INTRODUCTION >>>

- Investment boosts economy -

Significant private funding over the past five years has led to dramatic growth in both the manufacturing and service sectors

A lmost unnoticed, Sri Lanka's economy has been growing steadily, its manufacturing base expanding in leaps and bounds. Average annual gross domestic product (GDP) has risen at five per cent during the past five years, exports have grown and the country has attracted $715 million in foreign direct investment (FDI) during the five years to the end of September 2000. This represents a 20 per cent growth over the previous five years.

"The picture that is projected in the international media does not portray the remarkable resilience of our economy and the private sector," says Thilan Wijesinghe, the country's top investment promoter. As chairman and director general of the Board of Investment (BoI) of Sri Lanka, Mr Wijesinghe is forever trying to counteract what he describes as the international media's fascination with the separatist Tamil Tigers. "But for the military situation, GDP growth would have been 7.5 per cent," he says. "Over the past four years, Sri Lanka has attracted more FDI than at any other period in its history since inde-pendence. In 1999 we managed to attract the highest-ever level of FDI - more than $200 million." In the past four years, all new investment in communications, power generation and Colombo Port have come from the private sector. "That we have achieved export competitiveness in a few sectors gives a remarkable resilience to the manufacturing sector, and by virtue of our location advantages, our services industry has grown, particularly in the shipping and communications sectors," says Mr Wijesinghe.

The signing of a free trade agreement between Sri Lanka and India has added a new dimension to the opportunities Indian companies will have on the island. In the past, Indian companies usually went to Sri Lanka to capture the local market. The free trade deal provides them with an opportunity to locate their units on the island to export to India and other markets, taking advantage of the duty concessions. The port of Colombo has become much more efficient and it is now cheaper to ship goods from there to cities north of India than to transport them by truck from the south of India. "Sri Lanka could potentially emerge as a manufacturing base," says Mr Wijesinghe. "My vision is to make Sri Lanka part of the growth triangle of Chennai, Hyderabad and Bangalore to form a fourth link where we can offer key advantages."

In the past five years, the number of exporting zones has grown from four to 14, and a further four are currently under construction. "The next stage will be to enhance our IT capabilities. To that end, several projects have been approved and are under way. "We are striving to create a system that would allow shipping companies to elec-tronically clear their cargo, and we are also developing software development parks and IT centres in rural areas. We are hoping that within the next three years we will increase the number of IT professionals being trained in this country." Finance secretary Mr PB Jayasundera says Sri Lanka aims to achieve 8 per cent GDP growth by pushing its trade and IT sectors. "Sri Lanka needs to do more to cope with the IT revolution," he says, adding that the country needs to move to a "service economy from a labour-intensive one". The government has earmarked $1 billion for rapid infrastructure development in telecommunications, transport and water resources. And a $200 million grant from the Asian Development Bank will be used for private-sector reforms that include further boosting trade liberalisation and capital market development.

Minister of constitutional affairs and industrial development, Mr GL Peiris, says Sri Lanka has the most open economy in the region. "We would like to derive the maximum advantage from Sri Lanka's geographical position, its transshipment facilities, its human resources and the relatively developed legal and financial administration." "We have helped Sri Lankan industry in a big way with the free trade agreement with India and already there are a few joint venture projects which have been initiated with Indian companies. Today, a lot of Indian companies are making very large investments in this country." The International Monetary Fund (IMF) is pushing for further reforms in the labour and financial sectors and hopes the coalition government will be able to pass structural reforms quickly.

The World Bank, meanwhile, says successive government programmes to cut poverty have achieved less than expected, despite steady growth. "Realising Sri Lanka's enormous potential will first require an end to the conflict and a renewed commitment to key reforms to improve public institutions," says Eric Bell, author of a recent World Bank report. Ending the 17-year conflict is a seemingly intractable task. Prime minister Ratnasiri Wickremanayake says: "The war is a drain on our economy. How it will be stopped is the main problem. "The war gives the wrong signals to the world. The fact that it is being fought in the north of the country should not deter investors. Concessions have been created and without constant investment, this country will not prosper," he adds. One promising factor is the continua-tion in office for a second term of the president, Mrs Chandrika Kumaratunga. "This is the main element of continuity," says minister of foreign affairs Lakshman Kadirgamar. "So even if there are fluctuations in the parliamentary composition of the parties, it's not going to make a great deal of difference."