in the first quarter of 2012 the BOI received 72 new applications compared to the 28 received in the corresponding period of the previous year.  There were also five applications for expansions of existing projects.
In the first quarter of 2012, the BOI granted approvals for 54 projects against 27 in the first quarter of 2011. This was a 100% increase over the previous year. The estimated investment of those approved projects was Rs. 96,317 million of which a total of Rs. 49,169 million is expected as foreign investment and the balance Rs. 47,148 million as domestic investments. These approved projects would create 9,500 new employment opportunities.
In terms of agreements signed, the BOI signed 40 project agreements in the first quarter of 2012 and this includes 33 new enterprises and seven project expansions. This was a 25% increase from the 32 agreements signed in the corresponding period in 2011.
In the period under review 23 projects started project implementation, all of which were new projects. It’s a 64% increase compared with the new projects starting implementation in the first quarter of 2011. The estimated value of the investment from companies that commenced implementation is Rs. 75,273 million. They will create 2,946 employment opportunities.
In the period under review 18 enterprises commenced commercial operation against 20 in the corresponding period in 2011. The estimated investment value of these 18 enterprises is Rs. 7,198 million compared to 3,089 in first quarter 2011. These enterprises are expected to create over 5,000 employment opportunities.