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Foreign investors seek greater legal certainty before investing in Sri Lanka



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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PMB declines to release Rs 1.2 bn FD for paddy purchasing



Treasury forced to bear responsibility for Rs 2 bn in loans

By Shamindra Ferdinando

State Finance Minister Ranjith Siyambalapitiya has said that the State Banks weren’t in a position to release funds to the Paddy Marketing Board (PMB) as the enterprise owed them a staggering sum, running to over Rs 20 bn.

Due to the failure on the part of the state enterprise to settle previous loans, the Treasury has been compelled to accept the responsibility for repaying them, the State Minister said.

The Kegalle District lawmaker said so on the live political programme, Salakuna, telecast on Hiru on Monday night. The State Minister was responding to interviewer Chamuditha Samarawickrema’s query regarding the inordinate delay on the part of the government to implement the paddy purchasing scheme.

Referring to Agriculture Minister Mahinda Amaraweera’s abortive efforts to obtain the required funding, lawmaker Siyambalapitiya said that the Treasury was helpless.

State Minister Siyambalapitiya said the PMB couldn’t be faulted for the crisis as successive governments had directed the state enterprise to purchase paddy at a higher price, then ordered it to sell at a much lower price, thereby causing staggering losses.

The State Minister also acknowledged management level shortcomings and political interventions caused the ruination of the PMB.

The PMB owed the Bank of Ceylon and the People’s Bank Rs 1,600 mn and Rs 690 mn, respectively.

The State Minister acknowledged that the issue couldn’t be resolved in spite of interventions made by President Ranil Wickremesinghe and Premier Dinesh Gunawardena. Referring to a subsequent discussion he had with the Secretary to the Treasury Mahinda Siriwardana, lawmaker Siyambalapitiya said that the BOC has asked for Rs 1.2 bn fixed deposit as security though the PMB declined to do so. According to the State Minister the PMB asserted that it couldn’t forgo the fixed deposit as the

interest received was utilized for day to day running of its operations.

The State Minister said that the banks could release the required funding on the basis of a guarantee given by the Treasury. The lawmaker explained the inability on the part of the Treasury to give such a guarantee as further deterioration of public finance could have a devastating impact on the banking sector. Such an eventuality couldn’t be allowed, the SLFPer said.

The Minister acknowledged that the failure on the part of the government to launch a paddy purchasing scheme would dishearten the farmer community.

Chamuditha Samarawickrema pointed out that the private sector had managed their ‘operations’ in a much better way.

The State Minister said that the situation was so bad that of the recent Rs 93 mn public sector salary bill, the government could meet Rs 82 mn. The government had no option but to ask those state enterprises to pay salaries from their funds, pending repayment, the MP said, reiterating the Treasury couldn’t help the PMD at the moment.

Responding to further questions, the State Minister said that the government would definitely give priority to the PMD issue once they finalized public sector salary payments. The Minister urged the media not to pursue an agenda detrimental to the government’s recovery efforts. Asked to explain, the State Minister said that there had been accusations the government didn’t purchase paddy to clear the field for the private sector. The Hiru team pointed out that the banks had released substantial amounts to the private sector to purchase paddy. The Minister explained the banks tried their best to help but circumstances were such the government couldn’t help at the moment.

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PSC proposes amendment to Children and Young Persons Ordinance



A meeting of the Parliamentary Select Committee to ensure gender equality in progress. Among those present were lawmakers Rohini Kaviratne, Sudarshini Fernandopulle, Dr. Seetha Arambepola and Deputy Secretary General of Parliament Kushani Rohanadeera (pic courtesy Parliament)

The Parliamentary Select Committee to ensure gender equality has decided to propose amendments to the Children and Young Persons Ordinance to consider all those below 18 years as children.

The PSC presided by its Chairperson Dr. Sudarshini Fernandopulle that met in the Parliamentary Complex last week also decided to replace the reference ‘young persons’ in the Ordinance and to rename it as the Children’s Ordinance.

As per the amendments every reference to “Children and Young Persons Ordinance”, “children and young persons”, “child or young person” and “age of sixteen years” in any regulation or rule made under the principal enactment or notice, notification, contract, communication or other document issued under the principal enactment shall be read and construed as a reference respectively, to “Children’s Ordinance”, “children”, “child” and “age of eighteen years.

Section 71 of the Ordinance will be amended, by the repeal of subsection (6) of that section establishing that “nothing in this section shall be construed to affect the right of any parent, teacher or legal guardian to punish a child or youth”.

The purpose of the Children and Young Persons Ordinance Clause 23 is to make orders for the establishment of Juvenile Courts for the supervision of juvenile offenders for the protection of children and young persons.

State Minister Dr. Seetha Arambepola, Members of Parliament Thalatha Atukorala, Rohini Kaviratne, Eran Wickramaratne, Dr. Harini Amarasuriya, Manjula Dissanayake, Secretary to the Committee and Deputy Secretary General of Parliament Kushani Rohanadeera and senior officials representing the Ministry of Women and Child Affairs and the Ministry of Justice, Prison Affairs and Constitutional Reforms were present at the PSC meeting.

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80 houses destroyed in fire at Thotalanga



The scene of the fire(pic by Jude Denzil Pathiraja)

At least 80 houses were destroyed due to a fire that broke out in a highly congested area in Colombo on Tuesday (27) night. Around 220 people had been displaced, the police said.

The fire broke out at Kajeemawatte in Thotalanga at around 8 pm on Tuesday and it took firefighters several hours to bring the fire under control. Twelve fire engines were deployed, but many of the dwellings had been burnt out as approach roads were not wide enough for the vehicles to reach the fire.

Those who are affected are now housed in community centres and places of worship.

No casualties were reported in the incident. The police are yet to determine the cause of fire and the total damage to property has not been estimated still.

Meanwhile, President Ranil Wickremesinghe, who is on an official visit to Japan, has instructed Presidential Secretary Saman Ekanayake to take steps to provide immediate relief to all victims of the fire.

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