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Foreign investors seek greater legal certainty before investing in Sri Lanka

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German Industry and Commerce in Sri Lanka Chief Delegate Andreas Hergenrother  (Pic by Nishendra Silva)

German companies in discussion regarding potential upcoming investments here

by Sanath Nanayakkare

Legal certainty was a fundamental principle for foreign investment across the world, important even for potential German investors, Andreas Hergenröther, Chief Delegate of German Industry and Commerce (AHK Sri Lanka) told The Island yesterday:

“The reliability of the legal framework in Sri Lanka is essential for foreign investors. We have seen many changes since the beginning of 2020; so many gazette notifications and operating instructions which appear quite confusing for foreign investors and trading partners,” he said.

Elaborating Andreas said: “Of course, we understand that there is a scarcity of foreign currency in the country. On the other hand, it has to be understood that foreign companies operating in Sri Lanka need a clear framework which they can rely on. We hope that when the Covid-19 situation improves, there will be a coherent, transparent investment and trade policy for foreign investors to continue their businesses without uncertainty. They need an operating framework upon which they can plan on their mid-term and long-term prospects. This is very necessary because investors do not want to invest in a scenario that they do not fully understand”.

“For Foreign direct investors including German investors the reliability and predictability of legal frameworks are of very high importance not only with regard to Sri Lanka but worldwide. We fully understand the current situation in the aftermath of Covid-19 where decision makers need to make quick decisions and sometimes the impact of these decisions may not be foreseeable or predictable, but the continuous changing of the business landscape is a major challenge, because what investors mostly need is legal certainty. This fact was further confirmed at a survey we conducted among 160 CEOs and representatives of German companies and their Sri Lankan partners”.

“Of course, Sri Lanka is a sovereign country. Every country has to find its own way to promote foreign direct investment and even during the pandemic, we received some requests for potential investments in Sri Lanka. These requests were much related to certain product groups that are on very high demand and they are also related to free market access to mainly Pakistan and India. Sri Lanka offering free trade access to these two countries is a clear advantage, but it would give much more advantage if Sri Lanka would have free trade agreements (FTAs) with South East Asia (ASEAN), People’s Republic of China and East Asia. Such broad-based market access would definitely increase the potential of Sri Lanka to promote its foreign direct investments”.

“Currently these potential investors are gathering information about Sri Lanka and how they could run their operations from here. Once the airport reopens these investors will be keen to come to Sri Lanka and hold detailed talks with the decision makers here”.

“With regard to these investors’ wish to invest in Sri Lanka, AHK Sri Lanka has initiated talks with Sri Lankan institutions – mainly the Bureau of Investments (BOI). These companies are currently evaluating the situation and will likely visit here to see the ground realities for themselves before making the decision to invest”.

“These companies are from the medical sector, rubber related sector and another one in the field of logistics; namely a Multi-Country Consolidation service. There is another ongoing project in the field of chemicals. These companies are continuously having discussions with the authorities here. In fact, AHK Sri Lanka initiated talks at the time of the lockdown via video links with Sri Lankan decision makers on particular challenges facing German companies in Sri Lanka as well as upcoming projects”.

When asked to name these companies, Andreas said “it should remain confidential as the talks are still at an initial stage”.

“Once the health crisis improves, the decision makers of these companies will visit Sri Lanka to evaluate the legal framework. AHK Sri Lanka and German investors are very satisfied with the talks they have had with Susantha Ratnayake- the Chairman of BOI. He is doing everything he can to support the investors to come here and we have a very close relationship with the BOI. In fact, German companies have been in close contact with the BOI”.

“A level playing field is something very important to build confidence in foreign investment. In this context, we have supported a lot in the initiative of liberalization in the field of freight forwarding and shipping in Sri Lanka. In this regard, we held many conferences as we strongly believe that once foreign ownership will be possible in the field of freight forwarding and shipping, more foreign direct investments will come to Sri Lanka. And with those freight forwarding and logistics companies, their key customers will also follow suit. This convergence would enable Sri Lanka to transform from a transshipment hub into a ‘true logistics and a trading hub’. And then the ideal would be to have companies here that assemble, manufacture and/or make value addition under the scheme of Multi-Country Consolidation.

“The minimum capital requirement for Multi-Country Consolidation in Sri Lanka is US$ 3 million and US$ 5 million for Entrepot Trade. The potential investors are not ready to put three or five million dollars on the table. When it comes to investing, companies in the freight forwarding sector want to have full ownership and not be a minority shareholder of 40%. Currently the law [in Sri Lanka] allows maximum 40% shareholding for freight forwarding and shipping companies”.

When asked why the foreign companies in the freight forwarding sector wanted full ownership, Andreas said, “These companies have reporting obligations and internal compliance rules which have been made more severe in the past years, therefore, it is important for them to determine the processes and operations inside the companies according to their standards. Furthermore, companies compare different Foreign Direct Investment Destinations in the world. Nowadays most of the ‘hub-countries’ offer full ownership to freight forwarders and encourage investments under the scheme of Multi-Country-Consolidation”.

The Delegation of German Industry and Commerce in Sri Lanka (AHK Sri Lanka) was officially inaugurated on 27th March 2018, with the purpose of enhancing the bilateral economic relationship between Germany and Sri Lanka. AHK Sri Lanka is part of the German Chamber Network supported by the Federal Ministry for Economic Affairs and Energy. With 142 locations in 92 countries around the world, the members of the German Chamber Network (AHKs) offer their experience, connections and services to German and foreign companies. AHKs are located in all countries of particular importance to German companies and are closely connected to the Chambers of Industry and Commerce (IHKs) in Germany. Together they support German companies with building up and extending their business relations to foreign countries, representing in total 3.6 million German companies.

During the past years, AHK Sri Lanka) has been a reliable partner for many Sri Lankan institutions such as BOI and EDB. Committed to investment and export promotion, more than 20 business delegations have been organised in both directions. Further, AHK is planning to take four business delegations to promote exports in the sectors of agriculture/food, PPE, rubber, and energy efficient industrial solutions in the fourth quarter of 2020,

On 21st of August AHK Sri Lanka will organize a joint webinar with Deutsche Bank and Allianz on ‘Planning and Risk Mitigation in Times of Economic Uncertainty’.

 



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Prime Minister joins Gandhi Jayanti Commemoration

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Prime Minister Dr. Harini Amarasuriya attended the Gandhi Jayanti commemoration held at Temple Trees on October 2nd to mark the 157th birth anniversary of Mahatma Gandhi, the pioneer of non-violence.
The commemoration was held under the patronage of the Prime Minister and the High Commissioner of India to Sri Lanka,  Santosh Jha. During the event, the Prime Minister and the Indian High Commissioner paid floral tributes to the statue of Mahatma Gandhi. The ceremony was organized to recall the message of peace, non-violence, and harmony that Mahatma Gandhi bestowed upon the world through his life and philosophy.
The High Commissioner of India to Sri Lanka,  Santosh Jha, Secretary to the Prime Minister, Pradeep Saputhanthri, along with state officials and officers from the Indian High Commission, were present at the occasion. Prime Minister’s Media Division

[Prime Minister’s Media Division]

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Unions resist tripartite EPF management plan

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… warn of dire consequences

A group of trade unions and civil society groups has requested President Anura Kumara Dissanayake to abandon his government’s controversial plan for the proposed tripartite management of the EPF.

The group has told the President: “We strongly object to the government’s plan to transfer the EPF to a tripartite board—jointly promoted by the Employers’ Federation of Ceylon (EFC), International Monetary Fund (IMF) and the International Labour Organisation (ILO)—and to increase the investments of those funds within private equity and debt markets.

“While the EFC and the government jointly project this plan as a ‘modern governance framework’, it poses a serious threat to the EPF’s financial stability, fiduciary conduct, and returns to workers’ life savings, with severe consequences for broader macroeconomic stability. Rather than replacing the corruption existing in the public sector, this tripartite framework paves the way for a corporate takeover of the EPF. Through this, the fund is exposed to unlawful business practices such as insider trading using internal information of EPF investments, conflicts of interest and corporate bailouts of unstable private companies.

“Sri Lanka’s corporate sector has a tremendously negative track record, which you alluded to during your victorious election campaign in 2024. This was recently unravelled by the multi-billion-dollar illicit capital flight through trade misinvoicing, which your administration is now actively working to curb in the imports sector.

“The recent banking sector fraud exceeds Rs. 13 billion; widespread corporate tax evasion destabilised the fiscal position (Sri Lanka Auditor General’s Department Annual Reports) and consequently inflated the tax burden on the general public. The EFC has found it convenient to remain silent about these crimes, possibly assuming that their silence would preserve their social standing. Considering this inherent corruption within Sri Lanka’s corporate sector and its disregard to the living standards of the general public, there is no realistic basis to integrate corporate interests to actively manage the EPF. The corporate sector of Sri Lanka has not developed sufficiently on technical and ethical grounds to safely entrust the largest retirement savings pool in the country. The EPF is a captive fund that has no mechanism for the owners to divest if the management is corrupt. This further increases the possibility of corporate fraud when the management of the fund is jointly held with the corporate sector.

“Furthermore, during the recent public discussion with trade unions, Deputy Minister of Finance Dr. Anila Jayantha pointed out that the domestic debt restructuring (DDR) would inflict a loss of Rs. 600 billion to the EPF. Our independent calculations—formally submitted as an affidavit to the Supreme Court approved by the Federation of University Teachers’ Associations in 2024—reveal that nominal loss alone is Rs. 634.4 billion. When factoring in foreclosed reinvestment returns, the true loss skyrockets to Rs. 1,711 billion, wiping out 48% of the fund’s projected gross income for the 2023 – 2028 period. Under the pretext of safeguarding the banking system, this colossal robbery preserved high yields on government bonds held by commercial banks and high-net-worth individuals, subsequently reaping them astronomical profits. Now, the exact same plunder is rearing its head again disguised as a tripartite committee.”

“The main arguments supporting our resistance and viable alternatives for optimising EPF management directly under the Central Bank of Sri Lanka (CBSL), are outlined below.

“Objections to the government’s tripartite proposal:

1. The “International best practice and conflict of interest fallacies”

The government holds that tripartite management of pension funds is the “international best practice” and that there is a “conflict of interest” in CBSL managing the EPF. They are key pillars justifying government’s tripartite proposal.

These two positions are shockingly misleading given that four of the five largest pension funds in the world, in Norway, Japan, the U.S., and Singapore, are managed directly by state bodies or central banks. Therefore, ‘international best practice’ in pension fund management is the exact opposite of what the government and the IMF are proposing. We hence reject these baseless positions.

2. Corporate captivity and bailouts

It is clear that the EFC is desperately pushing for this proposal at a time of global uncertainty, to cushion the effects of the crisis and maximise gains. Under corporate influence within the proposed tripartite board, the private conglomerates can use the multi-trillion-rupee EPF to continue their unstable commercial operations without having to risk their own capital or savings to do so. This will severely erode the financial stability of the EPF and its returns.

3. Risk of front running

“Because the EPF is a colossal fund, its investment decisions can alter asset prices. This creates immense monetary value for the information generated by its investment decisions. Corporate representatives on the proposed tripartite board will be perfectly positioned to use this information to trade ahead of the EPF (front-running), buying assets cheaply and dumping them onto the EPF at inflated prices for guaranteed corporate gain, resulting in a reduction of returns to the EPF.

4. Unavoidable loopholes

“Presence of a separate group of investment analysts, trade union representatives and government officials within the proposed tripartite structure cannot prevent pre-market corporate access to EPF’s investment decisions. Investment proposals made by the analysts has to be first approved by the proposed tripartite committee, making it impossible to prevent corporate access to insider information on EPF investments.”

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Two arrest warrants issued for Gnanasara thera

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Galagoda Aththe Gnanasara

The Colombo High Court and Court of Appeal yesterday issued arrest warrants for the Bodu Bala Sena general secretary Galagoda Aththe Gnanasara in a case involving an alleged statement insulting Islam.

The arrest warrants were issued on Tuesday and Wednesday. The Court of Appeal issued an open warrant two weeks after the court rescinded the presidential pardon granted to the thera when he was serving a six-year term for contempt of court.

The Appeals Court also imposed a travel ban on the monk and ordered that the Controller General of Immigration and Emigration be informed of the restriction.

The case was taken up before Colombo High Court Judge Buddhika C. Ragala. Gnanasara Thera was not present when the case was called.

A medical report was submitted stating that Thera was unwell, while his sureties also failed to appear before court. His counsel, Asoka Weerasuriya, told court that his client wished to bring the case to an early conclusion and that representations had been made to the Attorney General in that regard.

However, after considering the submissions, the High Court judge said he was not satisfied with the medical report submitted on behalf of the accused. The court also noted the failure of the sureties to appear.

The judge subsequently ordered that Gnanasara Thera be arrested and produced before court.The Attorney General filed the case under provisions of the Penal Code, alleging that remarks made by Gnanasara Thera concerning the Holy Quran amounted to an insult to Islam.

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