Sri Lanka expects US$ 5 billion investment into the Hambantota Industrial Zone

Jan 30, Colombo: The government of Sri Lanka expects US$ 5 billion investment coming into the Hambantota Industrial Zone (HIZ), planned to be established in the vicinity of the Hambantota Port in the deep south, over the next few years with 100,000 jobs being created.

The industrial zone will not only attract investments from China, but also from Japan, South Korea, India, Malaysia and European countries, according to the Minister of Finance Ravi Karunanayake.

“We are making Sri Lanka an investment platform to reach out to the local market, but also to India, Pakistan and other future partners of free-trade agreements,” Minister Ravi Karunanayake said.

Outlining the government's new vision for economic development in an interview with The Banker, Minister Karunanayake said the multi-billion dollar deal signed on January 8 to lease out the Hambantota port to China Merchant Port Holdings is a “win-win situation” for both China and Sri Lanka.

He said the last government was being accommodating towards Chinese investment because there was so much corruption involved and they used it to fit their own purposes. “On the other hand, we got in touch with the Chinese government to make it a win-win situation for both countries from the outset.”

Speaking of Sri Lanka's struggle to attract foreign direct investment (FDI), the Minister said the corruption is simply the biggest deterrent to attract FDI, and the government is working hard to eliminate corruption and make the environment more conducive for foreign investors.

“…The biggest deterrent has simply been corruption – it's diminishing, but not fast enough. We have worked to make it very open for foreign investors to step in wherever Sri Lankans lack the technological know-how, setting up incentives and getting rid of antiquated legislation,” the Minister said.

He said the President and the Prime Minister are now regarded as two leaders working in the same direction, and the agreement with the IMF has also contributed to improve the perception of the country.

Elaborating on the government's five-year development plan, the Finance Minister said certain corrective actions that need to be taken and have been included in the development plan.

He said the fiscal consolidation is in motion and the Inland Revenue Act will be implemented from April 2017.

“We are looking at a fiscal deficit of 4.6% in 2017, gradually reducing it to 3% by 2020. On the public debt side, today we are in the range of about 80% of gross domestic product and aim to shrink it down to 60% in the next couple of years,” the Minister said.

The Minister emphasized that the government plans to transform economic activity to priorities exports and maximize activity in certain services such as tourism, education and health to bring them to the economic forefront of the country's development. With regard to agriculture, the government wants to make subsistence farming commercially oriented and industrialize the sector.

Speaking of declining exports, the Finance Minister said the problem is Sri Lanka's export products and markets have not been diversified in the past. So far, Sri Lanka's traditional exports have been commodities such as tea, rubber and coconut, or products in garments or footwear. The government plans to diversify both products and the markets, the Minister added.

“Moving forward, we will be looking at exporting business process outsourcing, and other services related to logistics support,” the Minister said.

In agriculture, once again the focus will be to make exports more competitive from a cost insurance and freight perspective through things such as [better] logistics support and freight services.